The Advantages
and Disadvantages
of a Registered Public
Offering for Brazilian
Companies
(as compared with an offering
under Rule 144A or Regulation S)
Presented by:
Antonio N. Piccirillo
apiccirillo@proskauer.com
212.969.3905
© 2006 PROSKAUER ROSE LLP®
The Advantages and Disadvantages of a
Registered Public Offering for Brazilian
Companies (as compared with an offering
under Rule 144A or Regulation S)
I.
Overview
II. Principal Characteristics and
Differences
III. Advantages and Disadvantages of a
Registered Public Offering
© 2006 PROSKAUER ROSE LLP®
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I. Overview
© 2006 PROSKAUER ROSE LLP®
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PART I
The Advantages and Disadvantages of a
Registered Public Offering for Brazilian
Companies (as compared with an offering
under Rule 144A or Regulation S)
 A Brazilian company can raise capital in the US
by offering:
—
Equity, or
—
Debt
 An equity offering may be conducted through
the issuance of:
—
ADRs, or
—
Shares
© 2006 PROSKAUER ROSE LLP®
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PART I
The Advantages and Disadvantages of a
Registered Public Offering for Brazilian
Companies (as compared with an offering
under Rule 144A or Regulation S)
 ADRs and shares are normally offered under:
—
Registered Public Offerings,
—
Rule 144A Offerings, or
—
Regulation S Offerings
© 2006 PROSKAUER ROSE LLP®
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II. Principal Characteristics and
Differences
© 2006 PROSKAUER ROSE LLP®
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PART II
The Advantages and Disadvantages of a
Registered Public Offering for Brazilian
Companies (as compared with an offering
under Rule 144A or Regulation S)
What are ADRs?
 American Depositary Receipts
 Negotiable receipts registered in the name of
the holder, evidencing a specified number of
equity securities
 Issued by a US depositary (usually a bank)
against the deposit of the Issuer’s securities
with a custodian in the Issuer’s home country
 Allow the Issuer’s securities to be traded and
settled in the manner customary in the US
market
© 2006 PROSKAUER ROSE LLP®
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PART II
The Advantages and Disadvantages of a
Registered Public Offering for Brazilian
Companies (as compared with an offering
under Rule 144A or Regulation S)
What are ADRs?
(cont’d)
 Payments must be made in US dollars
(regardless of whether payments on the
underlying securities are made in Reais)
 Can be listed on US securities exchanges
 ADRs can be “Level I,” “Level II” or “Level III”
 ADRs can also be issued in (1) a private
transaction in reliance on Rule 144A and (2) in
an “offshore transaction” in reliance on
Regulation S
© 2006 PROSKAUER ROSE LLP®
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PART II
The Advantages and Disadvantages of a
Registered Public Offering for Brazilian
Companies (as compared with an offering
under Rule 144A or Regulation S)
Level I ADRs
 Issuer cannot raise new capital
 May be issued with or without the Issuer’s
participation
 ADRs are not quoted on an exchange
 Depositary must file a short registration
statement (Form F-6) with the SEC
 Issuer is not subject to SEC reporting
requirements (but must obtain a Rule 12g32(b) exemption and file certain customary
information, including all information sent to
shareholders in Brazil)
© 2006 PROSKAUER ROSE LLP®
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PART II
The Advantages and Disadvantages of a
Registered Public Offering for Brazilian
Companies (as compared with an offering
under Rule 144A or Regulation S)
Level II ADRs
 Issuer cannot raise new capital
 ADRs are quoted on an exchange
 Issuer files registration statement on Form 20-F
 Depositary must file a short registration
statement (Form F-6) with the SEC
 Issuer is subject to SEC reporting requirements
(including obligation to file an Annual Report on
Form 20-F) and Sarbanes-Oxley Act
© 2006 PROSKAUER ROSE LLP®
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PART II
The Advantages and Disadvantages of a
Registered Public Offering for Brazilian
Companies (as compared with an offering
under Rule 144A or Regulation S)
Level III ADRs
 Issuer raises new capital
