Solicitations of Interest Prior to an Initial Public Offering
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Federal Register › Vol. 60 › 60 FR 35648
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SECURITIES AND EXCHANGE COMMISSION
17 CFR Parts 230 and 232
[Release No. 33-7188; File No. S7-18-95]
RIN 3235-AG52
Solicitations of Interest Prior to an Initial Public Offering
AGENCY: Securities and Exchange Commission.
ACTION: Notice of proposed rulemaking.
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SUMMARY: The Securities and Exchange Commission (``Commission'') is
publishing for comment a proposed rule that would allow issuers
contemplating initial public offerings to solicit indications of
investor interest in their companies prior to the filing of a
registration statement under the Securities Act of 1933. The proposed
rule would allow an issuer to assess potential investor interest in the
company before incurring possibly significant costs associated with the
preparation of offering disclosure documents. The proposals are
intended to reduce the regulatory impediments and cost of accessing
public markets consistent with investor protection interests.
DATES: Comments must be submitted on or before September 8, 1995.
ADDRESSES: Comments should be submitted in triplicate to Jonathan G.
Katz, Secretary, Securities and Exchange Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549. Comment letters should refer to File No.
S7-18-95. All comments received will be available for public inspection
and copying in the Commission's public reference room, 450 Fifth
Street, N.W., Washington, D.C., 20549.
FOR FURTHER INFORMATION CONTACT: Richard K. Wulff, Office of Small
Business Policy, Division of Corporation Finance, at (202) 942-2950 or
James R. Budge, Office of Disclosure Policy, Division of Corporation
Finance, at (202) 942-2910.
mments received will be available for public inspection
and copying in the Commission's public reference room, 450 Fifth
Street, N.W., Washington, D.C., 20549.
FOR FURTHER INFORMATION CONTACT: Richard K. Wulff, Office of Small
Business Policy, Division of Corporation Finance, at (202) 942-2950 or
James R. Budge, Office of Disclosure Policy, Division of Corporation
Finance, at (202) 942-2910.
SUPPLEMENTARY INFORMATION: The Commission is publishing for comment a
rule 1 that would permit an issuer prior to its initial public
offering (``IPO'') to solicit indications of interest in the company's
securities before filing a registration statement under the Securities
Act of 1933 (the ``Securities Act'').2 The Commission also is
proposing to amend the ``test the waters'' provision 3 under
Regulation A 4 to permit issuers that ``test the waters'' under
Regulation A and decide to have a registered offering instead to do so
without a 30 day waiting period, as well as permitting issuers to use
Regulation A if, after ``testing the waters'' under the proposed new
rule, they determine to go forward with a Regulation A offering instead
of a registered offering.5 In addition, Securities Act Rule 100
6 would be amended to add a definition of direct participation
investment program for purposes of the new rule, and Regulation S-T
7 would be amended to provide that the ``test the waters''
document for registered offerings may be submitted to the Commission in
electronic format via the EDGAR system, at the option of the issuer.
\1\ Proposed Rule 135d.
\2\ 15 U.S.C. 77a et seq.
\3\ Securities Act Rule 254 [17 CFR 230.254].
\4\ 17 CFR 230.251-230.263.
\5\ Proposed amendments to Rule 254(d) [17 CFR 230.254(d)] and
Rule 254(b)(4) [17 CFR 230.254(b)(4)].
\6\ 17 CFR 230.100.
\7\ 17 CFR Part 232.
I. Background
gs may be submitted to the Commission in
electronic format via the EDGAR system, at the option of the issuer.
\1\ Proposed Rule 135d.
\2\ 15 U.S.C. 77a et seq.
\3\ Securities Act Rule 254 [17 CFR 230.254].
\4\ 17 CFR 230.251-230.263.
\5\ Proposed amendments to Rule 254(d) [17 CFR 230.254(d)] and
Rule 254(b)(4) [17 CFR 230.254(b)(4)].
\6\ 17 CFR 230.100.
\7\ 17 CFR Part 232.
I. Background
In 1992, as part of its Small Business Initiatives, the Commission
introduced new procedures into Regulation A that allow issuers
considering whether to undertake a public offering to ``test the
waters'' for potential investor interest before undertaking a full-
scale offering that requires the preparation, Commission filing and
delivery to investors of the mandated offering documentation.8 The
initiative was intended to provide a cost-effective means for an
issuer, with no established market for its securities, to determine
whether there is any investor interest in its securities before
undertaking an offering and incurring the full costs of compliance with
the applicable disclosure requirements. If, after the solicitation, the
issuer concludes there is insufficient or no investor interest, it can
avoid significant, unnecessary compliance costs. If the issuer
determines to proceed with the offering, it is required to provide
potential investors with the full mandated disclosure documents. Since
adoption of the ``test the waters'' procedures, 61 issuers have
submitted solicitations to the Commission, 26 of which have proceeded
to file Regulation A or registered offerings.
\8\ Release No. 33-6949 (July 30, 1992) [57 FR 36442]; Release
No. 33-6996 (April 28, 1993) [58 FR 26509].
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ted disclosure documents. Since
adoption of the ``test the waters'' procedures, 61 issuers have
submitted solicitations to the Commission, 26 of which have proceeded
to file Regulation A or registered offerings.
\8\ Release No. 33-6949 (July 30, 1992) [57 FR 36442]; Release
No. 33-6996 (April 28, 1993) [58 FR 26509].
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In 1993, the North American Securities Administrators Association,
Inc. (``NASAA'') 9 undertook a two-year pilot program to consider
and evaluate ``test the waters'' approach under state securities
laws.10 Nine states 11 have been participating in the pilot.
The NASAA pilot procedures differ from those adopted under Regulation A
in several respects, the most significant of which are: (a) a pre-use
filing requirement; (b) more mandated information in the solicitation
document; 12 (c) a requirement that the written solicitation
document be delivered to those directly contacted; and (d) delivery of
the prospectus at least seven days prior to sale. Several classes of
issuers are disqualified from using the NASAA pilot ``test the waters''
procedures.
\9\ NASAA is an association of securities commissioners from
each of the 50 states, the District of Columbia, Puerto Rico, Mexico
and several of the Canadian provinces.
\10\ See NASAA's Proposed Statement of Policy on Solicitation of
Interest (Test the Waters)(``NASAA's Statement'') which is set forth
in an Appendix to this release.
\11\ Colorado, Kansas, Massachusetts, Oklahoma, Oregon,
Pennsylvania, Vermont, Virginia, and Washington
missioners from
each of the 50 states, the District of Columbia, Puerto Rico, Mexico
and several of the Canadian provinces.
\10\ See NASAA's Proposed Statement of Policy on Solicitation of
Interest (Test the Waters)(``NASAA's Statement'') which is set forth
in an Appendix to this release.
\11\ Colorado, Kansas, Massachusetts, Oklahoma, Oregon,
Pennsylvania, Vermont, Virginia, and Washington.
\12\ The NASAA Statement requires, in addition to the
information set forth in Rule 254, (1) the date of the issuer's
organization as well as a statement of its stage of development; (2)
a more specific description of the issuer's business, products and
services and the manner in which the issuer intends to carry out its
activities; (3) a general indication of the manner of using proposed
proceeds from the offering; and (4) a complete listing of the
issuer's officers and directors, their locations, employment history
and educational background. See Solicitation of Interest Form in the
NASAA Statement in the Appendix to this release.
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Various commenters have suggested that the Commission explore
extending the benefits of the ``test the waters'' process beyond
Regulation A.13 Most recently, the Subcouncil on Capital
Allocation of the Competitiveness
Policy Council 14 recommended that in the interest of facilitating
small business capital raising, these issuers be permitted to ``test
the waters'' in advance of undertaking a registered IPO.
s have suggested that the Commission explore
extending the benefits of the ``test the waters'' process beyond
Regulation A.13 Most recently, the Subcouncil on Capital
Allocation of the Competitiveness
Policy Council 14 recommended that in the interest of facilitating
small business capital raising, these issuers be permitted to ``test
the waters'' in advance of undertaking a registered IPO.
\13\ The comment letter prepared by members of the Committee on
Federal Regulation of Securities, the Committee on State Regulation
of Securities and the Small Business Committee of the Section of
Business Law of the American Bar Association on the Small Business
Initiatives suggested in 1992 that the Commission explore extending
use of ``test the waters'' beyond the Regulation A context to other
offerings. See letter dated July 8, 1992 in response to request for
comment on the Small Business Initiatives (Release No. 33-6924
(March 12, 1992) [57 FR 9768]).
\14\ See Forthcoming Report to be used by the Subcouncil on
Capital Allocation of the Competitiveness Policy Council, March 31,
1995.
