Chapter 1: Public & Private Offerrings

Question 1

Reporting Company

Answer 1

An issuer of securities that’s listed on a national exchange

Any other publicly traded corp that has a total assets of more than $10mil and more than 500 shareholders

Question 2

Institutional Investors

Answer 2

bank
savings and loan association
a member, assoc person of a member, or person on behalf of institutional investor
insurance company or register investment company
Investment Adviser
Any other entity with total assets of at least $50 million
403(b) employee benefit plan

Question 3

QIB

Answer 3

• Eligible Institutions: insurance co, registered investment co, pension plans, corps, registered IA’s
• buyer purchasing for own account or other QIB
• buyer must own and invest at least $100mil of securites issuers that are not associated with the buyer

Question 4

PIPE (Private Investment in Public Equity)

Answer 4

PIPE offering is a private placement of securities in which a BD assists an issuer by heling distribute restricted (unregistered) securities to a small group of accredited investors

Question 5

S-3

Answer 5

• short form registration statement
• used by seasoned issuers of securities
• minimum of $75million common equity
• prohibited if failed to complete dividend, didn’t pay interest on bond, or delinquent in SEC filings

Question 6

Preliminary Registration Statement (Red Herring)

Answer 6

• When filing S-1 part of the form is the PRS
• Used as a disclosure document for potential investors
• subject to completion
• offering price range permitted
• Registration statement becomes effective 20 days after filing date

Question 7

Final Prospectus (Statutory)

Answer 7

• Established offering price
• Includes other info based on the offering proceeds such as, underwriting spread, underwriters allocation, uwriters discounts, and proceeds to the issuer

Question 8

Registration Statement

Answer 8

-must contain detailed info about the issuer, its business, its owners, and its financial condition
-the character of issuers business
-balance sheet that is no older than 90 days prior to filing
-financial statements that show profit/losses
-amount of capitalization and use of proceeds of sale
-monies paid to affiliated persons or business of issuer
shareholdings of senior officers, directors, and uwriters, and identification of 10% assets of company holder

Question 9

WKSI (Well Known Seasoned Issuer)

Answer 9

Required to file reports and must meet these requirements
-the issuer must be eligible to register on form S-3
-within 60 days of determination of eligibility the issuer must have either
a worldwide mkt value of $700mil or in the last three years, issued at least $1bil aggregate principal amount of non-convertible secs other than common equity, in primary offerings for cash
-a majority owned subsidiary of a WKSI qualifies as a WKSI if conditions are met
-can file and S-3 ASR so it can offer secs without SEC review

Question 10

FWP (Free Writing Prospectus)

Answer 10

• An offer to sell or solicitation of an offer to buy secs in the form of a written communication
• WKSI’s and Season Issuers can use (seasoned issuers that are penny-stock, shell company or blank-check cannot)
• Used in conjunction (not in lien) of a RS
• Ineligible issuers not permitted to use
• Examples: press release, emails, prelim or final term sheets and marketing materials
• can be used by KWSI prior to filing RS, SI’s can only after RS has been filed

Question 11

Automatic Shelf Registration (ASR)

Answer 11

• allows issuers to file registration docs and offer the subject securities on a delayed or continuous basis
• no SEC staff review
• advantage of delayed distribution is to do so when market is favorable
• may be used for 3 years after an initial effective date of a RS if fits criteria
• no limit to amount of secs that may be offered for any issuer that’s eligible to file under shelf registration rules

Question 12

Tombstone Ads

Answer 12

Communication not deemed a prospectus
may contain:
-name of issuer
-full title of security
-amount being offered
-brief desc of issuers type of business
-price of security
-date of sale
-a statement indicating that the securities registration is not yet effective and the orders for security may not be accepted until registration is effective
-anticipated schedule of offering
-and more

Question 13

Regulation S-K

Answer 13

• Establishes guidelines for the format employed when presenting projections(estimations) which appear in non-financial statements that are contained in registration statements.
• disclosure docs filed in conjunction with a merger or an acquisition such as an 8-k, proxy statement, tender offer statement, or RS, may contain projections regarding the future performance of the entity.
• Basis and format of the projection must be reasonable and not misleading and time frame appropriate
• SEC permits, but does not require outside reviews of the projections - must provide disclosures in this case
• Any party that provides a review must be qualified as an expert
• Issuer is required to disclose board of directors meetings info

Question 14

Regulation S-X

Answer 14

• sets forth the form and content for financial statements that are filed under the Act of 1933 and for reports filed under the Exchange Act of 1934.
• requires the preparation of an attestation report by an independent accountant
• Stale Financial Statements - fin statements in a RS become stale between date of statements in the filing and the effective date at 135 days. WKSI is at 130

Question 15

Exempt Securities

Answer 15

• exempt from registration and prospectus requirements
• US gov and US agency securities
• Municipal Securities
• Securities issued by non-profit orgs
• Short term corp debt instruments (commercial paper) - cannot exceed maturity of 270 days
• securities issued by domestic banks and trust companies
• securities issued by small business investment companies

Question 16

Rule 147 &147A

Answer 16

• if a company is conducting an offering and only selling its securities to its state residents, the offering is exempt from registration.
• companies must have their principal place of business in that state
• must meet on of four requirements
• 147A - allows for multi state offers - offers are able to be made outside of the state, all sales must be in-state residents.
• companies must have their principal place of business in that state
• must meet on of four requirements

Reqs:

• 80% of gross revenue derived from real property in that state or from rendering services within that state
• 80% of consolidated assets are located in the state
• 80% of net proceeds from the offering are intended to be used by the issuer in connection with operation of business, purchase of property, or rendering services in that state
• a majority of the issuers employees are based in that state (added to 147A)
• Resales to persons who reside outside of the state in which the offering is conducted are restricted for 6 months

Question 17

Regulation A

Answer 17

• if an issuer limits the amount of capital that it raises over a 12-month period, the offering is exempt under The Act
• still must file an offering statement with the SEC and provide an offering circular to prospective buyers
• JOBS act
  - Tier 1: sales of up to $20mil are permitted in 12 month period. Of that no more that $6mil may be sold on behalf of selling shareholders (subject to SEC and blue sky review)
  - Tier 2: sales of up to $75mil are permitted in 12 month period. Of that no more that $22.5mil may be sold on behalf of selling shareholders (Subject to SEC review, BUT NOT blue sky) (more strict filing reqs)

Question 18

Private Placements (Exempt Transaction)

Answer 18

• exempt from registration
• securities not being sold to the public
• issuer usually provides PP Memorandum to avoid violations of antifraud provisions
• sections 4(5) exemptions: offering may be considered exempt transaction if the following are met:
  - amount of offering is limited to no more than $5mil
  - no advertising or public solicitation
  - the offering is sold only to accredited investors

Question 19

Regulation D

Question 20

Rule 144A