Gun-Jumping Rules Waiting period Meaning of “prospectus” (last updated 07 Feb 13)

Gun-Jumping (controlled disclosure during registration) Pre-filing period no sales [§ 5(a)(1)] no deliveries [§ 5(a)(2)] no offers [§ 5(c)] Waiting period no sales [§ 5(a)(1)] no deliveries [§ 5(a)(2)] no prospectus, unless § 10 OK [§5(b)(1)] no offers, if §8 proceeding [§ 5(c)] Post-effective period no prospectus, unless § 10 OK [§5(b)(1)] no delivery w/o § 10(a) prospectus [§5(b)(2)] no offers, if §8 stop order [§ 5(c)] Filing date Effective date

Gun-Jumping (controlled disclosure during registration) Filing date Effective date Pre-filing periodWaiting periodPost-effective period 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 - §8 proceeding / stop order [§ 5(c)] No offers [§ 5(c)]

Gun-Jumping (controlled disclosure during registration) Filing date Effective date Pre-filing periodWaiting periodPost-effective period 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 - §8 proceeding / stop order [§ 5(c)] No offers [§ 5(c)] Permitted: Rule issuer notice of public offering Rule 163 – WKSIs can use FWP (legended, filed w/ SEC) Rule 163A – issuers can communicate 30+ days before RS filed Rule 168 – reporting issues can give factual info and SEC-filed FLI (not reference offering) Rule 169 – non-reporting issuers can release regular factual info (no FLI, can’t target investors)

Gun-Jumping (controlled disclosure during registration) Filing date Effective date Pre-filing periodWaiting periodPost-effective period 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 - §8 proceeding / stop order [§ 5(c)] No offers [§ 5(c)] Permitted: Rule 134 – identifying statement (a) issuer and offering info, (b) legended + where get PP )C) unless tombstone or accompany with PP Rule 164 – allows FWP (conditions in Rule 433) Not conflict w/ filings Legended unseasoned and non- reporting Issuers must accompany PP File with SEC

Securities Act § 5 (b) Necessity of prospectus meeting requirements of section 10 of this Act. It shall be unlawful for any person, directly or indirectly-- (1) to make use of any means or instruments of transportation or communication in interstate commerce or of the mails to carry or transmit any prospectus relating to any security with respect to which a registration statement has been filed under this title, unless such prospectus meets the requirements of section 10; or

Securities Act § 2(a)(10) The term "prospectus" means any prospectus, notice, circular, advertisement, letter, or communication, written or by radio or television, which offers any security for sale or confirms the sale of any security; except that … (b) a notice, circular, advertisement, letter, or communication in respect of a security shall not be deemed to be a prospectus if it states from whom a written prospectus meeting the requirements of section 10 may be obtained and, in addition, does no more than identify the security, state the price thereof, state by whom orders will be executed, and contain such other information as the Commission, by rules or regulations deem necessary or appropriate in the public interest and for the protection of investors, and subject to such terms and conditions as may be prescribed therein, may permit.

Securities Act § 2(a)(3) 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. …

Hypothetical #1 Larissa, a Sparrow broker, learns of the upcoming Smartway IPO in an inter-office memo. She cold calls recent grads from her alma mater. For the few who take her call, she intones for 5 minutes about Smartway’s great growth prospects, its great management team, the usual IPO “spike.” Any gun-jumping?

Securities Act § 5(c) 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, …

Hypothetical #2 CEO Sherry tells Smartway’s investment relations staff to put an ad in the Wall Street Journal. Any gun-jumping? For investors looking for a high return, Smartway intends to sell $200 million in common stock within the next year. Smartway’s return on equity, which has run at 28%, is projected to increase to 35% after the offering. If interested, contact Sparrow Securities, the offering’s lead underwriter.

Securities Act § 2(a)(10) The term "prospectus" means any prospectus, notice, circular, advertisement, letter, or communication, written or by radio or television, which offers any security for sale or confirms the sale of any security; except that … (b) a notice, circular, advertisement, letter, or communication in respect of a security shall not be deemed to be a prospectus if it states from whom a written prospectus meeting the requirements of section 10 may be obtained and, in addition, does no more than identify the security, state the price thereof, state by whom orders will be executed, and contain such other information as the Commission, by rules or regulations deem necessary or appropriate in the public interest and for the protection of investors, and subject to such terms and conditions as may be prescribed therein, may permit.