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Experience under Regulation A suggests that the ``test the waters''
initiative provides issuers of small offerings a useful and cost-
effective means of assessing whether there is sufficient potential
interest in the company as an investment to proceed with a Regulation A
offering. To date, these solicitations do not appear to have raised
significant investor protection concerns. Accordingly, the Commission
today is soliciting comment on the appropriateness of providing a
similar ``test the waters'' option for registered IPOs. 15
ive means of assessing whether there is sufficient potential
interest in the company as an investment to proceed with a Regulation A
offering. To date, these solicitations do not appear to have raised
significant investor protection concerns. Accordingly, the Commission
today is soliciting comment on the appropriateness of providing a
similar ``test the waters'' option for registered IPOs. 15
\15\ 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 implemented, may
also address the matters discussed in this release. While some of
the company registration models under consideration generally would
not change the requirements by which a company that was not filing
reports with the SEC conducts an IPO, certain company registration
models could facilitate solicitations of interest by registered
companies with respect to repeat offerings, by eliminating the
requirement for registering each public offering of securities.
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change the requirements by which a company that was not filing
reports with the SEC conducts an IPO, certain company registration
models could facilitate solicitations of interest by registered
companies with respect to repeat offerings, by eliminating the
requirement for registering each public offering of securities.
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In considering whether to provide a ``test the waters'' process for
registered IPO's, the Commission is committed to assuring that the
interests of investors are not compromised. The release solicits
comment on a number of limitations or conditions that go beyond those
currently required in connection with Regulation A offerings. These
comments are intended to provide a basis for the Commission to assess
the need for any or all of these provisions to assure that investors
have the full opportunity to review and consider the information
mandated by the Securities Act in making their investment decision, and
that the solicitation of interest communications are not such as to
cause investors to overlook the mandated disclosures. 16
\16\ A discussion of the legal basis for the proposed rule is in
Section C of the release; comment is specifically solicited on this
issue.
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The IPO market is one of the great strengths of the U.S. capital
markets, and its breadth and depth is unique. 17 In the first five
years of the 1990's, $114.8 billion have been raised in the common
equity IPO market. 18 Continued investor confidence is key to
maintaining the strength and vitality of this market, and any ``test
the waters'' process implemented by the Commission will have to be
consistent with maintaining this confidence.
the U.S. capital
markets, and its breadth and depth is unique. 17 In the first five
years of the 1990's, $114.8 billion have been raised in the common
equity IPO market. 18 Continued investor confidence is key to
maintaining the strength and vitality of this market, and any ``test
the waters'' process implemented by the Commission will have to be
consistent with maintaining this confidence.
\17\ See, e.g. Foreign Firms Flock to U.S. for IPOs, Wall Street
Journal, June 23, 1995, at C1.
\18\ Securities Data Company. This includes foreign companies'
first common equity offerings in the U.S.; it does not include
asset-backed securities.
II. Proposals
A. Description of proposed Rule 135d
Under the proposal, an eligible issuer considering a registered IPO
would be permitted to solicit indications of interest prior to filing a
registration statement under the Securities Act, subject to the
conditions and limitations of proposed new Rule 135d. While assuring
that investors receive information mandated by the Securities Act
before making an investment, the proposed rule would allow companies to
gauge investor interest before incurring the significant expense
required in the preparation of IPO disclosure documents. If market
interest is not reflected by the response to the solicitation,
companies may turn to other capital-raising plans. 19
\19\ Limitations on general solicitation under Regulation D [17
CFR 230.501-230.508] and case law under Section 4(2) of the
Securities Act [15 U.S.C.77d(2)] may limit companies' flexibility in
pursuing such alternatives. Comment is requested in the discussion
hereinafter as to what steps the Commission should take to address
these issues. In a companion release published today, the Commission
is soliciting comment on various possible approaches to allowing
general solicitations in some form in Regulation D offerings. See
Release No. 33-7185.
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is requested in the discussion
hereinafter as to what steps the Commission should take to address
these issues. In a companion release published today, the Commission
is soliciting comment on various possible approaches to allowing
general solicitations in some form in Regulation D offerings. See
Release No. 33-7185.
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Under the current system, this would only be determined after
preparation of all required compliance materials, which may involve
significant expense. The efficiency of the capital markets, and the
fiscal health of developing enterprises, is not benefited by issuers'
finding out later rather than sooner that the public markets are not
the most appropriate forums for their capital raising. On the contrary,
the efficiency of the capital raising process is enhanced when issuers
that spend the large sums required for an IPO have some indication as
to how an offering will be received. The proposal would allow issuers
to structure their offerings with consideration for their particular
needs as well as the needs of investors, since issuers would be able to
receive indications from potential investors concerning what offering
structure may be of interest, and could then use that information in
structuring their offerings.
Communications meeting the requirements of the proposed rule would
not be deemed to offer any security for sale 20 for purposes of
Section 5 of the Securities Act.21 As proposed, those eligible to
use the new rule would include any issuer not reporting under Section
13(a) or 15(d) of the Securities Exchange Act of 1934 (the ``Exchange
Act''), 22 but not: 23
\20\ Proposed Rule 135d(a). This provision would be similar to
that contained in Rule 135 [17 CFR 230.135].
\21\ 15 U.S.C. 77e.
\22\ 15 U.S.C. 78m(a) and 15 U.S.C. 78o(d).
\23\ Proposed Rule 135d(a)(1).
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orting under Section
13(a) or 15(d) of the Securities Exchange Act of 1934 (the ``Exchange
Act''), 22 but not: 23
\20\ Proposed Rule 135d(a). This provision would be similar to
that contained in Rule 135 [17 CFR 230.135].
\21\ 15 U.S.C. 77e.
\22\ 15 U.S.C. 78m(a) and 15 U.S.C. 78o(d).
\23\ Proposed Rule 135d(a)(1).
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(a) Issuers of asset-backed offerings; 24
\24\ ''Asset-backed securities'' is defined in General
Instruction I.B.5 of Form S-3 [17 CFR 239.13].
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(b) Partnerships, limited liability companies and other direct
participation investment programs; 25
\25\ ''Direct participation investment program'' would be
defined in a proposed amendment to Rule 100. Comment is requested as
to whether the scope of the proposed definition is appropriate or
whether an alternative definition would meet the goals of the
exclusion.
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(c) Investment companies registered or required to be registered
under the Investment Company Act of 1940; 26 or
\26\ 15 U.S.C. 80a-1 et seq.
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(d) Blank check or penny stock issuers.27
\27\ A ``blank check'' company is defined at Securities Act Rule
419(a)(2) [17 CFR 230.419(a)(2)]; and ``penny stock'' is defined at
Exchange Act Rule 3a51-1 [17 CFR 240.3a51-1].
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U.S.C. 80a-1 et seq.
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(d) Blank check or penny stock issuers.27
\27\ A ``blank check'' company is defined at Securities Act Rule
419(a)(2) [17 CFR 230.419(a)(2)]; and ``penny stock'' is defined at
Exchange Act Rule 3a51-1 [17 CFR 240.3a51-1].
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The first three exclusions apply to those issuers that appear
unsuited to a ``test the waters'' concept, given the complex and
contractual nature of the issuer. Blank check and penny stock issuers
are excluded because of the substantial abuses that have arisen in such
offerings. Comment is requested as to the appropriateness of the
proposed exclusions. Are there any issuers proposed to be excluded that
should be provided the benefits of the ``test the waters'' process? Are
there additional classes of issuers that should be excluded either
because of the nature of the investment vehicle or potential for abuse?
Should any of the exclusions in the NASAA draft policy statement be
specifically incorporated into the proposal? 28 Should the rule be
limited to small business issuers? 29
\28\ See Section 1 of NASAA Statement in the Appendix to this
release.
\29\ ''Small business issuer'' is defined in Securities Act Rule
405 [17 CFR 230.405].
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As in the case of Regulation A, the proposed IPO ``test the
waters'' solicitation may include both oral and written solicitations,
provided that a written solicitation document is submitted to the
Commission at or prior to the time the solicitation is first
r'' is defined in Securities Act Rule
405 [17 CFR 230.405].
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As in the case of Regulation A, the proposed IPO ``test the
waters'' solicitation may include both oral and written solicitations,
provided that a written solicitation document is submitted to the
Commission at or prior to the time the solicitation is first
made.30 Unlike Regulation A, however, the submission of the ``test
the waters'' written materials would be a condition to reliance on the
rule. Comment is requested as to whether the rule should require that
the written ``test the waters'' solicitation material be submitted and
subject to Commission staff review prior to use. Comment also is
requested as to whether submission should be a condition to reliance
upon the rule.
