Transcript Going Public in the United States IPO’s, SPAC’s, Shell’s
Going Public in the United States
How to Become Publicly Traded in the United States IPOs Reverse merger SPACs Public spin-off
IPOs
Expense Time Underwriting Agreement • When executed SEC involvement Financial statements/U.S. GAAP
General Process
Retain experts
Employee incentives
• Proper ownership mix • Be early Cheap stock issue
Conduct internal due diligence:
• Charter documents • Loans/other financings • Material contracts
D&O Insurance Corporate law audit Capital structure Underwriters Management Gun-jumping
Reverse Merger with a Shell Corporation
Private company merges with public entity without a business Less expense, more certainty No underwriter/maybe fairness opinion Limited liquidity usually Locating shell לש
The Shell Corporation
Legally-existing public company • No present operating business • Shares registered with SEC • Intrinsic value of being public; possibly cash • Sometimes created by promoters.
Reverse Merger Process
Acquire 100% of private company shares Pre-existing shell shareholders retain equity interest in surviving entity Usually some credit for public entity Formerly private company now a public company or subsidiary thereof 8K — filed after closing
Reverse Merger Benefits
Lower cost Less time • Israel — merger approval; tax issues • Contract negotiation Exchange listing Name change Executive compensation Currency for transactions Public exposure Sometimes liquidity
Reverse Merger Cautions
Liability issues Limited liquidity Somewhat ineffective at raising capital • Exceptions: Turner, Occidental, Ivax, Elvis Costs of continuing compliance
Form 8K • 4 days to file • Same information as in registration statement.
• Not reviewed by SEC until after transaction closes • Needed to register on exchange.
• Financials conforming to US GAAP must be completed prior to closing.
Special Purpose Acquisition Company (SPAC)
Shell formed to raise capital via an IPO Used to acquire existing company Limited time to make acquisition: • 18 months or 24 months if LOI signed in 18 months • Failure to consummate an acquisition within specified time requires winding up and returning net assets
SPAC Process
Form entity Founding shareholders acquire shares for nominal consideration Management commits to purchase warrants in secondary market Same form registration statement as IPO Units pricing $6 - $8 Units — Common stock and warrants Warrants exercisable upon completion of acquisition or after one year
Trust account for funds to be used for acquisition • Some to all of underwriter compensation may remain in trust • Invested in short-term government securities Shareholders entitled to vote on acquisition Proxy statement required • Shareholder may vote against the acquisition/ affirmatively elect to convert his/her shares • Investors entitled to return of shares pro rata Acquisition blocked — 20% or more elect to convert The fair market value of the target business — at least 80% of SPAC net assets • Need not be cash • Net assets exclude deferred underwriters’ commissions or discounts in trust
SPAC Benefits
Raising capital Clean shell Target may accept SPAC shares in lieu of cash Limited downside for investor Financial statements easier
SPAC Cautions
Expense of filing S-1, engaging underwriter
Required shareholder vote for acquisition
Directors/management not paid
Close SEC scrutiny
•
Takes longer to get through SEC
• • •
Registration statement easier to prepare Competition Well-established private equity funds, others
SPAC Statistics
More than 60 registration statements filed — 2005 14 filings — 2004 41 SPACs began trading 2004 and 2005 • 20 additional SPACs filed registration statements
Listing Alternatives
AMEX NASDAQ NYSE OTC
Dual Listing
Concurrent listing on US market and TASE Timing of disclosure Exposure issues Business reasons
All Public companies • Evaluate and disclose internal controls • Time to comply • Financial reports certified by CEO/CFO • Auditor independence • Disclosure of related party transactions • Prohibited loans to insiders
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