Rule 135 Announce offering (only issuer and only basic information) Rule 134 Identifying statement (issuer or UW, and more information, but some conditions) Rule 169 Factual information (non-reporting issuer can continue to describe business, no FLI or offering info) Rule 164Rule 164 / Rule 433 Rule 433 Permits “free writing prospectus” Specifies conditions

Rule 134 (synopsis) If your communication complies with Rule 134 it is not a "prospectus" for purposes of § 5(b)(1). You can do (a) if you do (b). You need not do (b) if you do either (c)(1) or (c)(2). Or you can do (d) as specified. (a) you can give specified written information about the issuer and the offering (more detailed than a tombstone ad), IF (b) you include a legend that no sales until RS effective and name the underwriters and where to obtain a preliminary prospectus, BUT (c) you need not include this legend if (1) you include only the information of a tombstone ad (with URL for UW), or (2) you send (or link to) an accompanying preliminary prospectus, (d) you can ask investors to indicate their interest in the offering by return card, if you also send (or link to) a preliminary prospectus and explain there is no commitment.

Hypothetical #3 CEO Sherry tells Smartway’s investment relations staff to put the following tombstone ad in the Wall Street Journal. Any gun-jumping? A registration statement relating to these securities has been filed with the SEC but has not yet become effective. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. New issue March 13, 2006 Smartway, Inc. (online marketer of last-minute airline tickets) 20,000,000 common shares Price $10 per share Copies of the Prospectus may be obtained from the undersigned. Sparrow Securities (100 Broadway, NYC, NY) Alexa Café, Inc Fish Brothers & Co. First Lynch GermanBank MetroGroup Inc Morton Standard, Inc. Silverman, Sachs & Co. Townsend Securities Ltd

Securities Act § 2(a)(10) The term "prospectus" means any prospectus, notice, circular, advertisement, letter, or communication, written or by radio or television, which offers any security for sale or confirms the sale of any security; except that … (b) a notice, circular, advertisement, letter, or communication in respect of a security shall not be deemed to be a prospectus if it states from whom a written prospectus meeting the requirements of section 10 may be obtained and, in addition, does no more than identify the security, state the price thereof, state by whom orders will be executed, and contain such other information as the Commission, by rules or regulations deem necessary or appropriate in the public interest and for the protection of investors, and subject to such terms and conditions as may be prescribed therein, may permit.

Rule 134 (synopsis) If your communication complies with Rule 134 it is not a "prospectus" for purposes of § 5(b)(1). You can do (a) if you do (b). You need not do (b) if you do either (c)(1) or (c)(2). Or you can do (d) as specified. (a) you can give specified written information about the issuer and the offering (more detailed than a tombstone ad), IF (b) you include a legend that no sales until RS effective and name the underwriters and where to obtain a preliminary prospectus, BUT (c) you need not include this legend if (1) you include only the information of a tombstone ad (with URL for UW), or (2) you send (or link to) an accompanying preliminary prospectus, (d) you can ask investors to indicate their interest in the offering by return card, if you also send (or link to) a preliminary prospectus and explain there is no commitment.

Hypothetical #4 What if Larissa then sends an to those who show interest in Smartway. The includes a note, “I think this is a good investment. Call me or if you want to talk further. Go Muskrats!” What if she also asks them to return a card indicating their interest? Any gun-jumping?

Rule 135 Announce offering (only issuer and only basic information) Rule 134 Identifying statement (issuer or UW, and more information, but some conditions) Rule 169 Factual information (non-reporting issuer can continue to describe business, no FLI or offering info) Rule 164Rule 164 / Rule 433 Rule 433 Permits “free writing prospectus” Specifies conditions

Rule 164/433 (Free writing prospectus) Free writing prospectus (Rule 164 )Rule 164 allows free writing prospectus (FWP), deemed to satisfy §10(b) if Rule 433 conditions satisfied available to issuer, UW or participant Conditions (Rule 433)Rule info may not conflict with RS or SEC filings, 2.FWP must be legended (tell investor to read prospectus, how obtain) 3.must be accompanied by (or linked to) preliminary/final prospectus (only applies to non-reporting and unseasoned issuers) 4.must file with SEC (on date of first use) –issuers must file FWP and issuer info (press interview) –participants must file FWP that has “broad unrestricted dissemination”