 ADRs are quoted on an exchange
 Issuer files registration statement on
Form F-1
 Depositary must file a short registration
statement (Form F-6) with the SEC
 Issuer is subject to SEC reporting requirements
(including obligation to file an Annual Report on
Form 20-F) and Sarbanes-Oxley Act
© 2006 PROSKAUER ROSE LLP®
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PART II
The Advantages and Disadvantages of a
Registered Public Offering for Brazilian
Companies (as compared with an offering
under Rule 144A or Regulation S)
Overview of Rule 144A
 “A safe harbor” from registration under the
Securities Act for resales of securities to
Qualified Institutional Buyers (“QIBs”)
 Issuer issues securities to one or more
investment banking firms in a traditional
Section 4(2) private placement
 The investment banking firms then resells the
securities to QIBs under the exemption
provided by Rule 144A
 A QIB is an institution that in the aggregate
owns or invests at least $100 million in
securities of unaffiliated entities
 Other criteria apply for banks, savings and loan
associations registered broker-dealers
© 2006 PROSKAUER ROSE LLP®
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PART II
The Advantages and Disadvantages of a
Registered Public Offering for Brazilian
Companies (as compared with an offering
under Rule 144A or Regulation S)
Rule 144A Offerings of ADRs/Shares
 Issuer can raise new capital
 ADRs/Shares are not quoted on exchange
 Issuer is exempt from filing a registration
statement with the SEC (but must apply for a
Rule 12g3-2(b) exemption)
 Issuer is not subject to SEC reporting
requirements (but must file certain customary
information, including all information sent to
shareholders in Brazil)
© 2006 PROSKAUER ROSE LLP®
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PART II
The Advantages and Disadvantages of a
Registered Public Offering for Brazilian
Companies (as compared with an offering
under Rule 144A or Regulation S)
Rule 144A Offerings of ADRs/Shares
(cont’d)
 Issuer does not have to apply for 12g3-2(b)
exemption (or comply with the above filing
requirements) if it provides to investors certain
operational and financial information required
under Rule 144A
 For ADR offerings the Depositary must file a
short registration statement (Form F-6) with
the SEC
© 2006 PROSKAUER ROSE LLP®
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PART II
The Advantages and Disadvantages of a
Registered Public Offering for Brazilian
Companies (as compared with an offering
under Rule 144A or Regulation S)
Overview of Regulation S
 An exemption from the US registration
requirements for offerings conducted in
“offshore transactions”, where there are no
“directed selling efforts” made in the United
States
© 2006 PROSKAUER ROSE LLP®
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PART II
The Advantages and Disadvantages of a
Registered Public Offering for Brazilian
Companies (as compared with an offering
under Rule 144A or Regulation S)
Overview of Regulation S
(cont’d)
Offshore Transaction
 No offer can be made to a person in the US
 Either the buyer must be outside the US, or the
sale must be executed in, on or through the
facilities of a “designated offshore securities
market”
 Neither the seller nor any person acting on its
behalf can know that the transaction has been
pre-arranged with a buyer in the US
© 2006 PROSKAUER ROSE LLP®
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PART II
The Advantages and Disadvantages of a
Registered Public Offering for Brazilian
Companies (as compared with an offering
under Rule 144A or Regulation S)
Overview of Regulation S
(cont’d)
No Directed Selling Efforts
 “Directed selling efforts” include any activity
that is undertaken for the purpose of
conditioning the market in the US (such as
promotional seminars or advertisements)
 “Directed selling efforts” do not include routine
corporate communications (such as press
releases)
© 2006 PROSKAUER ROSE LLP®
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PART II
The Advantages and Disadvantages of a
Registered Public Offering for Brazilian
Companies (as compared with an offering
under Rule 144A or Regulation S)
Regulation Offerings of S ADRs/Shares
 Issuer can raise new capital
