1.4 Offerings

What must a Registration Statement contain?

1. A description of the issuer's business 2. The names and addresses of company officers and directors, their salaries, and a five-year business history of each 3. The amount of corporate securities company officers and directors own and identification of investors who own 10% or more of the company. 4. The companies capitalization, including its equity and debt 5. A description of how the proceed will be used 6. Whether the company is involved in any legal proceedings

What elements must be in the final prospectus

1. Description of the offering 2. Offering price 3. Selling discounts 4. Offering date 5. Use of the proceeds 6. The history of the business 7. The risks to the purchasers 8. Description of the Mgmt 9. Material Financial Info 10. SEC Disclaimer 11. The description of the underwriting, but not the actual contract 12. Statement of the possibility that the issue's price may be stabilized 13. Legal opinion concerning the formation of the corporation.

What is exempt from state registration requirements?

1. Isolated nonissuer transactions 2. Unsolicited transactions

Restricted persons, those not allowed to purchase IPO shares at POP are defined as?

1. Member firms 2. Employees of member firms 3. Finders and fiduciaries acting on behalf of the managing underwriter, including attorneys, accountants, financial consultants, etc. 4. Portfolio managers, including any person who has the authority to buy or sell securities for a bank, savings and loan association, the insurance company, or investment company. 5. Any person owning 10% or more of a member firm. Immediate family of any of these people are also excluded from participation.

What do IPO rules ensure happens?

1. Members make a bon fide public offering of securities at the public offering price 2. Members do not withhold securities in a public offering for their own benefit or use such securities to reward person who are in a position to direct future business to the member 3. Industry insiders, such as members and their associated persons, do not take advantage of their insider status to gain access to new issues for their own benefit at the expense of public customers.

What is the only information allowed in a Tombstone Ad?

1. Name of the issuer 2. Type of security being offered 3. Number of shares to be sold 4. POP (or a range) 5. Names of the underwriting members (when placed by the underwrites instead of the issuer)

How does The Securities Act of 1933 protect investors?

1. Requires registration of new issues that are to be distributed interstate 2. Requires issuer to provide full and fair disclosure about itself and the offering 3. Requires an issuer to make available all material information necessary for an investor to judge the issue's merit. 4. Regulates the underwriting and distribution of primary and secondary issues 5. Provides criminal penalties for fraud in the issuance of new securities.

During the cooling-off period, underwriters CAN do these things?

1. Take indications of interest 2. Distribute preliminary prospectus 3. Publish tombstone advertisements to provide information about the potential availability of securities

What securities are exempt from filing requirements?

1. U.S. government securities 2. Municipal Bonds 3. Commercial Paper and banker's acceptances that have maturities of less than 270 days Insurance policies and fixed annuity contracts (but not variable annuities) 4. National and state bank (not bank holding company) securities 5. Building and loan (S&L) securities 6. Charitable, religious, educational, and nonprofit assoc. issues 7. Interests in railroad equipment certificates Banks

What is the Cooling-off Period and how long is it?

After the issuer files a registration statement with the SEC the period begins. The registration will become effective as early as 20 calendar days after the date the SEC has received it. In practice, however, the cooling-off period is seldom the minimum 20 day, the SEC usually take longer to clear registration statements.

What are the two types of Best Efforts underwritings should you be aware of?

All-or-none (AON) Mini-max

Additional Public Offerings (APO)

Also known as Follow-on Offerings. The offerings are subsequent money raises after the IPO. They are popular methods for companies to raise additional equity capital in the capital markets through stock issue.

Offering Circular or Notice of Sale (exempt disclosure doc)

An abbreviated prospectus used by corporations issuing less than $5 million in stock.

Who is bound by State Registration requirements under the USA?

BDs Investment advisers Investment adviser reps RRs

Self-Offering Registration

Is an issuer who is already a publicly traded company and can register new securities without selling any of the shares until later or some of the shares initially, and waiting to sell the remaining portion of the shares. Once filed, the registration is good for two years and allows the issuer to sell portion of a registered shelf offering over a three-year period without having to reregister the security. This provision under the 1933 securities act allows issuers to quickly raise capital when needed or when market conditions are favorable.

Free-Writing Prospectus (FWP)

Is any communication that does not meet the standards of a statutory prospectus. An FWP is typically far shorter and less detailed than a statutory prospectus. Ex. Term sheer, a video, dedicated web page that provides background on the offering. The FWP cannot be inconsistent with the statutory prospectus, but may provide additional or supplemental information.

When must investor be given the final prospectus?

It must precede or accompany all sales confirmations.

What is the primary purpose of the Securities Act of 1933?

It requires full and fair disclosure in connection with the sale of securities to the public. The act requires that a new issue, unless specifically exempted from the act, must be registered with the SEC before public sale. All investors must receive a detailed disclosure know as a prospectus before purchase.

What is a Mini-Max Best Effort underwriting?

