COURSE SYLLABUS AND READING ASSIGNMENTS. Initial Public Offerings. Michael Reedich

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1 COURSE SYLLABUS AND READING ASSIGNMENTS By Michael Reedich Overview The course will be a soup to nuts securities offering course, focusing on the legal aspects of conducting an IPO for a U.S. issuer on a Form S-1 and advising the issuer about its future responsibilities as a newly public company. Young lawyers entering a securities practice often find that their knowledge of securities-law principles does not always prepare them for day-to-day challenges of practice in this area. This course is designed to fill those gaps by providing students with an understanding of the securities offering process as well as the tools and skills needed to perform tasks required to work on securities offerings. The major topics that will be covered include laws relating to securities offerings, listing on the New York Stock Exchange, underwriters and liabilities, underwriting agreements and the agreement among underwriters, financial statements, accounting issues, comfort letters, the securities act registration process (including the SEC comment and review process), law firm opinions and post-closing reporting obligations. The course will also provide an in-depth analysis of certain sections of the Form S-1, including the Management s Discussion and Analysis of Financial Condition and Results of Operations section and the risk factors section. Prerequisites: Corporations, Securities Regulation Purpose of the Securities Offering Class To provide a basic understanding of the securities offering process To enable junior associates to make a valuable contribution to any offering on which they work To provide junior associates with basic resources and tools and skills needed to perform tasks required of them, such as drafting risk factors, reviewing and commenting on the underwriting agreement, and negotiating comfort letters) 1

2 To enable junior associates to understand why they are doing what they are doing, and to understand how what they are doing fits into the overall transaction To provide an understanding of the reasons why the laws, rules and forms mandate certain disclosures in an effort to better understand what disclosure is actually required (E.g., to understand the spirit of the law in order to better understand the letter of the law ) Exam Three hour, in-class, closed book exam Mostly short answers Final grade based solely on the final exam Class attendance and/or participation will not be a factor in the final grade, but topics and points that will be on the final exam will be emphasized in class Required Reading Materials The Offering: A Guidebook for Executives and Boards of Directors (online) Financial Statements A Step-by-Step Guide to Understanding and Creating Financial Reports by Thomas Ittelson 1998 version 1 (available via various online retailers like Amazon.com) or any other comparable book on basics of financial statements Some materials from Other Reading Materials below, as indicated in the Weekly Class Topics and Reading Assignments below Other Reading Materials (This contains both required and optional reading materials, including the Facebook and Google IPO Registration Statement) Course Materials for (available on TWEN) 2

3 Suggested Books to Purchase Corporate Finance And The Securities Laws by Charles J. Johnson, Jr. and Joseph McLaughlin 3

4 Overview of Topics to Be Covered in Weekly Classes Class Topic 1 Introductory class 2 Laws relating to Securities 3 NYSE Listing 4 Publicity Issues Related to the Offering 5 Underwriters and Liabilities 6 Underwriting Agreements and The Agreement Among Underwriters 7 The Financials (F-pages) 8 Accounting Issues and Comfort Letters 9 Registering under the 33 Act on Form S-1, Form Checks and Registering under the 34 Act 10A 10B Risk Factors Law Firm Opinions and Letters 11 Management s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) 12 Post-Closing Reporting Obligations and Requirements (Which Need to be Addressed, or at least Explained, to the Issuer, Pre-Filing) 13 Securities Act Registration Process SEC Comment and Review 4

5 Weekly Class Topics and Reading Assignments Class Topics Required Readings 1 Optional Readings Class #1 Introductory class Suggested Books to Purchase Demystifying the process Pencil / Watch / House Example; Ice Cream Stand IPO Example What if public capital markets did not exist? What is a security? 4 Points of the Test of a Security Why do companies do public securities offerings / pros and cons Alternative forms of finance When do companies do securities offerings? Primary versus Secondary offerings Timing of securities offerings Roles of the different parties Underwriting fees Basic terminology Offering Methods Basic Steps in an Offering of Securities Initial Organizational Meeting History of The Securities Act of 1933, as amended (from The Securities and Exchange Commission, The Investor s Advocate: How the SEC Protects Investors and Maintains Market Integrity) The Securities and Exchange Commission (the SEC ) What they do / who they are Chapters 1 and 6 of The Chapter 3 of The 1 Any Required Readings that are not chapters from The book are contained in the Course Materials for that particular class (except for the book entitled Financial Statements A Step-by-Step Guide to Understanding and Creating Financial Reports which should be read for Class #7. 5

