THE PUBLIC OFFERING
· Issuers
o S1 v. S3
§ S1
· Non-Reporting Companies
· Unseasoned companies (report under ’34 Act but haven’t been doing so long enough to be able to use S3)
o Can still incorporate by reference
§ S3
· Which companies
o Seasoned Issuers (all S3 companies)
o WKSI (see Rule 405 for definition)
§ It’s like a “seasoned issuer +”
§ Can also use the automatic shelf offering
· Requirements (2 categories; must meet those w/in both)
o Registrant Reqs
§ w/in law of US
§ 12b of Exchange Act (reporting company)
§ Filed for the preceding 12 months (in a timely manner)
o Transactional Reqs
§ Either
· $75M outstanding stock (“public float”)
o Offering securities for cash provided that you’ve got outstanding stock held by non-affiliates of $75M+
§ Basically just really well-known companies that are probably already well-followed
· Non-convertible investment securities
o = don’t have to meet the 75M requirement
· So they get 2 big benefits
o 1) don’t have to include as much info in prospectus (only a streamlined prospectus describing the particular offering)
o 2) they can incorporate a lot by reference
o WKSIs (see Rule 405)
§ They’re so well-followed that they can issue before registering
§ Rule 405 Definition
· Meets the “seasoned issuer” reqs above
· Must meet either of the following reqs
o Equity Req
§ That worldwide mkt value of $700M or more (held by non-affiliates)
· Having enough equity held by non-affiliates goes along w/ the idea that having a ton in circulation will make people want to and actually follow your company
o Non-Convertible Securities (Bonds)
§ Reqs
· Issued in last 3 yrs an aggregate principle amt of at least $1B of non-convertible securities (other than C/S) &
· Is registering non-convert securities (other than C/S) only (unless eligible for C/S under equity reqs)
§ Underlying notion = diff’t mkt b/w stocks & bonds and there not being a problem talking about the bonds (non-convert) when there’s an upcoming stock offering
· Institutional investors buy the non-convert bonds & individuals are more likely to buy the stock
· So if you’re offering 1 kind then it’s ok to talk about the other kind
· Underwriters (defined in Section 2a11)
o 3 Types
§ 1) Standby
· = issuer sells directly to public and UW gets a fee for being willing to purchase securities not purch’d by the public
o So the issuer knows it’ll get a sum certain
· Mostly used in the context of “rights offerings” to employees (the unsubscribed portion must be bought by UW)
§ 2) Firm Commitment
· UWs take title and then they turn around and sell them
o Great for issuer b/c it’s a sum certain
o UWs take the risk that they won’t be sold to the public b/c they actually purchase them from the issuer
· May seem as though UW is bearing all the risk, but there’s certain out options
o Contingency stuff (wars, adverse mkt conditions, etc)
o But for the most part UWs don’t exercise their rights under the opt-out provisions
§ 3) Best Efforts
· UWs are basically just acting as agents – if we don’t sell them then too bad and if we do then good
· 3 Kinds
o 1) Straight
§ Like above – UWs agree to try to sell and whatever we sell we get a commission on (and the sale sticks) and whatever we don’t then sucks for you
o 2) All or None
§ Either UW sells all the securities or the offering doesn’t go through at all (any sale is contingent upon the whole offering being sold in its entirety; or else everyone gets their $ back and there’s no sale)
· Issuer will get either all that they want or nothing
· EX of where this is best for the issuer = issuer wants to build a factory and they’d rather just have it all to be able to spend it or none whatsoever b/c they’ve got no other uses for it
o 3) Mini/Maxi
§ Set a max and a minimum amt of $ to raise
· If we get the minimum then it goes through but if not then the offering is a failure and we’re not going to sell anything
o UW Liability
§ Defenses for S11 liability (listed in 11b)
· 11b3 = est’d by “engaging in due diligence”
o So UWs can avoid liab that’s based on reg stmt misstatements by engaging in due diligence in their confirmation that the info the issuer is giving it is accurate
· Note that for issuers = strict liability
o ’34 Act = basically only for intentional or reckless (in context of continuous disclosure scheme)
· Registration & Section 5 Liability
o Who is subject to Section 5
§ Laid out in Section 4 (which provides exemptions for Section 5)
· 4(1) = provisions of Section 5 don’t apply to transactions by any person other than an underwriter, dealer, or issuer (“control persons” – and those that sell for them – are considered issuers so they’re included)
o So, when you sell your own shares, you don’t have to worry about it (but if you were the issuer then you’d have to)
o Section 5 Process
§ Are we in registration?
§ Is this a violation of S5?
· Is this an offer to sell?
o Are there any safe harbors?
o 3 Main Periods
§ Pre-Filing Period
· 5c = no offers to sell or buy a security until filing
o Also applicable while refusal or stop order is in place
§ Waiting Period
· Section 5a1 = no sales of the security until effective date of registration stmt
· Section 5a2 = no delivery of the security until effective date of registration stmt
· Section 5b1 (applicable from filing through post-effective)
o After registration is filed = can’t use a form of prospectus unless it complies w/ Section 10 of ’33 Act reqs
§ Basically regulates written offers of any sort
§ Post-Effective Period
· Section 5b2 = no delivery unless accompanied/preceded by a 10a prospectus
· Section 5b1 = still applicable (any prospectuses must comply w/ Section 10)
o Gen’l Overview of Timing & Rules / Safe Harbors
§ Pre-Filing
· Section 5c = can’t offer to sell or buy in the pre-filing period
o Notice that 5c also includes offers to buy (unlike the rest of Section 5)
§ Application of this = make sure that – when you’re discussing the solicitor’s potential liability – Section 4(1) is applicable to that person (like that he’s a “dealer” or something)
· Someone like me wouldn’t be subject to any liability b/c 4(1) only covers issuers, UWs, and dealers
· Rules/Exceptions/Safe Harbors
o R135 (limited notice)
§ For issuer communicationsonly
§ Conditions
· Legend
· “Limited Notice Content” (amt, description of offering, anticipated time, etc; w/out naming UWs)
o EX = planned use of proceeds might be too much info
o Section 2a3 (preliminary negotiations b/w UW and issuer – about engaging in underwriting)
§ Def of “Sale/Sell” = says that “offer to buy” doesn’t include negotiations b/w issuer & any UW or among UWs who are or may become participants
§ 2a11 def of an “underwriter” = notes that it doesn’t include smaller firms that can’t actually underwrite but that are just helping to sell (so the 2a3 exemption doesn’t apply to them)
o R137 (research reports by non-participating brokers/dealers)
§ This is the only rule (among 137-139) that allows research reports regarding non-reporting cos.
