Rule 144A Offerings – A Brief Overview

Rule 144A Offerings – A Brief Overview

What WOJ Can Do

Our team of 144A and consultants can undertake two main initiatives for those seeking 144A offerings,.

Summary of 144A

WOJ summary of Rule 144A of the Securities and Exchange Commission and a form of transaction that has recently been developed since the adoption of Rule 144A. Information subject to change without notice.

144A Offering Resembles a Public Offering

• A preliminary offering memorandum (private placement memorandum or offering circular) is prepared that is similar in content to a prospectus in a public offering but the pricing terms are left blank.

• The underwriters, often referred to in this context as initial purchasers, market the offering and conduct a road showing with executives of the company.

• The company and the initial purchasers agree upon pricing terms, which are inserted into a final offering memorandum or offering circular.

• The initial purchasers buy the securities from the company at a price below the offering price and immediately resell the securities to the ultimate buyers at the offering price.

Advantages of a 144A Offering vs. a Registered Public Offering

• A 144a offering has more flexibility in disclosure because there are no detailed disclosure requirements and initial purchasers and their counsel are more willing to be flexible than in a public offering.

• A Rule 144A offering can be completed quicker than a public offering because the offering memorandum is not filed with and reviewed by the Securities and Exchange Commission.

• A Rule 144A offering does not trigger the periodic reporting requirements of the securities laws.

Disadvantages of a 144A Offering vs. a Public Offering

• A 144a Offering can offer only to certain institutions so the offering size may not be as large as would be possible in a public offering. This also adversely affects the secondary trading market.

• Restrictions are imposed on the resale of the securities so the price may not be as high as in the case of a public offering.

• There are more restrictions on advertising and publicity.

Exchange Offers

In order to minimize the disadvantages of a pure Rule 144A offering, many companies will also agree to an exchange offer.

• The SEC basically allows this type of exchange offer if debt securities are involved or, in the case of non-U.S. companies, either debt or equity.

• The company agrees to file a registration statement under the Securities Act of 1933 with a specified time period after the closing of the Rule 144A offering (usually 90 days) in order to register an exchange offer.

• In the exchange offer, the company offers to exchange a class of security that is fully registered and freely transferable for the securities sold in the Rule 144A offering that are subject to restrictions on resale.

• The terms of both classes of securities are otherwise identical.

• The company also typically agrees to pay specified damages to the holders of the securities sold in the Rule 144A offering if the exchange offer is not consummated within a specified time period.

Rule 144A

• Rule 144A exempts from registration under the Securities Act of 1933 the resales of securities if the following conditions are met:

• Offers and sales can be made only to Qualified Institutional Buyers (referred to as QIBs), which basically means certain institutions that manage at least $100 million in investments ($10 million in the case of broker-dealers).

• The purchasers are informed that the purchase is not registered under the Securities Act of 1933 in reliance on Rule 144A.

• The securities being offered are not publicly traded in the United States. There are restrictions on offering securities convertible into or exchangeable for publicly traded securities.

• Certain information about the company must be given to the buyer.

For more information on 144a offerings, please contact us.