The Public Offering Flashcards
Pre-Filing Period
The period when an issuer is contemplating a public offering but before it files a registration statement.
Securities Act §5(c)
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.
Steps to Determine §5(c) Violation
1) Jurisdiction? 2) Has registration statement been filed? 3) Was there an offer? 4) Who were the parties to the offer?
Exempt Parties for §5(c) Violation
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.
Rule 163
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.
Rule 168
Seasoned issuers can continue to release regularly scheduled, forward looking information.
Securities Act §2(a)(3)
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.
Securities Act §2(a)(11)
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.
Conditioning the market
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.
Rule 135
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.
Securities Act §12(a)(1)
Strict liability for violation of §5.
Rule 163A
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.
Rule 168
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.
Rule 169
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.
Waiting Period
The period after an issuer has filed their registration statement but before the statement becomes effective.
Securities Act §5(a)
Unless a registration statement is in effect, it shall be unlawful to use interstate commerce to sell or deliver a security.
Securities Act §5(b)
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.
Are sales permitted during the waiting period?
No. Issuer cannot accept offers or receive money until effective date. §5(a). This includes a contract with a condition precedent.
Can underwriters make arrangements with broker-dealers for assistance to sell securities during the waiting period?
Yes, but the contracts cannot violate §5(b).
Rule 415
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.
Item 512
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.
Securities Act §6(a)
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.
Securities Act §8(a)
Registration statement becomes effective on the 20th day after filing or when the SEC says. An amendment restarts the 20-day period.
Securities Act §8(b)
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.
Securities Act §2(a)(10)
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.
Securities Act §10(a)
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).
Securities Act §10(b)
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.
Rule 433
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.
Rule 433(e)
Hyperlinks – Placing preliminary prospectus on issuer or underwriter’s website does not bundle documents unless hyperlinks connect the pages with information.
Envelope Theory
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.”
Rule 433(f)
If no compensation to the media, issuer has 4 days to file.
Rule 433(g)
If not required to file, must retain records of FWP for 3 years.
Post-Effective Period
Registration statement filed by issuer has now been deemed effective by the SEC.
Securities Act §5(b)(1)
Mandates that a prospectus meet the requirements of §10.
Securities Act §4(3)
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.
Rule 174
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).
Rule 153
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.