 No directed selling efforts in the US
 ADRs/Shares are not quoted on a US exchange,
but may be quoted on a foreign exchange
 Issuer does not file a registration statement with
the US SEC, but may be required to do so by a
foreign securities regulator
© 2006 PROSKAUER ROSE LLP®
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PART II
The Advantages and Disadvantages of a
Registered Public Offering for Brazilian
Companies (as compared with an offering
under Rule 144A or Regulation S)
Regulation Offerings of S ADRs/Shares (cont’d)
 Issuer is not subject to SEC reporting
requirements, but may be required to comply
with foreign country’s rules and regulations
 Issuer may be required to apply for Rule 12g32(b) exemption if ADRs/Shares flow back into
the US and are held by more than 300 persons
in US and 500 persons overall
© 2006 PROSKAUER ROSE LLP®
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PART II
The Advantages and Disadvantages of a
Registered Public Offering for Brazilian
Companies (as compared with an offering
under Rule 144A or Regulation S)
The Registered Public Offering Process
A. Due Diligence
B. The Registration Statement
C. The Prospectus
D. Going Effective
E. Listing on an Exchange
© 2006 PROSKAUER ROSE LLP®
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PART II
The Advantages and Disadvantages of a
Registered Public Offering for Brazilian
Companies (as compared with an offering
under Rule 144A or Regulation S)
Due Diligence
 Underwriters, their counsel and Issuer’s counsel
conduct an extensive examination of the Issuer’s
operations, including:
—
Discussions with senior management
—
Review of financial statements
—
Review of material contracts
—
Review of financing arrangements
 Helps underwriters to establish a record upon which
to base their “due diligence defense” to liability
under the US securities laws
 Also helps the Issuer’s counsel to draft an accurate
and meaningful registration statement and
prospectus
© 2006 PROSKAUER ROSE LLP®
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PART II
The Advantages and Disadvantages of a
Registered Public Offering for Brazilian
Companies (as compared with an offering
under Rule 144A or Regulation S)
The Registration Statement
 In order to publicly issue ADRs (Level II and III
ADRs) in the United States, an Issuer must file
a registration statement with the SEC
 The registration statement must be approved
by the SEC before any sales of securities take
place
 The registration will consist primarily of:
—
a Prospectus (including Financial Statements)
—
Exhibits
© 2006 PROSKAUER ROSE LLP®
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PART II
The Advantages and Disadvantages of a
Registered Public Offering for Brazilian
Companies (as compared with an offering
under Rule 144A or Regulation S)
The Registration Statement (cont’d)
 The Issuer typically has primary responsibility for
preparing the first draft of the registration
statement, which is then carefully reviewed and
commented upon by underwriters
 When the registration statement is completed, it is
filed with the SEC
 The registration statement must be declared
effective by the SEC prior to the commencement of
trading of the ADRs
 The three stages of the registration process are
—
Silent or pre-effective period
—
Registration period
—
Effective period
© 2006 PROSKAUER ROSE LLP®
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PART II
The Advantages and Disadvantages of a
Registered Public Offering for Brazilian
Companies (as compared with an offering
under Rule 144A or Regulation S)
The Prospectus

The prospectus is the offering document distributed by
underwriters to potential investors

The prospectus generally contains the following
information (among others) regarding the Issuer:
—
detailed business description
—
selected financial data
—
risk factors
—
an “Operating and Financial Review and Prospects” discussion
—
directors, senior management and employees
—
ownership
—
disclosure regarding market sensitive instruments
—
other material information
—
financial statements
© 2006 PROSKAUER ROSE LLP®
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PART II
The Advantages and Disadvantages of a
Registered Public Offering for Brazilian
