U.S. Securities Regulation & Offerings:
What Corporate Counsel Need to Know
Cleary Gottlieb
Adam Fleisher
Pamela Marcogliese
April 23, 2013
J.P.Morgan
Neila Radin
Overview
I.
Securities Act of 1933
II. Securities Exchange Act of 1934
III. Annex A: Spotlight on Financial Statements
IV. Annex B: Sample Timelines
1
Part I: Securities Act of 1933
Securities Act of 1933
3
I.
Statutory Framework
 Introduction
 Registration, Exemption or Liability
 Exemptions
 Publicity & “Gun-Jumping”
 Emerging Growth Companies
II.
Deal Mechanics
 Timeline
 Due Diligence
 Key Disclosure Items
 Terms of Debt
 Underwriting / Purchase Agreements
 Comfort Letters
 Legal Opinions
 SEC Comment Letters
Statutory Framework
Introduction
Securities Act of 1933
Securities Exchange Act of 1934
 Basic rule: registration
 Continuous reporting system
• Reporting by public companies
• Reporting by shareholders of public
companies
 Major exceptions
• Nature of security
– Gov. securities, nonprofits
– Short-term commercial paper
– Certain exchanges
– Fairness hearings
– ≤ $50m / 12 mos. (not effective yet)
• Nature of transaction
– 4(a)(2): private placement by issuer
• Rule 144A sale / resale
• Rule 144 resale
– Regulation S: offshore transactions
– 4(a)(1): resale not by issuer, UW or
dealer
– “4(1½)”: traditional private resale
– 4(a)(3): trade by dealer
5
Registration, Exemption or Liability
 Basic rule:
register each offer & sale (including resale) with SEC unless
exemption available
•
Issuer sale (primary) & each resale (secondary)
•
Even if previously sold in registered offering
 What is an offer?
•
Every attempt or offer to dispose of, or solicitation of offer to buy, a security
or interest in a security, for value
 What is a security?
•
Very broadly defined
 Liability
• Investor put: for failure to register or use of a non-compliant prospectus
• SEC enforcement proceedings, criminal sanctions
6
How the Public Market Works: Sections 4(a)(1) & 4(a)(3)
 4(a)(1): exempts resales other than by issuers, affiliates, UWs or
dealers
• Affiliate



Facts & circumstances analysis
Control persons
Usually officers, directors, 10%+ stockholders
• Underwriter


Traditional underwriters
Statutory underwriters
 4(a)(3): generally exempts trades by dealers not acting as UWs
• 4(a)(1) & 4(a)(3): not available for resales of restricted securities
7
Section 4(a)(2): Private Placements by Issuer
 Transactions by issuer not involving “public offering” (not defined)
• Securities placed = “restricted securities”
• No general solicitation / general advertising
• Regulation D safe harbor
 Offer only to accredited investors (AIs) + up to 35 sophisticated
purchasers
 File Form D with SEC; limited disclosure if only AIs
 Often used as guidance when not strictly followed
8
Section 4(a)(2): Private Placements by Issuer
 Resales after 4(a)(2) private placement
• Rule 144

Safe harbor for public resale
• Rule 144A

Safe harbor for private resale to qualified institutional buyers (QIBs)
• “Section 4(1½)”

Private resale to sophisticated purchasers
• Regulation S

Offshore transactions
• SEC-registered A/B exchange offer or resale shelf

9
Allows public resale after private placement
Rule 144
 Restricted securities
• Holding period after issued / last held by issuer / affiliate
 6 months for current reporting issuers
 Otherwise 1 year
 “Control” securities = securities held by affiliates
• Affiliates cannot resell under 4(a)(1)
• If affiliate resells privately, buyer takes restricted securities
 Holding period starts again
• If affiliate complies w/ 144 & resells publicly, buyer takes unrestricted
securities
 File Form 144; follow volume & (for equity) manner of sale requirements
10
Rule 144 Decision Tree
Yes
Is the selling person an affiliate
of the issuer?
Does the person hold
restricted securities or
just control securities?
Restricted
securities
Less
than six
months
No sales are
permitted
under Rule
144
No
restrictions on
sale
Dribble sales are permitted (i.e.,
sales subject to current public
information, volume, manner of
sale limitations for equity
securities and notice filing)
regardless of the holding period
Dribble
sales are
permitted
Was the person an affiliate
during the preceding
three months?
