CH 01 Public and Private Offerings Flashcards
An offering of shares with the proceeds being directed to the issuing corporation is called a ________ offering.
A primary offering.
Define graphic communication.
Communication made using electronic media (e.g., audio / videotapes, e-mail, CDs, text messages, and webcasts).
True or False: A free writing prospectus may be published only after a registration statement has been filed.
FALSE
True or False: Rule 504 Private Placements require purchaser representatives.
False. Purchaser representatives are required under Rule 506.
In what forms may road shows be delivered?
Live or electronic.
Related to the registration process, when does the cooling-off period begin?
Once the registration statement is filed with, and filing fee is paid to, the SEC.
Under Reg. S-K, if outside review is conducted, what disclosures must be made?
Extent of review, reviewer’s qualifications, material facts of how the review was sought/obtained.
Describe the purpose of a road show.
To acquaint investors and BDs with information on a prospective public offering.
For an individual to be considered accredited, she must have income of $_______ in each of the last two years.
For an individual to be considered accredited, she must have income of $200,000 in each of the last two years.
To satisfy WKSI status, within 60 days of determination, an issuer must have how much public float in debt or equity?
A public float of $700 million in equities or $1 billion in aggregate debt issuances in the previous three years.
True or False: Written communications only encompass materials in written, physical form.
False. Written communication includes anything written, printed, or broadcast on TV or radio, and graphic communication.
What information may be found in an issuer’s private placement offering memorandum?
The use of the proceeds, specific suitability standards, and the issuer’s financial statements.
A statutory preliminary prospectus is also referred to as a _____________.
A statutory preliminary prospectus is also referred to as a red herring.
What amount of time that must elapse before debt securities issued under Regulation S may be resold into the U.S.?
40 days. The securities would remain exempt from registration.
True or False: Prior to a PIPE offering, an RR may sell the stock short or buy put options on the stock.
False. These activities would violate insider trading rules.
According to Rule 145, what are some examples of reclassifications that trigger registration requirements?
Substitutions of one security for another, mergers involving an exchange, spinoffs, or transfers of corporate assets.
Accredited investors have net worth of at least $_________ or pre-tax income in each of the last two years of $________.
Accredited investors have net worth of at least $1,000,000 or pre-tax income in each of the last two years of $200,000.
When may a well-known seasoned issuer (WKSI) use a free writing prospectus (FWP)?
Before, or after, the filing of a registration statement with the SEC.
Rule 147 offerings may not be sold to an out-of-state investor for ____ months following the last sale of a new issue.
Rule 147 offerings may not be sold to an out-of-state investor for six months following the last sale of a new issue.
What is the purpose of Rule 145?
To be sure that securities acquired through reclassification are subject to registration and prospectus requirements.
What instructions must be issued to ensure that no illegal sale occurs for securities acquired privately?
Stop transfer instructions.
What does Regulation S provide to U.S. companies?
An exemption from registration if its securities are issued outside the U.S.
True or False: Purchaser representatives must pass a specific exam or be certified to act in this capacity.
False. There is no specific qualification required to be appointed as a purchaser representative.
True or False: An offering memorandum must be delivered to all purchasers in a private placement.
False. An offering memorandum is not required if all purchasers are accredited investors.
Who evaluates the risks and merits of a private placement for a nonaccredited investor?
The purchaser representative.
To blue sky an issue means to register the offering at the ______ level.
To blue sky an issue means to register the offering at the state level.
When are securities ineligible for the Rule 144A exemption?
When the issuer has the same class of securities listed on an exchange.
What are the requirements for a WKSI to file a shelf registration that will be effective for three years?
The offering must begin immediately and the issuer must be eligible to file Form F-3 or S-3.
True or False: A Private Investment in Public Equity (PIPE) is a form of private placement.
TRUE
True or False: A covenant may not be included in a bond indenture to require a certain debt service coverage ratio.
FALSE
True or False: Regulation S limits the amount of capital that may be raised through overseas offerings.
False. There is no capital limit; however, all investors must be non-U.S. residents.
For how long may a new issue be sold under a shelf registration?
Up to 3 years.
