Prospectus Delivery Requirements

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An offer of securities involves publishing and delivering a prospectus to interested investors. The Securities Act of  1933 states that a prospectus must "contain the infor­mation contained in the registration statement."

The Securities Act of 1933 and the rules thereunder guide the registration process for issuers, as does Regulation S-K. Regulation S-K provides guidance on forward­ looking statements made by an issuer and lays out the information required in various types of securities registration statements.

Regulation S-K makes it clear that to file full disclosure of risks and business plans an issuer necessarily must make projections. While such projections can provide clarity, the issuer also must have a reasonable basis for making projections about, say, a proposed merger, or projections of earnings for a key business unit.

Aiding investor understanding is key, and the SEC explains their concerns like this, "when management chooses to include its projections in a Commission filing, the disclosures accompanying the projections should facilitate investor understanding of the basis for and limitations of projections. In this regard investors should be cautioned against attributing undue certainty to management's assessment, and the Commission believes that investors would be aided by a statement indicating manage­ment's intention regarding the furnishing of updated projections."

To give investors an idea of how big a gap could exist between management's previous projections and reality, the SEC stipulates that, ''Management also should consider whether disclosure of the accuracy or inaccuracy of previous projections would provide investors with important insights into the limitations of projections. In this regard, consideration should be given to presenting the projections in a format that will facilitate subsequent analysis of the reasons for differences between actual and forecast results.''

Most American companies use a Form S- 1 to register an offer of common stock. When completing this registration statement, the issuer is required to provide:

Form S- 1
A general description of their business: Describe the general development of the business of the registrant, its subsidiaries and any predecessor(s) during the past five years, or such shorter period as the registrant may have been engaged in business.

Description of property: State briefly the location and general character of the principal plants, mines and other materially important physical properties of the registrant and its subsidiaries. In addition, identify the segment(s), as reported in the financial statements that use the properties described.

Legal proceedings: Describe briefly any material pending legal proceedings, other than ordinary routine litigation incidental to the business, to which the registrant or any of its subsidiaries is a party or of which any of their property is the subject.

Mine safety disclosure: companies involved in mining must disclose the total number of violations of mandatory health or safety standards that could significantly and substantially contribute to the cause and effect of a coal or other mine safety or health hazard for which the operator received a citation from the Mine Safety and Health Administration.

Securities of the registrant: identify the principal United States market or markets in which each class of the registrant's common equity is being traded. where there is no established public trading market for a class of common equity, furnish a statement to that effect.
 Also indicate the approximate number of shareholders and any dividends paid over the previous two years.

Description of registrant's securities: provide legal description of the securities in terms of rights of holders of common stock, preferred stock, debt securities, etc.

Financial information: provide financial information (balance sheet, income statement, cash flow, etc.) for the previous five years or life of operations.

Management's discussion and analysis of financial condition and results of operations: discuss registrant's financial condition, changes in financial condition and results of operations.

Changes in and disagreements with accountants on accounting and financial disclosure: provide disclosure on any auditing accountants who were removed, re­ signed, etc.

Quantitative and qualitative disclosures about market risk: discuss market risk and risk factors for the registrant 's securities.

Management and certain security holders: list the names and ages of all directors of the registrant and all persons nominated or chosen to become directors; indi­cate all positions and offices with the registrant held by each such person. List the names and ages of all execu­tive officers of the registrant and all persons chosen to become executive officers; indicate all positions and offices with the registrant held by each such person; state his term of office as officer and the period during which he has served as such and describe briefly any arrangement or understanding between him and any other person(s) (naming such person) pursuant to which he was or is to be selected as an officer. Identify certain significant employees who are not officers and disclose the same information required of corporate officers.

Executive compensation: provide details of executive officers' compensation, cash, stock, options, etc.

Security ownership of certain beneficial owners and management: options and shares held by management and large shareholders.

Corporate governance: discuss whether directors are independent.


The issuer must also provide:

  • Name of registrant
  • Title and amount of securities 
  • Offering price of the securities 
  • Market for the securities
  • Risk factors
  • State legend: Any warnings required of state regulators.
  • Commission legend: A legend that indicates that neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the securities or passed upon the accuracy or adequacy of the disclosures in the prospectus and that any contrary representation is a crim­inal offense.
  • Underwriting: information on underwriters of the securities. 
  • Date of prospectus
  • Prospectus subject to completion legend: if a preliminary prospectus.
  • Use of proceeds: What will the issuer do with the proceeds of the offering? As the SEC states, ''State the principal purposes for which the net proceeds to the registrant from the securities to be offered are intended to be used and the approximate amount intended to be used for each such purpose. where regis­trant has no current specific plan for the proceeds, or a significant portion thereof, the registrant shall so state and discuss the principal reasons for the offering.''
  • Selling security holders: if any of the securities are being offered by security holders, provide information on each one.
  • Issuers must provide a table of contents on either the inside front or outside back cover of the prospectus to help investors navigate the document. As the SEC states, ''It must show the page number of the various sections or subdivisions of the prospectus. Include a specific listing of the risk factors section required by Item 503 of  this Regulation S-K."
Dealers have prospectus delivery requirements, so the SEC requires that, ''On the outside back cover page of  the prospectus advise dealers of  their prospectus delivery obligation, including the expiration date specified by . . . the Securities Act of 1933."

The final prospectus must be delivered to all buyers of an IPO no later than completion of the transaction. It also must be delivered to buyers on the secondary market - the investors buying from the IPO investors - for a certain amount of time, depending on which market it trades on. Since there isn't much required of or known about Pink Quote or OTCBB stocks, the prospectus for an IPO must be delivered for 90 days on the secondary market, even after the offering period closes. For additional offerings of these stocks, the prospectus must be provided on the secondary market for 40 days. For NYSE and NASDAQ securities IPOs require the prospectus be delivered for 25 days, but for additional offers there is no requirement to deliver the prospectus on the after- or secondary market.

Broker-dealers must respond promptly to any written request for a preliminary or final prospectus. Any associated persons expected to solicit sales must be provided with copies of the preliminary prospectus and the final prospectus if the informa­tion is materially different from the preliminary prospectus. If the broker-dealer is the managing underwriter, they must provide sufficient copies of these documents to all syndicate and selling group members requesting them.

Because of prospectus delivery requirements after the offering period, the managing underwriter also must provide copies of these disclosure documents to firms who will make a market in or trade heavily in the security.

The prospectus for an IPO is often retired soon after the offering is completed. But, the prospectus for a mutual fund or variable annuity would be subject to regular up­ dates. Therefore, if a prospectus is used more than 9 months after the effective date, the information cannot be more than 16 months old. The SEC has the authority to permit issuers to omit any item of information by their rules if they feel it's not neces­sary for the protection of investors to include it. By the same token the SEC has the authority to decide that a prospectus must contain whatever they stipulate through their rule making process and authority.

There are many different types/ forms of "prospectuses," which is why the Securities Act of  1933 states, "the Commission shall have authority to classify prospectuses according to the nature and circumstances of their use or the nature of the security, issue, issuer, or otherwise, and, by rules and regulations and subject to such terms and conditions as it shall specify therein, to prescribe as to each class the form and contents which it may find appropriate and consistent with the public interest and the protection of investors."

A "prospectus" can come in the form of a TV or radio broadcast, which is why the Securities Act of    1933 also states, "In any case where a prospectus consists of a radio or television broadcast, copies thereof shall be filed with the Commission under such rules and regulations as it shall prescribe."

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