It sets a floor or minimum as well as a ceiling or maximum on the dollar amount of securities the issuer is willing to sell. The underwriter must locate enough interested buyers to support the minimum (floor) issuance requirement. Once the minimum is met, the underwriter can expand the offering up to the maximum (ceiling) amount of shares the issuer specified.

During the cooling-off period, underwriters may NOT do these things?

Make offers to sell the securities Take orders Distribute sales literature or advertising material

Limitations of solicitations during the Cooling-off Period

No one call solicit sales of the securities but "indications of interest" may be taken and solicited with a preliminary prospectus known as Red Herring.

Exempt Securities & Transactions Full Disclosure Documents Include:

Official Statement Notice of Sale Offering Circular

Preliminary Prospectus (Red Herring)

Can be used as a prospecting tool, allowing issuers and underwriters to gauge investor interest and gather indication of interest. There is no final price included and must be made available to any customer who expresses interest in the securities during the cooling-off period.

How are Best Efforts deals closed?

Client funds are collected into an escrow account, so no underwriter capital is at risk in these types of offerings. The underwriter is acting as an agent contingent on the underwriter's ability to sell shares in either a public offering or a private placement. The underwriter is not at risk for the shares, but the issuer is. If all of the shares cannot be sold, the issuer will not raise the needed capital.

Public Securities Offering

Securities are offered and sold to the investing public. To facilitate this, companies will use the services of investment bankers and BDs, known as underwriters of the securities. The offering can be advertised to the public, raise relatively large amounts of capital via the sale of stocks or bonds, and may attract investors with smaller budgets and less investment sophistication.

Transactions exempt from registration

Securities offered by industrial, financial, and other corps may qualify for exemption from registration statement and prospectus requirements under one of these exclusionary provisions: 1. Regulation A-small and medium corporation offerings 2. Regulation D-private placements 3. Rule 147-securities offered and sold exclusively intrastate 4. Regulation S-offers and sales made outside the United States by US Issuers

Official Statement (exempt disclosure doc)

Serves as a disclosure doc and contains any material information an investor might need about a municipal bond issue. It must be signed by an officer of the issuer. It is the municipal securities industry's equivalent of the corporate prospectus. Issuers are ultimately responsible for preparing the contents of but the underwriters are required to perform due diligence and review all disclosure docs.

What does a representative had to do before selling an IPO to any account?

They are required to obtain a written representation from the account owner(s) that the account is eligible to purchase a new common stock issue at the POP (Public Offering Price).

Best Efforts Underwriting (Firm Acting as Agent)

This called for underwriters (syndicate to buy securities from the issuer acting simply as an agent, not a principal. This means that the underwriters are not committed to purchase the shares themselves, and are therefore not at risk.

Split Offering

This is the combination of a Primary and Secondary Offering. In a Split Offering, the corporation issues a portion of the shares offered to the public and existing shareholders offer the balance.

Coordination (state registration)

This is when the issuer files with the state at the same time it files with the SEC. Registration is effective at the time the federal filing becomes effective.

Private Securities Offering (Private Placement)

This occurs when the issuing company, usually with the assistance of an investment bank, sells securities to private investors as opposed to the general investing public. Although private placement buyers tend to be institutional investors, securities may be sold to small groups of wealthy individuals who meet certain net worth and income criteria. Private placements are generally exempt from the registration requirements of the Securities Act of 1933.

Secondary Offering (Proceeds Pain to Nonissuer)

This offering is one in which one or more stockholders in the corporation are selling all or a major portion of their holdings to the public. The proceeds of the sale are paid to the stockholders rather than to the corporation.

Primary Offering (Proceeds Paid to Issuer)

This offering is one in which the proceeds raised to the issuing corporation. They are done in the primary (new issues) market. The corporation increases its capitalization by selling stock (either a new issue or previously authorized but unissued stock). It may do this at any time and in any amount, provided the total stock outstanding never exceeds the amount authorized in the corporation's bylaws.

Underwriter (syndicates)

Those who assist Issuers. They are typically groups of BDs or investment bankers who will work with an issuer through the registration process and ultimately bring the securities to the market to sell them to the investing public. Syndicate members often specialize in different types of underwritings.

What is the main purpose of The Securities Act of 1933?

To ensure that the investing public is fully informed about the security and its issuing company when the security is first sold in the primary market.

Unsolicited transactions (state registration exempt)

Transactions initiated by the client, not the agent or rep

Isolated non-issuer transactions (state registration exempt)

Transactions occurring in secondary market (non-issuer) that occur infrequently (very few transactions per agent/rep per year, and the exact number varies by state). These transactions generally do not involve securities professional.

Issuer

the individual or business organization offering a security for sale to the public

Tombstone Ads

Are an announcement and description of the securities to be offered BEFORE offerings effective date. They are the only permissible forms of advertising during the period from when the registration statement is filed and the effective date of the offering.

What are the two main types of Underwriting Agreements (Commitments)

Best Efforts Underwriting (Firm Acting as Agent) Firm Commitment Underwriting (Firm Acting as Principal)

What are the two ways that states require registration of securities sold within the state?

Coordination Qualification

Under what conditions can a restricted person purchase new equity issues (IPO)?