\30\ Proposed Rule 135d(a)(3) and (4).
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Any written solicitation or broadcast would be required to include
the following:
A statement that the solicitation is not an offering of
securities for sale, and that any public offering to be made will be
made by means of a prospectus that may be obtained from the issuer and
that will contain detailed information about the company and
management, as well as financial statements;
A statement that no money is being solicited, or will be
accepted;
A statement that no sales will be made or commitments to
purchase securities will be accepted until a registration statement is
filed with the Commission and becomes effective or an appropriate
exemption from registration is available and utilized;
A statement that indications of interest involve no
obligation or commitment of any kind; and
An identification of the issuer's chief executive officer
and a brief and general description of its business and
products.31
\31\ Proposed Rule 135d(a)(2).
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d-looking statements). All
such information, of course, would be subject to antifraud
prohibitions. Comment is requested as to whether information with this
level of specificity about the possible offering should be permitted,
or, instead, whether the information should be more limited, such as to
information about the company generally and its intention to conduct an
initial public offering.
The issuer would be permitted to include a coupon that could be
returned to the company indicating interest and requesting a prospectus
in the event the company determines to undertake a public
offering.33 The coupon would be required to state clearly and
separately that the indication of interest is not binding and that no
money should be sent. Under the proposed rule, issuers would not be
permitted to include questions in the coupon soliciting information
about the investors' financial profile, such as income, assets and
investment history. Comment is requested as to whether this limitation
is appropriate.34
\33\ Proposed Rule 135d(b).
\34\ Rule 254 of Regulation A does not prohibit requests for
such information in the coupon.
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Under the rule as proposed, there is no restriction on the means of
dissemination of the ``test the waters'' solicitation.35 Thus, the
issuer could send the solicitation material to prospective investors,
or publish it in a newspaper or other print media. Use of broadcast
media, whether radio or television, would be permitted, as would
electronic dissemination through such media as the Internet or other
data networks. To come within the protection of the proposed safe
harbor, the mandated disclosure provisions would have to be met with
respect to each publication or transmission. Comment is requested as to
whether there should be restrictions on this type of solicitation
her radio or television, would be permitted, as would
electronic dissemination through such media as the Internet or other
data networks. To come within the protection of the proposed safe
harbor, the mandated disclosure provisions would have to be met with
respect to each publication or transmission. Comment is requested as to
whether there should be restrictions on this type of solicitation.
While unsolicited telephoning of investors could be conducted, should
such telephoning be prohibited by the issuer, by broker/dealers, and
other non-issuer personnel altogether? Should the rule require that any
person directly contacted be given a copy of the written solicitation
material required to be submitted to the Commission? Should the rule
contain additional limitations on the statements allowed? Should the
rule prescribe what information is permitted to be included?
\35\ If an issuer wants to maintain full flexibility to proceed
with an offering under Regulation D and Section 4(2) of the
Securities Act, the means of dissemination of the ``test the
waters'' solicitation would have to be consistent with the
limitations under the regulation and statute. See the companion
release issued today, soliciting comment on the use of general
solicitation in Regulation D offerings. Release No. 33-7185.
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Should oral solicitations be limited or precluded? For example,
should oral solicitations be limited to certain statements, or limited
to the information set forth in the written solicitation material?
Should oral solicitations be limited to accredited investors 36 or
qualified institutional buyers? 37
\36\ See Rule 501(d) of Regulation D [17 CFR 230.501(d)].
\37\ See Rule 144A(a)(1) [17 CFR 230.144A(a)(1)].
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limited to certain statements, or limited
to the information set forth in the written solicitation material?
Should oral solicitations be limited to accredited investors 36 or
qualified institutional buyers? 37
\36\ See Rule 501(d) of Regulation D [17 CFR 230.501(d)].
\37\ See Rule 144A(a)(1) [17 CFR 230.144A(a)(1)].
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The proposed rule also would require that the writing or script be
submitted to the Commission. Unlike the current Regulation A ``test the
waters'' provision, however, the submission would be made only at the
Commission's Washington, D. C. headquarters.38 Also, as noted
above, unlike the current Regulation A ``test the waters'' provision,
this submission would be a condition to reliance upon the rule.39
Following the submission of the written document or script of the
broadcast, oral communications with prospective investors and other
broadcasts would be permitted. All communications would be subject to
the antifraud provisions of the federal securities laws.40 As is
the case with Regulation A,41 the proposed rule could not be
relied upon after the filing of a registration statement.42 Thus,
under the proposal, all ``test the waters'' solicitations, written or
oral, must terminate at the time a registration statement for the
offering is filed. Also, the proposal would, like Regulation A,43
require that 20 days elapse between the last publication or delivery of
the solicitation document or broadcast and any sales of
securities.44 Should this apply to oral ``test the waters''
solicitations as well?
, all ``test the waters'' solicitations, written or
oral, must terminate at the time a registration statement for the
offering is filed. Also, the proposal would, like Regulation A,43
require that 20 days elapse between the last publication or delivery of
the solicitation document or broadcast and any sales of
securities.44 Should this apply to oral ``test the waters''
solicitations as well?
\38\ Proposed Rule 135d(a)(3). Under the proposed rule, the
document would be submitted to the Commission, but not officially
filed, and, like Rule 254 material, would be available for public
inspection. The ``test the waters'' submission could be submitted
either in paper or via the Commission's EDGAR system. See proposed
amendment to Rule 101(b) of Regulation S-T [17 CFR 232.101(b)].
The proposed rule would contain a note stating that only
solicitation of interest material that contains substantive changes
from or additions to previously submitted material need be
submitted.
\39\ Rule 254 of Regulation A provides that submission of the
materials to the Commission is not a condition to the exemption.
\40\ Proposed note to proposed Rule 135d(a)(4).
\41\ Rule 254(b)(3) [17 CFR 230.254(b)(3)].
\42\ Proposed Rule 135d(a)(5).
\43\ Rule 254(b)(4) [17 CFR 230.254(b)(4)].
\44\ Proposed Rule 135d(a)(6).
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Finally, the proposed rule, like Regulation A,45 would deem
``test the
ommission is not a condition to the exemption.
\40\ Proposed note to proposed Rule 135d(a)(4).
\41\ Rule 254(b)(3) [17 CFR 230.254(b)(3)].
\42\ Proposed Rule 135d(a)(5).
\43\ Rule 254(b)(4) [17 CFR 230.254(b)(4)].
\44\ Proposed Rule 135d(a)(6).
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Finally, the proposed rule, like Regulation A,45 would deem
``test the
waters'' material submitted to the Commission and otherwise in
compliance with the rule not to be a ``prospectus'' as defined in
Section 2(10) of the Securities Act,46 and therefore not subject
to Section 12(2) of the Securities Act.47 Comment is requested as
to the appropriateness of removing these materials from Section 12(2)
liabilities. Should ``test the waters'' soliciting material be required
to be filed as part of the registration statement for the IPO and
subjected to Sections 11 48 and 12(2) liabilities if the
registered offering is conducted within a specified time period of the
solicitation, e.g. 2, 6 or 12 months?
\45\ The Commission amended Rule 254 to provide that a written
``test the waters'' solicitation document complying with Regulation
A will not constitute a ``prospectus'' as defined in Section 2(10)
of the Securities Act [15 U.S.C. 77b(10)]. See Release No. 33-6996
(April 28, 1993) [58 FR 26509]. The antifraud provisions of the
federal securities laws (Section 17(a) of the Securities Act [15
U.S.C. 77q(a)] and Section 10(b) of the Securities Exchange Act of
1934 [15 U.S.C. 78j(b)]), however, continue to apply to any
Regulation A ``test the waters'' material.
\46\ 15 U.S.C. 77b(10).
\47\ 15 U.S.C. 77l(2).
\48\ 15 U.S.C. 77k.
In Gustafson v. Alloyd Co., Inc., 49 the Supreme Court
concluded that the written instruments there at issue did not
constitute a ``prospectus'' as that term is used in Section 12(2) of
the Securities Act, notwithstanding the broad coverage of the statutory
definition of the term ``prospectus'' in Section 2(10) of the
Securities Act
.S.C. 77b(10).
\47\ 15 U.S.C. 77l(2).
\48\ 15 U.S.C. 77k.
