Securities offerings and listings in the US: an ... - Latham & Watkins

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Chapter 3 – Key exemptions from Securities Act registration(vi) Rule 508 – deviations fromRegulation DUnder Rule 508, a person may establish the existence ofan exemption under Regulation D with respect to anypurchaser even if the person failed to meet one or moreof the requirements of Regulation D. In this case, theperson must show that:• the failure to comply did not pertain to a term,condition, or requirement directly intended toprotect the purchaser;• the failure to comply was “insignificant to theoffering as a whole;” and• the person made a good faith and reasonable attemptto comply with the relevant requirements ofRegulation D.Resales of privately placedsecuritiesBoth Section 4(2) and Regulation D apply only totransactions by issuers, 126 and neither provides anexemption for resales. Purchasers who wish to resellsecurities acquired in a private placement must look tocertain resale exemptions – in particular, the exemptionsprovided by Rule 144A, “Section 4(1- 1 / 2 )” and Rule144 under the Securities Act.(i) Rule 144A resales to QIBsAlthough market participants often refer to Rule 144Aofferings, as a technical matter Rule 144A transactionsinvolve two steps: sales to underwriters (or directly toinstitutional initial purchasers) under Section 4(2) orRegulation S, followed by resales to QIBs under Rule144A. As a result, Rule 144A transactions followvarious limitations not found directly in Rule 144Aitself (such as restrictions on publicity) as well as theexplicit requirements of Rule 144A.Practice point:Securities purchased under Rule 144A are deemed“restricted securities” and can only be resold pursuantto Rule 144A or another exemption (including theRegulation S resale safe harbour described above). 127(a) Definition of QIBA QIB is defined to include: 128• any of the following entities acting for its ownaccount or the account of other QIBs, that in theaggregate owns and invests on a discretionary basisat least $100 million in securities of issuers that arenot affiliated with the QIB:- insurance companies;- investment companies;- small business investment companies;- certain employee benefit plans;- certain trusts;- certain tax-exempt organizations corporations;and- certain registered investment advisers; and• certain broker-dealers, banks, and savings and loanassociations.(b) Rule 144A requirementsThe requirements for a valid Rule 144A transactioninclude the following:• Sales to QIBs: 129 the securities must be offered andsold only to QIBs or to a person who the seller (andany person acting on its behalf) “reasonablybelieves” is a QIB;• Notice to buyers: 130 the seller (and any person actingon its behalf) must take reasonable steps to ensurewww.iflr.comUS SECURITIES OFFERINGS: A GUIDE FOR NON-US ISSUERS21
Chapter 3 – Key exemptions from Securities Act registrationthat the buyer is aware that the seller is relying onRule 144A (generally by so noting in the offeringmemorandum, or in the trade confirmation in thecase of an undocumented offering);• Fungibility: 131 the securities must not be, whenissued, of the same class as securities listed on a USnational securities exchange or quoted on Nasdaq(or, in the case of convertible or exchangeablesecurities, have an effective conversion premium of10% or more); and• Information delivery: 132 If the issuer is a reportingcompany under the Exchange Act or is exemptfrom reporting under Rule 12g3-2(b), a sellerwishing to resell the securities is not obligated tofurnish the purchaser with information concerningthe issuer. However, if the issuer is not a reportingcompany and is not exempt under Rule 12g3-2(b),a holder or the purchaser must have the right toobtain from seller or issuer, upon request, certainminimal reasonably current information concerningthe business of the issuer and its financial statements.(c) A/B exchange offersRule 144A has also become particularly popular forglobal offerings of debt securities, in part because of aline of SEC “no-action” letters that permits issuerswho have sold debt securities to QIBs pursuant toRule 144A to subsequently register an exchange offerof identical securities for the Rule 144A securities. 133This procedure allows QIBs, subject to limitedexceptions, to obtain freely tradable registeredsecurities in exchange for the restricted, legendedsecurities they obtained in the Rule 144A offering.Because the exchange offer will go through the SECregistration process, most issuers and underwriters seekto conform the original Rule 144A offeringmemorandum as closely as possible to the requirementsof a full registration statement (including US Gaapreconciliation).The availability of this exchange procedure allowsissuers and underwriters to complete transactionsquickly under Rule 144A to take advantage of marketconditions, but with the expectation that the issuerwill promptly register an exchange of identicalsecurities. As a result, purchasers generally do notrequire the liquidity discount they would otherwisedemand if the securities were to remain private. Inaddition to promising public registration under theSecurities Act, the issuer also typically agrees to fileperiodic reports with the SEC under the ExchangeAct, thereby enhancing public information andliquidity.(ii) “Section 4 (1- 1 / 2 )” resalesMarket practice has developed the so-called “Section 4(1- 1 / 2 )” exemption for resales of privately placedsecurities. 134 (Section 4 (1- 1 / 2 ) does not actually appearin the Securities Act and is instead the name given tothe practice of certain resales of private securities.)Under this exemption, securities that are initiallyprivately placed may be resold if the resales essentiallycomply with the requirements for the original Section4(2) private placement.Typical restrictions in a Section 4 (1- 1 / 2 ) transactioninclude that resales may only be made:• on a non-public basis;• to sophisticated investors who could have participatedin the original private placement and who arebuying for investment and not with a view to distribution;and• subject to limitations on onward resales (such asletters of representation from purchasers).(iii) Rule 144Rule 144 provides conditions under which privatelyplaced securities may be resold to the public withoutcomplying with the registration requirements of theSecurities Act. 135 Rule 144 requires:• One-year minimum holding period: 136 securities mustbe held for a minimum of one year from the date ofpurchase before any Rule 144 resale;22 US SECURITIES OFFERINGS: A GUIDE FOR NON-US ISSUERS www.iflr.com
Page 1 and 2: IFLRinternational Financial Law Rev
Page 3 and 4: About Latham & WatkinsLatham & Watk
Page 5 and 6: EditorNigel SavageProduction editor
Page 7 and 8: Table of contentsChapter 3 - Key ex
Page 9 and 10: Table of contentsSpecial considerat
Page 11 and 12: Table of contentsChapter 10 - Concl
Page 13 and 14: US SECURITIES OFFERINGS: A GUIDE FO
Page 15 and 16: Chapter 1 - Key statutes and concep
Page 17 and 18: Chapter 1 - Key statutes and concep
Page 19 and 20: Chapter 2- The registration process
Page 29 and 30: Chapter 3 - Key exemptions from Sec
Page 33: Chapter 3 - Key exemptions from Sec
Page 39 and 40: Chapter 4 - Restrictions on publici
Page 41 and 42: Chapter 4 - Restrictions on publici
Page 43 and 44: Chapter 5 - Required financial stat
Page 63 and 64: Chapter 6 - The US Sarbanes-Oxley A
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Chapter 7 - Liability under the US
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Chapter 8 - Communications with res
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Chapter 9 - Other relevant statutes
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Annex A - Non-financial disclosure
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Annex B -NYSE and Nasdaq quantitati
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Annex C - Effective dates for certa
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EndnotesEndnotes1 We do not discuss
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Endnotesparticular class of persons
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Endnotes210 Id. Item 17(c)(2)(iii).
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Endnotes335 Regulation G, Rule 100(
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Endnotes463 Id. Rule 500. A “fore
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Endnotes552 Id. at 86,381.553 Id.55
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Securities PracticeLatham & Watkins
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