No sales are
permitted under
Rule 144
No
Is the issuer a
reporting company
with current public
information?
No
Dribble sales are
permitted after
one-year holding
period
Yes
No restrictions
on sale
11
Six
months
or more
Less
than six
months
Is the issuer a
reporting company
with current public
information?
Yes
How long have the securities
been outstanding and held
by non-affiliates?
Six
months
or more
Yes
Does the person
hold restricted securities?
No
Control
securities
How long have
the securities been held?
No
No
Sales are permitted
after one-year
holding period
Yes
No sales are
permitted under
Rule 144
Rule 144A & Regulation S
Rule
Requirements
Details
144A:
safe harbor for
resale to QIBs
Sell to QIBs only
• Institutions that own / invest as least $100m of securities
• Pursuant to JOBS Act, offers to non-QIBs would be permitted
Limited publicity
• No general solicitation or general advertising (GS/GA)
• Pursuant to JOBS Act, GS/GA would be permitted
Notice
• Must give buyers notice that buying restricted securities
Fungibility
• At issuance, securities cannot be fungible with U.S.-listed
security
Required
information
• Brief statement of the nature of the business + 2 years’
financial statements, audited to extent reasonably available
• But in practice generally use detailed offering document
Offshore only
• Outside US & in some cases to non-US persons only
Limited publicity
• No “directed selling efforts” (DSE) in US
• JOBS Act does not change this
Required
information
• Depends on home country requirements & risk assessment
• But in practice generally use detailed offering document
Regulation S:
exempt offshore
transactions
12
Publicity & “Gun-Jumping” Prohibitions
Pre-filing
general rule
 No offers, absent exemption from registration / exception from
definition
of “offer”
Any communications
that can be considered "offers" under
'33 Actareas:
must management
comply with speeches,
the statutory
prospectus
filing
• the
Problem
press
releases, internet
requirements of the Act
• Do not initiate new publicity, but ok to release factual information
if continues past practice
•
Post-filing
general rule
144A /
Reg S
general rule
13
Safe harbor for regularly released forward-looking information by
reporting companies – but market still considers risky
 Offers permitted, but not sales
• Written offers must meet the requirements of statutory
prospectus or free writing prospectus (FWP)
 No GS/GA (Rule 144A)
• No release of info about any aspect of offering / any other info
that could encourage interest in offering
• But JOBS Act would permit GS/GA for 144A offers
 No DSE (Reg S)
• No activities undertaken for the purpose of, or could result in,
conditioning market in US
JOBS Act: Emerging Growth Companies (EGCs)
Two-prong
test to be
an EGC
Annual gross revenues < $1 billion recent fiscal year (GAAP / IFRS)
≤ $1 billion non-convertible debt securities issued last 3 years
• Excludes bank debt & A/B exchange debt
Last day of fiscal year 5 years after common stock IPO
When you
lose EGC
status
Last day of financial year with annual gross revenues > $1 billion
Issue > $1 billion non-convertible debt securities in previous 3 years
Becoming “large accelerated filer” ($700m float & reporting 1 year)
EGC status is one-way street; cannot be reset
Cut-off
date
14
IPO on / after Dec. 9, 2011
• IPO includes filing of employee benefit plans on Form S-8
Deal Mechanics
Timeline
Kickoff
Kickoff meeting: discuss timeline & key issues
Diligence
DD: legal, accounting, financial, management
Doc. Prep
16
Purchase / UW agreement & OM / prospectus
If registered, file S-1 (one-off deals) or S-3 (shelf)
Road show
Launch
Preliminary offering doc (file w/ SEC / FINRA if registered)
Pricing
Pricing term sheet; confirm sales
Purchase / UW agreement; comfort letter
Final offering document (file if registered)
Closing
Pay for & deliver securities
Legal opinions, bring-down comfort letter, other docs
Due Diligence – Liability Risk
Why conduct due diligence?
