Waiting PeriodUsing a Free Writing Prospectus

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Waiting PeriodUsing a Free Writing Prospectus

• Hypos to Part 5AThe Basics

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What is a Free Writing Prospectus (FWP)?

• 1. Defined by Rule 405
• 2. A written communication as defined
• 3. used after registration statement filed
• 3.Except Wellknownseasonedissuer(WISI)
• 4.By means other than a 10(a)430430A, 430B,
  430C--prospectus asset backed communication clau
  se (a) of section 2(a)(10)-aft effect
• 5. All in (4) are permitted communications not
  subject to conditions of a free writing
  prospectus

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Rule 433(a) Conceptual Basis

• An eligible issuer per Rule 164 AND
• Filed a 33 Act registration statement
• If Satisfy 433 conditions-
• FWP is a 10(b) prospectus
• 10(b)/Can be delivered during waiting period
  without violating 5(b)(1) (none other than 10)
• Deemed public/related to public offering
• Subjects it to potential Section 12
  liability--later

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What is a Written Communication for purpose of
FWP definition?

• A communication that written, printed, a radio or
  television broadcast or
• A graphic communication (GC) as defined
• Rule 405 definition of GC includesall
  electronic media/includes not limited to
• videotapes,. CD-ROM, electronic mail (EM),
  Internet Web sites, substantially similar
  messages widely distributed (rather than
  individually distributed)
• not included originates live, in real-time to a
  live audience more later
• Resolves issuer as to information on Interne
  webite
• Is a written communication tricky because
  definition of a
• prospectus as a written communication
  pre-Internet
• Formalizes as a rule prrio interpretative
  releases

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Which Issuers are Ineligible Issuers (IE) and can
IE use FWP?

• Rule 433(a) IE Cannot Use FWP
• IE defined by Rule 405very broad
• Start with disfavored issuers (my term)
• During past 3 yrs issuers/ or predecessor Was
  a blank check companyR. 419 No business plan
  proceeds for acquisitions A shell company as
  defined Has only nominal assets assets
  only of cashnominal assetsreverse
  mergers Offered a penny stocknot listed on
  stock exchange, less than 5. a share not a
  substantial issuerSee Part 4.
• Disfavored issuers. Cannot use FWP. Period

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IE Based on Conduct of an Issuer

• R. 405--lE List of bad conduct during past
  3yrs Petition for bankruptcy Subject any
  judicial or administrative decree or order
  that enjoins anti-fraud violations (AFV)
  cease/desist from AFV determines AFV
  Issuers registration statement subject to stop
  order (  8) or cease and desist order
  (  8A)

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Hypo 3 and 4

• Enjoined from violation of  5?
• Stop order or cease/desist violations  5.
• But not to being enjoined violation  5
• Enjoined from violation of  17(a)?
• Is if is violation of anti-fraud provisions?
• Makes unlawful a(1) through (a)(3
• To employ any device, scheme, or artifice to
  defraud make false or misleading
  statementEngages in course business operates as
  fraud/deceit
• Section 17 beyond this course (a)(1) requires
  scienter (a)(2) (a)(3) do not S.Ct in Aarron
• We dont explore whether fraud requires scienter

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Can Ineligible Issuer use a FWP

• Already seen that disfavored issuers NO
• R 433--except as set forth in Rule 164
• R. 164(e)(1)-433 only if not an IE issuerR.
  164(e)(2)notwithstanding (e)(1)can use FWP
  that contains only descriptions of terms of the
  securities or the offering BUTNot if a
  disfavored issuer
• QueryIs this anymore than R. 134?not subject to
  conditions of Rule 134, but R. 433 conditions may
  be more severelater

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Second Hypo 5Can AnimatEase use a FWP?

• Did it make an offering of a penny stock?
• Definition of penny stock/Part 4-R 3a51-1
• Stock Not listed on a Stock Exchange
• Less than 5.00 a share
• Substantial issuer?/net tangible assetsless than
  5 million in operation less 3yrs.Less than 2
  million if more than 3 years, OR average
  revenues of at 6mil last 3yrs
• Made offering of penny stock unless
  metsubstantial issuer test

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Importance of Determining Whether Issuer is S-3
I.B.1 Eligible Issuer

• We assume Issuer Not an Ineligible Issuer
• Reg. Statement filed (all FWP can be used only
  aft. reg. statement filed except WKSI)
• Not S-3 I.B.1 eligible follow R.433(b)(2)
• R. 433(b)(2)(i)/Issuer must have filed reg.
  statement includes price range
• FWP can be used only if preceded or accompanied
  by most recent R. 430 prosp

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Importance of Determining cont

• If S-3 I.B.1 Eligible-Follow R. 433(b)(1)
• Must have file a registration statement that
  includes a Section 10 (R.430) prospectus
• No price range required
• Not required be accompanied/preceded by most
  recent preliminary prospectus
• Otherwiseother conditions under R. 433 are the
  same

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Determining S-3 I.B.1 Eligibility continued

• We talked about determining public float in
  another contextICFR (accelerated filers)
• Public FloatNumber of shares held by
  non-affiliates multiplied by price of shares
• S-3 I.B.1. determined ordinarily for entirely
  different purposewhether issuer eligible to use
  S-3 to register primary distribution
• A distribution by issuer distinguished from
  distribution by selling shareholders

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Determining S-3 I.B.1 Eligibility--Hypos

• Hypo 10/An IPOGenerally not S-3 I.B.1
• First Prerequisite S-3 I.A Registrant Reporting
  company for at least 12 months Filed all reports
  during preceding 12 mo. (except for certain 8-K
  reports) timely
• Has not failed to pay dividend not in default
  on specified obligations
• AnimatEase Not S-3 eligible. Period

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Section 433 in Action

• Animate Ease Subject to 433(b)(2)(i)
• FWP must be accompanied/preceded by most recent
  Rule 430 prospectus
• Must include the estimated pricing range
• Must include Rule 433(d)(2)(i) legend
• ALSO can include email address to request filed
  documents and or URL
• IIf FWP delivered electronically (email) can
  deliver prospectus by link to a website-

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Some Other Conditions

• Content of the FWPRule 433(c)
• Must include the legend
• Can essentially include anything else
• Not limited to what is in the prospectus
• BUT cannot be in conflict OR
• Can not be misrepresentations
• Being named by PC magazine OK
• If Prospectus stated sales are flat
• FWP could not say sales have taken off

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Filing Requirements Rule 433(d)(1)(i)

• No later than the date first used issuer
• Must file any FWP prepared or used by it
• Would have to file Hypo 10 FWP
• Hypo 11Distributed by underwriterIs issuer
  information but prepared by other offering
  participant based on derived info
• 433(d)(1)(i)(B) Issuer does have to file if info
  derived from info furnished by issuer

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FWP Prepared by Underwriter (Other Offering
Participant)

• Rule 433(d)(1)(ii)must file if distributed
• Manner designed to lead to broad unrestricted
  dissemination
• Distributed to persons with an account
• May be broadbut not unrestricted
• On its websitebroad if unrestricted
• Password limited accessis restricted