True or False: A well-known seasoned issuer (WKSI) may NOT be an ineligible issuer.
TRUE
For how long must a prospectus be provided in the after-market for the IPO of a stock to be listed on an exchange?
25 days.
True or False: An FWP constitutes an offer to sell, or solicitation to buy, a registered offering.
TRUE
Regulation D offerings under Rule 504 may not exceed $___ million.
Regulation D offerings under Rule 504 may not exceed $10 million.
True or False: A shelf registration filing must include identification of the type or class of securities being sold.
True. However, a detailed description of the securities may be omitted.
QIBs are financial institutions that have at least $_________________ invested in securities of non-affiliated issuers.
QIBs are financial institutions that have at least $100 million invested in securities of non-affiliated issuers.
Regarding a new issue, when is the final due diligence meeting held?
Prior to the anticipated effective date.
Recorded road shows meet the definition of ________ communication.
Recorded road shows meet the definition of graphic communication.
What type of information may be omitted when an issuer files a shelf registration?
Offering price, amount selling, selling shareholders’ names, offering type (primary or secondary), security description.
For how long must a prospectus be made available in the secondary market for an exchange-listed IPO?
25 days.
List some items that may be omitted from a preliminary prospectus.
Final offering price, underwriting and dealer discounts, and proceeds to be received by the issuer.
Regulation A requires an issuer to file ____ years of financial statements that may be __________.
Regulation A requires an issuer to file two years of financial statements that may be unaudited.
A Regulation A Tier 1 exemption is permitted for issuers that raise no more than $__________ over 12 months.
A Regulation A Tier 1 exemption is permitted for issuers that raise no more than $20 million over 12 months.
Explain the details of Regulation D, Rule 506 offerings.
No dollar limit, disclosure required, unlimited accredited investors, with 35 nonaccredited limit (need purchaser rep).
In the after-market, a prospectus must be provided for ____ days following a non-exchange IPO.
In the after-market, a prospectus must be provided for 90 days following a non-exchange IPO.
According to the Trust Indenture Act of 1939, a trustee is appointed to represent the _____________ best interests.
According to the Trust Indenture Act of 1939, a trustee is appointed to represent the bondholder’s best interests.
The number of investors who may purchase stock under a Regulation A offering is __________.
The number of investors who may purchase stock under a Regulation A offering is unlimited.
Rule 144A exempts sellers from the holding period and volume limitations of Rule 144 if trading is done with a _____.
Rule 144A exempts sellers from the holding period and volume limitations of Rule 144 if trading is done with a QIB.
What is a statutory prospectus?
Any communication, whether written or broadcast, that offers a security for sale.
Live, electronic road shows retransmitted using graphic communication meet the definition of _____ communication.
Live, electronic road shows retransmitted using graphic communication meet the definition of oral communication.
An issuer with $75 million outstanding voting shares would be placed in what category?
Seasoned Issuer.
Where must issuers be located to qualify for a Reg. A exemption available for raising a limited amount of capital?
The issuers must be located in the U.S. or Canada.
What does the Trust Indenture Act of 1939 regulate?
The issuance of corporate bonds.
True or False: For a Rule 147 exemption, the issuer’s home must be in the state in which the securities will be sold.
TRUE
When may an unseasoned or non reporting issuer use a free writing prospectus (FWP)?
After filing its registration statement with the SEC, but it must be accompanied by its statutory prospectus.
For how long must a prospectus be provided in the after-market for a non-exchange IPO?
90 days.
If equity securities are issued by a non-reporting company under Regulation S, when can they be resold in the U.S.?
One year after issuance.
True or False: For a seasoned issuer, a shelf registration becomes effective immediately.
False. A seasoned issuer may use a shelf registration, but it will be subject to SEC staff review.
List some items that are required to be included in an issuer’s registration statement.
Nature of its business, total capitalization (equity and debt), financial statements, biographies of officers/directors.
What conditions must be met to qualify for an exemption under Regulation S?
The offer may NOT be directed to a U.S. resident and the trade must be effected through an overseas securities market.
True or False: Under Reg. S, investors may resell non-convertible debt in the U.S. even if held for less than one year.
True. Non convertible debt has a 40-day holding period.
