Chapter 3 Flashcards
What should S-1 contain?
BS 90 days, P&L 3y, >10% shareholders
What is the cooling off period? How long is it? What can be released?
restriction on activity and communication during the period just before issuances are offered for sale to the public
20 days. No sales can take place.
Can be released:
-Red herring (a preliminary prospectus) with a price range can be used to collect indications of interest
-Tombstone ads (underwriters, link to prospectus, disclaimer + amount, date, business description & price + contact, no-commitment)
What happens if price deviates from range released in red herring?
Amendment needs to be filed if final price deviates >20% from range.
What is Free Writing Prospectus? What must it contain? Who can use one and when?
Free writing prospectus: written com about securities offering that isn’t a prospectus.
Needs to contain a legend recommending that the statutory prospectus be viewed.
(1) WKSIs, (2) SIs and (3) UIs may use FWP (1) before or after SEC filing, (2) after, (3) after and accompanied/following prospectus
When must a Prospectus be provided to a secondary buyer?
Prospectus must be provided to secondary buyers if:
-IPO 90 days OTC, 25 days NASDAQ
-Add offering 40 days OTC
What does the SEC disclaimer say?
“not approved or disapproved, no representations regarding accuracy of info”
Rule 5130 / Free riding / withholding
Rule 5130 prohibits a broker-dealer from selling New Issues to accounts in which “Restricted Persons” have a beneficial interest
a BD can’t withhold any securities for associated entities and individuals with financial ties. Only covers stock IPOs.
In what cases can a hot issue be purchased by employees or family members?
respectively unable to direct businesss to the BD and aren’t supported financially
Types of Underwriting commitments?
-Firm commitment (can have a Market Out Clause)
-Best efforts
-Mini-Maxi (best effort with escrow. Once mini reached, BD can sell until maxi)
-All or None (escrow until all sold)
-Standby (agreement to purchase shares not purchased by current shareholders during a preemptive rights offering. Firm commitment)
Types of offerings?
IPO
Subsequent primary
Combined primary & secondary
Green shoe provision
syndicate can purchase additional 15% of shares
Employees of the issuer may sell securities (not ones that they own) when?
if not paid on sales, not RR, not disqualified RR and with permission of managing underwriter.
What kind of compensation does underwriter get?
Only lead can earn entire underwriting spread
Mgmt fee => lead
Underwriter fee => syndicate
Selling concession => successful seller
Underwriting agreements must be sent to FINRA when? What are exemptions?
< 3 days after filing
If no filing (PP) => 15 days prior to anticipated offering date.
Exempt: muni, gov bonds, redeemable IC shares, variables contracts
What are requirements if FINRA member wants to offer securities?
Offering by FINRA member: 10:1, 120%
FINRA member securities offering: when is there a conflict of interest? what needs to happen in that case?
10% ownership, affiliate, 5% of proceeds used to repay loan made by BD
=> qualified independent underwriter + disclosures
Exempt issuers?
govs + insurance & banks (but not their holding co.)
Exempt transactions?
Reg D
Rule 144
Reg S
Reg A
Reg CF
Rule 145
Rule 147
Rule 415
Reg D non-accredited investor limit? Lock up?
Reg D
up to 35 non accredited if PPM
6m lock up
Rule 144 lock ups, restrictions, trading vol limitations, exemptions?
Rule 144
Control: 10% => can’t earn short swing profit
Restricted stock of reporting co.: 6m lock up
Restricted stock of non-reporting co.: 12m lock up
Restricted & control stock trading volume limitations per 3m period: greater of avg. of last 4 weeks or 1% of total stock
144A permits sale of restricted stock to QIBs (>$100M)
Reg A requirements
2y audited statements
Cooling off period
Reg CF investment limits
If net worth <$100k => greater of limit of $2k or 5% of NI or NW
If >$100k => lesser of 10% or $100k
Rule 145
M&A, reorganization. Not splits & par value changes.
S-4 filed
Rule 147
unlimited capital intra-State
80% of income, proceeds, assets need to be in State
Rule 415: how long can shelf registration last?
Shelf registration
2y. WKSI: 3y
Rule 405: what is a Streamlined registration process? Who can benefit?
Streamlined registration process: S-3 / F-3
WKSI: $700M float
SI: $75M float
Research analyst communication restrictions
Research analysts can’t speak to customer’s of the issuer in the presence of the issuer / individuals representing the issuer
Can issuer issue common stock before issuing pref stock?
No
