NOTE: These notes are prepared solely for the benefit of the students in Acc 611, and are not to be used for any other purpose without the permission of Jagdish S. Gangolly.

• Going Public: Advantages
  • Risky/speculative ventures can find investors willing to invest.
  • Means to compensate the founders.
  • Easier to attract managerial/technical talent.
  • Acquisitions through exchange of stock possible.
  • Reduced cost of capital.
  • New loyal customers through stockholders.
• Going Public: Disadvantages
  • Costly.
  • New claimants to earnings.
  • Expensive & time consuming disclosure requirements.
  • Short-term orientation & the focus on short-term earnings.
  • Diffusion of control.
  • Audit requirements.

• Public Offering:
  • The Underwriter
    • Firm Committments: The underwriter absorbs the market risk.
    • Best Efforts: The market risk is borne by the issuer, or shared.
  • The Registration Statement:
    • Filing (becomes automatically effective 20 days after filing, unless a delaying amendment has been utilized)
      • Staff review of the Division of Corporation Finance
      • letters of comment
      • bed-bugging
      • pricing amendments
    • Quiet Period: Selling efforts may be carried out, but the securities can not be sold.
      • preliminary prospectus can be shown to prospective investors.
      • tomb-stone ads can be placed in newspapers.
      • final prospectus must accompany/precede delivery of the securities.

Exemptions:

• Intrastate offerings
• Small offerings ( less than $5 million)
• Limited offering (sale to accredited investors)
• Private offering (direct placement of securities with one or a limited number of institutional investors)

Unifrom Requirements under the Integrated Disclosure System:

• S-1-2-3 Scheme:
  • S-1 is the usual registration statement. All company specific information must be included in the form.
  • S-2 can be used by companies not in default that have been filing 1934 Act filings in a timely fashiopn for at least 3 years. The company may include offer specific information in the prospectus and deliver copies of the company-specific information, or include the company-specific information in the prospectus itself.
  • S-3 can be used by a company that has been filing 1934 Act filings timely for the past one year, is not in default, and have a public float of at least $75 million, unless the offered security is a non-convertible security rated as investment-grade by at least one rating service. An S-3 form can incorporate all company-specific information in 1934 Act filings by reference.

Electronic Filings: Reg S-T:

Regulation of Insiders:

Rule 10b-5. Employment of Manipulative and Deceptive Devices

It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails, or of any facility of any national securities exchange,

(a) to employ any device, scheme, or artifice to defraud,
(b) to make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or
(c) to engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security.

Updated on April 14, 1997 by Jagdish S. Gangolly.