The Waiting Period — From Filing to Pricing

A Securities Act registration statement is filed with the Commission’s principal office in Washington, D.C. 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 which becomes the basis for filing an amended registration statement. During this period the SEC staff is reviewing and commenting on the registration statement and 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 (in particular the broker-dealer members of the selling group) 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 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 shortly (within days at the most) after effectiveness of the registration statement. Rule 430A 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.

Solicitations of interest or offers to buy during the waiting period although changed in some important respects by the Securities Offering Reform rules (SOR) continue to be governed by the following statutory provisions and rules:

Section 5(b)(1) provides that it is unlawful to use the jurisdictional means to “transmit any prospectus relating to any security with respect to which a registration statement has been filed . . . unless such prospectus meets the requirements of section 10.”

Section 2(a)(10) defines a prospectus as an offer to sell a security “written or by radio or television.” This excludes from the definition of a prospectus any oral communication made in person or by telephone. Securities, therefore, can be offered and offers solicited after a registration statement is filed if this is done orally in person or by telephone, provided the offer does not ripen into a contract of sale.

Section 2(a)(10) also provides that a written communication will not be deemed a prospectus if it states from whom a prospectus meeting the requirements of Section 10 may be obtained and, in addition, does no more than identify the security, state the price thereof, by whom orders will be executed, and contains other information the Commission permits by rule. The Commission adopted Rule 134 pursuant to this provision, as is discussed further below.

Rule 430 provides that a preliminary prospectus will be deemed a prospectus meeting the requirements of Section 10 of the Act for the purposes of Section 5(b)(1). If the registration statement becomes effective under Rule 430A without the pricing information, the Rule 430A prospectus, which like a Preliminary Prospectus is the prospectus without the pricing information, can be used after the effective date in the same manner as a Preliminary Prospectus until the issue has been priced.

A Rule 134 communication is a slightly expanded tombstone advertisement that can include a brief general description of the issuer’s business and can be used to solicit inquiries for a preliminary prospectus which can then be followed up with telephone calls. It can be used to solicit offers to buy or indications of interest during the waiting period, but only if (1) if it is accompanied or preceded by a preliminary prospectus and (2) the communication contains the following Rule 134(d) legend (We see in Part 5A that SOR has to a limited extent expanded the information that can be included in a Rule 134 communication.):

No offer to buy the securities can be accepted and no part of the purchase price can be received until the registration statement has become effective, and any such offer may be withdrawn or revoked, without obligation or commitment of any kind, at any time prior to notice of its acceptance given after the effective date. An indication of interest in response to this advertisement will involve no obligation or commitment of any kind.

As we shall see in due course, an expanded Rule 134 communication (thanks to SOR) continues to play a significant role during the waiting period, although overshadowed by the SOR free writing prospectus.

Section 10(a), which defines a statutory prospectus, and Section 10(b), which permits the Commission by rule to provide that something less meets the requirements of a statutory prospectus.

All of the above remain relevant under SOR, but SOR as we discuss in Part 5A builds on the above to liberalize communications during the waiting period. The pre SOR regulatory scheme permitted the following selling practices (solicitations of interest or offers to buy) during the waiting period:

(a) Orally. Much of what is involved in putting together a selling group and marketing securities to institutional and other potential investors involves telephone conversations, personal visitations, and road shows for the benefit of prospective members of the selling group and institutional investors.

(b) By distributing copies of the Preliminary Prospectus before the effective date and the Rule 430A prospectus after the effective date if the offering has not been priced.

(c) By distributing a tombstone or a limited communication conforming to Rule 134. If used to solicit indications of interest it must be accompanied or preceded by the Preliminary Prospectus and must contain the Rule 134(d) legend.

(d) Written communications (“free writing”) which are not a Rule 430 Preliminary or Rule 430A Prospectus or which did not conform to Rule 134 prior to SOR could not be distributed during the waiting period. As we shall see in connection with Part 5 A it is in this area and the introduction of the Rule 433 free-writing prospectus that SOR has the biggest impact in liberalizing communications during the waiting period.

(e) A Rule 431 summary preliminary prospectus also could be used during the pre-filing period, but only by registrants which have been reporting companies for at least three years and meet certain other requirements. Such summary preliminary prospectuses are seldom used since they do not satisfy the requirement that there be an adequate distribution of the preliminary prospectus during the pre-filing period in order to obtain acceleration.

The Preliminary Prospectus (Rule 430 subject to completion prospectus and/or Rule 430A Prospectus if the selling effort continues after the effective date) have been the basic disclosure document during the period in which the issue is really sold. SOR changes this scheme of things, primarily by providing subject to a number of conditions the use of a Rule 433 free writing prospectus.

