A. Road Shows on the Internet
This memorandum briefly summarizes a no-action letter recently issued by the SEC's Division of Corporation Finance with respect to road shows transmitted on the Internet and a staff legal bulletin recently released by the Division which addresses issues arising in connection with spin-offs.
The Division has recently issued a no-action letter (Net Roadshow, Inc., July 30, 1997, available September 8, 1997) permitting Net Roadshow, Inc. to transmit an issuer's road show for a public offering to qualified investors over the Internet. Based on the particular facts and circumstances, the Division accepted Net Roadshow's position that the Internet roadshow does not constitute the use of a "prospectus" under Section 2(10) of the Securities Act of 1933. As presented to the Division, the Internet road show will not be transmitted until after a registration statement has been filed with the Division, will be the exact same road show that qualified investors see live, will be limited to the type of qualified investors who would customarily attend a roadshow through an access restricted website, will include technology designed to prevent the presentation from being copied, printed or disseminated, and will give viewers the option to print the preliminary prospectus. In addition, Net Roadshow will charge fees which are analogous to production or printing costs and which are not contingent upon the success of the underlying offering or related to the size of the offering. In seeking relief from the Division, Net Roadshow argued that the Internet road shows will level the playing field by providing each qualified investor with an equal opportunity to view the road show and will allow the road show and preliminary prospectus to be distributed more quickly, giving qualified investors more time to make a fully informed decision.
B. Issues Arising in Spin-Offs
In Staff Legal Bulletin No. 4 (September 16, 1997), the Division addressed issues that commonly arise in connection with spin-offs (i.e., when a parent company distributes shares of a subsidiary to the parent company's shareholders). The Division will no longer respond to requests for its views on the issues addressed in the bulletin, but will address requests relating to novel or unusual spin-off issues and will continue to consider requests for no-action positions from foreign companies that do not intend to register spun off shares under the Exchange Act. According to the staff, a subsidiary must register a spin-off of shares under the Securities Act if it constitutes a "sale" of securities by the parent. A spin-off raises concerns when an Exchange Act reporting company spins of shares of a company that is not an Exchange Act reporting company. Five conditions must be met for exemption from registration under the Securities Act. In addition, if certain conditions are met, affiliates of a spun off company may sell the shares on the date of the spin-off rather than wait 90 days. Securities received in a spin-off are exempt from Section 16 where all holders of a class of securities participate on a pro rata basis. However, anyone subject to the Section 16 reporting requirements will still have to file a Form 3 when the subsidiary registers a class of spun off equity securities under the Exchange Act.