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Securities Offering Reform (Part I) Presentation to Colorado Bar Association Securities Subsection Luncheon September 15, 2005.

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Presentation on theme: "Securities Offering Reform (Part I) Presentation to Colorado Bar Association Securities Subsection Luncheon September 15, 2005."— Presentation transcript:

1 Securities Offering Reform (Part I) Presentation to Colorado Bar Association Securities Subsection Luncheon September 15, 2005

2 Overview New Categories of Issuers New Categories of Issuers Liberalized Shelf Registration Liberalized Shelf Registration Prospectus Delivery Reforms Prospectus Delivery Reforms Clarification of Liability Issues Clarification of Liability Issues Additional Disclosures Required in Periodic Reports Additional Disclosures Required in Periodic Reports

3 NEW CATEGORIES OF ISSUERS

4 WKSIs A WKSI is an issuer that: is required to file reports pursuant to Section 13(a) or Section 15(d) of the Exchange Act; is required to file reports pursuant to Section 13(a) or Section 15(d) of the Exchange Act; is eligible to use either Form S-3 or Form F-3; is eligible to use either Form S-3 or Form F-3; satisfies either the public float test or the issuance test; and satisfies either the public float test or the issuance test; and is not an ineligible issuer. is not an ineligible issuer.

5 Expanded Form S-3 Eligibility Expanded for majority-owned subsidiaries – now allows for: Expanded for majority-owned subsidiaries – now allows for: S-3 registration of guarantees of non-convertible securities issued by the parent S-3 registration of guarantees of non-convertible securities issued by the parent S-3 registration of guarantees of non-convertible securities issued by a “sister” subsidiary S-3 registration of guarantees of non-convertible securities issued by a “sister” subsidiary

6 Public Float Criteria Worldwide market value of at least $700 million Worldwide market value of at least $700 million Determined in a manner consistent with the existing public float requirements for Form S ‑ 3 eligibility Determined in a manner consistent with the existing public float requirements for Form S ‑ 3 eligibility

7 Issuance Criteria At least $1 billion in aggregate principal amount of non ‑ convertible securities issued in registered transactions in the last three years At least $1 billion in aggregate principal amount of non ‑ convertible securities issued in registered transactions in the last three years Primary offerings for cash registered under the Securities Act Primary offerings for cash registered under the Securities Act exchange offers and Rule 144A offerings not included in the calculation exchange offers and Rule 144A offerings not included in the calculation May include guarantees May include guarantees(cont.)

8 Issuance Criteria A WKSI that satisfies only the issuance test will be considered a WKSI only in connection with the registration of non ‑ convertible securities and full and unconditional guarantees of certain securities; but A WKSI that satisfies only the issuance test will be considered a WKSI only in connection with the registration of non ‑ convertible securities and full and unconditional guarantees of certain securities; but If the issuer has a public float of at least $75 million and is therefore able to register a primary offering of its securities on Form S ‑ 3 or Form F ‑ 3, the limitation does not apply If the issuer has a public float of at least $75 million and is therefore able to register a primary offering of its securities on Form S ‑ 3 or Form F ‑ 3, the limitation does not apply

9 Eligibility Determination Date As of the later of As of the later of (i) the time of filing of the issuer’s most recent shelf registration statement or (i) the time of filing of the issuer’s most recent shelf registration statement or (ii) the time of its most recent amendment to the shelf for purposes of complying with Section 10(a)(3) of the Securities Act (ii) the time of its most recent amendment to the shelf for purposes of complying with Section 10(a)(3) of the Securities Act 60 day window period 60 day window period

