Permissible Communications: Pre-Filing Period

Without safe harbors, almost any communication by an issuer in the months before an offering would be a gun-jumping violation. Six categories of safe harbor carve specific activities out of the prohibition.

What Does the WKSI Free-Writing Exemption Allow?

The well-known seasoned issuer (WKSI) exemption is the broadest pre-filing safe harbor.

• Exempts a WKSI from the pre-filing offer prohibition entirely
• Permits both oral and written offers before filing, with no audience restrictions
• Written offers must contain a prescribed legend and must be filed with the SEC promptly upon filing the registration statement (treated as a free-writing prospectus (FWP))
• Available only to issuers that meet the WKSI definition (covered in detail in the shelf-registration section)

The combination of this exemption plus automatic shelf registration is what lets large mature issuers price a follow-on deal essentially overnight. The marketing happens before filing; the filing is automatic; the deal goes effective on filing.

Exam Tip: Gotchas

• The WKSI free-writing exemption permits ORAL offers too, not just written. A WKSI can road-show institutional accounts in the pre-filing period and structure the deal before the registration statement is on file.
• The exemption is available only to WKSIs. Non-WKSIs must rely on the 30-day safe harbor, the regularly-released-information safe harbors, or, for an EGC, the separate test-the-waters carve-out, during the pre-filing period.

How Does the 30-Day Pre-Filing Safe Harbor Work?

The 30-day pre-filing safe harbor is a non-exclusive safe harbor available to any issuer.

• Protects communications made more than 30 days before the public filing of the registration statement
• The communication must not reference the upcoming registered offering
• The issuer must take reasonable steps to prevent further distribution during the 30-day pre-filing window
• Not available to underwriters; not available for business-combination transactions, shell companies (other than a business-combination shell), blank-check companies, or penny-stock issuers

The 30-day buffer protects against gun-jumping liability for routine corporate communications. The issuer can run its ordinary investor-relations and customer communications more than 30 days out; once the 30-day window closes, this particular safe harbor no longer applies, though the issuer may still be able to rely on the regularly-released-information safe harbors for qualifying ordinary-course disclosures.

Exam Tip: Gotchas

• The 30-day safe harbor measures from the FILING date, not the effectiveness date. A communication made 35 days before filing is safe; a communication made 25 days before filing is not.
• The safe harbor is for the issuer, not the underwriter. Underwriter communications in the pre-filing period must fit a different safe harbor (or wait until filing).

How Does the Regularly-Released-Information Safe Harbor Work for Reporting Issuers?

A non-exclusive safe harbor for the ordinary-course release of factual and forward-looking information by reporting issuers (companies already subject to Exchange Act reporting).

• Protects continued ordinary-course release of factual business information and forward-looking information
• The issuer must have a prior history of similar disclosures
• The timing, manner, and form must be materially consistent with past practice

This safe harbor solves a problem facing companies that file periodic reports. A company about to do a follow-on offering must continue filing 10-Qs, issuing earnings releases, and holding earnings calls; without a safe harbor, every one of those would be a pre-filing offer.

Exam Tip: Gotchas

• "Materially consistent with past practice" is the test. Suddenly upgrading guidance, changing the cadence of earnings calls, or adding forward-looking detail that does not match prior practice can take the issuer outside the safe harbor.
• The safe harbor covers FORWARD-LOOKING information for reporting issuers but not for non-reporting issuers. The non-reporting safe harbor is narrower.
• This safe harbor is non-exclusive, like the 30-day safe harbor. Falling outside its conditions does not automatically mean gun-jumping; the issuer may still be able to show the communication did not condition the market or fits another available safe harbor.

How Does the Regularly-Released-Information Safe Harbor Work for Non-Reporting Issuers?

A parallel safe harbor for non-reporting issuers that have not yet completed an IPO.

• Available only to non-reporting issuers
• Protects factual business information only; does not cover forward-looking information
• The communication must be intended for customers, suppliers, and other non-investors

The non-reporting safe harbor lets a pre-IPO company keep talking to its customers, suppliers, and recruits during the months before filing. It does not let the company give the same content to investors.

Exam Tip: Gotchas

• Non-reporting issuers cannot release FORWARD-LOOKING information under this safe harbor. That is the single biggest difference from the reporting-issuer safe harbor.
• The audience is customers, suppliers, and other NON-INVESTORS. Posting the same factual release to an investor distribution list takes the issuer outside the safe harbor.

How Do Proposed-Offering Notices Differ From Generic Announcements?

Two narrow announcement safe harbors carve specific categorical announcements out of the prospectus definition. They are different, and the exam tests the difference.

• Notice of a proposed registered offering: a brief notice that may identify the issuer and the basic offering facts (the issuer's name, the title and amount of the securities, the anticipated timing, and a short statement of the manner and purpose of the offering).
• Notice restrictions: the notice must not name the underwriters and must state that it is not an offer to sell. This is how an issuer announces an upcoming registered offering without the notice itself becoming a prospectus.
• Generic investment-company advertising: generic communications about investment-company products that may not refer to a particular fund or security and must include the name and address of the registered broker-dealer or other sponsor.

The proposed-offering notice can name the issuer and the basic terms; the generic investment-company communication cannot name a specific fund. Neither may be used as an actual offer, and neither may add sales-promotion content beyond the permitted facts.

Exam Tip: Gotchas

• The proposed-offering notice CAN name the issuer; the generic investment-company communication CANNOT name a fund. Do not fold the two together. A notice that identifies the issuer and the amount of securities is permitted; naming the underwriters or adding an offer is not.
• The generic investment-company communication requires the sponsor's name and address. Failing to include them takes the communication outside the safe harbor.

How Does Test-the-Waters Work for Emerging Growth Companies (EGCs)?

The JOBS Act test-the-waters carve-out is a special pre-filing safe harbor for emerging growth companies (EGCs) covered in detail in the JOBS Act section. The key feature: an EGC may communicate with qualified institutional buyers (QIBs) and institutional accredited investors (IAIs) to gauge interest in an upcoming offering, before or after filing.

Exam Tip: Gotchas

• EGC test-the-waters is broader than the WKSI exemption in eligibility (an EGC does not need WKSI status) but narrower in audience (QIBs and IAIs only). A WKSI can talk to anyone pre-filing; an EGC can only talk to qualified institutional buyers and institutional accredited investors.

What Should You Check on Exam Day?

• Match the issuer type to its safe harbor: WKSI (broadest, oral and written, no audience limit), any issuer (30-day, no offering reference), reporting issuer (regularly-released, forward-looking included), non-reporting issuer (regularly-released, factual only), or EGC (test-the-waters, QIBs and IAIs only).
• Check whether a communication references the upcoming offering. The 30-day safe harbor fails once the offering is identified; the proposed-offering notice may name the issuer and the basic terms but never the underwriters.
• Remember the 30-day clock runs from the filing date, not from effectiveness.
• Confirm the underwriter cannot rely on the 30-day safe harbor; that safe harbor is for the issuer only.