In Gustafson v. Alloyd Co., Inc., 49 the Supreme Court
concluded that the written instruments there at issue did not
constitute a ``prospectus'' as that term is used in Section 12(2) of
the Securities Act, notwithstanding the broad coverage of the statutory
definition of the term ``prospectus'' in Section 2(10) of the
Securities Act. The Commission believes that its determination that
written documents of the type referred to in proposed Rule 135d should
not be deemed a prospectus, or part of a prospectus, is an appropriate
use of its authority both under Sections 2(10) and 19(a). It also
believes that its proposal to limit the breadth of the term
``prospectus'' is not inconsistent with the Supreme Court's decision in
Gustafson.
\49\ ______ U.S. ______, 115 S. Ct. 1061, 131 L. Ed. 2d 1
(1995).
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As noted above, the proposed rule requires that no sales of
securities occur until at least 20 days after the last publication or
delivery of the solicitation document or broadcast.50 Comment is
requested as to whether or not pre-confirmation prospectus delivery
requirements 51 should be revised to permit investors a longer
period of time than they have currently, e.g., seven days (instead of
the current 48 hours) to consider prospectus information where the
``test the waters'' process has been used. Comment is requested as to
the need for additional procedures to assure investors a sufficient
opportunity following a ``test the waters'' solicitation to review and
assess the full information about the issuer, its management, the
securities and the offering provided by the registration statement and
prospectus. Comment also is requested as to whether or not there is a
need to require that all ``test the waters'' solicitations, written or
oral, cease at some period of time prior to the filing of a
registration statement for an IPO
citation to review and
assess the full information about the issuer, its management, the
securities and the offering provided by the registration statement and
prospectus. Comment also is requested as to whether or not there is a
need to require that all ``test the waters'' solicitations, written or
oral, cease at some period of time prior to the filing of a
registration statement for an IPO. Given the purpose of the proposed
rule, allowing issuers to determine whether to undertake a registered
IPO before incurring the costs of complying with the disclosure and
other related requirements, would such a cooling-off period be
consistent with financing schedules? Due diligence and preparation of
documents typically takes 60 to 90 days.52 Comment is requested as
to the need for a cooling-off period prior to the commencement of a
registered offering, and the period of time that would be appropriate,
e.g. 30 days or 60 days.
\50\ Of course, if the issuer were to comply with both proposed
Rule 135d and Rule 505 (or 506) of Regulation D, [17 CFR 230.505 and
230.506, respectively] and it were decided not to proceed with an
IPO, it could sell immediately under Rule 505 (506). Similarly, if
an issuer were to comply with both Rule 135d and Rule 504 [17 CFR
230.504] (which does permit general solicitation), sales could
proceed immediately without waiting 20 days in the event the issuer
determines not to go the IPO route.
\51\ See Rule 15c2-8 [17 CFR 240.15c2-8].
\52\ C. Schneider, J. Manko, and R. Kant, Going Public:
Practice, Procedure and Consequences, 36 (1995).
---------------------------------------------------------------------------
CFR
230.504] (which does permit general solicitation), sales could
proceed immediately without waiting 20 days in the event the issuer
determines not to go the IPO route.
\51\ See Rule 15c2-8 [17 CFR 240.15c2-8].
\52\ C. Schneider, J. Manko, and R. Kant, Going Public:
Practice, Procedure and Consequences, 36 (1995).
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Under Regulation A, failure to comply with the terms and conditions
of the ``test the waters'' procedures can result in a Commission order
suspending a Regulation A exemption. Under proposed Rule 135d, just as
with Rule 135, full compliance with the terms and conditions of the
rule is required to come within the safe harbor provisions of the rule.
Comment is requested as to whether there should be a provision
addressing failures to comply with the provisions that would provide
adequate protection to investors, preclude undue conditioning of the
market, allow timely oversight of the contents of the written
solicitation material, and avoid loss of the safe harbor for technical,
immaterial deviations from the specific requirements of the safe
harbor.
With respect to investor protection, today's proposals would not
alter the type and amount of information available to investors in
connection with an IPO. Issuers making use of the proposed ``test the
waters'' procedure would continue to be subject to all the current IPO
disclosure requirements, and IPO registration statements would continue
to be subject to Commission staff review if the issuer determined to
proceed with a registered offering after soliciting investor interest.
Comment is requested generally on whether the proposed ``test the
waters'' rule is appropriate and in investors' interest in the context
of registered IPOs
ect to all the current IPO
disclosure requirements, and IPO registration statements would continue
to be subject to Commission staff review if the issuer determined to
proceed with a registered offering after soliciting investor interest.
Comment is requested generally on whether the proposed ``test the
waters'' rule is appropriate and in investors' interest in the context
of registered IPOs. Will the proposed process effectively accomplish
the Commission's goal of allowing businesses to assess the capital
market's potential interest in their businesses on a cost-effective
basis, without causing investors to overlook the full disclosures
mandated by the federal securities laws?
B. Relationship of Exempt Offerings to ``Test the Waters'' Activity
After an issuer has engaged in a ``test the waters'' procedure
under the proposed rule, it might conclude that, rather than having a
registered offering, it would be desirable to raise capital by means of
a Regulation A, private 53 or Regulation D offering. In order to
accommodate the issuer's flexibility to use Regulation A, that
Regulation's ``test the waters'' rule would be amended to make it clear
that ``testing the waters'' under the proposed new rule could be
followed by a Regulation A offering,54 just as an issuer that
``tests the waters'' under Regulation A could ultimately determine to
have a registered offering instead.55 Comment is solicited on
whether proposed Rule 135d should be used for ``testing the waters''
with a view to either a registered or a Regulation A offering, thus
replacing Rule 254.
ters'' under the proposed new rule could be
followed by a Regulation A offering,54 just as an issuer that
``tests the waters'' under Regulation A could ultimately determine to
have a registered offering instead.55 Comment is solicited on
whether proposed Rule 135d should be used for ``testing the waters''
with a view to either a registered or a Regulation A offering, thus
replacing Rule 254.
\53\ Section 4(2) of the Securities Act [15 U.S.C. 77d(2)].
\54\ Proposed Rule 254(b)(4).
\55\ See Rule 254(d). This provision would be amended to
eliminate the 30 day waiting period currently required before filing
a registration statement.
With respect to offerings relying on an exemption other than
Regulation A, it is noted that under Rule 502(c) of Regulation
D,56 any form of general solicitation or general advertising would
preclude availability of the exemptions provided by Rules 505 and
506.57 Thus, if the issuer's ``test the waters'' activity was done
in a way that involved general advertising or other activities
constituting general solicitation,58 it could not proceed directly
to an offering relying on an exemption that precluded general
solicitation, even if the parties expected to purchase in the exempt
offering were accredited investors.59 Just as with any other party
relying on such an exemption, the issuer would have to ensure that the
exempt offering would not be integrated with the ``test the waters''
activity,60 either by relying on the safe harbor afforded for
transactions occurring more than six months before and after the
Regulation D transaction,61 or by otherwise ensuring that the
transactions were distinct enough so that they would not be integrated
under the five-factors test.62 This is comparable to the treatment
of Regulation A ``test the waters'' activity.63
``test the waters''
activity,60 either by relying on the safe harbor afforded for
transactions occurring more than six months before and after the
Regulation D transaction,61 or by otherwise ensuring that the
transactions were distinct enough so that they would not be integrated
under the five-factors test.62 This is comparable to the treatment
of Regulation A ``test the waters'' activity.63
\56\ 17 CFR 230.502(c).
\57\ Because public offerings are permitted under Rule 504, the
following discussion about ``general solicitation'' would not apply
to transactions pursuant to that exemption.
\58\ This would depend upon the manner and scope of the
dissemination of the ``test the waters'' communication. The
determination as to whether the activities constituted a general
solicitation would hinge upon the particular facts and circumstances
of individual situations.
\59\ 17 CFR 230.501(a).
\60\ See Rule 502(a) of Regulation D [17 CFR 230.502(a)], which
enumerates factors to be considered in determining whether offers
and sales should be integrated for purposes of the exemptions under
Regulation D.
\61\ Rule 502(a).
\62\ The five-factors integration test is set forth in
Securities Act Release No. 4552 (November 6, 1962)[27 FR 11316].
\63\ See Release No. 33-6949, Part II.B.
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The Commission recognizes that the possibility of integrating
``test the waters'' activity with private or Regulation D offerings
could impair the usefulness of proposed Rule 135d
integration test is set forth in
Securities Act Release No. 4552 (November 6, 1962)[27 FR 11316].
\63\ See Release No. 33-6949, Part II.B.