10 Other New Categories of Issuers Seasoned Issuers – Issuers eligible to use Form S-3 for primary offerings. Seasoned Issuers – Issuers eligible to use Form S-3 for primary offerings. Unseasoned Issuers – Issuers not eligible to use Form S-3 or Form F- 3 for primary offerings. Unseasoned Issuers – Issuers not eligible to use Form S-3 or Form F- 3 for primary offerings. Non-Reporting Issuers –Issuers not required to file Exchange Act reports. Non-Reporting Issuers –Issuers not required to file Exchange Act reports. Ineligible Issuers – Includes, among others: Ineligible Issuers – Includes, among others: blank check companies, shell companies and penny stock issuers; blank check companies, shell companies and penny stock issuers; reporting issuers not current in their Exchange Act reports; reporting issuers not current in their Exchange Act reports; issuers who have filed for bankruptcy or insolvency in the past three years; and issuers who have filed for bankruptcy or insolvency in the past three years; and issuers who have violated anti-fraud rules during the past three years. issuers who have violated anti-fraud rules during the past three years.

11 LIBERALIZED SHELF REGISTRATION

12 Automatic Shelf Registration WKSIs only WKSIs only Registration statement on Form S ‑ 3 or Form F ‑ 3 Registration statement on Form S ‑ 3 or Form F ‑ 3 Unspecified amounts, of different types of securities, for primary or secondary sale Unspecified amounts, of different types of securities, for primary or secondary sale But “issuance test” WKSIs only permitted to register non-convertible equity unless $75 million public float But “issuance test” WKSIs only permitted to register non-convertible equity unless $75 million public float

13 Automatic Shelf Registration (cont.) Exclusion of information from base prospectus Exclusion of information from base prospectus whether the offering is a primary or secondary offering (and the identity of any selling securityholders) whether the offering is a primary or secondary offering (and the identity of any selling securityholders) description of the securities to be offered (other than identification by name or class ) description of the securities to be offered (other than identification by name or class ) plan of distribution plan of distribution identification of other issuers identification of other issuers

14 Automatic Shelf Registration (cont.) “Pay-as-you-go” Fees “Pay-as-you-go” Fees No payment at time of filing No payment at time of filing Pay the fee within the time required to file 424 prospectus Pay the fee within the time required to file 424 prospectus Can be paid in advance (as currently) Can be paid in advance (as currently) Update “Calculation of Registration Fee” table in prospectus supplement or post-effective amendment Update “Calculation of Registration Fee” table in prospectus supplement or post-effective amendment Not mandatory (check the box) Not mandatory (check the box)

15 Codification of Base Prospectus New Rule 430B New Rule 430B All registrants may omit information from a base prospectus that is “unknown or not reasonably available” at the time of filing a registration statement. All registrants may omit information from a base prospectus that is “unknown or not reasonably available” at the time of filing a registration statement. WKSIs can omit additional information WKSIs can omit additional information Information omitted from the base prospectus, can be included in: Information omitted from the base prospectus, can be included in: a prospectus supplement, a prospectus supplement, a post-effective amendment (which is subject to SEC review for issuers other than WKSIs), or a post-effective amendment (which is subject to SEC review for issuers other than WKSIs), or where permitted, through an Exchange Act filing incorporated by reference into the registration statement where permitted, through an Exchange Act filing incorporated by reference into the registration statement

16 Selling Securityholders and Resale Registration Statements WKSIs may omit the identity of selling securityholders, without condition WKSIs may omit the identity of selling securityholders, without condition Seasoned issuers may omit the identity of selling securityholders if the following conditions are met: Seasoned issuers may omit the identity of selling securityholders if the following conditions are met: the initial transaction completed, the initial transaction completed, the registration statement identifies the original offering, and the registration statement identifies the original offering, and the securities are outstanding prior to the time of the initial filing of the resale registration statement. the securities are outstanding prior to the time of the initial filing of the resale registration statement. Qualified issuers may use a prospectus supplement to identify selling security holders and the amounts of securities to be sold Qualified issuers may use a prospectus supplement to identify selling security holders and the amounts of securities to be sold

17 Duration Prior rule - shelf registration statement limited to securities reasonably expected to be sold within two years of the effective date Prior rule - shelf registration statement limited to securities reasonably expected to be sold within two years of the effective date New rule - shelf registration statement can be used for up to three years after effectiveness New rule - shelf registration statement can be used for up to three years after effectiveness Any unsold securities covered by the prior registration statement and/or any paid but unused fees in connection with a prior registration statement can be carried over to the new registration statement Any unsold securities covered by the prior registration statement and/or any paid but unused fees in connection with a prior registration statement can be carried over to the new registration statement

