IPO: Types of Offerings and Estimates of Costs
Description
This article is from the Investing Articles: Public Offerings: IPO and DPO series.
IPO: Types of Offerings and Estimates of Costs
REGULATION A
Regulation A Offering Process.
Regulation A promulgated
by the SEC allows the public issuance of securities without
registration with the SEC. In the stead of registration, Regulation A
requires that an "offering statement" be filed with the SEC. After the
offering statement has been filed, then oral and certain limited
written offers and advertisements may be made (i.e., "red herrings"
may be circulated), but no sales may be consummated. After the
offering statement has been "qualified" by the SEC, then other written
offers and advertisements may be made and sales may be closed. The
offering statement contains an "offering circular", which is the
actual disclosure document given to investors. Regulation A allows an
issuer to choose one of several formats for preparing the offering
circular. The simplest format is virtually identical to Form U-7 used
for SCOR offerings. Other formats more closely resemble a prospectus
used in connection with the Form SB-2 registration statement.
Test the Waters.
Regulation A also contains a "test the
waters" provision. An issuer may publish or deliver to prospective
purchasers a written document or a scripted radio or television
broadcast to determine whether there is any interest in a contemplated
securities offering. No oral communication is permitted with potential
investors until after the written document or script has been
submitted to the SEC. No sale may be made until after 20 days have
elapsed and the prospective purchaser has been furnished with the
offering circular. Thus an issuer may "test the waters" prior to
incurring the expense of actually preparing the offering statement.
Financial Statements.
The issuer must provide financial
statements prepared in accordance with GAAP; however, the financial
statements need not be audited, unless the issuer prepares audited
financial statements for other purposes; then audited statements must
be furnished. Although Regulation A does not generally require audited
financial statements, investors are generally more receptive to an
offering if the financial statements have been audited.
Comparison with a Registered Offering.
Although the
Regulation A procedures appears in many ways to be analogous to a
registered offering, it is intended to be and is generally less
burdensome than a traditional registered offering.
Blue Sky and NASD Review.
A Regulation A offering must
also be registered in the various states under their respective "blue
sky laws". Many states allow for registration by coordination for
Regulation A offerings, which is generally less burdensome than
registration by "qualification". However, each state's law must be
examined to determine individual requirements. The terms of the
underwriting must be cleared by the NASD.
Time Table.
An issuer should assume that the due
diligence and preparation of an offering statement will take two-three
weeks and that the SEC will take four-six weeks to completely process
and qualify an offering statement. This time frame assumes that the
issuer, the underwriter, the attorneys, and the accountants are all
prompt in completing their various tasks.
Eligibility and Amount Raised.
Generally Regulation A is
available only to non-public companies. It may be used to raise up to
$5 million in any 12 month period, only $1.5 million of which may come
from selling shareholders.
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