95-16391. Solicitations of Interest Prior to an Initial Public Offering  

  • [Federal Register Volume 60, Number 131 (Monday, July 10, 1995)]
    [Proposed Rules]
    [Pages 35648-35656]
    From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
    [FR Doc No: 95-16391]
    
    
    
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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.
    
    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
    
        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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        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.
        \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 
    
    [[Page 35649]]
    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
    
        \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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        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.
    
        \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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        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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        (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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        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 
    
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    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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        Comment is solicited as to whether each of the specified disclosure 
    items is needed in the IPO context. Should any additional information 
    be required under the proposed rule? Comment is requested as to whether 
    additional information should be required in the soliciting material, 
    such as that required by the NASAA draft policy.32 Should the rule 
    limit the amount of information includable about financing plans such 
    as the type and amounts of securities that might be offered for sale, 
    as well as possible underwriting arrangements? Should the mandated 
    information be required in any oral solicitation?
    
        \32\ See Solicitation of Interest Form in the NASAA Statement in 
    the Appendix to this release.
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        Subject to the prescribed disclosure, the proposed rule would 
    permit other information to be included. This information specifically 
    could include the type, amount, and price of the securities to be 
    offered, financial information (including unaudited financial 
    statements, and projections or other forward-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. 
    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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        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?
    
        \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 
    
    [[Page 35651]]
    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. 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. 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).
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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. 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.
    
        \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 
    
    [[Page 35652]]
    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
    
        \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.
    ---------------------------------------------------------------------------
    
        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''
    
        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.
    ---------------------------------------------------------------------------
    
        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.
    
        \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).
        \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
    
        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. 
    
    [[Page 35653]]
    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
    
        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.
        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:
    
        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:
        (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;
        (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 
    
    [[Page 35654]]
    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.
    
        (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.
    
    * * * * *
        (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.
    
        (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)
    
        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.
        (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 
    
    [[Page 35655]]
    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.
    ---------------------------------------------------------------------------
    
        (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. 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.
        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
        (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. 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.
    ---------------------------------------------------------------------------
    
        (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.
        (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.
    ---------------------------------------------------------------------------
    
    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.
    
        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 
    
    [[Page 35656]]
    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. 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
    
    

Document Information

Published:
07/10/1995
Department:
Securities and Exchange Commission
Entry Type:
Proposed Rule
Action:
Notice of proposed rulemaking.
Document Number:
95-16391
Dates:
Comments must be submitted on or before September 8, 1995.
Pages:
35648-35656 (9 pages)
Docket Numbers:
Release No. 33-7188, File No. S7-18-95
RINs:
3235-AG52: Solicitations of Interest Prior to an Initial Public Offering
RIN Links:
https://www.federalregister.gov/regulations/3235-AG52/solicitations-of-interest-prior-to-an-initial-public-offering
PDF File:
95-16391.pdf
CFR: (4)
17 CFR 230.100
17 CFR 230.254
17 CFR 232.101
17 CFR 230.135d