18 Additional Changes Elimination of “convenience shelf” doctrine Elimination of “convenience shelf” doctrine Immediate takedowns permissible Immediate takedowns permissible Elimination of restrictions on “at-the-market” offerings Elimination of restrictions on “at-the-market” offerings

19 Additional Changes (cont.) Conforming changes to Item 512 of Regulation S-K : Conforming changes to Item 512 of Regulation S-K : Permits updating by (i) use of a prospectus supplement or (ii) Exchange Act report incorporated by reference Permits updating by (i) use of a prospectus supplement or (ii) Exchange Act report incorporated by reference Acknowledges that information in a filed prospectus supplement is part of the registration statement, and that a new effective date will be established for purposes of liability in a shelf takedown upon the filing of the prospectus supplement Acknowledges that information in a filed prospectus supplement is part of the registration statement, and that a new effective date will be established for purposes of liability in a shelf takedown upon the filing of the prospectus supplement

20 Incorporation by Reference into Form S-1 Now available to reporting issuers current in reporting obligations Now available to reporting issuers current in reporting obligations Incorporation by reference into a Form S-1 is not available to: Incorporation by reference into a Form S-1 is not available to: reporting issuers that are not current in their Exchange Act reports reporting issuers that are not current in their Exchange Act reports certain blank check companies, shell companies and penny stock companies certain blank check companies, shell companies and penny stock companies issuer effecting an offering in connection with a business combination transaction issuer effecting an offering in connection with a business combination transaction(cont.)

21 Incorporation by Reference into Form S-1 No forward incorporation by reference No forward incorporation by reference Form S-2 has been eliminated since it would be more restrictive than the new Form S-1 Form S-2 has been eliminated since it would be more restrictive than the new Form S-1

22 PROSPECTUS DELIVERY REFORMS

23 Existing Requirement Section 5 of the Securities Act requires that a statutory prospectus be delivered before, or at the same time as, delivery of a security Section 5 of the Securities Act requires that a statutory prospectus be delivered before, or at the same time as, delivery of a security No general rule providing safe harbor No general rule providing safe harbor

24 Prospectus Delivery Reforms Amendments Amendments “Access equals delivery” pursuant to new Rule 172. “Access equals delivery” pursuant to new Rule 172. Confirmations and notices of allocation. Confirmations and notices of allocation. Notice of registration. Notice of registration. Transactions on an exchange. Transactions on an exchange. Aftermarket prospectus delivery. Aftermarket prospectus delivery.

25 LIABILITY ISSUES

26 Securities Act Liability Sellers have potential liability for: Sellers have potential liability for: Materially deficient disclosure in a registration statement (Section 11) Materially deficient disclosure in a registration statement (Section 11) Materially false or misleading statements in prospectuses or oral communications (Section 12(a)(2)) Materially false or misleading statements in prospectuses or oral communications (Section 12(a)(2)) Sale of securities by fraudulent means (Section 17(a)) Sale of securities by fraudulent means (Section 17(a))

27 Time of Sale When is time of sale? When is time of sale? date of contractual commitment date of contractual commitment Terminating old contract and entering new contract Terminating old contract and entering new contract Putting information in final does not avoid Section 12(a)(2) liability if that information is included after contractual commitment Putting information in final does not avoid Section 12(a)(2) liability if that information is included after contractual commitment Section 12(a)(2) liability can be negated if issuer goes back to buyers with new information and gives buyers a chance to back out of contract Section 12(a)(2) liability can be negated if issuer goes back to buyers with new information and gives buyers a chance to back out of contract