Rule 134 (synopsis) If your communication complies with Rule 134 it is not a "prospectus" for purposes of § 5(b)(1). You can do (a) if you do (b). You need not do (b) if you do either (c)(1) or (c)(2). Or you can do (d) as specified. (a) you can give specified written information about the issuer and the offering (more detailed than a tombstone ad), IF (b) you include a legend that no sales until RS effective and name the underwriters and where to obtain a preliminary prospectus, BUT (c) you need not give this explanation if (1) you include only the information of a tombstone ad (with URL for UW), or (2) you send (or link to) an accompanying preliminary prospectus, (d) you can ask investors to indicate their interest in the offering by return card, if you also send (or link to) a preliminary prospectus and explain there is no commitment.

Hypothetical #5 Smartway mails a glossy brochure with a photograph of Sherry and detailed information on the IPO and how it will be “rocket fuel” propelling Smartway’s growth. The pamphlets are mailed to all doctors and lawyers in California and New York. Any gun-jumping? Is it exempt “free writing”?

“Free-writing” (Rule 164) In connection with a registered offering of an issuer meeting the requirements of this section, a free writing prospectus, as defined in Rule 405, of the issuer or any other offering participant, including any underwriter or dealer, after the filing of the registration statement will be a section 10(b) prospectus for purposes of section 5(b)(1) of the Act provided that the conditions set forth in Rule 433 are satisfied.Rule 405Rule 433

“Free-writing” (Rule 164) In connection with a registered offering of an issuer meeting the requirements of this section, a free writing prospectus, as defined in Rule 405, of the issuer or any other offering participant, including any underwriter or dealer, after the filing of the registration statement will be a section 10(b) prospectus for purposes of section 5(b)(1) of the Act provided that the conditions set forth in Rule 433 are satisfied.Rule 405Rule 433 “Free writing prospectus” (Rule 405) “any written communication that offers to sell or solicits an offer to buy a security [subject to registration] that does not meet requirements of § 10 statutory prospectus”

“Free-writing” (Rule 164) In connection with a registered offering of an issuer meeting the requirements of this section, a free writing prospectus, as defined in Rule 405, of the issuer or any other offering participant, including any underwriter or dealer, after the filing of the registration statement will be a section 10(b) prospectus for purposes of section 5(b)(1) of the Act provided that the conditions set forth in Rule 433 are satisfied.Rule 405Rule 433 Written communication (Rule 405) “any communication that is written, printed, a radio or television broadcast, or a graphic communication” “Free writing prospectus” (Rule 405) “any written communication that offers to sell or solicits an offer to buy a security [subject to registration] that does not meet requirements of § 10 statutory prospectus”

“Free-writing” (Rule 164) In connection with a registered offering of an issuer meeting the requirements of this section, a free writing prospectus, as defined in Rule 405, of the issuer or any other offering participant, including any underwriter or dealer, after the filing of the registration statement will be a section 10(b) prospectus for purposes of section 5(b)(1) of the Act provided that the conditions set forth in Rule 433 are satisfied.Rule 405Rule 433 Written communication (Rule 405) “any communication that is written, printed, a radio or television broadcast, or a graphic communication” “Graphic communications” (Rule 405) “… includes all forms of electronic media, including … audiotapes, videotapes, facsimiles, CD-ROM, , Internet web sites “… does not include communication that originates live, in real-time to a live audience and does not originate in recorded form.” “Free writing prospectus” (Rule 405) “any written communication that offers to sell or solicits an offer to buy a security [subject to registration] that does not meet requirements of § 10 statutory prospectus”

“Free-writing” (Rule 164) In connection with a registered offering of an issuer meeting the requirements of this section, a free writing prospectus, as defined in Rule 405, of the issuer or any other offering participant, including any underwriter or dealer, after the filing of the registration statement will be a section 10(b) prospectus for purposes of section 5(b)(1) of the Act provided that the conditions set forth in Rule 433 are satisfied.Rule 405Rule 433 Rule 433(b) Seasoned issuers / WKSIs Non-reporting / unseasoned issuers FWP accompanied/preceded by preliminary prospectus (or final prospectus once RS effective)