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The Commission recognizes that the possibility of integrating
``test the waters'' activity with private or Regulation D offerings
could impair the usefulness of proposed Rule 135d. In a companion
release that proposes a new exemption from registration for offerings
made in compliance with a recently enacted California exemption,64
the Commission is soliciting public comment on a variety of approaches
to general solicitation, including whether the prohibition against
general solicitation for Rules 505 and 506 offerings should be
rescinded, whether it would be feasible to reduce restrictions but
limit the information allowed to be disseminated or the manner of
dissemination, and other approaches. Would another approach be to
provide a special integration safe harbor for private placements
following a Rule 135d ``test the waters'' solicitation?
\64\ Release No. 33-7185.
---------------------------------------------------------------------------
For example, would the 20 day period proposed between the last
``test the waters'' document or broadcast and any sale be an
appropriate safe harbor for non-integration of a sale to accredited
investors following a ``test the waters'' solicitation?
C. Communications That Are Not ``Offers''
\64\ Release No. 33-7185.
---------------------------------------------------------------------------
For example, would the 20 day period proposed between the last
``test the waters'' document or broadcast and any sale be an
appropriate safe harbor for non-integration of a sale to accredited
investors following a ``test the waters'' solicitation?
C. Communications That Are Not ``Offers''
As noted, proposed Rule 135d would provide that any communication
meeting the conditions of the rule, as described above, is not deemed
to offer any securities for sale, for purposes only of Section 5 of the
Securities Act. Thus, ``test the waters'' activity could take place
without the filing of a Securities Act registration statement or an
available exemption from registration.
The Commission is cognizant that rulemaking in this area is
circumscribed by the statute's prohibition of conduct constituting an
``offer'' prior to the filing of a registration statement.65 The
application of this definition to differing forms of pre-filing
communications will, of course, vary. In proposing Rule 135d for
comment, it is the Commission's intention to examine further the
elements of the types of pre-filing activity that would be most
constructive for IPOs and investors, as well as the appropriate
limitations or parameters of such activity.
\65\ Section 2(3) [15 U.S.C. 77b(3)] provides, in pertinent
part:
The term ``offer to sell'', ``offer for sale'', or ``offer''
shall include every attempt or offer to dispose of, or solicitation
of an offer to buy, a security or interest in a security, for value.
---------------------------------------------------------------------------
propriate
limitations or parameters of such activity.
\65\ Section 2(3) [15 U.S.C. 77b(3)] provides, in pertinent
part:
The term ``offer to sell'', ``offer for sale'', or ``offer''
shall include every attempt or offer to dispose of, or solicitation
of an offer to buy, a security or interest in a security, for value.
---------------------------------------------------------------------------
The Commission has previously had occasion to consider the
application of the statute to other types of public communications made
prior to the filing of a registration statement, both in rules and in
interpretive positions.66 The Commission has also cautioned that
certain publicity efforts in advance of a proposed public offering,
although not couched in terms of an express offer, may raise questions
under the statute if they contribute to conditioning the public market
or arousing public interest in an issuer or its securities before a
registration statement is filed.67 In the context of exempt public
offerings for small businesses under Section 3(b) and Regulation A, the
Commission has indicated that ``test the waters'' activities pursuant
to Rule 254 are considered offers for purposes of Section 2(3).68
The Commission intends to examine these and other interpretations of
the relevant statutory provisions in considering the historical scope
of permissible ``test the waters'' activities and the appropriateness
of the provisions of proposed Rule 135d.
n A, the
Commission has indicated that ``test the waters'' activities pursuant
to Rule 254 are considered offers for purposes of Section 2(3).68
The Commission intends to examine these and other interpretations of
the relevant statutory provisions in considering the historical scope
of permissible ``test the waters'' activities and the appropriateness
of the provisions of proposed Rule 135d.
\66\ The Commission has indicated that the Securities Act allows
the following public communications, among others, prior to the
filing of a registration statement:
Rule 135 [17 CFR 230.135] (notice given by an issuer
that it proposes to make a registered public offering of securities,
if the notice states that the offering will be made only by means of
a prospectus and contains only specified information).
Rule 135a [17 CFR 230.135a] (certain generic investment
company advertising).
Rule 135b [17 CFR 230.135b] (certain standardized
options disclosure materials).
Rule 135c [17 CFR 230.135c] (notice by an issuer that
it proposes to make, is making, or has made an offering of
securities not registered or required to be registered under the
Securities Act, provided that the notice is not for the purposes of
conditioning the U.S. securities market, the notice states that the
securities may not be offered or sold in the U.S. absent
registration or an exemption, and the notice contains only specified
information).
Rules 137 [17 CFR 230.137], 138 [17 CFR 230.138], and
139 [17 CFR 230.139] (certain broker-dealer research reports).
Rule 145(b)(1) [17 CFR 230.145(b)(1)] (certain
communications regarding Rule 145(a) transactions).
Release 33-5927 (April 24, 1978) [42 FR 18163]; United
Technologies Corporation (April 24, 1978) (interpretive release and
letter, permitting disclosure by a bidder in a cash tender offer of
information required by the Williams Act about previous negotiations
or agreements with the subject company regarding a merger without a
registration statement being on file)
g Rule 145(a) transactions).
Release 33-5927 (April 24, 1978) [42 FR 18163]; United
Technologies Corporation (April 24, 1978) (interpretive release and
letter, permitting disclosure by a bidder in a cash tender offer of
information required by the Williams Act about previous negotiations
or agreements with the subject company regarding a merger without a
registration statement being on file).
\67\ See, e.g., Release No. 33-3844 (Oct. 8, 1957) [22 FR 8359]
(discussing publication of information prior to and after the
effective date).
\68\ See Release No. 33-6996 (April 28, 1993) [58 FR 26509]. The
Commission is considering the extent to which the rationale
underlying Rule 254 should guide its present inquiry.
Recognizing these statutory limitations, the Commission requests
comment as to whether alternative means are available to permit issuers
to gather data efficiently to assist them in assessing the likelihood
that a contemplated offering will be successful. For example, could a
simplified registration procedure be adopted in which ``test the
waters'' practices are made pursuant to a filed, but extremely
simplified, registration statement, with normal, extensive information
to be filed by amendment if an offering proceeds? Would this approach
be consistent with Sections 7 and 10 of the Securities Act,69
which allow the Commission to define the contents of a registration
statement and a prospectus, respectively? Would the modest additional
burden of filing ``test the waters'' materials as a technical
registration statement render the procedure substantially less useful
for issuers? Would issuers use a process that requires the inclusion of
the ``test the waters'' materials in a registration statement subject
to Section 11 or a prospectus subject to Section 12(2) of the
Securities Act?
\69\ 15 U.S.C. 77g and 77j, respectively.
---------------------------------------------------------------------------
III. Request for Comment
dure substantially less useful
for issuers? Would issuers use a process that requires the inclusion of
the ``test the waters'' materials in a registration statement subject
to Section 11 or a prospectus subject to Section 12(2) of the
Securities Act?
\69\ 15 U.S.C. 77g and 77j, respectively.
---------------------------------------------------------------------------
III. Request for Comment
Any interested persons wishing to submit written comments on the
proposed expansion of the ``test the waters'' procedure to IPOs, as
well as on other matters that might have an impact on the proposals
contained herein, are requested to do so. Comments are requested on the
impact of the proposals on issuers, investors, and others. The
Commission also requests comment on whether the proposed rules, if
adopted, would have an adverse impact on competition that is neither
necessary nor appropriate in furthering the purposes of the Securities
Act.
Comments will be considered by the Commission in complying with its
responsibilities under Section 23(a) of the Exchange Act.70
Comment letters should refer to File No. S7-18-95. All comments
received will be available for public inspection and copying in the
Commission's Public Reference Room, 450 Fifth Street, N.W., Washington,
D.C. 20549.
\70\ 15 U.S.C. 78w(a).
---------------------------------------------------------------------------
IV. Cost-Benefit Analysis
ibilities under Section 23(a) of the Exchange Act.70
Comment letters should refer to File No. S7-18-95. All comments
received will be available for public inspection and copying in the
Commission's Public Reference Room, 450 Fifth Street, N.W., Washington,
D.C. 20549.
\70\ 15 U.S.C. 78w(a).
---------------------------------------------------------------------------
IV. Cost-Benefit Analysis
To assist the Commission in its evaluation of the costs and
benefits that may result from the proposals, commenters are requested
to provide views and data relating to any costs and benefits associated
with these proposals. The proposals, which are intended to reduce
complexity and potentially significant costs to an issuer in connection
with the planning for an IPO, while not sacrificing investor
protection, are expected to reduce the costs associated with IPOs. The
Commission is not proposing to increase the burdens on any issuer that
chooses to engage in an IPO. Use of the proposed ``test the waters''
procedure would be optional. Further, any cost associated with the
preparation of the proposed ``test the waters'' document would be
offset by the significant benefits that issuers would receive in the
reduction of costs. Those benefits also include a higher degree of
assurance that a particular offering will find a receptive market.