Define initial public offering (IPO).
A company’s first public offering of securities.
As it applies to Regulation D offerings, who would be considered an accredited investor?
An institution, an officer/director of the issuer, or an individual who meets a financial test.
One requirement for a WKSI is having a public float of equities totaling $____ million.
A WKSI must have a public float of equities totaling $700 million.
Rule 415 establishes the requirements for _______ registration.
Rule 415 establishes the requirements for shelf registration.
True or False: The SEC recommends the delivery of an offering memorandum to all private placement purchasers.
True. However, if any purchasers are non-accredited investors, the SEC requires the delivery of a memorandum.
What may take place during the post-registration period?
Sales may be confirmed, money may be accepted, and the final prospectus may be delivered.
The maximum number of non-accredited investors in a Reg. D offering is _____.
The maximum number of non-accredited investors in a Reg. D offering is 35.
What recommendation is made through a legend placed on a free writing prospectus?
That investors should read the statutory prospectus.
What amount of capital may be raised by an issuer under Regulation D, Rule 506?
An unlimited amount.
Which regulation requires that a registrant maintain effective internal controls regarding its financial reporting?
Regulation S-X.
Explain the importance of Regulation S-K.
It sets rules for: 1) the format used to present projections and 2) the non financial components of a firm’s filings.
True or False: After-market prospectus requirements do NOT apply to dealers not involved in the original distribution.
False. After-market prospectus requirements apply to dealers who are, or are not, involved in the original distribution.
In the after-market, a prospectus must be provided for ____ days following a non-exchange follow-on offering.
In the after-market, a prospectus must be provided for 40 days following a non-exchange follow-on offering.
Under Reg. S-X, what must the CPA’s attestation report include?
The CPA’s opinion of the firm’s internal controls.
True or False: A significant goal of the Securities Act of 1933 is to prevent fraud in the sale of new issues.
TRUE
True or False: 100% of investors must be state residents to qualify for the Rule 147 intrastate exemption.
TRUE
When may road shows be conducted?
After filing the registration statement (before the effective date).
What are some examples of a free writing prospectus?
Offering term sheets, e-mail, press releases, and marketing materials.
True or False: An incentive for buying securities through a private placement is the liquidity of the investment.
False. Securities acquired through a private placement are illiquid since their sale is restricted.
If WKSI status is lost after the filing of the automatic shelf registration, how long may the offering continue?
Until the filing of the next Form 10-K.
True or False: Rather than judging an investment’s merit, the SEC reviews completeness of registration documentation.
TRUE
What is the name of the disclosure document used for a private placement?
An offering memorandum, also called a private placement memorandum (PPM).
Prior to a PIPE offering, what is an RR permitted to do?
Solicit and accept indications of interest.
What is a benefit to achieving WKSI status?
The company is permitted to offer securities without SEC review.
What are the requirements to qualify for a Tier 1 exemption under Regulation A?
A maximum offering of $20 million over 12 months, with no more than $6 million being offered by selling shareholders.
Prior to a PIPE offering, what is an RR permitted to do?
Solicit and accept indications of interest
What are the requirements to qualify for a Tier 1 exemption under Regulation A?
A maximum offering of $20 million over 12 months, with no more than $6 million being offered by selling shareholders
Under Regulation S-K, what are the requirements for presenting projections?
They must be clear and not misleading, and an appropriate time frame must be used.
What items must be included in a preliminary prospectus?
The number of shares or amount of bonds to be issued, as well as the use of the proceeds
What is a Private Investment in Public Equity (PIPE)?
When a BD acts as a placement agent for restricted securities of an issuer whose securities are already publicly traded.
For how long must a prospectus be provided in the after-market for a non-exchange follow-on offering?
40 days
QIB stands for ___________________________.
QIB stands for Qualified Institutional Buyer (QIB).
The holding period for unregistered (restricted) securities under Rule 144 is __________.
The holding period for unregistered (restricted) securities under Rule 144 is 6 months.
To be considered a WKSI, the issuer must have been a reporting company for the previous ____ months.
To be considered a WKSI, the issuer must have been a reporting company for the previous 12 months.
What are the details related to the Section 4(5) exemption?
