Grey Area of the Information Technology Act, 2000.pptx
Private placement market (ppm) blueprint
1. 1 | ResearchconductedbyArthurMboue
PRIVATEPLACEMENTROUTE BLUEPRINTTO ACCESS CAPITAL FOR SEC
REPORTING PRACTITIONERS
STEPS EVENTS BASIC MAIN REQUIREMENTS
0 60 days before the filingof registrationstatement,a
companymustknowwhat itis eligible for. Available
options:
1. As a WKSI, theycan file Form S- 3 ASRwitha lot
of privilegesincludingautomaticcertificationof
effectivenessof itsshelf registrationandmore
2. SettlingforFormS-1 filing
3. Dormancy until re-eligibility(ontime filingfor
12 months). Here,the companyisleft with
othersoptionsincludingprivate placement,
offshore financingoptionandshortterm
borrowing(mostlycommercial paperand
others)
It shouldbe incorporatedunderthe lawsof the
US or anyUS state or DC.
Requiredtofile Exchange Actreportsfor
preceding12 calendarmonths
Currentinits exchange Actreportingobligations
and timelyforpreceding12 calendarmonths
Form S-3 (or F-3) eligible
60 days priorthe filingeitherhasa least$700
Millionof commonequitymarketcapitalization
heldby non-affiliatesorhasissuedatleast$1
Billionaggregate amountinregistereddebt
offerings duringpast3years andregistersonly
debtsecuritiesforcash
Is notan ineligible issuer
1 If the companywinsthe WKSIstatus. It must file Form
S-3 every3 years(3 year‘shelf’life and90 daysgrace
periods,seealso CD&I question 114.01) like any‘driver
license’forfinancingitdoesnotmatterthat itdoesnot
have any immediateneedforliquid
Transactionrequirements:
Primaryofferingof securitiesfor cash(see
question 116.04 CDI)
Primaryofferingforcashof non-convertible
securitiesthatmeetthese conditions:
o In addition,the issuerbe awholly-owned
subsidiaryof aWKSI
o The issuerbe a majorityownedoperating
partnershipof a REIT that qualifiesasa
WKSI
Primaryofferingof securitiesforcashif issuer
o Has a leastone classof equitysecurities
listed
o Limitsthe aggregate grossproceedsof its
salesof debtand equitysecuritiesduring
12 monthperiodto 1/3 of its publicfloat
Anysecondary offeringof alistedsecurity
Dividendreinvestmentplans,rightsofferingsand
securitiesofferedandsecurities offeredon
conversionof outstandingwarrants;or
Asset-backedsecurities (ABS) thatare rated
investmentgrade andthat meetcertainother
conditions. ABSinformational andcomputational
material isfiledundercoverof Form8-K(also
FWP) and incorporatedbyreference intothe
registrationstatement.
PS: BoD must know that they must authorize and sign
this form. This form signingdoesnot expose themto
liabilitiessince additional data can be providedwhen
engagingin publicoffering. This form S-3 is not useful
2. 2 | ResearchconductedbyArthurMboue
for the private placementprocess.
2 Certificationof Effectiveness isreceivedfromthe SEC The effectivenessof a‘shelf’registrationstatementwhich
isinterestedtoregistersecuritiesthat maybe offeredin
the future bythe registrantisnotnecessarilythe
commencementof anoffering. The purpose of the
review istoconfirmthe accuracy of the reference inthe
prospectusaswell asto identifythe documentthatmust
be filedasexhibitstothe registration. Confidential
treatmentisallowedunderspecial circumstances. Care
shouldbe takenthatthe due diligence recordnotleave
any questionunresolved.
3 Internal decision:companydeterminesneedforcash
and opportunitytogenerate increasedprofitsthereby.