V. Summary of the Initial Regulatory Flexibility Analysis
An initial regulatory flexibility analysis has been prepared in
accordance with 5 U.S.C. 603 concerning the proposed new rule and
amendments. The analysis notes that the amendments are intended to
reduce costs associated with IPOs.
As discussed more fully in the analysis, the proposals would affect
persons that are small entities, as defined by the Commission's rules,
but would affect small entities in the same manner as other
registrants. The proposed rule and amendments, however, are designed to
decrease potential costs to all issuers, including small businesses
ents are intended to
reduce costs associated with IPOs.
As discussed more fully in the analysis, the proposals would affect
persons that are small entities, as defined by the Commission's rules,
but would affect small entities in the same manner as other
registrants. The proposed rule and amendments, however, are designed to
decrease potential costs to all issuers, including small businesses.
A copy of the analysis may be obtained by contacting James R.
Budge, Office of Disclosure Policy, Division of Corporation Finance,
Mail Stop 3-12, 450 Fifth Street, N.W., Washington, D.C. 20549.
VI. Statutory Basis for Rules
The amendments to the Securities Act rules, Regulation A and
Regulation S-T are being proposed pursuant to Sections 2, 3, 4, 5, and
19 of the Securities Act, as amended.71
\71\ 15 U.S.C. 77b, 77c, 77d, 77e, and 77s.
---------------------------------------------------------------------------
The amendment to Regulation S-T also is being proposed pursuant to
Sections 3, 12, 13, 14, 15(d), 23(a) and 35A of the Exchange Act, as
amended,72 Sections 3, 5, 6, 7, 10, 12, 13, 14, 17 and 20 of the
Public Utility Holding Company Act of 1935, as amended,73 Section
319 of the Trust Indenture Act of 1939, as amended,74 and Sections
8, 30, 31 and 38 of the Investment Company Act of 1940, as
amended.75
\72\ 15 U.S.C. 78c, 78l, 78m, 78n, 78o(d), 78w(a) and 78ll.
\73\ 15 U.S.C. 79c, 79e, 79f, 79g, 79j, 79l, 79m, 79n, 79q and
79t.
\74\ 15 U.S.C. 77sss.
\75\ 15 U.S.C. 80a-8, 80a-29, 80a-30 and 80a-37.
---------------------------------------------------------------------------
List of Subjects in 17 CFR Parts 230 and 232
Reporting and recordkeeping requirements, Securities
Text of Proposed Amendments
In accordance with the foregoing, Title 17, Chapter II of the Code
of Federal Regulations is proposed to be amended as follows:
PART 230--GENERAL RULES AND REGULATIONS, SECURITIES ACT OF 1933
1. The authority citation for Part 230 continues to read in part as
follows:
of Subjects in 17 CFR Parts 230 and 232
Reporting and recordkeeping requirements, Securities
Text of Proposed Amendments
In accordance with the foregoing, Title 17, Chapter II of the Code
of Federal Regulations is proposed to be amended as follows:
PART 230--GENERAL RULES AND REGULATIONS, SECURITIES ACT OF 1933
1. The authority citation for Part 230 continues to read in part as
follows:
Authority: 15 U.S.C. 77b, 77f, 77g, 77h, 77j, 77s, 77sss, 78c,
78l, 78m, 78n, 78o, 78w, 78ll(d), 79t, 80a-8, 80a-29, 80a-30 and
80a-37, unless otherwise noted.
* * * * *
2. By adding a paragraph (a)(8) to Sec. 230.100 to read as follows:
Sec. 230.100 Definition of terms used in the rules and regulations.
(a) * * *
(8) The term direct participation investment program means any
program (other than an investment company registered or required to be
registered under the Investment Company Act of 1940 (15 U.S.C. 80a-1 et
seq.)) that provides for flow-through tax consequences regardless of
the structure of the legal entity or vehicle for distribution,
including, but not limited to, partnerships, limited partnerships, real
estate investment trusts as defined in I.R.C. Sec. 856, and limited
liability companies.
* * * * *
3. By adding Sec. 230.135d to read as follows:
Sec. 230.135d Solicitation of interest document for use prior to an
initial public offering.
(a) For purposes only of section 5 of the Act, a written or oral
communication, or the making of scripted radio or television
broadcasts, to determine whether there is any interest in the issuer's
initial public offering of securities shall not be deemed to offer any
securities for sale if:
(1) The issuer of the securities:
of interest document for use prior to an
initial public offering.
(a) For purposes only of section 5 of the Act, a written or oral
communication, or the making of scripted radio or television
broadcasts, to determine whether there is any interest in the issuer's
initial public offering of securities shall not be deemed to offer any
securities for sale if:
(1) The issuer of the securities:
(i) Is not subject to section 13 or 15(d) of the Securities
Exchange Act of 1934 (the ``Exchange Act'') (15 U.S.C. 78a et seq.)
immediately before the submission of solicitation material pursuant to
this section;
(ii) Is not a development stage company that either has no specific
business plan or purpose, or has indicated that its business plan is to
merge within an unidentified company or companies;
(iii) Is not an issuer of penny stock as defined in Section
3(a)(51) and Rule 3a51-1 under the Exchange Act;
(iv) Is not an investment company registered or required to be
registered under the Investment Company Act of 1940 (15 U.S.C. 80a-1 et
seq.);
(v) Is not an issuer of asset-backed securities; and
(vi) Is not an issuer that after its initial public offering would
be a direct participation investment program;
(2) The written document or script of the broadcast:
(i) States that the solicitation is not an offering of securities
for sale, and that any public offering to be made will be made by means
of a prospectus that may be obtained from the issuer and that will
contain detailed information about the company and management, as well
as financial statements;
(ii) States that no money or other consideration is being
solicited, and if sent in response, will not be accepted;
(iii) States that no sales of the securities will be made or
commitment to purchase accepted until a registration statement is filed
with the Commission and becomes effective, or an appropriate exemption
from registration is available and utilized;
ell
as financial statements;
(ii) States that no money or other consideration is being
solicited, and if sent in response, will not be accepted;
(iii) States that no sales of the securities will be made or
commitment to purchase accepted until a registration statement is filed
with the Commission and becomes effective, or an appropriate exemption
from registration is available and utilized;
(iv) States that an indication of interest made by a prospective
investor involves no obligation or commitment of any kind; and
(v) Identifies the chief executive officer of the issuer and
briefly and in general its business and products;
(3) On or before the date of its first use, the issuer shall submit
a copy of
any written document or the script of any broadcast to be used in
reliance upon this section to the Commission's main office in
Washington, D.C. (Attention: Office of Small Business Policy). The
document or broadcast script shall either contain or be accompanied by
the name and telephone number of a person able to answer questions
about the document or the broadcast.
Note: Only solicitation of interest material that contains
substantive changes from or additions to previously submitted
material need be submitted.
(4) Oral communications with prospective investors and other
broadcasts are not made until after submission of the written document
or script of the broadcast to the Commission as provided in
subparagraph (a)(3) of this section; there is no solicitation or
acceptance of money or other consideration, nor of any commitment,
binding or otherwise, from any prospective investor in reliance upon
this section; and no sale is made until a registration statement is
effective pursuant to Section 8 of the Act with respect to the
securities offering, or an appropriate exemption from registration is
available and utilized;
Note: The written documents, broadcasts and oral communications
are each subject to the antifraud provisions of the federal
securities laws.
investor in reliance upon
this section; and no sale is made until a registration statement is
effective pursuant to Section 8 of the Act with respect to the
securities offering, or an appropriate exemption from registration is
available and utilized;
Note: The written documents, broadcasts and oral communications
are each subject to the antifraud provisions of the federal
securities laws.
(5) Solicitations of interest in reliance upon the provisions of
this section are not made after the filing of a registration statement
under the Act; provided, however, that receipt by the issuer after the
filing of a registration statement of a coupon from a potential
investor provided to such potential investor pursuant to paragraph (b)
of this section prior to the filing of a registration statement is
consistent with this subparagraph; and
(6) Sales pursuant to a registration statement are not made until
20 calendar days after the last publication or delivery of the document
or radio or television broadcast.
(b) Any written document used in reliance upon this section may
include a coupon, returnable to the issuer, indicating interest in a
potential registered offering, revealing the name, address and
telephone number of the prospective investor, and stating clearly and
separately that the indication of interest is not binding and that no
money should be sent. Such coupon may not request information about the
financial profile of the investor, such as income, assets or investment
history.