§ Allows brokers & dealers to publish reports about issuers and securities where they’re not participating in the offering
· Takes them out of the definition of an “underwriter”
o Says that the terms “offers,” “participates,” or “participation” in 2a11 aren’t applicable under certain conditions
· The publishing broker-dealer (or its affiliates) can’t participate in the offering and can’t receive any consideration or be acting pursuant to agreement
o Subsequent Participation = may create a Section 5 violation if the report is thought to have “continuing effects”
§ So a dealer doesn’t have to worry about S5 until after the effective date, but if they publish a report like this they shouldn’t join beforehand
§ “Research Report” def (137e)
· Written communication that includes info, opinions, or recs w/ respect to securities of an issuer or an analysis of a security or issuer
o Doesn’t matter if it provides info reasonably sufficient upon which to base an investment
o R138 (research reports by brokers/dealers about securities other than those they’re distributing; Reporting Cos. only)
§ Says that certain reports aren’t considered “offers to sell” for purposes of 2a10 and 5c
§ Conditions (138a)
· 1) either (i) report is about C/S or convertible debt and the offering is non-convert debt or non-convert, non-participating P/S or (ii) vice versa
· 2) Reporting Issuer
o R139 (research reports by brokers/dealers distributing securities)
§ Says that certain reports won’t be considered “offers to sell” under 2a10 and 5c even if the broker/dealer
es investors are to follow to express their interest in the offering (a12)
o Intended use of the proceeds (a7)
§ 134b – – req’d inclusions in 134 communications
· 1) Legend
· 2) Info about how to obtain a S10 prospectus
§ R134d (interest card/form)
· Excepts certain written communications from “prospectus” def
· Conditions
o Accompanied/preceded by a Preliminary Prospectus
o Legend
§ Stmt that offers to buy or $ can’t yet be accepted (and that they can be w/drawn before acceptance after effective date)
o R430 (Preliminary Prospectus)
§ Auth’d pursuant to S10b
· Says that S10 is met for 5b1 purposes (during the waiting period)
o So you can send a “preliminary prospectus” (as broadly defined below) to anyone during the waiting period
§ “Substantially the same info” as req’d by S10 & rules is contained in it
· Or it can contain substantially the same info except for the omission of info w/ respect to
o Offering price
o UW discounts or commissions to dealers
o Amt of proceeds
o Conversion rates
o Call prices
o Other matters depending on price
o R431 (Summary Prospectus)
§ Auth’d pursuant to Section 10b
§ Various Reqs to it including
· Reporting co. for 36+ mos.
· No dividend pmt failures or other defaults w/in yr (by issuer or its subs)
· Notice of how to get a complete prospectus
o R433 (Free Writing)
§ Allows the release of supplemental info that’s not included in the reg stmt (classifies it as a preliminary prospectus under 10b as long as certain conditions are met)
§ See also R164 and R405 (def of terms)
· R164 = basically grants the allowance of a FWP (provided that the 433 conditions are met)
o And allows certain failures to comply w/ the 433 conditions
· R405 gives you the def of a “FWP”
o It’s basically any communication – post filing – that’s not covered by one of the other rules
§ Universal Conditions
· Legend (433c2i)
o R164c = allows 5b1 avoidance for “immaterial or unintentional” failures to comply – – so long as
§ 1) GF & reasonable effort was made to comply
§ 2) FWP is amended ASAP (after discovery of failure)
§ 3) Retransmitted w/ legend
· Filing Conditions (433d)
o Issuers (d1i) = must file…
§ “Issuer FWPs” (it’s a particular type of FWP; where issuer prepares, uses, or refers to it)
§ Issuer info from FWP used by other participants
§ Final Terms description
o UWs & other non-issuer participants (d1ii)
§ = only when reasonably designed to lead to “Broad Unrestricted Dissemination”
o R164b = allows 5b1 avoidance for “immaterial or unintentional” failures to file – – so long as
· Retention Condition
o = issuers and offering participants must retain for three years any free writing prospectuses that aren’t filed
o R164d = allows 5b1 avoidance for “immaterial or unintentional” failures to comply – – so long as a GF & reasonable effort was made to comply
· No Contradictory Info (433c)
o Info in FWPs can’t conflict w/ any info in the reg stmt or in anything inc’d by reference
§ Conditions that depend on the nature of the issuer
· WKSIs (b1) = can use at any time (even before filing the registration stmt)
· Seasoned (b1) = may use only after registration is filed (but no add’l reqs)
· Non-reporting/unseasoned (b2)
o Only after reg stmt is filed
o Must be preceded by most recent statutory prospectus (w/in Section 10)
Send them a Preliminary Prospectus 1st (that includes pricing info)