Cleary Gottlieb J.P.MorganAdam Fleisher Neila RadinPamela Marcogliese

April 23, 2013

U.S. Securities Regulation & Offerings: What Corporate Counsel Need to Know

I. Securities Act of 1933

II. Securities Exchange Act of 1934

III. Annex A: Spotlight on Financial Statements

IV. Annex B: Sample Timelines

Overview

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Part I: Securities Act of 1933

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

Securities Act of 1933

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Statutory Framework

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Securities Act of 1933 Securities Exchange Act of 1934

Basic rule: registration

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

Continuous reporting system• Reporting by public companies• Reporting by shareholders of public

companies

Introduction

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

Registration, Exemption or Liability

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How the Public Market Works: Sections 4(a)(1) & 4(a)(3)

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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

Section 4(a)(2): Private Placements by Issuer

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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

Section 4(a)(2): Private Placements by Issuer

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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

Allows public resale after private placement

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

Rule 144

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Rule 144 Decision Tree

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Is the selling person an affiliate of the issuer?

Does the person hold restricted securities or just control securities?

Does the person hold restricted securities?

How long have the securities been held?

How long have the securities been outstanding and held

by non-affiliates?

Was the person an affiliate during the preceding

three months?

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

Control securities No

restrictions on sale

No

Yes

Restricted securities

Six months or more

Less than six months

Is the issuer a reporting company with current public information?

No sales are permitted under Rule 144

Less than six months

Six months or more

No sales are permitted under Rule 144

No Yes

No sales are permitted under Rule 144

YesNo

Is the issuer a reporting company with current public information?Dribble sales are

permitted after one-year holding period

Dribble sales are permitted

Yes No

Yes No

No restrictions on sale

Sales are permitted after one-year holding period

Rule 144A & Regulation S

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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

Regulation S: exempt offshore transactions

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

Any communications that can be considered "offers" under the '33 Act must comply with the statutory prospectus filing requirements of the Act

Publicity & “Gun-Jumping” Prohibitions

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No offers, absent exemption from registration / exception from definition of “offer”

• Problem areas: management speeches, press releases, internet

• Do not initiate new publicity, but ok to release factual information if continues past practice

• 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)

Post-filing general rule

Pre-filing general rule

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

144A / Reg Sgeneral rule

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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

When you lose EGC status

Last day of fiscal year 5 years after common stock IPO

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 dateIPO on / after Dec. 9, 2011

• IPO includes filing of employee benefit plans on Form S-8

JOBS Act: Emerging Growth Companies (EGCs)

Deal Mechanics

Diligence

Kickoff meeting: discuss timeline & key issues

Preliminary offering doc (file w/ SEC / FINRA if registered)

Pricing term sheet; confirm salesPurchase / UW agreement; comfort letterFinal offering document (file if registered)

Pay for & deliver securitiesLegal opinions, bring-down comfort letter, other docs

Timeline

Launch

Pricing

Closing

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Kickoff

Purchase / UW agreement & OM / prospectusIf registered, file S-1 (one-off deals) or S-3 (shelf)Road show

DD: legal, accounting, financial, management

Doc. Prep

Due Diligence – Liability Risk

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Applicable Provision Parties liable Liable for…

Deals subject to liability Defenses

Section 11 (’33 Act)

All deal participants

Material misstatements or omissions in registration statement

Registered only

DD defense for UWs, not issuers:

• reasonable investigation (non-expertized 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 10b-5 (’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

Show no fraudulent intent—scienter; usually accomplished by conducting due diligence

Why conduct due diligence?

Detailed discussion of risks• Business / industry• Securities-related

Results of operationsLiquidity & capital resourcesMarket risk (current, interest rates, derivatives)

Detailed discussion of D&O compensation

Debt: terms of notes / guarantees, incl. covenants, default, etc.Equity: authorized shares, voting rights, restrictions on

shareholder action

Generally 3 years income & cash flow; 2 years balance sheetPlus any interim period

Risk Factors

Mgt’s Disc’n & Analysis (MD&A)

Comp Disc’n & Analysis (CD&A)

Description of Securities

Financial Statements (see below)

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Key Disclosure Items in Offering Document

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 yearsCan carry over unsold securities & unused SEC fees

