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The Registration-Distribution Process in Outline If securities are publicly offered by a company in the United States, the offering will generally require registration under the Securities Act with the Securities and Exchange Commission. Registration is a process designed to assure that appropriate information relating to the company will be filed with the Securities and Exchange Commission and distributed to prospective investors in narrative fashion as a prospectus. The Securities and Exchange Commission has no authority in this context to approve or disapprove of particular securities or companies; its authority is limited to determining the adequacy and accuracy of the information included in the registration statement and in the prospectus to be distributed to prospective investors. In most instances, securities publicly offered will be offered by an underwriting group consisting of broker-dealer firms with substantial investment banking departments. Underwriting groups are ad hoc affairs and differ with each underwriting. Typically, one or two investment banking firms will take the lead in organizing the underwriting group, and it is the lead or managing underwriter that conducts the negotiations with the company. Because of the net capital requirements of the SEC considerable capital is required for a broker-dealer firm to engage in a substantial firm underwriting and the underwriter inevitably will be at risk for a short period of time. The latter requirement dictates that the underwriter not become bound until immediately before the registration statement becomes effective under the Securities Act, and that the securities be distributed within a relatively short period of time. To expedite the rapid distribution of a public offering, the efforts of the underwriting group are typically supplemented by the formation of a selling group of additional broker-dealers. The generally utilized format for distributing a public offering of securities in the United States is of long standing and must be accomplished within the framework of the Securities Act of 1933 and applicable state blue sky laws.. The Corporate Financing Rules of the NASD (now FINRA) play a limited but important role as no broker-dealer can offer the securities until the Corporate Financing Department of FINRA determines that the underwriting commissions are fair and reasonable. See PART 9. -Prior to the filing of a registration statement, all activities to condition the market for the proposed offering were substantially precluded, except negotiations between the issuer and prospective underwriters and among members of the proposed underwriting group. A very limited Rule135 announcement was allowed. The Securities Offering Reform Rules that became effective on December 5, 2005 expand what is allowed in this regard, but in the case of an IPO not by much. See Rule 163A. There is also a limited opportunity to continue to release regularly released information provided not part of the selling effort. See Rule 169. Preparation of the registration statement and prospectus, which is an integral part of the registration statement, is a formidable task that requires the coordinated effort of counsel, the independent public accountants preparing the financial statements, and personnel of the company and the managing underwriter. After the registration statement has been filed, although sales cannot be effectuated, much can be done to organize a selling group and to condition the market for the offering. These steps must be undertaken, however, in strict compliance with the applicable requirements of the Securities Act that permit unrestricted oral communications and limited and prescribed written communications during this period. One of the principal objectives of the Securities Offering Reform (SOR) was to liberalize written communications after the filing of the registration statement. As we shall see as we go along that although broad in scope there is an entirely new regime that builds on and broadens the old and has its own limitations and prescriptions. A principal means of disseminating information during this period concerning the proposed offering continues to be the preliminary prospectus, which essentially is an incomplete (typically lacks offering price and list of underwriters) version of what will ultimately be distributed as the definitive prospectus. Offers to buy — which can be accepted only after the registration statement becomes effective and that can be revoked any time prior to acceptance — as well as indications of interest can be solicited subsequent to the filing of the registration statement and prior to its effective date, but must be done within certain prescribed constructs that we pursue in this course. The process of putting together an underwriting syndicate depends upon a finely tuned marketing effort commencing with the filing of a registration statement and continuing until the registration statement has been processed, necessary amendments have been filed in response to the staff’s comments, and the staff is prepared to recommend that the registration statement be declared effective. The marketing effort culminates in commitments from the members of the underwriting and selected dealers groups. These are formalized into an agreement among underwriters and an agreement between the managing underwriterss acting on behalf of all members of the underwriting group and the issuer setting forth the number of shares the underwriting group has agreed to purchase, the price of the shares offered to the public, and the underwriters’ discount. These agreements typically were executed the evening before the registration statement becomes effective and decisions as to pricing and the number of shares being purchased by the underwriter depended upon the marketing situation as it existed at that time. Prior to the adoption of Rule 430A, a pricing amendment would be flown overnight for filing with the Commission early the following morning, the staff would process it on a priority basis, and the registration statement would become effective early that morning. The Commission in one simple, but brilliant, stroke eliminated the anxieties and frustrations associated with pricing amendments since the adoption of the Securities Act. It did so in Rule 430A by the simple expedient of permitting the registration statement to become effective without the pricing information and allowing the pricing information to be included in a Rule 424(b) prospectus filed after the effective date. It is commonplace to divide the distribution process into the pre-filing period, the waiting period, and the post-effective period. This remains a relevant presentation format, although the effective date of the registration statement is no longer necessarily the demarcation between the waiting period and the post-effective period. Since the adoption of Rule 430A, the demarcation usually will be the pricing of the issue and in that event the relevant periods after filing the registration statement are before and after pricing. The Commission took a bold step in October of 1995, adopting an Interpretative Release relating to the use of electronic media (including Internet Web sites) for the delivery of disclosure documents, including the prospectus and preliminary prospectus. More