(c) Written solicitation of interest materials used in reliance
upon this section submitted to the Commission as provided in paragraph
(a)(3) of this section, and otherwise in compliance with this section
shall not be deemed to be a prospectus as defined in Section 2(10) of
the Act.
4. By amending Sec. 230.254 by revising paragraph (b)(4), to read
as follows:
Sec. 230.254 Solicitation of interest document for use prior to an
offered statement.
* * * * *
pon this section submitted to the Commission as provided in paragraph
(a)(3) of this section, and otherwise in compliance with this section
shall not be deemed to be a prospectus as defined in Section 2(10) of
the Act.
4. By amending Sec. 230.254 by revising paragraph (b)(4), to read
as follows:
Sec. 230.254 Solicitation of interest document for use prior to an
offered statement.
* * * * *
(b) * * *
(4) Sales pursuant to an offering circular or registration
statement may not be made until 20 calendar days after the last
publication or delivery of the document or radio or television
broadcast pursuant to this rule or pursuant to Sec. 230.135d.
* * * * *
5. By amending paragraph (d) of Sec. 230.254 by removing the
phrase: ``, if at least 30 calendar days have elapsed between the last
solicitation of interest and the filing of the registration statement
with the Commission,''.
PART 232--REGULATION S-T--GENERAL RULES AND REGULATIONS FOR
ELECTRONIC FILINGS
6. The authority citation for Part 232 continues to read as
follows:
Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s(a), 77sss(a),
78c(b), 78l, 78m, 78n, 78o(d), 78w(a), 78ll(d), 79t(a), 80a-8, 80a-
29, 8a-30 and 80a-37.
7. By amending Sec. 232.101 by removing the word ``and'' following
the semicolon in paragraph (b)(4), by removing the period at the end of
(b)(5) and adding in its place ``; and'', and by adding paragraph
(b)(6) to read as follows:
Sec. 232.101 Mandated electronic submissions and exceptions.
77sss(a),
78c(b), 78l, 78m, 78n, 78o(d), 78w(a), 78ll(d), 79t(a), 80a-8, 80a-
29, 8a-30 and 80a-37.
7. By amending Sec. 232.101 by removing the word ``and'' following
the semicolon in paragraph (b)(4), by removing the period at the end of
(b)(5) and adding in its place ``; and'', and by adding paragraph
(b)(6) to read as follows:
Sec. 232.101 Mandated electronic submissions and exceptions.
(b) * * *
(6) Solicitation of interest documents or broadcast scripts
submitted to the Commission pursuant to Rule 135d (Sec. 230.135d of
this chapter).
* * * * *
Dated: June 27, 1995.
By the Commission.
Margaret H. McFarland,
Deputy Secretary.
Note: The following appendix will not appear in the Code of
Federal Regulations.
Appendix To Release
Title: Resolution of the North American Securities Administrators
Association, Inc., Regarding the Testing-the-Waters Exemption
Whereas, NASAA recognizes the policy objectives underlying the
testing-the-waters exemption drafted by its working group, but has
substantial concerns as to whether it can adequately ensure that
investors are protected,
Therefore, be it resolved that NASAA will take no formal action
with regard to the proposal so that a two year pilot program may be
undertaken by those jurisdictions electing to do so and the results
of the program may be carefully considered.
Adopted by the membership of the North American Securities
Administrators Association on April 25, 1993 at its Spring Meeting
in Washington, D.C.
Proposed Statement of Policy on Solicitation of Interest (Test the
Waters)
gard to the proposal so that a two year pilot program may be
undertaken by those jurisdictions electing to do so and the results
of the program may be carefully considered.
Adopted by the membership of the North American Securities
Administrators Association on April 25, 1993 at its Spring Meeting
in Washington, D.C.
Proposed Statement of Policy on Solicitation of Interest (Test the
Waters)
Note: This proposed rule has not been adopted by the NASAA
membership by a resolution adopted April 25, 1993, the membership
voted to take no action on the proposal pending a study of its
effect in those jurisdictions that choose to adopt its use on an
experimental basis. It is being published solely to provide a
uniform basis for this pilot project that will attempt to determine
if such an exemptive rule can be implemented without jeopardizing
investor protection.
Solicitations of Interest prior to the Filing of the
Registration Statement:
(1) An offer, but not a sale, of a security made by or on behalf
of an issuer for the sole purpose of soliciting an indication of
interest in receiving a prospectus (or its equivalent) for such
security is exempt from section [301] of the Act if all of the
following conditions are satisfied:
(a) The issuer is or will be a business entity organized under
the laws of one of the states or possessions of the United States or
one of the provinces or territories of Canada, is engaged in or
proposes to engage in a business other than petroleum exploration or
production or mining or other extractive industries and is not a
``blind pool'' offering or other offering for which the specific
business or properties cannot now be described.
(b) The offerer intends to register the security in this state
and conduct its offering pursuant to either Regulation A or Rule 504
of Regulation D, as promulgated by the Securities and Exchange
Commission.
ation or
production or mining or other extractive industries and is not a
``blind pool'' offering or other offering for which the specific
business or properties cannot now be described.
(b) The offerer intends to register the security in this state
and conduct its offering pursuant to either Regulation A or Rule 504
of Regulation D, as promulgated by the Securities and Exchange
Commission.
(c) Ten (10) business days prior to the initial solicitation of
interest under this rule, the offerer files with the [Administrator]
a Solicitation of Interest Form along with any other materials to be
used to conduct solicitations of interest, including, but not
limited to, the script of any broadcast to be made and a copy of any
notice to be published.
(d) Five (5) business days prior to usage, the offerer files
with the [Administrator] any amendments to the foregoing materials
or additional materials to be used to conduct solicitations of
interest, except for materials provided to a particular offeree
pursuant to a request by that offeree.
(e) No Solicitation of Interest Form, script, advertisement or
other material which the offerer has been notified by the
[Administrator] not to distribute is used to solicit indications of
interest.
(f) Except for scripted broadcasts and published notices, the
offerer does not communicate with any offeree about the contemplated
offering unless the offeree is
provided with the most current Solicitation of Interest Form at or
before the time of the communication or within five (5) days from
the communication.
(g) During the solicitation of interest period, the offerer does
not solicit or accept money or a commitment to purchase securities.
es, the
offerer does not communicate with any offeree about the contemplated
offering unless the offeree is
provided with the most current Solicitation of Interest Form at or
before the time of the communication or within five (5) days from
the communication.
(g) During the solicitation of interest period, the offerer does
not solicit or accept money or a commitment to purchase securities.
(h) No sale is made until seven (7) days after delivery to the
purchaser of a prospectus. [Alternative: No sale is made until seven
(7) days after delivery to the purchaser of a final prospectus, or
in those instances in which delivery of a preliminary prospectus is
allowed hereunder, a preliminary prospectus.] 1
\1\ The bracketed subsection should only be used in those
jurisdictions that have or intend to adopt an applicable ``red
herring'' exemption. The ``red herring'' exemption should cross-
reference this rule to avoid confusion.
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(i) The offerer does not know, and in the exercise of reasonable
care, could not know that the issuer or any of the issuer's
officers, directors, ten percent shareholders or promoters:
1. Has filed a registration statement which is the subject of a
currently effective registration stop order entered pursuant to any
federal or state securities law within five years prior to the
filing of the Solicitation of Interest Form.
2. Has been convicted within five years prior to the filing of
the Solicitation of Interest Form of any felony or misdemeanor in
connection with the offer, purchase or sale of any security or any
felony involving fraud or deceit, including, but not limited to
forgery, embezzlement, obtaining money under false pretenses,
larceny, or conspiracy to defraud.
3
the Solicitation of Interest Form.
2. Has been convicted within five years prior to the filing of
the Solicitation of Interest Form of any felony or misdemeanor in
connection with the offer, purchase or sale of any security or any
felony involving fraud or deceit, including, but not limited to
forgery, embezzlement, obtaining money under false pretenses,
larceny, or conspiracy to defraud.
3. Is currently subject to any federal or state administrative
enforcement order or judgment entered by any state securities
administrator or the Securities and Exchange Commission within five
years prior to the filing of the Solicitation of Interest Form or is
subject to any federal or state administrative enforcement order or
judgment entered within five years prior to the filing of the
Solicitation of Interest Form in which fraud or deceit, including,
but not limited to, making untrue statements of material facts and
omitting to state material facts, was found.
4. Is subject to any federal or state administrative enforcement
order or judgement which prohibits, denies, or revokes the use of
any exemption from registration connection with the offer, purchase
or sale of securities.