28 Prospectus Supplement Information Deemed Part of the Registration Statement Prospectus supplements not in connection with takedown – Prospectus supplements not in connection with takedown – date of first use. date of first use. Prospectus supplements in connection with takedown – Prospectus supplements in connection with takedown – as of earlier of (i) the date it is first used, or (ii) the date and time of the first contract for sale of securities in the offering to which the prospectus supplement relates as of earlier of (i) the date it is first used, or (ii) the date and time of the first contract for sale of securities in the offering to which the prospectus supplement relates

29 New Effective Date for Section 11 Liability New effective date is deemed to occur on the date on which a prospectus supplement filed pursuant to Rule 424(b)(2), (b)(5) or (b)(7) is deemed part of the registration statement New effective date is deemed to occur on the date on which a prospectus supplement filed pursuant to Rule 424(b)(2), (b)(5) or (b)(7) is deemed part of the registration statement New effective date will not be created for directors or signing officers unless New effective date will not be created for directors or signing officers unless prospectus filed for purposes of updating the registration statement pursuant to Section 10(a)(3), or prospectus filed for purposes of updating the registration statement pursuant to Section 10(a)(3), or Prospectus reflects a fundamental change in the information contained in the registration statement Prospectus reflects a fundamental change in the information contained in the registration statement(cont.)

30 New Effective Date for Section 11 Liability (cont.) Generally not a new effective date for auditors Generally not a new effective date for auditors But if new financials requiring new consent, new effective date But if new financials requiring new consent, new effective date Generally not a new effective date for experts other than auditors Generally not a new effective date for experts other than auditors But if new report or opinion requiring new consent, new effective date But if new report or opinion requiring new consent, new effective date

31 Issuer as Seller “Unwarranted uncertainty” as to liability of issuers under Section 12(a)(2) in underwritten offerings “Unwarranted uncertainty” as to liability of issuers under Section 12(a)(2) in underwritten offerings Section 12(a)(2) imposes liability on “sellers” Section 12(a)(2) imposes liability on “sellers” Court decisions found no Section 12(a)(2) liability for issuer, where the “seller” was an underwriter Court decisions found no Section 12(a)(2) liability for issuer, where the “seller” was an underwriter Rule 159A(a) attaches “seller” status for Section 12(a)(2) liability to issuer, on the basis of the communications made to purchasers (i.e., the prospectus) Rule 159A(a) attaches “seller” status for Section 12(a)(2) liability to issuer, on the basis of the communications made to purchasers (i.e., the prospectus)

32 ADDITIONAL DISCLOSURES REQUIRED IN PERIODIC REPORTS

33 Disclosure of Risk Factors Form 10-K now requires issuers disclosure of “plain English” risk factors Form 10-K now requires issuers disclosure of “plain English” risk factors Form 10-Q will need to include any updates or material changes to the risk factors reported in the last Form 10-K Form 10-Q will need to include any updates or material changes to the risk factors reported in the last Form 10-K Risk factors are as required by S-K Item 503 Risk factors are as required by S-K Item 503 Companies should adopt disclosure controls and procedures to identify new and evolving material risks to the business Companies should adopt disclosure controls and procedures to identify new and evolving material risks to the business

34 Disclosure of Unresolved SEC Comments Accelerated filers and WKSIs must disclose the substance of any unresolved written comments from the SEC on the issuer’s Exchange Act reports in their annual reports on Form 10-K: Accelerated filers and WKSIs must disclose the substance of any unresolved written comments from the SEC on the issuer’s Exchange Act reports in their annual reports on Form 10-K: if the issuer believes the comment is material, and if the issuer believes the comment is material, and if the comment was issued more than 180 days before the end of the fiscal year covered by the annual report and remains unresolved on the date of filing the annual report if the comment was issued more than 180 days before the end of the fiscal year covered by the annual report and remains unresolved on the date of filing the annual report The issuer may also explain its position with respect to the unresolved comments The issuer may also explain its position with respect to the unresolved comments

35 Disclosure of Voluntary Filer Status 10-K only: Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  No  10-K, 10-KSB: Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes  No  Note—Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Exchange Act from their obligations under those Sections.

36 Thank You (303)


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