6 Registration under The Securities Act of 1933, as amended Registration and Sales A 3-Step Process Basic Sections of the Prospectus Where does the information to create the Prospectus come from? Pre-offering preparation Who is the client? Who owns the corporation? Jonas, Who is the Client?: The Corporate Lawyer s Dilemma Showing offering circulars / prospectuses and underwriters style guides The Library Class #2 Laws relating to Securities Overview of major securities laws The Securities Act of 1933, as amended Schedule A Requirements for Registration of Securities Other Than a Security Issued by A Foreign Government or Political Subdivision Thereof (Information that must be disclosed) Rule 10b-5. Employment of Manipulative and Deceptive Devices Section 17(a)(2) of the 33 Act Use of interstate commerce for purpose of fraud or deceit Plain English Forward-Looking Statements and the Safe Harbor Materiality Time periods in registered securities offerings Pre-filing, Waiting and Post- Effective edbox/ State Laws Delaware Chapter 2 of The JOBs Act Title I Skim the Securities Act of 1933 Appendix C of The 6

7 Class #3 NYSE Listing Overview of the NYSE (from the website) Overview of Law Applicable to Listing on a National Securities Exchange NYSE Confidential Review of Eligibility NYSE Listing Standards U.S. Companies Listing Standards for Non-U.S. Corporations Listing Fees U.S. Companies Normal Timetable for Original Listing of Securities on the NYSE Listing Applications NYSE Listing Materials U.S. Companies NYSE Listing Materials Non-U.S. Companies Selecting a Specialist No General Affirmative Duty to Disclose Material Developments (But see NYSE Listed Company Manual Rule and Nasdaq Stock Market Rule 4310(c)(16)) Continued NYSE Listing Standards NYSE Listed Company Manual NYSE Corporate Governance Requirements Continuing NYSE Reporting Obligations Overview Continuing NYSE Reporting Obligations Summary of Certain NYSE Filing and Notification Requirements for Domestic Companies Continuing NYSE Reporting Obligations Summary of Certain NYSE Filing and Notification Requirements for Foreign Private Issuers listed on the NYSE NASDAQ Listing NYSE Original Listing Application Package NYSE Specialist Brochure Section 303A of the NYSE Listed Company Manual 7

8 Class #4 Publicity Issues Related to the Offering Offer to Sell Publicity Memorandum What are the Main Gun Jumping Issues? General Publicity Restrictions for an Issuer In Registration Website Content during Registration Publicity Restrictions Applicable During the Three Time Periods Rule 135. Notice of Proposed Registered Rule 135c. Notice of Certain Proposed Unregistered Rule 135e. Offshore Press Conferences, Meetings with Issuer Representatives Conducted Offshore, and Press Related Materials Released Offshore Rule 163A. Exemption From Section 5(c) of The Act For Certain Communications Made by or on Behalf of Issuers More than 30 Days Before a Registration Statement is Filed Rule 134. Communications Not Deemed a Prospectus Benefits of Rule 134 and Rule 135 Communications Road Show Materials Analysts Research Reports and Research Reports Guidelines Brief Overview of Rules 137, 138 and 139 Analysts Research Rule 137. Publications or Distributions of Research Reports by Brokers or Dealers That Are Not Participating in an Issuer s Registered Distribution of Securities Rule 138. Publications or Distributions of Research Reports by Brokers or Dealers About Securities Other Than Those They Are Distributing Rule 139. Publications or Distributions of Research Reports by Brokers or Dealers Chapter 5 of The 8

9 Distributing Securities NYSE Rule 472 and NASD Rule 2711 by EGCs Class #5 Underwriters and Liabilities Who, Or What, Are Underwriters? What Is Underwriting? What Has The SEC Said About Underwriters and Their Role in a Securities Offering? Due Diligence Limiting Underwriter Liability Road Show Bookbuilding The Green Shoe and Over-Allotment Options Stabilization NASD (The National Association of Securities Dealers, Inc.) Filings Liabilities General Advice In Dealing With Underwriters As Your Client Chapter 7 of The Appendix B of The Class #6 Underwriting Agreements and The Agreement Among Underwriters Overview of the Underwriting Agreement Overview Of The Various Sections Of The Underwriting Agreement Sections Of The Underwriting Agreement Newly Added Sections of an IPO Underwriting Agreement Due to Securities Offering Reform and Recent Events Drafting The Underwriting Agreement The Agreement Among Underwriters Pages 163 to 168 of Chapter 9 of The Twitter s Underwriting Agreement (bring this to class) Class #7 The Financials (F-pages) Overview Financial Terminology F-page Basics Regulation S-X Balance Sheet Income Statement Statement of Changes in Shareholders Financial Statements A Step-by-Step Guide to Understanding and Creating Financial Reports 9

