informed investment decisions. From the first all-hands organisational meeting forward, all statements concerning the company should be reviewed by the company’s counsel to ensure compliance with applicable rules.
Testing the waters The JOBS Act provides an EGC or any other person, such as its underwriter, that it authorises to act on its behalf with the flexibility to engage in oral or written communications with QIBs and institutional accredited investors in order to gauge their interest in a proposed offering, whether before (irrespective of the 30-day communications safe harbour) or following the first filing of any registration statement, subject to the requirement that no security may be sold unless accompanied or preceded by a section 10(a) prospectus. An EGC may use the testing-the-waters provision with
respect to any registered offerings that it conducts while it qualifies for EGC status. There are no form or content restrictions on these communications, and there is no requirement to file written communications with the SEC. The SEC staff will ask to see any written test-the-waters materials during the course of the registration statement review process to determine whether those materials provide any guidance as to information that the SEC staff believes should be included in the prospectus. The JOBS Act does not amend section 5(b)(1) of the
Securities Act, which requires that written offers must include the information required by section 10. Therefore, in order to make written offers, an EGC or a foreign private issuer must first file (not just submit) its registration statement with the SEC and have a preliminary prospectus available, irrespective of the expected commencement of the road show. In the pre- filing period, test-the-waters communications must be limited to QIBs and institutional investors, since even an EGC cannot make offers to the public until it files the registration statement publicly. Before engaging in any test-the-waters discussions, an
EGC should consult with its counsel and coordinate closely with the underwriter. As noted above, during the comment process, the SEC staff will ask whether the issuer engaged in testing the waters, and will want to see any written materials used for this purpose. In addition, as we discuss below, issuer’s counsel and the underwriter and its counsel will want an opportunity to review and comment on the material. Any written materials used for this purpose should be consistent with the information included in the issuer’s registration statement. An issuer also will want to be certain that the issuer is not sharing any information that may be deemed confidential in the
course of these discussions. An investor approached during this phase generally will not want to be in possession of any information that will remain confidential, and that may be material, even following the issuer’s IPO. In addition, as discussed further below, an issuer will be required to make certain representations and warranties to the underwriters in the underwriting agreement relating to any test-the- waters activities and materials. Many companies contemplating an IPO in the United
States, especially foreign private issuers, were surprised by the restrictions on offering related communications imposed by SEC regulations. Critics noted that these communications restrictions limited an issuer’s opportunity to reach potential investors early in the process and, therefore, an issuer was forced to incur significant expense in pursuing an IPO and might not have any information about the level of investor interest and potential valuations until the road show. In other jurisdictions, especially in Europe and Asia, issuers and the financial intermediaries acting on their behalf have considerably more flexibility. Often in European or Asian offerings, a lead or cornerstone investor might be secured early in the offering process. As a result of these concerns, the ability to conduct test-the-waters communications was well received. In practice, however, we understand that few EGCs are conducting these conversations early in the offering process. To the extent that EGCs are benefiting from the enhanced flexibility, the test-the-waters conversations are taking place shortly before the commencement of the road show, and not early in the offering process. It may be that, over time, the market will adapt and test-the-waters communications may become more commonplace. It is also important to remember that the test-the-waters flexibility still is more limited than the approach that may be familiar to foreign issuers. As noted in Chapter 1, during the test-the-waters phase an EGC may engage in discussions with institutional investors but the EGC and the underwriter cannot obtain a purchase commitment. The underwriter may discuss price, volume and market demand and solicit non-binding indications of interest from customers.
Private offerings during the IPO process An issuer may need to raise capital while it is pursuing an IPO. Historically, there was some concern about concurrent offerings. An issuer that had publicly filed a registration statement had to consider carefully with its counsel whether the public filing constituted a general solicitation that precluded the issuer from availing itself of the private placement exemption to complete a financing
JOBS Act Quick Start 31
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52 |
Page 53 |
Page 54 |
Page 55 |
Page 56 |
Page 57 |
Page 58 |
Page 59 |
Page 60 |
Page 61 |
Page 62 |
Page 63 |
Page 64 |
Page 65 |
Page 66 |
Page 67 |
Page 68 |
Page 69 |
Page 70 |
Page 71 |
Page 72 |
Page 73 |
Page 74 |
Page 75 |
Page 76 |
Page 77 |
Page 78 |
Page 79 |
Page 80 |
Page 81 |
Page 82 |
Page 83 |
Page 84 |
Page 85 |
Page 86 |
Page 87 |
Page 88 |
Page 89 |
Page 90 |
Page 91 |
Page 92