Applicable
Provision
Parties liable
Liable for…
Section
11 (’33 Act)
All deal
participants
Material misstatements or
omissions in registration
statement
Deals subject to
liability
Defenses
Registered only DD defense for UWs,
not issuers:
• reasonable
investigation (nonexpertized disclosure)
• reasonable belief
(expertized disclosure)
Section
12 (’33 Act)
Issuer and
communication
made on behalf
of issuer
Material misstatements or
omissions in any
communication for offer / sale
of securities (e.g. FWPs, oral
communications)
Registered only DD defense
Rule 10b5 (’34 Act)
All deal
participants who
“made”
statements
Material misstatements or
omissions in any
communication in connection
with purchase / sale of
securities
Registered and
exempt
transactions
17
Show no fraudulent
intent—scienter;
usually accomplished
by conducting due
diligence
Key Disclosure Items in Offering Document
18
Risk Factors
Detailed discussion of risks
• Business / industry
• Securities-related
Mgt’s Disc’n &
Analysis
(MD&A)
Results of operations
Liquidity & capital resources
Market risk (current, interest rates, derivatives)
Comp Disc’n &
Analysis
(CD&A)
Detailed discussion of D&O compensation
Description of
Securities
Debt: terms of notes / guarantees, incl. covenants, default, etc.
Equity: authorized shares, voting rights, restrictions on
shareholder action
Financial
Statements
(see below)
Generally 3 years income & cash flow; 2 years balance sheet
Plus any interim period
Shelf vs. One-Off Offerings
 One-offs
•
•
•
Available to all issuers (Form S-1 / F-1)
Include all disclosure items except final pricing terms
File final terms & any late-breaking information on FWP
 Shelf offerings
•
Eligibility: Generally, issuers with 12 months’ timely reporting and minimum public float
(Form S-3 / F-3)
 Generally must file new shelf every 3 years
 Can carry over unsold securities & unused SEC fees
•
•
19
Base prospectus
 General info on securities that may be offered, incl. terms & risk factors
 Open-ended use of proceeds & plan of distribution
 Incorporate ’34 Act reports by reference (both historical & going forward)
Prospectus supplement
 Covers particulars of security offered, amount sold, terms of sale
 Includes underwriting section for takedown
Terms of Debt
 Description of notes (in offering document)
•
•
Typically negotiated first; terms then reflected in indenture
UWs advise on terms with view to marketability / pricing
 Indenture
•
•
•
20
Contract b/t issuer & trustee—establishes terms of securities
Bondholders = third-party beneficiaries
Trust Indenture Act (TIA) qualification required for registered offerings
Underwriting / Purchase Agreements
 Parties
• Issuer, UWs / initial purchasers & any selling stockholders or guarantors
 Key components
• Purchase & sale of securities by UWs from issuer / sellers to market
• Describes UW %
• Liability / risk allocation through reps & warranties, indemnities
• Covenants on conduct of transaction
• Expense coverage / reimbursement
• Closing conditions (officer certificates, comfort letters & opinions)
• Closing mechanics
• Lock-up agreements (company, D&O, shareholders)
21
Comfort Letters
 Delivery
• Pricing & bring-down at closing
 Purpose
• DD defense (banks, officers & directors)
 Content
• Whether audited financials comply with Reg. S-X
• Alert UWs of adverse changes since last financials
• Negative assurance (135-day limit)
 No material modification needed to unaudited interim financials to conform
with GAAP / Reg. S-X
 During “change period,” no material changes to key line items
 Change period: date of last financials to 3-5 days before comfort letter
(cut-off date)
22
Legal Opinions
 Timing, providers & beneficiaries
•
•
•
•
Usually negotiated before sign UW agreement
Opinion / 10b-5 for UWs
Opinion or “reliance” letter from issuer’s counsel to trustee in debt deals
Providers
 Issuer’s counsel: outside, local counsel (if applicable), inside
 Underwriters’/ initial purchasers’ counsel
 Typical content (among other things)
• Valid existence, good standing
•
•
•
•
•
•
•
•
23
Power to own properties / conduct business & enter transaction
Due authorization, execution & delivery of transaction docs & securities
Description of securities & tax disclosure accurate
Validity & enforceability of transaction docs / debt securities
No conflicts with org docs, material contracts or law
Compliance with form requirements (registered)
No registration necessary (unregistered)
Not aware of material misstatements / omissions (10b-5)
SEC Comment Letters – Overview
 Types of review
• Full: examine all disclosure in filing & incorporated documents
• Limited: focus on selected issues—e.g., accounting, MD&A
 Likelihood of review
• Offering context
 IPO / first-time ’34 Act registrations: almost always full review
 S-3/F-3 by well-known seasoned issuers (WKSIs): not subject to pre-effective
review (b/c automatically effective on filing)
 Other cases: depends on how recently ’34 Act reports were reviewed, whether
novel / unique securities are offered, industry, “hot button” disclosure issues
•
24
Exchange Act context (must be reviewed at least every 3 yrs)