An exemption is provided if securities are sold to accredited investors and no more than $5 million of capital is sold.
When is the registration of a well-known seasoned issuer (WKSI) effective?
Immediately at the time of filing with the SEC
Define free writing prospectus (FWP).
Written/electronic communication, used as a disclosure document, that does not meet statutory prospectus standards
For what offerings is there no after-market prospectus requirement?
For follow-on offerings of exchange-listed stocks
Complete the following statement: The SEC requires a securities offering to register unless it is _______.
Complete the following statement: The SEC requires a securities offering to register unless it is exempt.
Describe a cross default clause.
A statement that default may occur on one loan due to an issuer defaulting on another loan.
What is the after-market prospectus requirement for the follow-on offering of an exchange-listed stock?
No requirement exists for the follow-on offering of an exchange-listed stock.
True or False: A purchaser rep may not be an officer, director, or greater than 10% owner of the issuer.
True. Unless they’re related to the nonaccredited investor.
True or False: Shelf Registration gives flexibility to the issuer by allowing delayed or continuous sales.
TRUE
True or False: Regulation A limits the amount of capital that may be raised, but not number of shares that may be sold.
TRUE
True or False: Regulation S-K requires the use of outside review.
False. Outside review is permitted, but NOT required.
What types of events are exempt from Rule 145?
Stock splits, reverse splits, or adjustments in par value
Shelf Registration is valid for up to _____ years.
Shelf Registration is valid for up to 3 years.
According to Reg. S-X, who must prepare an attestation report?
A certified public accountant (CPA)
True or False: Registration provisions apply when securities are offered publicly.
TRUE
Generally, what happens to the stock’s price once the issuer announces a PIPE offering?
It declines since there will be an increase in the number of shares (potential dilution).
What form is filed to register securities issued in transactions subject to Rule 145 provisions?
Form S-4
What is the main purpose of the final due diligence meeting?
To ensure that prospectus information is complete and accurate
The SEC will issue a ____________________ to indicate that a registration statement is inadequate.
The SEC will issue a deficiency letter to indicate that a registration statement is inadequate.
The SEC ____________ clause must be included in the prospectus for a new issue.
The SEC No Approval Clause must be included in the prospectus for a new issue.
List the types of issuers who are ineligible to use a free writing prospectus.
Penny stock issuers, issuers involved in a bankruptcy within the last three years, and blank-check (shell) companies
True or False: The SEC judges an offering’s investment merit and provides approval.
FALSE
True or False: Canadian companies are not eligible to use the Regulation A exemption.
False. Both U.S. and Canadian companies are eligible to use the Regulation A exemption.
For an Iowa Rule 147 offering, to whom may an Iowa resident sell without complying with the six-month holding period?
Another resident of Iowa
What type of issuer may use a free writing prospectus before, or after, filing a registration statement with the SEC?
A well-known seasoned issuer (WKSI)
For a new issue, are indications of interest binding or non-binding?
They are non-binding.
According to the Trust Indenture Act of 1939, for what reasons may default occur?
The issuer misses interest or principal payments, or fails to comply with a covenant
True or False: Road shows may be delivered to a group of investors or one-on-one.
TRUE
A Purchaser Representative for a non-accredited investor may be an officer of the issuer if ________________________.
A Purchaser Representative for a non-accredited investor may be an officer of the issuer if related to the purchaser.
Define blank-check (or shell) company.
A company early in the development stage with no specific business purpose
What is one disadvantage to offering securities through a private placement?
The offering is limited to only certain types of investors.
What is the name of the offering of additional shares after a company has conducted its initial public offering (IPO)?
A follow-on offering or additional issuance
What is a QIB?
Qualified Institutional Buyer (institutions defined under Rule 144A)
True or False: Registration provisions apply when securities are offered through a private placement.
False. Private placements are exempt from registration.
What type of issuer may use a free writing prospectus after filing its registration statement with the SEC?
A seasoned issuer
Is a high net worth individual who meets the accredited investor definition under Regulation D considered a QIB?
No. A QIB is an institution, not an individual.
True or False: Covenants in a bond indenture may set the maximum debt-to-equity ratio to be maintained.