10 Equity Statement of Cash Flows Notes to the Financials Class #8 Accounting Issues and Comfort Letters What is Accounting? What is Auditing? What is the PCAOB? GAAP and GAAS SEC s Role in Setting Accounting and Auditing Standards Accountants and Report of Independent Accountants Basic GAAP Concepts (Numbers Don t Lie, or Do They?) Accounting Tricks (How Accountants Can Improve the Bottom (or Other) Line) Comfort Letters Representation Letter Engagement Letter and Procedures to be Followed Pages 168 to 171 of Chapter 9 of The Class #9 Registering under the 33 Act on Form S- 1, Form Checks and Registering under the 34 Act Overview of Registering under the 33 Act on Form S-1 Pertinent Sections of the Securities Act of 1933, As Amended, Including Sections 5 and 7, and Schedules A and B Form S-1 Industry Guides Form Checks Regulation C Sets forth requirements for preparation of registration statements under the 33 Act as well as form and content of prospectuses, filing fees, effective dates, amending registration statements, etc. Registering Under the 34 Act SEC No-Action Letters Checklist of Things to Do Prior to Filing the Initial Registration Statement with the SEC / Printing the Red Herring Form S-1 Form 8-A Regulation S-K (the relevant items as incorporated into Form S-1) 10

11 Class #10A Risk Factors Class #10B Law Firm Opinions and Letters What are Risk Factors? What are the Rules Regarding Risk Factors? Risk Factors Loosely Fall Into Three Broad Categories (From Updated SLB 7) What Does Item 503 of Regulation S-K Say? Why are Risk Factors an Issuer s Best Friend? Should Risk Factors be Long and Detailed or Short and to The Point? Should Risk Factors Include Examples? Are Countervailing Considerations Acceptable? What Are the Characteristics of a Good Risk Factor / Good Risk Factor Section? Risk Factors Too Few, Too Many What Kind of Comments do Issuers Usually Receive from the SEC Regarding Risk Factors? Before and After Risk Factors from the Division of Corporate Finance: Updated Staff Legal Bulletin No. 7 Plain English Disclosure, dated June 7, 1999 The Bespeaks Caution Doctrine Where Do I Start Looking For Good Examples of Risk Factors Related to the Particular Issuer? Examples of Risk Factors 34 Act Annual and Quarterly Reports Overview Why Does a Law Firm Provide Legal Opinions in Securities? Types of Opinions How to Draft an PWSP Legal Opinion Negotiating Opinions Interpreting Legal Opinions Content of Legal Opinions General Facebook s Twitter s Risk Factors Writing Effective Risk Factor Disclosure in Offering Documents and Exchange Act Reports Legal Opinions on TWEN (bring them to class) 11

12 Content of Legal Opinions Issuer s Counsel for an IPO Content of Legal Opinions Underwriter s Counsel for an IPO Class #11 Management s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) SEC s MD&A Releases and Other SEC Materials and Speeches MD&A Section How it is Written Comparison With the Financials Critical Accounting Segment Analysis MD&A Enforcement Cases Brought by the SEC Buried Facts Doctrine Google s MD&A Regulation S-K, Item 303 Instructions to Paragraph 303(a) of Regulation S-K, Item 303 Class #12 Post-Closing Reporting Obligations and Requirements (Which Need to be Addressed, or at least Explained, to the Issuer, Pre- Filing) Continuing Reporting and Disclosure Obligations Under the 34 Act Resulting from Listing on the NYSE (Domestic Issuers) Continuing Reporting and Disclosure Obligations Under the 34 Act Resulting from Listing on the NYSE (Foreign Private Issuers) General Disclosure Obligations Under U.S. Securities Laws Ongoing Reporting Obligations of Individuals Section 16 Insider Reporting Requirements and Short-Swing Profits Rule Insider Trading Policy and Procedures Regulation FD ( Fair Disclosure ) The Annual Meeting of Shareholders, Proxy Solicitation, Shareholder Proposals and Yearly NYSE Certification Chapter 10 of The Form 8-K Sample CEO and CFO 906 Certifications Sample CEO and CFO 302 Certifications The Public Company Handbook 12

13 Class #13 Securities Act Registration Process SEC Comment and Review Comment and Review Process by the SEC Common or Generally Applicable SEC Comments and Reasons for the Comments Review of Google s SEC Comment and Review Process The Process of Becoming Effective Chapter 8 of The Google, Facebook and Twitter SEC Comment and Review Process Materials 13