Chapter 9 – Preparing a Prospectus – Flashcards

first piece of federal legislation in response to market crash of 1929 aimed at increasing transparency in securities markets; protects investors by requiring the registration of securities offerings with the SEC

it is a felony to use any means of transportation or communication (media, mail, phone, email, advertising) in interstate commerce to offer or sell unregistered securities; includes general and preliminary solicitations

defines principles that must be included in registration statement to SEC for a securities offering

defines information that must be included in a registration statement, including: 1. identity, address, and jurisdiction (state or country) of the issuer and a description of issuer's business 2. names and addresses of issuer's chief executive, financial, and accounting officers, and directors 3. names and addresses of owners of more than 10% of any class of stock of the issuer and financial stakes held by directors and officers ("affiliates") of the issuer 4. a capitalization table of the issuer, including the amount of capital stock of each class included in the offering 5. securities covered by options that are outstanding, or created in connection with the offering, and owners of more than 10% of such options 6. description of funded debt of issuer 7. estimated net proceeds/use of proceeds for funds raised in securities offering 8. recent certified financial statements of issuer 9. copies of underwriting agreement and legal opinion of counsel in regard to offering

professional advisers must obtain when they prepare or certify valuations, opinions, or statements included in the registration

SEC may issue if there are any deficiencies or omissions in a registration filing

contains instructions for filing forms under the '33 Act as well as the Securities Exchange Act of 1934; provides guidance on the use of projections and ratings included in registration statements

addresses the form and content of financial statements included in a registration filing; statements must include: 1. audited balance sheets for two most recent fiscal years 2. audited statements of income and cash flows for three most recent fiscal years 3. pro forma financial information if a "significant business combination" or disposition has occurred during a period for which a balance sheet is required

SEC's Electronic Data Gathering, Analysis, and Retrieval System

general form that may be used for all newly issued securities under the '33 Act; IPOs are always registered on a Form S-1

streamlined "short-form" registration statement that may be used as an alternative to Form S-1; often used for follow-on offerings

registration statement used in a merger, acquisition, or exchange offer

registration statement filed in an offering of securities to company employees through an employee benefit plan

registration statement filed in an offering of real estate investment companies, including REITS

an issuer that is eligible to use Form S-3 (F-3 for foreign issuers) and also meets on of the following requirements: 1. public float of $700 mm or more; or 2. has issued at least $1 bn of non-convertible securities (other than common equity) in primary offerings for cash; company must also have been subject to filing requirements of '34 Act for at least one year

an issuer that is eligible to use Form S-3 and meets transaction requirements for an S-3 filing for primary offerings; must have more than $75 mm worldwide non-affiliated market cap

an issuer subject to SEC reporting requirements but are ineligible to use form S-3 for primary offerings; an SEC filer with less than $75 mm worldwide non-affiliated market cap would be an unseasoned issuer

issuer that is no current in filing SEC-required reports, or may have filed for bankruptcy or insolvency during the previous three years

development stage company with no specific business plan or purpose, or has indicated that its business plan is to acquire another company at some point in the future; examples include Special Purpose Acquisition Companies (SPACs) and Business Development Companies (BDCs)

not required to file reports under '34 Act; example includes private company in the process of registering an IPO

specific form of company specified under April 15, 2011 JOBS Act (Jumpstart Our Business Startups Act) to help emergent companies raise primary capital in a more efficient, timely manner; EGC is a company with less than $1 bn annual gross revenues during most recent fiscal year

period during which an offer is being evaluated by underwriters and issuers; may not make any solicitations or arouse public interest ("gun-jumping") during this period

the time in between when a company files registration statement and the SEC declares the registration effective; during this time, issuer is unable to promote sale of securities through written communication outside of a preliminary prospectus ("red herring"), a tombstone ad or limited press release, and road show presentation

after SEC has declared a registration filing effective, the period in which securities may be offered and sales completed

allows an issuer to make an offer of securities on a delayed or continuous basis at various times and prices; allows issuers to time sale according to market sentiment

WKSI can file shelf registrations that become automatically effective without SEC approval; streamlines issuance process

refer to how often an issuer is required to submit an updated registration statement

a securities offering document distributed to the investing public, as required by SEC regulations, including any 'notice, circular, advertisement, letter, or communication written or by radio or television, which offers any security for sale or confirms the sale of any security...'"

1. implicit exception - oral communication (by phone or in person) soliciting sale of securities; verbal offers are allowed during the cooling-off period 2. explicit exception - any communication after effective date of registration is not a prospectus, so long as it is sent simultaneously with or after a valid prospectus 3. explicit exception - a notice, circular, advertisement, letter, or communication in respect to a security is not a prospectus if it states from whom a written prospectus may be obtained and only identifies the security, its price, and how orders are executed (tombstone ad)

eases registration requirements; allows issuers to distribute written communications to prospective investors in addition to the preliminary prospectus ("red herring"); may include information beyond a registration statement's content; generally only allowable after effective period for standard issuers, but allowable at any time for WKSI in shelf offerings

audiotapes, videotapes, faxes, CD-ROMs, emails, websites, computer networks, computer data files, and mass or 'blast' voicemail messages (not included: real time oral communication/live presentations)

offering (other than a prospectus) delivered in the form of a presentation made by members of the issuer's management and the underwriters; road show that uses written communication is considered a FWP by SEC

five copies of preliminary prospectus (from cooling-off period) must be filed with SEC no later than the date the red herring is first delivered to investors; ten copies of final prospectus must be filed with SEC prior to the date of first use with public

red herring used prior to SEC effective date provided it contains substantively all required information barring timely details of the offering, public offering price, members of underwriting syndicate, and estimated amount of proceeds

issuers must provide information only when it is known or reasonably available to them; common to omit information in shelf registrations (permits their universality)

when issuers want to publicize sale of securities even if registration is not effective (though it has been filed), they may create a tombstone ad ("safe-harbor" public notice) omitting specific terms of offering; if registration not effective, prospectus must still be offered and SEC legend included to indicate that securities unavailable until registration is effective

includes: 1. factual info about issuer (name, address, phone number, email, contact info, jurisdiction) 2. title and amounts of securities being offered, including whether securities are convertible, exercisable, or exchangeable 3. brief description of issuer's general business 4. price of securities 5. use of proceeds 6. type of underwriting, names of underwriters, anticipated offering schedule

written communication that includes information, opinions, or recommendations with respect to securities of an issuer or an analysis of a security or an issuer, whether or not they provide information reasonably sufficient upon which to base an investment decision