TRUE
A well-known seasoned issuer (WKSI) is able to file an ASR. What does ASR mean?
Automatic Shelf Registration
What are the requirements to qualify for a Tier 2 exemption under Regulation A?
A maximum offering of $75 million over 12 months, with no more than $22.5 million being offered by selling shareholders
What is the primary purpose of the Securities Act of 1933?
Provide investors with full and fair disclosure regarding new issues (prospectus)
When may Regulation S securities be resold through a designated offshore securities market?
Immediately
What requirement is established by Regulation S-X?
The requirement that a registrant maintain effective internal controls in connection with its financial reporting
True or False: Covenants exist to restrict the change of a company’s control and to require insurance on certain assets.
TRUE
True or False: During the pre-filing period, certain issuers may be prohibited from communicating with the public.
TRUE
To indicate that private placement securities are unregistered/restricted, a _______ is placed on the certificates.
To indicate that private placement securities are unregistered/restricted, a legend is placed on the certificates.
In a Regulation A offering, what disclosure document is provided to investors?
An offering circular
True or False: A WKSI is offered a streamlined registration process and more freedom when communicating with investors.
TRUE
True or False: Only individuals may purchase securities issued under a Rule 147 exemption.
False. Potential purchasers include individuals, corporations, partnerships, and trusts.
Who attends the final due diligence meeting held prior to the effective date?
The issuer, underwriter, and other interested parties
True or False: During the cooling-off period, sales may be effected and money may be accepted.
False. These would be prohibited practices during the cooling-off period.
Who frequently purchases securities through PIPE offerings?
Hedge funds
In the after-market, for how long must a prospectus be provided following an IPO of a stock to be listed on an exchange?
25 days
According to Reg. S-K, documents filed more than _____ years ago may not be incorporated.
According to Reg. S-K, documents filed more than five years ago may not be incorporated.
An offering’s effective date is generally the _____ day after the filing of the last amendment.
An offering’s effective date is generally the 20th day after the filing of the last amendment.
Once Form 144 is filed, owners have __________ to sell their securities.
Once Form 144 is filed, owners have 90 days to sell their securities.
On what is the length of time a prospectus must be sent in the after-market based?
The amount of information available to the potential purchaser
What is the maximum amount of proceeds selling shareholders may receive through a Regulation A offering?
$6 million for Tier 1 or $22.5 million for Tier 2
During the registration cooling-off period, what should an agent do if a client sends a check to purchase securities?
Return the check to the customer
True or False: A business entity formed in Mexico may use the Regulation A exemption.
False. Only U.S. and Canadian issuers may utilize the Regulation A exemption.
A Regulation A Tier 2 exemption is permitted for issuers that raise no more than $__________ over 12 months.
A Regulation A Tier 2 exemption is permitted for issuers that raise no more than $75 million over 12 months.
True or False: Rule 144A securities may be offered by both domestic and foreign issuers.
TRUE
True or False: Rule 144A securities are only equities.
False. Rule 144A securities may be equity or debt.
True or False: Using a private placement to offer securities is a faster, less expensive method than a public offering.
TRUE
For a WKSI, a shelf registration becomes effective ______________.
For a WKSI, a shelf registration becomes effective immediately.
To be considered a WKSI, an issuer must be eligible for automatic shelf registration using what registration form?
Form S-3 (short form registration statement) or F-3 (for foreign private issuers)
A seasoned issuer may use a free writing prospectus (FWP) ______ filing its registration statement with the SEC.
A seasoned issuer may use a free writing prospectus (FWP) after filing its registration statement with the SEC.
True or False: To be a WKSI, the issuer must be a reporting company and have a certain public float of debt or equity.
TRUE
True or False: The preliminary prospectus (red herring) will include the final offering price.
False. The red herring may give a price range, but will not include the final price.
As it relates to a Regulation A offering, explain how an issuer tests the waters.
Using general solicitations and advertising before filing an offering statement with the SEC to gauge investor interest
True or False: A red herring may be filed as a part of a registration statement and used before the effective date.
TRUE
U.S. companies may issue securities abroad and claim an exemption from registration under what provision?
Regulation S