• 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

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Shelf vs. One-Off Offerings

Description of notes (in offering document)• Typically negotiated first; terms then reflected in indenture

• UWs advise on terms with view to marketability / pricing

Indenture• Contract b/t issuer & trustee—establishes terms of securities

• Bondholders = third-party beneficiaries

• Trust Indenture Act (TIA) qualification required for registered offerings

Terms of Debt

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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)

Underwriting / Purchase Agreements

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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)

Comfort Letters

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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

• 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)

Legal Opinions

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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

• 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

SEC Comment Letters – Overview

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Part II: 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

Securities Exchange Act of 1934

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Introduction

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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

Required Filings

10% HOLDERS + INSIDERS: FORMS 3, 4, 55% HOLDERS – SCHEDULES 13D, 13G

CURRENT REPORT ON FORM 8-K PROXY STATEMENT

QUARTERLY REPORT ON FORM 10-QANNUAL REPORT ON FORM 10-K

Select Required Filings

Deadline• 90 days after FYE (NAF)• 75 days after FYE (AF)• 60 days after FYE (LAF)

File 4 business days after event, with certain exceptions

To correct unintentional selective disclosure under Reg. FD, deadline is promptly (< 24 hours)

Generally, file w/in 10 days of ≥ 5%Disclose intentions, arrangements, financing13G = short-form annual alternative for

certain holders w/o control intent / influence

Deadline• 45 days after FYE (NAF)• 40 days after FYE (AF)• 40 days after FYE (LAF)

File definitive proxy 120 days after FYE if incorporated into 10-K

Report ownership on Form 3 w/in 10 daysReport trades on Form 4 w/in 2 business

daysReport other transactions on Form 5

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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 dateNo disclosure required for mere negotiations / discussions

Select Events Requiring 8-K Filing

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Item 2.01 –Acquisition / Disposition Assets

For “significant amount of assets”Disclose source of funds for acquisition if material relationship to

sourceReport related transactions if significant in aggregateMay need to file financials & pro formas (see Annex A)

Item 2.02 – Results of Operations & Fin. Condition

For earnings releases & updates of earlier announcement / releaseNot required for slides, transcript or recording of earnings call so

long as certain requirements metInfo = “furnished”, not “filed”

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-electionDirectors newly elected, except by vote at shareholder meetingCertain execs resign, retire, terminatedCertain execs newly appointedComp arrangements for certain execs adopted / modified

Select Events Requiring 8-K Filing

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Item 5.03 – Org Docs; Fiscal Year

If org docs amended without proposal in proxy statementRequired 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 execsRequired for failure to respond to violation (implicit waiver)

Item 5.07 – Submission to Vote of Holders

Prelim results filed w/in 4 business days of meetingFinal results filed w/in 4 business days once knownExcludes proxy to vote at stockholders meeting

Item 7.01 – Regulation FD Disclosure

Information required pursuant to Regulation FD may either be disclosed under this item or under Item 8.01, within 24 hours of the occurrence of the selective disclosure

Select Events Requiring 8-K Filing

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Item 8.01 – Other Events

Reg. FD disclosure (filed)Disclosure of important events not otherwise required

Reg. FD disclosure (unless filed under 8.01) (furnished)Item 7.01 – Regulation FD Disclosure

Watch What You Say!

Material Nonpublic Information

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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• Regulation FD

• Potential 10b-5 liability

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

►

►

►

►

►

►

►

Material Nonpublic Information – Typical Examples

Amendments to debt terms►

Defaults►

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►

Designate specified execs to communicate with analysts

Do not reconfirm guidance

Do not disclose MNPI unless disclosed to public at same time

Make each presentation using text reviewed by senior execs & counsel

Guidelines for Communications with Analysts

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Avoid responding to inquiries in nonpublic forum unless certain response does not include MNPI

Do not distribute reports or hyperlink to them on company’s website

If requested to review report, do not comment except to correct errors of fact. Do not comment on forecasts or judgments

If asked about matter not ripe for disclosure, say “no comment”

Guidelines for Communications with Analysts

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Regulation FD

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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, non-exclusionary distribution to public

Violations subject to SEC enforcement actions, but not Rule 10b-5 liability or private causes of action

Siebel

Regulation FD – Four Enforcement Scenarios

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

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Schering-Plough

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 DepotFacts - 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-than-expected results • Penalty - Office Depot $1m fine; execs

$50k fine each

FlowserveFacts - 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

Reg. FD in Social Media Age

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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

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• 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 

Reg. FD in Social Media Age

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Annex A: Spotlight on Financial Statements

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?