 Recent material restatements of financials
 Higher stock price volatility
 Large capitalization
 Disparities in price-to-earnings ratios
 Operations affect material sector of the economy
Part II: Securities Exchange Act of 1934
Securities Exchange Act of 1934
I. Introduction
II. Required Filings
 Select Required Filings
 Select Events Requiring an 8-K Filing
III. Watch What You Say!
 Material Nonpublic Information
 Communications with Analysts
 Regulation FD
26
Introduction
 Exchange Act Reporting Triggers
• List on national securities exchange (NYSE / NASDAQ)
• SEC-registered offering
• > $10m in assets, & class of equity held by ≥ 2000 persons or ≥ 500 non-AIs
 Reporter Categories
• Non-accelerated filer (NAF)
• Accelerated filer (AF)
 Exchange Act reporting for ≥ 12 calendar months
 Filed at least one Form 10-K
 Market value of common equity held by non-affiliates at most recent June
30 ≥ $75M
• Large accelerated filer (LAF)
 Same as AF, except market value ≥ $700M
27
Required Filings
Select Required Filings
ANNUAL REPORT ON FORM 10-K
 Deadline
• 90 days after FYE (NAF)
• 75 days after FYE (AF)
• 60 days after FYE (LAF)
CURRENT REPORT ON FORM 8-K
 File 4 business days after event, with certain
exceptions
 To correct unintentional selective disclosure
under Reg. FD, deadline is promptly (< 24
hours)
5% HOLDERS – SCHEDULES 13D, 13G
 Generally, file w/in 10 days of ≥ 5%
 Disclose intentions, arrangements, financing
 13G = short-form annual alternative for
certain holders w/o control intent / influence
29
QUARTERLY REPORT ON FORM 10-Q
 Deadline
• 45 days after FYE (NAF)
• 40 days after FYE (AF)
• 40 days after FYE (LAF)
PROXY STATEMENT
 File definitive proxy 120 days after FYE if
incorporated into 10-K
10% HOLDERS + INSIDERS: FORMS 3, 4, 5
 Report ownership on Form 3 w/in 10 days
 Report trades on Form 4 w/in 2 business
days
 Report other transactions on Form 5
Select Events Requiring 8-K Filing
Item 1.01 –
Entry Material
Agreement
Material agreements & material amendments to material
agreements
Generally not required to file agreement as exhibit to 8-K
• Can be filed with periodic report for that period
Item 1.02 –
Termination
Material
Agreement
Other than by expiration on stated termination date
No disclosure required for mere negotiations / discussions
Item 2.01 –
Acquisition /
Disposition
Assets
For “significant amount of assets”
Disclose source of funds for acquisition if material relationship to
source
Report related transactions if significant in aggregate
May need to file financials & pro formas (see Annex A)
Item 2.02 –
Results of
Operations &
Fin. Condition
For earnings releases & updates of earlier announcement / release
Not required for slides, transcript or recording of earnings call so
long as certain requirements met
Info = “furnished”, not “filed”
30
Select Events Requiring 8-K Filing
Item 2.03 –
Financial
Obligations
Entry into material direct obligation / direct or contingent liability
for material obligation due to off-b/s arrangement
Disclose date, amount / max exposure, material terms
Item 5.02 –
Officers &
Directors
Directors removed for cause, resign, refuse re-election
Directors newly elected, except by vote at shareholder meeting
Certain execs resign, retire, terminated
Certain execs newly appointed
Comp arrangements for certain execs adopted / modified
Item 5.03 –
Org Docs;
Fiscal Year
If org docs amended without proposal in proxy statement
Required for change in fiscal year other than by vote at
shareholder meeting or amendment to org docs
Item 5.05 –
Code of Ethics
Covers code of applicable to CEO, CFO & other finance execs
Required for failure to respond to violation (implicit waiver)
31
Select Events Requiring 8-K Filing
Item 5.07 –
Submission to
Vote of Holders
Prelim results filed w/in 4 business days of meeting
Final results filed w/in 4 business days once known
Excludes proxy to vote at stockholders meeting
Item
7.01
–
Item 7.01
–
Regulation
FD FD
Regulation
Disclosure
Disclosure

Information
pursuant (unless
to Regulation
FD may
either 8.01)
be disclosed
under this item
Reg.