Managementconsidersoptions
A- Sale of assets
B- Short-termborrowing(includingcommercial
paper-quickandnonSEC filingbutbe aware
aboutits usesandBasel creditrating)
C- Issuance of securitiesanddebts
1. Companyconsidersthe sale of
securitiesanddebtstothe SEC
registered investingpublic(QIBand
others)
2. Throughprivate placement(
RegulationD and 144A)
3. Throughofferingof securitiesand
debtsinthe offshore market
(international financing-RegulationS)
Testof timing,audience andcontent
PublicOffering
o Customer:investingpublic
o SEC certification
o cash
Private Placement
o Customer:pre-existingrelationship (QIB)
o No SEC certification
o Cash andNo cash
Offshore market(orInternational financing)
o Customer:foreign (distribution
compliance period will keepitfrom
comingquickly backto US, 3 categories,
Substantial USmarketinterest metrics)
o No SEC certification
o Cash andnon cash
PS: the BoD can authorize a concurrent strategy. They
must reviewthe brieffrom the secretary and ask a lot of
questions;pros and cons
4 Companyoptsto raise fundsthroughprivate placement
of securitiesanddebtstoQIB(qualifiedinstitutional
buyers),accreditedinvestorsand purchasers
QIB statusare givenwheninstitutionspassthe $100
Million plustestincluding:
Banksand Savingsandloan associations
Investmentadvisersfirm
Brokerand Dealerstake onlythe $10 Million
plustest
NonSPE trust will take atestof $5 Millionplus
of total assets
Accreditedinvestorsstatus are givento:
Banks,insurance company,small business
investmentcompany,investmentcompany,
employeebenefitplan,private business
developmentcompany,corporation,
partnership,businesstrust, director,executive,
corporate officer,anynatural personwithnet
worthor jointnetworth of $1 Million plusand
any natural personwith$200,000 plusincome
5 Corporate Leadersmeetandchoose theirinvestment
bankerteamfor thisevent
BoD of independentdirectorsmustexercisetheir
fiduciary,due care andloyaltydutiesandmake sure that
3. 3 | ResearchconductedbyArthurMboue
the choice of the investmentbankingteamisbasedonits
experience,trackedgoodrecordandexcellentknowledge
of the company. In addition,itmustbe an arm length
contractual agreementbetweenthe companyandthe
investmentbankingteam. Since there isnotSEC
certificate of effectivenessprocessforthisevent,this
teammust be independentto give asecond opinionof
the company’svalue andprojection. It isnot justto
protectthe team frompotential lawsuitsbutalsoto
create a marketconfidence intothe adequacyof the data
providedtomarketparticipants. Tosignthe contract, the
teamwill receive acorporate resolutionauthorizingthe
private offering.
6 Managing investmentbankerchoosesitslegal
representation(SECreportingexpertsforvaluation,
contract and due diligence)
There isa lotof similarities betweenpublicofferingand
private placement,theyuse the same type of documents:
PPM-OfferingMemorandum
Purchase agreementbetweenthe companyand
the initial purchasers
Registrationrightsagreementbetweenthe
companyand the initial purchasers
Legal opinions,and
Comfortletters
A groupof informedsecuritiesofferingadvisors mustbe
able to analyze the client’sfinancialprojectionstoensure
that theyare reasonable inlightof actual knownfacts,
circumstancesandecosystems. Theymustbe able to
workwithfinanciersandaccountantsandask the
companyto adjustthem(historical data,non- recurring
items,expectedreturns, intangibleassets -intellectual
Property,…) because corporationtendstooverstate this
data for free cashflow valuation. Inaddition,theymust
be highlyknowledgeableinthis company andindustry
operations.
