Gun-Jumping Rules
Pre-filing period
Meaning of “offer”
(last updated 05 Feb 13)
What is objective
of regulation of public offerings?
Gun-Jumping
(controlled disclosure during registration)
Filing
Effective
date
date
Pre-filing period Waiting period
Post-effective period
• no sales [§ 5(a)(1)] • no sales [§ 5(a)(1)] • no prospectus,
unless § 10 OK
• no deliveries
• no deliveries
[§ 5(a)(2)]
• no offers [§ 5(c)]
[§ 5(a)(2)]
• no prospectus,
unless § 10 OK
[§ 5(b)(1)]
[§ 5(b)(1)]
• no delivery w/o §
10(a) prospectus
[§ 5(b)(2)]
• no offers, if §8 stop
• no offers, if §8
order [§ 5(c)]
proceeding [§ 5(c)]
Gun-Jumping
(controlled disclosure during registration)
Filing
date
Effective
date
No sales [§ 5(a)(1)]
No deliveries [§ 5(a)(2)]
No prospectus, unless comply § 10 [§ 5(b)(1)]
No delivery w/o
§10 prospectus [§ 5(b)(2)]
No offers [§ 5(c)]
No offers - §8 proceeding / stop order [§ 5(c)]
Pre-filing period
Waiting period
Post-effective period
Issuer categories
• Non-reporting companies
– Non-reporting issuer
• No periodic reports
• IPOs
• Reporting companies
– Unseasoned issuer
• Reporting, but not eligible for S-3
• Small or less than 1 year
– Seasoned issuer
• S-3 eligible for primary offerings
• $75 million float + 1 year
– Well-known seasoned issuers (WKSI)
• S-3 eligible AND
• Either:
– $700 MM worldwide float OR
– $1 B in debt offerings in last 3 years
Why are there
different rules
for different
Issuers?
Public Offering Reforms (2005)
Rule
Applies
Safe harbor
Rule 163
WKSI*
Pre-filing communications for nonmerger offerings (“free writing” must be
filed w/ SEC)
Rule 163A
Issuer*
“In registration” begins 30 days before
file RS
Rule 168
Reporting
companies
Continue regular “factual business
information” (inc FLI)
Rule 169
Non-reporting
companies
Continue regular “factual business
information” (not cover FLI, info on
offering, info to investors)
* Only issuer, not UW/dealers
Hypothetical #1
Smartway Inc (an online marketer of lastminute airline tickets) decides to go public.
Bob, Smartway’s VP of marketing, places
an ad to run in the upcoming 9 issues of
Business Week. It's the same ad as
Smartway used to run in college
newspapers:
“Smartway is the leader for buying
last-minute tickets online. We have
more airlines and more destinations
than any other online seller – and at
better prices. In fact, last year our
business grew 50%, as more and
more flyers relied on our great
service.”
Any gun-jumping?
Securities Act Section 5(c)
Necessity of filing registration statement
It shall be unlawful for any person,
directly or indirectly, to make use of any
means or instruments of transportation or
communication in interstate commerce or
of the mails to offer to sell or offer to buy
through the use or medium of any
prospectus or otherwise any security,
unless a registration statement has been
filed as to such security, or while the
registration statement is the subject of a
refusal order or stop order or (prior to the
effective date of the registration
statement) any public proceeding or
examination under section 8.
Securities Act Section 2(a)(3)
Definitions …
The term "sale" or "sell" shall include
every contract of sale or disposition of a
security or interest in a security, for value.
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. …
*********************
• In re Loeb, Rhodes & Co (SEC 1959)
• ’33 Act Rel No 3844 (1957)
• ’33 Act Rel No 5180 (1971)
Rule 163A - defines “in
registration” as 30 days before
filing RS
Rule 168 – permits reporting
issuers to continue regular info
during registration
Rule 169 – permits non-reporting
issuers to continue regular info,
but no FLI, issue-related info
Hypothetical #2
Smartway listens to your advice “go quiet, to
go public.”