FDrequired
disclosure
filed
under
(furnished)
or under Item 8.01, within 24 hours of the occurrence of the selective disclosure
Item 8.01 – Other
Events
Reg. FD disclosure (filed)
Disclosure of important events not otherwise required
32
Watch What You Say!
Material Nonpublic Information
 No general obligation to disclose MNPI
•
•
Exception: disclosure required by securities laws
No obligation to correct / confirm market rumors unless attributable to
company
 If info disclosed, cannot contain material misstatements or omissions
 No selective disclosure of MNPI
•
•
34
Regulation FD
Potential 10b-5 liability
Material Nonpublic Information – Typical Examples
35
►
Unusual / unanticipated earnings results
►
Pending / proposed transactions - mergers, acquisitions, dispositions, offerings
►
Developments affecting financial stability / liquidity
►
Gain / loss of significant customer / supplier
►
Dividend policy changes
►
Significant product announcements - defects, modifications, recalls
►
Significant contingency / litigation exposure
►
Senior management changes
►
Amendments to debt terms
►
Defaults
Guidelines for Communications with Analysts
Designate specified execs to communicate with
analysts
Make each presentation using text reviewed by
senior execs & counsel
Do not disclose MNPI unless disclosed to
public at same time
Do not reconfirm guidance
36
Guidelines for Communications with Analysts
Avoid responding to inquiries in nonpublic forum
unless certain response does not include MNPI
If asked about matter not ripe for disclosure,
say “no comment”
If requested to review report, do not comment
except to correct errors of fact. Do not comment
on forecasts or judgments
Do not distribute reports or hyperlink to them on
company’s website
37
Regulation FD
 Prohibits selective disclosure of MNPI to
•
•
Market professionals & security holders
Not applicable to communications with someone who
 Owes duty of confidentiality
 Expressly agrees to maintain info in confidence
•
Not applicable to “foreign private issuers,” but usually followed
 Remedying selective disclosure
•
•
•
If intentional, disclose simultaneously to public
 “Intentional” = issuer knows / reckless not knowing MNPI being disclosed
If unintentional, disclose “promptly” to public (w/in 24 hours)
Public disclosure: method(s) reasonably designed to provide broad, nonexclusionary distribution to public
 Violations subject to SEC enforcement actions, but not Rule 10b-5 liability or
private causes of action
38
Regulation FD – Four Enforcement Scenarios
Siebel
Schering-Plough
Facts - CEO spoke to individuals at
invitation-only conference & said, contrary to
public statements three weeks earlier, Siebel
expected sales to be in line / previous years
• Penalty - $250k fine
Facts - CEO met in private meetings with
analysts & portfolio managers, & through
words, tone, emphasis & demeanor,
disclosed MNPI
• Penalty - Schering-Plough $1m fine;
CEO $50k fine
Office Depot
Facts - At direction of CEO & CFO, IR called
analysts before earnings to signal would not
meet consensus estimates. Not stated
explicitly, but referred to prior statements of
officials & other companies with lower-thanexpected results
• Penalty - Office Depot $1m fine; execs
$50k fine each
Flowserve
Facts - CEO privately reaffirmed guidance
to analysts. Resulted in increase in price &
trading volume. IR waited > 53 hours after
selective disclosure & nearly 26 hours after
analyst’s report before filing 8-K
• Penalty - Flowserve $350k fine; CEO
$50k fine
39
Reg. FD in Social Media Age
 2008: SEC guidance on use of websites for Reg. FD purposes (Sun
Microsystems)
 2010/11: WebMediaBrands comment letter correspondence on CEO
tweets about acquisitions, stock option purchases, new services
•
•
Company: tweets were not MNPI & were linked to company’s web site
SEC staff dropped matter
 2012: SEC indicates potential enforcement action against Netflix & CEO
based on CEO Facebook posting
•
Post reached 200,000 followers & arguably was not MNPI
 April 2013: SEC decides not to proceed further in Netflix & issues report
40
Reg. FD in Social Media Age
 New guidance
•
Permits company & employees to use social media to report material info w/o
violating Reg. FD, so long as two conditions are met
 Must use “recognized channel of distribution”
 Must alert market to channels used & info that may be disclosed using
them
 Practical Implications
•
•
•
•
•
•
•
41
Give market details of social media channels used
Proceed with caution if using personal social media channels
Exercise care in selecting channels & be sure to use them
Consider whether concurrent means of dissemination appropriate
Review communications & social media policies & training materials
Ensure compliance with other communications rules & safe harbors
Implement appropriate disclosure controls & procedures
Annex A:
Spotlight on Financial Statements
Financial Statements
43
I.