5. Is currently subject of any order, judgment, or decree of any
court of competent jurisdiction temporarily or preliminarily
restraining or enjoining, or is subject to any order, judgment or
decree of any court of competent jurisdiction permanently
restraining or enjoining, such party from engaging in or continuing
any conduct or practice in connection with the purchase or sale of
any security or involving the making of any false filing with the
state entered within five years prior to the filing of the
Solicitation of Interest Form
ining, or is subject to any order, judgment or
decree of any court of competent jurisdiction permanently
restraining or enjoining, such party from engaging in or continuing
any conduct or practice in connection with the purchase or sale of
any security or involving the making of any false filing with the
state entered within five years prior to the filing of the
Solicitation of Interest Form.
The prohibitions listed above shall not apply if the person
subject to the disqualification is duly licensed or registered to
conduct securities related business in the state in which the
administrative order or judgment was entered against such person or
if the broker/dealer employing such party is licensed or registered
in this state and the Form B-D filed with this state discloses the
order, conviction, judgment or decree relating to such person. No
person disqualified under this subsection may act in a capacity
other than that for which the person is licensed or registered. Any
disqualification caused by this section is automatically waived if
the agency which created the basis for disqualification determines
upon a showing of good cause that it is not necessary under the
circumstances that the exemption be denied.
(2) A failure to comply with any condition of section (1) of
this rule will not result in the loss of the exemption from the
requirements of section [301] of this Act for any offer to a
particular individual or entity if the offerer shows:
(a) The failure to comply did not pertain to a condition
directly intended to protect that particular individual or entity;
and
(b) The failure to comply was insignificant with respect to the
offering as a whole; and
is rule will not result in the loss of the exemption from the
requirements of section [301] of this Act for any offer to a
particular individual or entity if the offerer shows:
(a) The failure to comply did not pertain to a condition
directly intended to protect that particular individual or entity;
and
(b) The failure to comply was insignificant with respect to the
offering as a whole; and
(c) A good faith and reasonable attempt was made to comply with
all applicable conditions of section (1).
Where an exemption is established only through reliance upon
this section (2), the failure to comply shall nonetheless be
actionable as a violation of the Act by the [Administrator] under
section [408] of the Act and constitute grounds for denying or
revoking the exemption as to a specific security or transaction.
(3) The offerer shall comply with the requirements set forth
below. Failure to comply will not result in the loss of the
exemption from the requirements of section [301] of this Act, but
shall be a violation of the Act, be actionable by the
[Administrator] under section [408] of the Act, and constitute
grounds for denying or revoking the exemption as to a specific
security or transaction.
(a) Any published notice or script for broadcast must contain at
least the identity of the chief executive officer of the issuer, a
brief and general description of its business and products and the
following legends:
1. No money or other consideration is being solicited and none
will be accepted;
2. No sales of the securities will be made or commitment to
purchase accepted until delivery of an offering circular that
includes complete information about the issuer and the offering;
3. An indication of interest made by a prospective investor
involves no obligation or commitment of any kind; and
4. This offer is being made pursuant to an exemption from
registration under the federal and state securities laws
curities will be made or commitment to
purchase accepted until delivery of an offering circular that
includes complete information about the issuer and the offering;
3. An indication of interest made by a prospective investor
involves no obligation or commitment of any kind; and
4. This offer is being made pursuant to an exemption from
registration under the federal and state securities laws. No sale
may be made until the offering statement is qualified by the SEC and
is registered in this state.
(b) All communications with prospective investors made in
reliance on this rule must cease after a registration statement is
filed in this state, and no sale may be made until at least twenty
(20) calendar days after the last communication made in reliance on
this rule.
[(c) A preliminary prospectus (or its equivalent) may only be
used in connection with an offering for which indications of
interest have been solicited under this rule if the offering is
conducted by a registered broker-dealer.] \2\
\2\ See footnote 1.
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(4) The [Administrator] may waive any condition of this
exemption in writing, upon application by the offerer and cause
having been shown. Neither compliance nor attempted compliance with
this rule, nor the absence of any objection or order by the
[Administrator] with respect to any offer of securities undertaken
pursuant to this rule, shall be deemed to be a waiver of any
condition of the rule or deemed to be a confirmation by the
[Administrator] of the availability of this rule.
(5) Offers made in reliance on this rule will not result in a
violation of Section 301 of the Act by virtue of being integrated
with subsequent offers or sales of securities unless such subsequent
offers and sales would be integrated under federal securities laws.
be a waiver of any
condition of the rule or deemed to be a confirmation by the
[Administrator] of the availability of this rule.
(5) Offers made in reliance on this rule will not result in a
violation of Section 301 of the Act by virtue of being integrated
with subsequent offers or sales of securities unless such subsequent
offers and sales would be integrated under federal securities laws.
(6) Issuers on whose behalf indications of interest are
solicited under this rule may not make offers or sales in reliance
on section[s] [private placement exemption] \3\ until [six (6)] \4\
months after the last communication with a prospective investor made
pursuant to this rule.
\3\ Each jurisdiction should review its exemptions to determine
which ones should be denied if contaminated by public solicitation.
\4\ Some jurisdictions may choose a twelve month period because
the private placement exemptions already in their statutes use this
time frame.
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Comments
1. All communications made in reliance on this rule are subject
to the anti-fraud provisions of this Act.
2. The [Administrator] may or may not review the materials filed
pursuant to this rule. Materials filed, if reviewed, will be judged
under anti-fraud principles. Any discussion in the offering
documents of the potential rewards of the investment must be
balanced by a discussion of possible risks.
3. Any offer effected in violation of this rule may constitute
an unlawful offer of an unregistered security for which civil
liability attaches under Section [410] of the Act. Likewise any
misrepresentation or omission may give rise to civil liability.
Under the Uniform Securities Act a subsequent registration of the
security for the sale of the security does not ``cure'' the previous
unlawful offer. Only a rescission offer made in accordance with the
provisions of the Act can accomplish such a ``cure.'' See commentary
under Section 410.
Section [410] of the Act. Likewise any
misrepresentation or omission may give rise to civil liability.
Under the Uniform Securities Act a subsequent registration of the
security for the sale of the security does not ``cure'' the previous
unlawful offer. Only a rescission offer made in accordance with the
provisions of the Act can accomplish such a ``cure.'' See commentary
under Section 410.
Note to Users: The following form sets forth the minimum
informational requirement for soliciting indications of interest
under federal and state securities laws. You may include additional
information if you think it necessary or desirable. Remember that
any discussion in this document is subject to the anti-fraud
provisions of the federal and state securities laws and must thereby
be complete. Also, any discussion of potential rewards of the
proposed investment must be balanced by a
discussion of possible risks. You may alter the graphic presentation of
the form in any way as long as the minimum information is clearly
presented.
Solicitation of Interest Form
----------------------------------------------------------------------
Name of Company
Street Address of Principal Office:
Company Telephone Number:
Date of Organization:
Amount of the Proposed Offering:---------------------------------------
Name of Chief Executive Officer:---------------------------------------
This is a solicitation of interest only. No money or other
consideration is being solicited and none will be accepted.
No sales of the securities will be made or commitment to
purchase accepted until the delivery of a final offering circular
that includes complete information about the issuer and the
offering.
An indication of interest made by a prospective investor
involves no obligation or commitment of any kind.
This offer is being made pursuant to an exemption from
registration under the federal and state securities laws
curities will be made or commitment to
purchase accepted until the delivery of a final offering circular
that includes complete information about the issuer and the
offering.
An indication of interest made by a prospective investor
involves no obligation or commitment of any kind.
This offer is being made pursuant to an exemption from
registration under the federal and state securities laws. No sale
may be made until the offering statement is qualified by the SEC and
is registered in this state.
This Company
( ) Has never conducted business operations.
( ) Is in the development stage.
( ) Is currently conducting operations.
( ) Has shown a profit for the last fiscal year.
( ) Other (specify) __________
Business
1. Describe in general what business the company does or
proposes to do, including what products or goods are or will be
produced or services that are or will be rendered.
2. Describe in general how these products or services are to be
produced or rendered and how and when the company intends to carry
out its activities.
Offering Proceeds
3. Describe in general how the company intends to use the
proceeds of the proposed offering.
Key Personnel of the Company
4. Provide the following information for all officers and
directors or persons occupying similar positions:
Name, Title, Office Street Address, Telephone Number, Employment
History (Employers, titles and dates of positions held during the
past five years), and Education (degrees, schools and dates).
(end of form)
[FR Doc. 95-16391 Filed 7-7-95; 8:45 am]
BILLING CODE 8010-01-P
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.