7 A syndicate/consortiumof multiple investmentbankers
isformed and defined
1. Agreementsamongthem(AAU)
2. Agreementsbetweencorporationand
investmentsbankers
3. Agreementsbetweeninvestmentbankersand
dealers(orQIB)
Administrative Managerhasthe powerof attorney to
signthe deal on behalf of all investmentbankingfirms
involvedinthisevent.(participationfee,restrictions,
monitoring,metricsof syndications,etc),
Securitiesare distributionthroughthe
syndicate/consortium,one ormore firmswill be designed
by the companyas managingadministrative agent,
syndicate agent,documentsagentandlead
arranger/bookrunneragent
8 Investmentbankstaff contactpublic andprivate
pensionfundsandotherinstitutionsaspossible
purchasers
RegD and Rule 144A give differentinterpretationof how
to solicitprivatelyparticipantstothisevent. But,youcan
focuson pre-existinginvestors,35isstill somehowthe
limitdespiteJOBStentativechange of rule. Pleaseavoid
Website posting(maybe legal withpassword
exclusivelytoprospectiveinvestors)
Circulatedadvertisements
4. 4 | ResearchconductedbyArthurMboue
Coldcallsto prospective customers
Usingcompany’spre-existingcontactsdatabase
withoutconsultingthem
Prospective Investorsmustreceive,read,signandreturn
Investorqualificationquestionnaire
Subscriptionagreement
Agreementtobecome apartyto shareholders
Thisinvestordocumentationmustbe reviewedbefore
the eventbyan attorney
9 Investors’counsel isselected Requiredskills:
Counsel should readall relevantandavailable
materialsonthe issuer
Counsel shouldagree withthe issueronthe due
diligence budget,scope of review,deadlineof
completionandpotentialoutside consultants
Counsel shoulddiscusswiththe companyabout
any thresholdissuesthatcouldaffectthe ability
to complete the offeringasscheduled
Private Offeringcompliance program
Timetablesforthe state andfederal filings
Monitoringof offersforpurposesof additional
filingsrequirementsandlimits
Proceduresfordeterminationof whichinvestors
may be solicited
Monitoringof subscriptionsforcompletenessand
for suitabilityof investors
Listingof all offereesand receiptsof prospective
investordocumentation
Offeree representative documents
Basic due diligence
o The issuerand itsmanagement
o Past securitiesofferings
o Pendinglitigationorpreviousorpotential
regulatoryproblems
o The businessprospectsof the issuer,and
o The assetsheldbyor tobe acquiredby
the issuer
Corporationliability
Broker-dealersandinvestmentbankingfirmsare
requiredtoexercise a‘highdegree of care’in
investigatingandindependentlyverifyingan
issuer’srepresentationandclaims. Failureto
complywiththisdutycan constitute aviolationof
the anti-fraud provisionof the Federal Securities
law (Section17(a) of the SA,Section10(b) of the
SEA andRule 10b-5). In absence of a Federal
claimfor negligentmisrepresentation,a
purchaserisentitledtoseekredressformaterial
misrepresentationormisleadingomissionsonly
5. 5 | ResearchconductedbyArthurMboue
pursuantto the impliedprivaterightof action
underSection10(b) of the 1934 SEA.
Reg FD: Disclosure of non-publicinformationby
the companyexecutives here isnotexempted
fromReg FD. The duty to disclose will require the
companyto file Form8-Kand/or postinternet
webcastor videoof thatroadshow. To prevent
any violationof RegFD,companyleadersmust
avoiddisclosingnon-publicdataduringroadshow
and require theirbrokerdealertoissue press
releasesdisclosingtheirtransactions
Personal liabilityforacounsel:
The duty of ‘special relationship’withcustomer
exposescounseltolegal malpractice (froma
clientor3rd
party) similartothe independent
auditorsbecause counsel preparesanoffering
memorandumandotherdocuments (also
adequacyof a due diligence investigation) forthe
company that are intendedto be disclosedto
thirdparties. (referenceEnron case,2002 and
Cowan Liebowitz& Latman v.Kaplan,2005)
Alsothe conductof secondaryactor can satisfy
elementsorpre-conditionsforliabilityunder10b
10 Corporate leaders,placementleadersandothers
involvedinthe offerings,afterdue diligence conducted
by theirresearchersteams,securitieslawyersand
financiersdecidetoproceedwiththe scheduledevent
Have your researchconductedbya team withbothhighly
informedsecurities andWall Streetorientedstaff
(accountants,financiers,etc.) andotherindependent
experts. Thisgroupmust be capable reviewing complex
data and Rule 137, Rule 138 and Rule 139. Whenyou are
dealingwith‘redflags’industryorcompany,increase
your due diligence by
Requestingmore confidentialdocuments(board
minutes,…)
List and secure all revieweddocuments
Visitaleastthe corporate facilitiesof the
companyand take notes
Interviewstopcorporate officersandcompare
theiranswers
Verify,verify,independentverificationand
investigationisthe entire purpose of due
diligence
In short,time andeffortare necessaryif the qualityof the
instrumentistobe verified(maybe alsobya certified
thirdparty) and the investorsare to perceive thata
seriouseffort toprotecttheirinterestdidoccur.