Introduction
II.
Financial Statements and Pro Formas Requirements
 High-Level Overview for Acquisitions
 Financial Statements & Pro Formas Requirements
 Three Tests to Measure Significance of a Business
 What Financial Statements of Acquired Business are Required?
 What Pro Forma Financial Information is Required?
Introduction
 Requirements are for registered offerings
•
144A: no mandatory requirements but typically same / almost same financials as in
registered deal
 Regulation S-X
•
•
•
3 years’ audited income & cash flow statements; 2 years’ audited balance sheet
Generally unaudited interim financial statements for each interim period
Plus any more recently disclosed financial data
 Accounting Principles
•
•
•
US GAAP required (U.S. reporting companies)
IFRS now permitted instead of US GAAP (reporting FPIs)
Full US GAAP reconciliation required if non-IFRS
 Separate Financial Statements
•
•
•
44
Pro formas
Acquired company financials
Significant equity investor financials
Financial Statements and Pro Formas Requirements –
High-Level Overview for Acquisitions
How significant is acquisition?
A significant acquisition of
assets is completed
File 8-K w/in 4 days
A significant acquisition of
a business is completed
File 8-K w/in 4 days. W/in
75 days of completion
also provide…
<20%
20%-40%
40%-50%
>50%
No financial
statements
+
No pro formas
No financial
statements
+
No pro formas
No financial
statements
+
No pro formas
No financial
statements
+
No pro formas
No financial
statements
+
No pro formas
1 yr financial
statements +
any interim
period
+
Pro formas
2 yrs financial
statements +
any interim
period
+
Pro formas
2 yrs balance sheets, 3
yrs income statements
and cash flows + any
interim period *
+
Pro formas *
No financial
statements
+
No pro formas
No financial
statements
+
No pro formas
No financial
statements
+
No pro formas
* or before going effective
A significant acquisition of a
business is probable
Before going effective…
45
2 yrs balance sheets, 3
yrs income statements
and cash flows + any
interim period
+
Pro formas
Financial Statements and Pro Formas Requirements
 Threshold question: acquiring or disposing of a “business”?
• “Business” defined in Reg. S-X Rule 11-01(d)
 Sufficient continuity of operations?
 Presumption that separate entity, sub or division is “business”
 Lesser component also may be “business,” based on facts &
circumstances
– Whether nature of revenue-producing activity remains same
– Whether aspects of operations remain same—e.g., facilities, employee
base, distribution system, sales force, customer base, operating rights,
production techniques, trade names
 Next question: Is transaction significant?
• 3 tests (see below)
46
Three Tests to Measure Significance of a Business
As of registrant’s most recent fiscal year…
ASSET
INVESTMENT
INCOME
47
Compare share of acquired business’s total assets to
registrant’s consolidated total assets
Include ordinary receivables & other working capital amounts
not acquired because working capital will be needed after
acquisition
Compare total GAAP purchase price of the acquired
business, with certain adjustments, to registrant’s
consolidated total assets
Compare equity in acquired business’s income from
continuing operations before taxes, extraordinary items
& cumulative effect of change in accounting principle to
that of registrant
What Financial Statements of Acquired Business are Required?