“Free-writing” (Rule 164) In connection with a registered offering of an issuer meeting the requirements of this section, a free writing prospectus, as defined in Rule 405, of the issuer or any other offering participant, including any underwriter or dealer, after the filing of the registration statement will be a section 10(b) prospectus for purposes of section 5(b)(1) of the Act provided that the conditions set forth in Rule 433 are satisfied.Rule 405Rule 433 Rule 433(c) Information in FWP Not conflict with RS / SEC filings Legend: “Read prospectus – from EDGAR, UW, website, ” Rule 433(b)(1) Seasoned issuers / WKSIs Non-reporting / unseasoned issuers FWP accompanied/preceded by preliminary prospectus (or final prospectus once RS effective)

“Free-writing” (Rule 164) In connection with a registered offering of an issuer meeting the requirements of this section, a free writing prospectus, as defined in Rule 405, of the issuer or any other offering participant, including any underwriter or dealer, after the filing of the registration statement will be a section 10(b) prospectus for purposes of section 5(b)(1) of the Act provided that the conditions set forth in Rule 433 are satisfied.Rule 405Rule 433 Rule 433(c) Information in FWP Not conflict with RS / SEC filings Legend: “Read prospectus – from EDGAR, UW, website, ” Rule 433(b)(1) Seasoned issuers / WKSIs Non-reporting / unseasoned issuers FWP accompanied/preceded by preliminary prospectus (or final prospectus once RS effective) Rule 433(d) Filing of FWP w/ SEC By issuer (on date of use) By participant, if broadly disseminate

Hypothetical #6 CEO Sherry of Smartway Inc (the online last-minute ticket marketer) works with Harold and Sparrow Securities to file a RS. Sherry and Harold meet with large institutional shareholders in various “road shows” around the country. They make PPT presentations and answer questions. Any gun-jumping? Check out RetailRoadShow.com RetailRoadShow.com

Rule 405 Defines “graphic communication” Does not include PPTs (unless transmitted or simulcast) Rule 164Rule 164 / Rule 433 Rule 433 Permits “free writing prospectus” / subject to conditions Thus PPT handed out at bona fide roadshow could be FWP (and no filing if put on company website)

Hypothetical #7 CEO Sherry gives an interview to SmallBiz magazine. In the interview, Sherry discusses the offering and her hope that Smartway’s business will rapidly expand due to the capital provided by the offering. The SmallBiz article quotes the entire interview. Any gun-jumping? Smartway goes public

Rule 164/433 (Free writing prospectus) exception for media communications [Rule 433(f)]Rule 433(f)] –Not subject to delivery of statutory prospectus, legending and filing with SEC –Still must be consistent with RS and SEC filings [433(c)(1)] two conditions –media source not compensated by issuer –Issuer files the written communication with the Commission with the legend within four business days after the issuer becomes aware of publication Filing of 1 st story enough Filing can correct information Filing requirement satisfied with materials (including transcript) provided by issuer to media

Hypothetical #8 Harold of Sparrow Securities s a packet on the Smartway IPO to potential dealers and select institutional investors. Sparrow includes a valuation analysis, based on the financials in the preliminary prospectus. Sparrow anticipates that information in the packet will be sent to prospective individual investors. Sparrow forgets to legend the s or to file the info packet with the SEC. Any gun-jumping?

Rule 164/433 (Free writing prospectus) Free writing prospectus (Rule 164 )Rule 164 allows free writing prospectus (FWP), deemed to satisfy §10(b) if Rule 433 conditions satisfied available to issuer, UW or participant Conditions (Rule 433)Rule 433 info may not conflict with RS or SEC filings, FWP must be legended (read prospectus, how obtain) must be accompanied by (or linked to) preliminary/final prospectus (only applies to non-reporting and unseasoned issuers) must file with SEC (on date of first use) –issuers must file FWP and issuer info (press interview) –participants must file FWP that is “broad unrestricted dissemination” Immaterial or unintentional failures [Rule 164(c)]Rule 164(c)

Hypothetical #9 Recall that CEO Sherry and underwriter Harold have embarked on a “road show” across the country to pitch the offering to institutional investors. Sherry has one of the “shows” recorded and posted as a media file on Smartway’s website. “Might as well let everyone know what we’re doing.” Any gun-jumping?