Companies (as compared with an offering
under Rule 144A or Regulation S)
Consequences of Being a Public Company

Once an Issuer has a class of shares registered with the
SEC and listed on a US exchange (ADRs Levels II and III),
the Issuer will be subject to:
—
Periodic Reporting Obligations:

Annual Reports on Form 20-F

Periodic Reports on Form 6-K
—
Reporting Obligations of Large Shareholders
—
Sarbanes – Oxley Compliance
—
Liability for Misleading Disclosure
—
Foreign Corrupt Practices Act
—
Regulation FD (“Fair Disclosure”) (on a voluntary basis)
—
Stock exchange rules and regulations
© 2006 PROSKAUER ROSE LLP®
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PART II
The Advantages and Disadvantages of a
Registered Public Offering for Brazilian
Companies (as compared with an offering
under Rule 144A or Regulation S)
The Rule 144A/Reg S Offering Process
 The two exceptions from registration (Rule
144A and Reg S) can be used together to
target investors in the US and abroad
 The main differences in relation to registered
public offering process (Level II and III ADRs)
are
(1) a slightly quicker process (no SEC
registration),
(2) fewer disclosure requirements
(3) restrictions on sales and
(4) no listing on an exchange
© 2006 PROSKAUER ROSE LLP®
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PART II
The Advantages and Disadvantages of a
Registered Public Offering for Brazilian
Companies (as compared with an offering
under Rule 144A or Regulation S)
Summary of the Main Characteristics of each
Type of Offering
Level I ADR
Level II ADR
Level III ADR
Rule 144A
Reg S
Ability to
Raise New
Capital
No
No
Yes
Yes
Yes
Issuer
Participation
Generally
Yes
Yes
Yes
Yes
Stock
Exchange
Availability
No
Yes
Yes
No
No
Form Issuer
Files with SEC
None
Form 20-F
Form F-1
None
None
Form
Depositary
Files with SEC
F-6
F-6
F-6
F-6
None
Issuer Subject
to SEC
Reporting
Obligations
No
Yes
Yes
No
No
Selling
Restrictions
None
None
None
QIBS
Offshore
Transactions
© 2006 PROSKAUER ROSE LLP®
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III.Advantages and
Disadvantages of a
Registered Public Offering
© 2006 PROSKAUER ROSE LLP®
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PART III
The Advantages and Disadvantages of a
Registered Public Offering for Brazilian
Companies (as compared with an offering
under Rule 144A or Regulation S)
Advantages:
 Improved Access to Capital
—
Deeper market
—
Fewer restrictions on sales
 Facilitating Future Offerings
—
Access to “short-form” registration statements
—
Shelf registrations
© 2006 PROSKAUER ROSE LLP®
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PART III
The Advantages and Disadvantages of a
Registered Public Offering for Brazilian
Companies (as compared with an offering
under Rule 144A or Regulation S)
Advantages: (cont’d)
 Improved corporate image
 Increased liquidity
 Ability to use shares for acquisitions
 Fewer restrictions on advertising and publicity
 Coverage of stock by analysts
© 2006 PROSKAUER ROSE LLP®
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PART III
The Advantages and Disadvantages of a
Registered Public Offering for Brazilian
Companies (as compared with an offering
under Rule 144A or Regulation S)
Disadvantages:
 Significant Public Disclosure
—
SEC review
—
Reporting obligations
 Sarbanes-Oxley compliance
—
Corporate Governance
—
Internal controls
—
CEO/CFO certifications
—
Independent auditor rules
© 2006 PROSKAUER ROSE LLP®
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PART III
The Advantages and Disadvantages of a
Registered Public Offering for Brazilian
Companies (as compared with an offering
under Rule 144A or Regulation S)
Disadvantages: (cont’d)
 Less Flexibility in Disclosure Document
 US GAAP financial statements
 More exposure to liability and litigation in the
US
 More Expensive and Lengthier Process
—
SEC review
—
Attorney, auditor, filing, listing and printing fees
 Stock exchange rules
© 2006 PROSKAUER ROSE LLP®
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The Advantages
and Disadvantages
of a Registered Public
Offering for Brazilian
Companies
(as compared with an offering
under Rule 144A or Regulation S)
Presented by:
Antonio N. Piccirillo
apiccirillo@proskauer.com
212.969.3905
© 2006 PROSKAUER ROSE LLP®