Financial Statements

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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• Pro formas

• Acquired company financials

• Significant equity investor financials

Introduction

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Financial Statements and Pro Formas Requirements –High-Level Overview for Acquisitions

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<20%

No financial statements

+No pro formas

No financial statements

+No pro formas

No financial statements

+No pro formas

20%-40%

No financial statements

+No pro formas

1 yr financial statements + any interim

period+

Pro formas

No financial statements

+No pro formas

40%-50%

No financial statements

+No pro formas

2 yrs financial statements + any interim

period+

Pro formas

No financial statements

+No pro formas

>50%

No financial statements

+No pro formas

2 yrs balance sheets, 3 yrs income statements and cash flows + any

interim period *+

Pro formas *

2 yrs balance sheets, 3 yrs income statements and cash flows + any

interim period+

Pro formas

How significant is acquisition?

A significant acquisition of a business is probable

A significant acquisition of a business is completed

File 8-K w/in 4 days. W/in 75 days of completion also provide…

* or before going effective

Before going effective…

A significant acquisition of assets is completed

File 8-K w/in 4 days

Financial Statements and Pro Formas Requirements

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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)

ASSET

INVESTMENT

INCOME

Three Tests to Measure Significance of a Business

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

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As of registrant’s most recent fiscal year…

If no test exceeds 20%If any exceeds 20%

but none exceeds 40%If any exceeds 40%

but none exceeds 50%If any test exceeds

50%

What Financial Statements of Acquired Business are Required?

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

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

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-be-acquired business

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If any significance test exceeds 20%

What Pro Forma Financial Information is Required?

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

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Annex B: Sample Timelines

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Registered Offerings – The WKSI: Timeline for shelf registration and takedowns

WKSI decides to put up a shelf

Filing with the SEC and FINRA

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

Automatic shelf prep

Closing (typically T+3-5 days)Registration

statement automatically effective File term sheet as

free writing prospectus, if applicable

Execute underwriting agreement

Receive auditors’ comfort letter

Pricing

Shelf takedowns

Confirm salesFile prospectus supplement or free writing prospectus with SEC

One month or less 3 trading days

Marketing

Draft term sheet

Preliminary prospectus supplement

Free writing prospectus

E-roadshow

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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 circle-up” to confirm data not covered by comfort letter

Compile exhibits

File with the SEC File with FINRA

SEC and FINRA comments

Prepare responses to SEC and FINRA comments

Revise registration statement

SEC and FINRA comment process repeats until all comments are cleared (usually several rounds)

Continue due diligence

Wait for SEC comments (typically 30 days) & FINRA comments

Continue to negotiate underwriting agreement

Finalize comfort letter and statistical circle-up

Pre-filing Period

Waiting Period

All SEC comments cleared by SEC

Send to SEC acceleration requests at least T-2 from Pricing

Print and circulate preliminary prospectus (“red herring”)

Start the road show with potential investors

Finalize underwriting agreement and auditors’ comfort letter

Closing (typically T+3-5 days)

SEC declares registration statement effective

File term sheet as free-writing prospectus, if applicable

Execute underwriting agreement

Receive auditors’ comfort letter

Pricing

Post-effective Period

File final prospectus with SEC under Rule 424 (T+2)

2-3 months or longer ~1 month 3-4 weeks or longer 3-4 weeks 3 trading days

Registered Offerings – The non-WKSI: Timeline for non-shelf deals and non-WKSI shelf registrations

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144A Offerings – Timeline

Organizational (“Kickoff”) meeting

Draft offering memorandum Conduct due diligence Negotiate purchase agreement Negotiate comfort letter and “circle-up” Prepare E-roadshow Work on “statistical circle-up”

Print and circulate preliminary offering memorandum Start the road show with potential investors

Pricing

Pre-closing

Closing (typically T+3-5 days )

Execute purchase agreementFinalize final offering memorandum

Launch

Usually 2 months or longer (but sometimes much

shorter)

Range from 1 day to a few weeks

3 trading days

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