Rule 164/433 (Free writing prospectus) Conditions (Rule 433(d)(8), (h)(5)]Rule 433(d)(8), (h)(5) road show is FWP but need not be filed; and road show for equity offering by non- reporting issuer must be filed, – unless issuer makes at least one version of a bona fide electronic road show available by means of graphic communication to any person –A bona fide electronic road show means a road show that is a written communication transmitted by graphic means that contains a presentation by one or more officers of an issuer

Hypothetical #10 Sparrow Securities sends an to its investor clients: We’re pleased that you are interested in the upcoming Smartway IPO. Please find PDF version of the preliminary prospectus [click here].click here You might also be interested in recent stories about Smartway in the Wall Street Journal [click here] and Fortune [click here]. They give a quite favorable report on the company and its prospects. [click here] Any gun-jumping?

“Free-writing” (Rule 164) In connection with a registered offering of an issuer meeting the requirements of this section, a free writing prospectus, as defined in Rule 405, of the issuer or any other offering participant, including any underwriter or dealer, after the filing of the registration statement will be a section 10(b) prospectus for purposes of section 5(b)(1) of the Act provided that the conditions set forth in Rule 433 are satisfied.Rule 405Rule 433 Rule 433(c) Information in FWP Not conflict with RS / SEC filings Legend: “Read prospectus – from EDGAR, UW, website, ” Rule 433(b)(1) Seasoned issuers / WKSIs Non-reporting / unseasoned issuers FWP accompanied/preceded by preliminary prospectus (or final prospectus once RS effective) Rule 433(d) Filing of FWP w/ SEC By issuer (on date of use) By participant, if broadly disseminated

A thought question … Consider the marketing of a securities offering. In “quiet” pre-filing period we prohibit all sales efforts, whether oral or written. Then in “test the markets” waiting period, we prohibit written sales efforts, but accept oral and PPT communications. Why do we allow investors in their pajamas to get road shows online, but they can’t handle (1) oral communications before the RS filing or (2) written communications in the “test the markets” period.

A summary …

Waiting period - what’s permitted? Oral offers – §5(c) no longer applies Preliminary prospectus that complies § 10(b) Tombstone ad under § 2(a)(10)(b) – minimal info that ID issuer, securities, price, where get prelim prospectus Rule 135 – announcement of offering (issuer, security, amount offered, timing, manner and purpose) Rule 134 – identifying information –(a) broader info –(b) include legend, where get prelim prospectus – unless (c) accompanied with prelim prospectus or only tombstone ad –(d) can get investor interest, accompany prelim prospectus and statement that not binding, fully revocable Rule 168 – safe harbor for reporting company (factual information, SEC-filed FLI, not reference offering) Rule 169 – safe harbor for non-reporting company (factual info, not reference offering) Rule 164 / 433 – free writing prospectus

Waiting period - what’s permitted? Oral offers – §5(c) no longer applies Preliminary prospectus that complies § 10(b) Tombstone ad under § 2(a)(10)(b) – minimal info that ID issuer, securities, price, where get prelim prospectus Rule 135 – announcement of offering (issuer, security, amount offered, timing, manner and purpose) Rule 134 – identifying information –(a) broader info –(b) include legend, where get prelim prospectus – unless (c) accompanied with prelim prospectus or only tombstone ad –(d) can get investor interest, accompany prelim prospectus and statement that not binding, fully revocable Rule 168 – safe harbor for reporting company (factual information, SEC-filed FLI, not reference offering) Rule 169 – safe harbor for non-reporting company (factual info, not reference offering) Rule 164 / 433 – free writing prospectus

Waiting period - what’s permitted? Free writing prospectus (Rule 164) allows free writing prospectus (FWP), deemed to satisfy §10(b) if Rule 433 conditions satisfied available to issuer, UW or participant Conditions (Rule 433) info may not conflict with RS or SEC filings, FWP must be legended (read prospectus, how obtain) must be accompanied by (or linked to) preliminary/final prospectus (only applies to non-reporting and unseasoned issuers) must file with SEC (on date of first use) –issuers must file FWP and issuer info (press interview) –participants must file FWP that is “broad unrestricted dissemination”

The end