The Public Offering

Question 1

Pre-Filing Period

Answer 1

The period when an issuer is contemplating a public offering but before it files a registration statement.

Question 2

Securities Act §5(c)

Answer 2

Unlawful for any person, to make use of any means of interstate commerce, to offer to sell or offer to buy securities before filing a registration statement.

Question 3

Steps to Determine §5(c) Violation

Answer 3

1) Jurisdiction? 2) Has registration statement been filed? 3) Was there an offer? 4) Who were the parties to the offer?

Question 4

Exempt Parties for §5(c) Violation

Answer 4

If the offer was between an issuer and underwriter or just underwriters, there is no violation. If the offer was between and underwriter and a dealer, there is a violation.

Question 5

Rule 163

Answer 5

Oral offers before registration statement is filed are permitted, but: 1) Must be “by or on behalf of” the issuer 2) A written version of the offer must be filed promptly with SEC and include legend required by Rule 163. Available only to WKSIs in the pre-filing period.

Question 6

Rule 168

Answer 6

Seasoned issuers can continue to release regularly scheduled, forward looking information.

Question 7

Securities Act §2(a)(3)

Answer 7

Offer is defined as “any attempt to dispose of.” Does not include preliminary negotiations or agreements between an issuer and an underwriter. Does not include agreements between underwriters.

Question 8

Securities Act §2(a)(11)

Answer 8

Defines underwriter as: 1) Purchased from issuer with intent to sell in a distribution, 2) Offers or sells for an issuer in a distribution 3) Participates in an offer or sale that is part of a distribution.

Question 9

Conditioning the market

Answer 9

Prohibited during the pre-filing period. May raise the public’s expectations for the securities in order to stimulate sales when the statement becomes effective. Includes speeches, press releases and advertising.

Question 10

Rule 135

Answer 10

When notice is NOT an offer. For §5 purposes only, a notice by an issuer that it will make a registered public offering will not be deemed an offer if: the notice states that the offering will be made only by means of the prospectus; and content is limited (see list). CANNOT NAME UNDERWRITERS. Applies only to notices by the issuer.

Question 11

Securities Act §12(a)(1)

Answer 11

Strict liability for violation of §5.

Question 12

Rule 163A

Answer 12

Permits communications 30+ days before filing registration statement. Applies to all issuers. Cannot make reference to offering. Must try to prevent dissemination of information during 30 day period prior to registration filing.

Question 13

Rule 168

Answer 13

Regular communications by reporting issuers permitted. Can include factual information and SEC filed forward looking info. Must be same timing, manner and form as previous releases. Cannot reference the offering. Only applies to issuers.

Question 14

Rule 169

Answer 14

Regular communications by new issuers permitted. Can include factual info, but not forward looking info.Cannot reference the offering. Must be intended only for non-investors. Applies to non-reporting issuers.

Question 15

Waiting Period

Answer 15

The period after an issuer has filed their registration statement but before the statement becomes effective.

Question 16

Securities Act §5(a)

Answer 16

Unless a registration statement is in effect, it shall be unlawful to use interstate commerce to sell or deliver a security.

Question 17

Securities Act §5(b)

Answer 17

Unlawful for any person to use interstate commerce to: (1) send a prospectus that doesn’t satisfy §10 or (2) send a security without a §10(a) prospectus.

Question 18

Are sales permitted during the waiting period?

Answer 18

No. Issuer cannot accept offers or receive money until effective date. §5(a). This includes a contract with a condition precedent.

Question 19

Can underwriters make arrangements with broker-dealers for assistance to sell securities during the waiting period?

Answer 19

Yes, but the contracts cannot violate §5(b).

Question 20

Rule 415

Answer 20

Shelf Registration – Exception to §6(a) – Securities may be registered for an offering to be made on a continuous or delayed basis in the future provided that several conditions are met (see list), and these securities are registered in an amount which is reasonably expected to be offered and sold within two years from the initial effective date. This two year time limit does not apply for preexisting obligations. WKSIs can use automatic shelf registration, which become effective when filed with the SEC, without SEC review.

Question 21

Item 512

Answer 21

Requires the registrant to file a post-effective amendment covering any prospectus required by §10(a)(3), which means that financial statements must be updated annually. Also requires a post-effective amendment for any fundamental change in the registration statement or material change in the distribution.

Question 22

Securities Act §6(a)

Answer 22

Can only file registration statement for securities that are proposed to be offered in the near future. Rule 415 (shelf registration) is an exception to this statutory language.

Question 23

Securities Act §8(a)

Answer 23

Registration statement becomes effective on the 20th day after filing or when the SEC says. An amendment restarts the 20-day period.

Question 24

Securities Act §8(b)

Answer 24

SEC can issue a refusal order barring a filed registration statement from becoming effective. §5(c) makes offers illegal again if this happens. Can only be issued if the statement appears incomplete on its face.

Question 25

Securities Act §2(a)(10)

Answer 25

Prospectus – Generally, any offer or confirmation of an offer in writing, on the radio or on television. Talking to press results in writing and therefore amounts to a prospectus.

Question 26

Securities Act §10(a)

Answer 26

Info Required in the Prospectus – 1) a prospectus must contain the info in the registration statement 2) If you use prospectus more than 9 months after the effective date, prospectus no longer has to match reg statement but you must file information from the previous 16 months (important for shelf registration).

Question 27

Securities Act §10(b)

Answer 27

Preliminary prospectus/red herring – Should be filed as part of the registration statement, but is not deemed a part of it for §11 antifraud purposes.

Question 28

Rule 433

Answer 28

Allows for free writing prospectus. For non-reporting/ unseasoned issuers, FWP must be accompanied or preceded by a §10 prospectus. For seasoned issuers/WKSIs, must have filed statutory prospectus, with SEC. Must file within one day of first use.

Question 29

Rule 433(e)

Answer 29

Hyperlinks – Placing preliminary prospectus on issuer or underwriter’s website does not bundle documents unless hyperlinks connect the pages with information.

Question 30

Envelope Theory

Answer 30

The SEC envisions a virtual envelope on a website where “the website content must be reviewed in its entirety to determine whether it contains impermissible free writing.”

Question 31

Rule 433(f)

Answer 31

If no compensation to the media, issuer has 4 days to file.

Question 32

Rule 433(g)

Answer 32

If not required to file, must retain records of FWP for 3 years.

Question 33

Post-Effective Period

Answer 33

Registration statement filed by issuer has now been deemed effective by the SEC.

Question 34

Securities Act §5(b)(1)

Answer 34

Mandates that a prospectus meet the requirements of §10.

Question 35

Securities Act §4(3)

Answer 35

Once the registration statement has been effective for 40 days (90 days for an IPO) dealers don’t need to deliver a prospectus with the security if they have finished selling their allotments.

Question 36

Rule 174

Answer 36

SEC excuses the prospectus requirement during the 40/90 day period when 1) Th issuer is a ‘34 Act reporting company and dealers are not part of the syndicate or 2) Securities are offered on exchange/NASDAQ (shortens to 25 days).

Question 37

Rule 153

Answer 37

Prospectus doesn’t need to be delivered if sales are made by an underwriter to a broker over an exchange if the exchange has been supplied with prospectuses.