It removes anything on its website that gives
forward-looking information – nothing about
profitability, growth prospects, and so on.
But it does leave some links for customers
interested in learning about the “last minute
discount air tickets” industry. One link is to
fool.com – where there is an analysis of the
industry and Smartway’s upcoming IPO.
Any gun-jumping?
“Use of Electronic
Media” - Securities Act
Rel No 7856 (2000)
Hypothetical #3
Smartway cuts the link to fool.com.
CEO Sherry then begins talks with her
friend Harold, an investment banker at
Sparrow Securities. They phone each
other and talk prices, size of offering,
timing.
Harold calls back and assures her that
Sparrow can do the deal. He mails her a
letter of intent for her signature.
Any gun-jumping?
Securities Act Section 5(c)
Necessity of filing registration
statement
It shall be unlawful for any person,
directly or indirectly, to make use of any
means or instruments of transportation
or communication in interstate
commerce or of the mails to offer to sell
or offer to buy … any security, unless a
registration statement has been filed as
to such security, …
Securities Act Section 2(a)(3)
Definitions …
The term "sale" or "sell" shall include every
contract of sale or disposition of a security
or interest in a security, for value. 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 terms
defined in this paragraph and the term "offer
to buy" as used in subsection (c) of section
5 shall not include preliminary negotiations
or agreements between an issuer (or any
person directly or indirectly controlling or
controlled by an issuer, or under direct or
indirect common control with an issuer) and
any underwriter or among underwriters who
are or are to be in privity of contract with an
issuer (or any person directly or indirectly
controlling or controlled by an issuer, or
under direct or indirect common control with
an issuer).
Hypothetical #4
Excited about going public, CEO Sherry
plans the following press release:
“Smartway Inc announced today its plans
for an initial public offering of common
stock in the next few months. Smartway
hopes to raise $200 million to expand its
online last-minute airline ticketing
business through a national advertising
campaign.”
“Smartway has reached an agreement in
principle for a firm commitment offering
with a well-known national investment
bank to act as its managing
underwriter.”
Your advice?
Rule 135
Notice of Proposed
Registered Offering
(only by issuer and limited
to very basic information
about offering)
Hypothetical #5
CEO Sherry changes the press release
as you suggest. When Robert, a
securities broker at First Lynch hears
about the offering he figures that Sparrow
Securities must be the managing
underwriter.
Robert calls Harold and says his firm is
interested in participating in the offering
as a retailer and will purchase 25% of
Sparrow’s allotment. First Lynch will earn
no more than the standard dealer’s
commission.
Harold agrees. Any gun-jumping?
Securities Act Section 5(c)
Necessity of filing registration
statement
It shall be unlawful for any person,
directly or indirectly, to make use of any
means or instruments of transportation
or communication in interstate
commerce or of the mails to offer to sell
or offer to buy … any security, unless a
registration statement has been filed as
to such security, …
Securities Act Section 2(a)(3)
Definitions …
The terms defined in this paragraph and
the term "offer to buy" as used in
subsection (c) of section 5 shall not
include preliminary negotiations or
agreements between an issuer (or any
person directly or indirectly controlling or
controlled by an issuer, or under direct
or indirect common control with an
issuer) and any underwriter or among
underwriters who are or are to be in
privity of contract with an issuer (or any
person directly or indirectly controlling or
controlled by an issuer, or under direct
or indirect common control with an
issuer).
The end
Securities industry demographics
(Feb 2009)
Public companies:
• 12,000 (securities registered
with SEC)
Investment advisers:
• 11,300 (includes hedge fund
managers, up from 7,546 in
2002)
Broker-dealers:
• 5,500 (including 173,000
branch offices, up from
75,000 in 2001)
• 665,000 registered
representatives
Fund complexes:
• 950 (4,600 registered funds)
Stock exchanges
• Eleven exchanges
Clearing agencies
• Five
Nationally recognized statistical
rating organizations
• Ten
Outstanding asset-backed
securities
• $2.5 trillion (in 2007, up from
$1 trillion in 2000
• Today worth ..