De minimis exemption is if the beneficial interests of the restricted persons do not exceed 10% of an account, then the account may purchase a new equity issue. In other words, restricted persons will be able to have an interest in an account that purchases new equity issues as long as no more thn 10% of the account's beneficial owners are restricted persons.

Registration Statement revisions and Cooling-off Period

If the SEC finds that the registration statement needs revision or expansion, it will suspend the review and issue a deficiency letter to the issuer. The 20-day cooling-off period would resume when the issuer submits a correction. Note that it resumes where it had left off and does not begin anew.

Qualification (state registration)

If the registration cannot be accomplished by coordination or filing, it must be registered by qualification. In this situation, the issuer must respond to any requirements the state specifies. This type of registration is effective only when so ordered by the state Administrator. It is the most difficult way of registering the securities in State.

What is an All-or-none (AON) Best Efforts underwriting?

In an AON underwriting, the issuing corporation has determined that it wants an agreement outlining that the underwriter must either sell all of the shares or cancel the underwriting. Because of the uncertainty over the outcome of an AON offering, any funds collected from the investors during the offering period must be held in escrow pending final disposition of the underwriting.

Insurance policies as securities

Insurance policies are not included in the definition of security, however, variable annuities, variable life insurance, and variable universal life insurance are funded by separate accounts investing in securities. Therefore, these products must be registered as securities with the SEC.

What is an Indication of Interest?

Is an investor's declaration of potential interest in purchasing some of the issue from the underwriter after the security comes out of registration. An investor's indication of interest is not a commitment to buy because sales are prohibited until after the registration becomes effective (the effective date). In that light, it should be recognized that indications of interest are neither binding on buyers nor sellers.

Other than The Securities Act of 1933, how else is it referred to?

Paper Act Full Disclosure Act New Issues Act Truth in Securities Act Prospectus Act

What are some types of prospectus?

Preliminary Prospectus (Red Herring) Free-Writing Prospectus (FWP) Final Prospectus

Name the types of Offerings

Primary Offering (Proceed Paid to Issuer) Public Securities Offering Private Securities Offering (Proceeds Paid to Nonissuer) Split Offering

What is the purpose of the Uniform Securities Act (USA)

Provide the legal framework for the state registrations of securities. It may be adopted by individual states and adapted to their needs.

Under what "Act" are Public Securities Offerings Regulated?

Securities Act of 1933. Typically, they are more tightly regulated under this act and are subject to the more stringent federal registration and prospectus requirements than private securities offerings.

What is a common Secondary Offering situation?

Secondary offering occurs in situations in which the founder of the business and perhaps some of the original financial backers determine there is more to be gained by selling their shares to the public rather than holding them.

State Registration Requirements (Blue Sky)

State laws that pertain to the issuance and trading of securities. They are known as blue sky laws because of a statement made by a Kansas Supreme Court justice who refereed to "speculative schemes that have no more basis than so many feet of blue sky."

What is a Prospectus

The SEC under the Securities Act of 1933 requires full and fair disclosure of all material information and facts regarding the issuance of securities. This disclosure is done via prospectus, which is required to provide investors enough information to make fully informed buying decisions.

Initial Public Offering (IPO)

The first time an issuer distributes securities to the public. They are popular methods for companies to raise additional equity capital in the capital markets through stock issue.

What is an offering

The issue of or sale of a security, such as stocks or bonds made available to investors

Prospectus Delivery Requirements Period

The specified period after the effective date in which the final prospectus must be delivered to all buyers in the secondary market.

Capitalization

The sum of a corporation's long-term debt, stock, and surpluses. Syn invested capital

Do IPO and APO have to go through the SEC registration process?

Yes

Can the underwriter assist the issuer with the Registration Statement?

Yes, but the accuracy and adequacy of the documents is the responsibility of the issuer.

Notice Filing (State registration provision)

Under the National Securities Markets Improvement Act of 1996, certain categories of securities, such as those listed on national exchanges and investment companies registered under the Investment Company Act of 1940, are deemed to be federal covered. The effect of this designation is that states do not have jurisdiction over the registration requirements of these securities. However, the act did provide that states could require the filing of a notice to sell securities in that state along with the payment of a filing fee. It's not a form of registration and used only for federal covered securities.

Does a Tombstone Ad have a disclaimer?

Yes, it is as follows: "This announcement is neither an offer to sell nor a solicitation of an offer to any of these securities. This offer is made only by prospectus."

Firm Commitment Underwriting (Firm Acting as Principal)

Under this contract, the underwriters contract with the issuer to buy the securities. The underwriter buys the shares from the issuer and resells the securities to the public at a higher price (the POP) and earns this price differential (spread) for its efforts. The firm may never guarantee to a customer that it will agree to repurchase the shares at the POP if the deal subsequently trades lower.

Final Prospectus

When the registration statement becomes effective, the issuer amends the preliminary prospectus and adds information, including the final offering price for the final prospectus. RRs may then take orders from those customers who indicated interest in buying during the cooling-off period.