significantly. the Securities Offering Reform introduces a number of new means of communication with prospective members of the underwriting group and prospective investors. This includes not only conventional road shows, but the very expanded use of electronic road shows (visit Retail RoadShow). All of which have to comply with the appropriate restrictions. How that unfolds will depend in significant part on securities practitioners and the extent the securities industry chooses to take advantage of the new public offering regime. There are some offsetting aspects of the new regime that will have to be taken into account--e.g. the increased exposure to Section 12(a)(2) private actions for alleged misrepresentations in the new styled free writing prospectus. See Rule 159A(a)(2). A Securities Act registration statement is filed with the Commission’s principal office in Washington, D.C. and must be filed electronically on EDGAR The registration statement will be processed by one of the examining groups supervised by a Branch Chief within the Division of Corporation Finance in Washington. Based upon staff review, the company will normally receive a comment letter with extensive comments that becomes the basis for filing an amended registration statement. Two three or more amendments each followed with a staff comment letter will follow before the registration statement becomes effective. We will spend considerable time covering the registration/distribution process as it plays out with an IPO. The EDGAR home page, to coin a phrase, of Netezza, which went public in the spring of 2007, covers the registration/distribution process from filing the initial registration statement to the effective date and the pricing prospectus. This is an outline, but only an outline (feel free starting with the S-1 to click and go behind the scenes) of the journey that we are about to embark on. During the period from the filing of te registration statement to the effective date, the SEC staff is reviewing and commenting on the registration statement and the amendments filed in response to staff comments, the underwriter is marketing the securities within the confines of the legal framework that permits offers but not sales after the filing of the registration statement and prior to the effectiveness of the registration statement. The so-called “waiting period” is intended to provide a period of time during which those who will ultimately be involved in the distribution process as well as the investing public have an opportunity to become informed about the security offered without the necessity of making an immediate decision while under sales pressure. The administrative process has procedural "safeguards" that in practice assure only that registrant may be able to obtain a higher level staff review. Conceptually, the staff may initiate a stop order proceeding to keep any public offering from going forward, the would be registrant is entitled to notice and opportunity of hearing, and the SEC's decision can be reviewed by an appropriate Circuit Court of Appeals. See Securities Act § 8(b), and 9(a). Fortuitously, stop orders are seldom employed except in the case of a seriously defective registration statement. A stop order sounds the death knell of any public offering notwithstanding the right to challenge it in a hearing before the Commission and appellate review. The successful distribution of securities has two principal facets. First, organizing an underwriting group to share the underwriting risks. Second, organizing the selling group to sell the securities. Both of these events occur during the waiting period between the filing of the registration statement and the pricing of the securities, typically immediately before the registration statement becomes effective or shortly (within days at the most) after effectiveness of the registration statement. Pricing historically occurred on the evening before the day on which the registration statement is expected to become effective. Rule 430A, however, permits pricing to occur after the registration statement is declared effective by the SEC. The marketing of the securities to investors proceeds concurrently with the organization of the selling group as broker-dealers become members of the selling group based on their efforts in marketing the securities to their customers. The selling group function is blurred to some extent as members of the underwriting group, which in their capacity as such only share the underwriting risks, may also retain securities for sale by their own brokers if they have a retailing capacity. The Commission now makes available on its web sites comment letters the staff sends to filers and response letters it receives from the filer. To take a peak go to the EDGAR archive and use UPLOAD as the search term for SEC comment letters and CORESP for filers' response.
Wall Street Journal -- 1999 Banner Year for IPOs A November to Remember--Red Herring Internet IPOs had commenced in earnest in 1995, with three of the browser companies (PSI Net, Spyglass, and Netscape) that provided the technology that made the Internet a tool that anyone with a modicum of personal computer know-how could traverse. There has been no “hot new issue” market as overheated as the Internet driven IPOs of circa November 1998–April 2000. In 1999, there were 544 IPOs, in 2000 there were 448, and in 2001 there were 97.[2] INTERNET BUBBLE-READ MORE For a somewhat more recent look, check out the following from the Wall Street Journal IPO Section (use book markets to navigate) For a more recent view click HERE. The type of companies going public changes, sometimes almost month to month, depending on the type of company that will find the market receptive to an IPO. That means as the securities counsel responsible for preparation of the registration statement you will have to learn all about the company and the industry in which it operates. Oil prices surge and a recently out of bankruptcy refinery in Kansas acquired by a private equity company finds a receptive market to its IPO. Click HERE. So-called internet social networking companies attract a large number of hits, the market becomes receptive to an IPO and you have to learn all about the social networking industry. Click HERE. The economy in China takes off and Chinese companies go public in the U.S. and list on a U.S. stock exchange, but each flies on its own. Click HERE. Can you pick a winner? Click HERE. All of this is not only the challenge in taking a company public, but the opportunity to grow in your experience-career. [1] For an excellent blow-by-blow account of the rise and fall of Internet-related IPOs from Netscape through August, 2001, see John Cassidy, dot.con (HarperCollins 2002). An appendix, styled “dot.con data bank,” includes in chronological order substantially all Internet related IPOs during that period with, among other things, date of offering, number of shares offered, revenues for four quarters immediately preceding the offering, offering price, first day of trading closing price, all time high, market cap based on offering price, market cap at 3/10/00 for companies that had gone public prior to that that date, market cap at 8/31/01. [2] See Renae Merle, A Fusillade of Defense IPOs, Wash. Post, May 17, 2002, p.E01 (Source Dealogic CommScann).
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