11 A note of purchase of agreementisdrafted Index of stockpurchase agreement:
Definition
Sale and purchase of shares
Representationandwarrantiesof seller
Representationandwarrantiesof buyer
6. 6 | ResearchconductedbyArthurMboue
Certaincovenants
Conditionsprecedent
Termination
Indemnification
Miscellaneous
12 8-K isfiledbythe SEC reportingcompanywithterm
sheetasexhibit
NPO,Notice ofPrivate Offering,8-K,item8.01, other
events,mustcontainthislegend‘Thisannouncementis
not an offertosell orthe solicitationof anoffertobuy
any securities,norshall there be anysale of the securities
inany State wouldbe lawful priortoregistrationor
qualificationunderthe securitieslawsof anysuchState’
13 A private placementMemorandum (PPMisnotPPM
withHMO, Tricare,Champ-va, Champ-us) isprepared
by the companywiththe assistance of investment
bank;at thisstep, the private placementisofficially
opento a selectedgroup forthe next3 to 5 days
Index of the PPM:
Descriptionof securities
Termsof the Offering
Use of Proceeds
Descriptions of Business
RiskFactors
Capitalization
Historical Financial Data
Management’sDiscussionandAnalysis
Management
Principal Stockholders
Financial Projections
Legal Matters
14 The company files8K/A withthe private placement
memorandum (offeringmemorandum) asexhibit
8-K will file underitems:
3.02-Unregisteredsalesof EquitySecurities
3.03-Material modificationof rightsof securities
holders
8.01-other events
15 The administrative agent,syndicationagentandlead
arranger/bookrunnerdistribute profitsandallocate
losses. Bookrunneragent closesthe offeringbook.
To close
Notifyeachinvestorinwritingthatthe company
didaccept his/heroffer
Attorneymustreview the subscriptionand
closingdocumentsbeforeacceptance
A control sheetisdraftedfromthe company
database
Prepare stockcertificate withthislegend ‘The
sharesrepresented by this certificate are
restricted securities and are subjectto the
restrictions set forth on thereverse side
hereof’afterreleasingthemfromthe escrow
account to the companyaccount
Each certificate mustbe signed,datedand
certifiedmail tothe new owners
Draft a control sheetof all copiesof the signed
stock certificate receiptsfromthe computer
database
Good luck
7. 7 | ResearchconductedbyArthurMboue
16 Resale time of restrictedsecurities(securitiesissued
and soldto purchasers) fornewowners
6 waysfor investorstoresell inasingle transactionsthe
restrictedsecuritiesreceivedinaprivate offering:
Registerthe securities
Sell the securitiesina‘4(1-1/2)’ transactionrefers
to transactioninreliance of section4(1) or
section4(3) dependingonwhetherthe sellerisa
securitiesdealer.
Sell the securitiesdirectlytoQIBpursuantto Rule
144A
Sell the securitiestothe publicina transaction
not involvingadistributionasdefinedbyRule
144 (nore-marketingprospectusfiling)
Resell the securitiesthroughanoffshore
transactionpursuantto the resale provisionsof
SEC Reg S
Sell the securitiespursuanttothe Rule 144(k)
(fullyavailableafter6monthsfor reporting
companyor 1 yearfor non-reportingcompany)
2 typesof Rule 144A offering (Rule144A onlyofferings
and Rule 144 eligible offering),the difference liesinthe
permittedresalesof securities