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. Recall taking a company public in five minutes relating to Netezza. We take a closer look at the EDGAR home page of NETEZZA CORP, which reflects a typical public offering. Work backwards starting with page 2, then 1; ignore the first 5 filings which relate to exempt offerings before it filed its registration statement on Form S-1 covering its initial public offering (IPO) on March 27, 2007.The issuer received a COMMENT LETTER (UPLOAD) from the SEC staff on April 20, The company filed its first amendment (S-1/A) on May 4, 2007. It also filed a Form 8-A to register the securities under the Exchange Act on the same date. On May 15, 2007 it filed the second amendment to the Form S-1 (S-1/A), solely for the purpose of including certain exhibits. On June 2 and June 6, 2007 the SEC staff sent additional comment letters (UPLOAD) to the company On June 13, 2007 the company filed amendment no. 3 (S-1/A) to the registration statement. An additional comment letter from the staff on June 21, 2007, a response (CORRESP) on June 25, 2007 from the company's counsel (51 pages, but in fact only 8 in response to the staff comments; remaining pages are amendments intends to make in Amendment No. 4 to the registration statement to reflect response to staff) and a further comment letter (UPLOAD) on June 25 from the staff. Refers to will have further comment on request for confidential treatment. Amendment. No. 4 (S-1/A) filed on June 28, 2007 This amendment for the first time included the number of shares to be offered and the range of the offering price. Regulation S-K Instruction 1 to Item 501(b)(3)( provides that a company that does not have a class of securities registered under the Exchange Act (which is almost always the case of an IPO), a preliminary prospectus cannot be circulated unless it includes on the cover page a bona fide estimate of the number of shares offered and range of offering price. The marketing effort does not begin in earnest until the preliminary prospectus can be circulated. Another comment letter from the staff on the same date. Amendment no. 5 is filed on July 3, 2007. Still another staff comment letter on July 9, 2007 raising an issue that threatens to hold up the effective date of the registration Two requests for acceleration filed on July 16, 2007; one by the issuer and the other by the underwriter setting forth the distribution of the preliminary prospectus an essential requirement to obtain acceleration of the effective date. On July 17, 2007 counsel to the issuer responded directly to the issue raised in the staff's July 9, 2007 letter, which threatened to delay the effectiveness of the registration statement.. The staff apparently accepted the counsel's explanation as on July 18, 2007 the Commission (EFFECT) declared the registration statement effective. This also simultaneously resulted in the registration of the securities under the Exchange Act pursuant to the Form 8-A filed earlier. On July 19, 2007 the issue is priced and sold in a matter of hours and a pricing amendment to the prospectus is filed as a Rule 424(b) (424B4) prospectus. The issue was a big success as is apparent from the fact that the offering price range in the earlier filings was $9 to $11 a share and it was priced in the 424(b) prospectus at $12. a share with aggregate offering proceeds of $108 million. From filing the registration statement to effective date almost 4 months.

The distribution in a matter of hours on July 19 did not occur as a result of magic. While the registration process was in progress the marketing effort was taking place concurrently. 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 underwriters 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 depend upon the marketing situation as it exists 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.

The Rule 430 prospectus is the prospectus without the pricing information on which the registration statement becomes effective. It need not be delivered to anyone and does not constitute a prospectus for the purposes of Section 5(b)(1) which prior to SOR required that a definitive prospectus accompany or precede the confirmation. Presumably, in most instances, the pricing information will be filed timely pursuant to Rule 424(b) and that prospectus is the final prospectus, which can be delivered but is no longer required to be delivered (unless a purchaser(s) request delivery) with the confirmation. The Rule 430A prospectus can be used after the effective date in those instances in which a pricing decision still has not been made, much as a Rule 430 preliminary prospectus, and with an appropriate legend to reflect the fact that it is not complete. .We pursue the process of going effective later and our primary interest at this point and Part 5A is the means that can be employed to market the security during the so-called waiting period.

In a sense we have put the cart before the horse. We started with the assumption that a registration statement/prospectus was filed with the Commission and that the amendments just occurred as a matter of course. We do not discuss the preparation of the registration statement until Part 11. The preparation of the registration statement typically may take two to three months and involve numerous drafting sessions between the issuer's SEC counsel and the lead underwriter's counsel and representatives of the issuer and the lead underwriter. The preparation of amendments involves a flurry of activity as counsel seek to respond to the staff comments and the drafting sessions take on a sense of urgency as the marketing effort progresses. We elect to discuss the significant changes in the offering process brought about by SOR as of December 5, 2005 prior to discussing the preparation of the registration statement.