If no test exceeds 20%
 Financial statements
not required
 If aggregate impact of
individually insignificant
businesses acquired
since date of most
recent audited balance
sheet > 50%, financial
statements covering at
least substantial
majority of businesses
acquired shall be
furnished, for most
recent fiscal year & any
required interim periods
 In this case, furnish
financial statements for
most recent fiscal year
& any interim periods
48
If any exceeds 20% but
none exceeds 40%
If any exceeds 40% but
none exceeds 50%
 Furnish consolidated
financial statements for
most recent fiscal year
& any required interim
periods
 Deadline: 75 days after
completion
 Registration statements
need not include
financial statements if
acquisition not yet
consummated or if final
prospectus/ mailing
date is ≤ 74 days after
consummation
 Furnish consolidated
financial statements for
two most recent fiscal
years & any required
interim periods
 Deadline: 75 days after
completion
 Registration statements
need not include
financial statements if
acquisition not yet
consummated or if final
prospectus/ mailing
date is ≤ 74 days after
consummation
If any test exceeds 50%
 Furnish consolidated
balance sheets for two
most recent fiscal
years, consolidated
statements of income
and cash flows for three
most recent fiscal years
& any required interim
periods
 Deadline: 75 days after
completion
 Registration
statements must
include financial
statements of
acquired or to-beacquired business
What Pro Forma Financial Information is Required?
If any significance test exceeds 20%
Furnish
• Pro forma condensed balance sheet as of end of most recent period for which
consolidated balance sheet of registrant is required
• Pro forma condensed statements of income for most recent fiscal year and
any required interim period
Note that pro formas for acquired business need not be included if separate
financial statements not included
Test also applies to disposition of significant business
Also general catchall if otherwise material
49
Annex B:
Sample Timelines
Registered Offerings – The WKSI:
Timeline for shelf registration and takedowns
Automatic shelf prep
Filing with the
SEC and FINRA
WKSI decides to
put up a shelf
 Draft registration statement
 Due diligence and FINRA
questionnaires by designated
underwriters’ counsel
 Draft form underwriting agreement
 Agree on comfort letter “circle-up”
and work with auditors on comfort
letter
Work on “statistical circle-up” to
confirm data not covered by comfort
letter
Compile exhibits
One month or less
51
Shelf takedowns
Registration
statement
automatically
effective
Marketing
Draft term sheet
Preliminary
prospectus
supplement
Free writing
prospectus
E-roadshow
Pricing
Confirm sales
File prospectus
supplement or
free writing
prospectus with
SEC
File term sheet as
free writing
prospectus, if
applicable
Execute underwriting
agreement
Receive auditors’
comfort letter
3 trading days
Closing
(typically T+35 days)
Registered Offerings – The non-WKSI:
Timeline for non-shelf deals and non-WKSI shelf registrations
Pre-filing Period
Organizational
(“Kickoff”)
meeting
Initial filing
with the SEC
and FINRA
 Draft registration
statement
 Due diligence and FINRA
questionnaires
 Draft underwriting agmt
 Agree on comfort letter
“circle-up” and work with
auditors on comfort letter
 Work on “statistical circleup” to confirm data not
covered by comfort letter
 Compile exhibits
2-3 months or longer
52
Waiting Period
SEC and
FINRA
comments
 Continue due
diligence
 Wait for SEC
comments (typically
30 days) & FINRA
comments
 Continue to negotiate
underwriting
agreement
 Finalize comfort letter
and statistical circle-up
~1 month
File with the SEC
File with FINRA
 Prepare responses to
SEC and FINRA
comments
 Revise registration
statement
 SEC and FINRA comment
process repeats until all
comments are cleared
(usually several rounds)
3-4 weeks or longer
All SEC
comments
cleared by
SEC
Post-effective Period
Send to SEC
acceleration
requests at
least T-2
from Pricing
SEC declares
registration
statement
effective
File final
prospectus
with SEC
under Rule
424 (T+2)
Pricing
 Print and circulate
preliminary prospectus
(“red herring”)
 Start the road show with
potential investors
 Finalize underwriting
agreement and auditors’
comfort letter
3-4 weeks
 File term sheet as
free-writing
prospectus, if
applicable
 Execute underwriting
agreement
 Receive auditors’
comfort letter
3 trading days
Closing
(typically T+3-5
days)
144A Offerings – Timeline
Organizational
(“Kickoff”) meeting
Launch
 Draft offering memorandum
 Conduct due diligence
 Negotiate purchase agreement
 Negotiate comfort letter and “circle-up”
 Prepare E-roadshow
 Work on “statistical circle-up”
Pricing
Closing (typically
T+3-5 days )
Execute purchase agreement
Finalize final offering memorandum
Pre-closing
 Print and circulate preliminary
offering memorandum
 Start the road show with
potential investors
Usually 2 months or longer
(but sometimes much shorter)
53
Range from 1 day to a
few weeks
3 trading days
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