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Dated: 1 March 2003
(A Presentation by Lance Hylton, Attorney-at-Law, to The Jamaica Stock Exchange
Seminar on Thursday February 20, 2003)
I am grateful to the Jamaica Stock Exchange for inviting me to participate
in this seminar which looks at various aspects of a company “going public”.
I hope that this meeting, and the recent announcement of two new public issues,
are harbingers of a return to the halcyon days of public issues and listings
in the mid 90s when there was a boom in public issues and listings on the Stock
Exchange. I remember at one point in time there were actually five companies
in the process of going public at the same time (some decided to delay for a
while) and I was privileged to have been involved as an attorney-at-law in two
of those matters.
As I understand it, my role here today is not to give a detailed exposition
on how one goes about becoming a public listed company, but, rather, to share
my thoughts on the role of the attorney-at-law in the transition to public listed
status. I will, therefore, first identify the main areas that I consider relevant
and then look at each one in turn.
I would summarise the main elements of the attorney’s role as follows:
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To be co-ordinator of the project timetable; |
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To guide other aspects of the process to ensure that everyone is within
theambits of the law; |
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To prepare the company, so as to make it ready and suitable for the rocess; |
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To prepare or review all relevant new or pre-existing legal documents,
or contracts; |
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To give a legal opinion and generally advise on matters which may arise
during the course of the project, and with respect to the new duties of
the company; |
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To act as the liaison with any applicable regulators. |
One of the key elements of a successful public issue is manoeuvring into and
around and eventually through a maze of statutory, regulatory, practical, logistic
and other time frames and requirements which must interlock, synchronise and
harmonise into a beautiful melody. Most of the time-frames arise from the Companies
Act, The Jamaica Stock Exchange Rules and general Company Law and the attorney
must, therefore, create the legal timetable which maps out a course which is
consistent with these requirements. It is then his duty to pull into this timetable
the timetables of the other parties on the Capitalisation Committee (or public
issue project team or other nomenclature) so that their plans are made to fit
within the legal requirements.
Some of the matters which will have to fit into the timetable from the attorney’s
point of view, and which are set out on the attached draft hypothetical legal
timetable, are as follows:
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Finalise procedure objectives and structure and receive final
instructions; |
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Draft new Articles and documents of restructuring; |
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Send out Notice for General Meeting; |
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General Meeting approves Articles, increases capital, approves issues; |
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Register Resolutions from 2.2.4 above; |
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Draft Prospectus; |
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Deliver Draft Prospectus to J.S.E. and Registrar and FSC; |
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Registrar registers Prospectus; |
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Publish Prospectus in Gleaner and Observer |
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Opening date of Offer; |
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Closing date of Offer; |
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Allot shares; |
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Deliver statement of allotment to J.S.E.; |
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Deliver list of allotees to J.S.E.; |
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Final date to raise minimum subscriptions; |
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Date for refunds in case of 2.2.15 above; |
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Return of allotments to Registrar; |
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Request for J.S.E. listing; |
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Prepare and deliver Share Certificates; |
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Refunds, renunciation letters. |
The real challenge here will be to convince the other parties that their schedules
will have to fit into the legal timetable. It is not unusual for the directors
to have in mind a predetermined and irrevocable date for the opening of the
offer and it is also not unusual for the lead broker to also have a clear and
irrevocable view as to the particular time when the “market is ripe”
for the offer to open and close. This should not be a problem, however, as lawyers
are well known for their patience and ability to work magic. The lawyer’s
duty will therefore be to find a way to make everybody happy.
The attorney will have to keep a keen watch on the plans of all other projects
committee members and to remind them of the limitations of the law both in terms
of timing and substance. The legal timetable mentioned above is the first hurdle
and it is important that there is full discussion of all plans, and proper co-ordination,
so that everybody is on the same page at all times.
The marketing strategy is sometimes a challenge and it is not uncommon for
members of the project team to be a little too enthusiastic about making the
company look extremely good. The attorney will have to remind them of the danger
of being accused of having misled the public and may have to call upon all his
persuasive skills to convince the team to reject a particular line of advertising
if he feels it may go too far. There will be negotiations about whether the
ad should say “the market leader” or “a market leader”.
It will also be necessary to ensure that nothing but the actual Prospectus
contains anything that might be deemed an offer to the public for the sale of
the shares. Care will have to be taken with the advertising and other documentation
which might be distributed. Particular care has to be taken in the case of an
initial private placement to ensure that both the number and the category of
persons included in the private placement are not such that, the offer is deemed
to be a “public issue”.
Under this heading the lawyer may have to do quite a bit of behind-the-scenes
preliminary legal work to get the company ready. This could significantly affect
the legal timetable and research and due diligence in this area must be done
as one of the first priorities. It is possible that the company, having been
in private hands for a long time, needs a lot of tidying up and cleaning out
of closets before being suitable for presentation to the public. This tidying
up can include anything from updating of Registers and filing of statutory requirements
which might be outstanding, to dealing with dormant shareholders and pre-existing
contracts or encumbrances.
Having cleaned up the company, the attorney then has to turn his mind to changing
it from a private to a public company and the matters he will have to consider
here would include:
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Amending the Articles; |
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Increasing the share capital; |
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Calling directors shareholders meetings to pass appropriate resolutions. |
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Increasing the number of directors; |
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Increasing the number of shareholders. |
The primary document to be prepared is, of course, the Prospectus, and this
will have to comply with a number of statutory and other regulatory requirements
and also incorporate details about the offer, the management, the material contracts,
proposed, use of the funds and a number of other issues.
Other documents which the Attorney will have to prepare or review will include:
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Notices, resolutions and other meeting documents; |
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A report to the Stock Exchange showing that its requirement in terms of
amendments to the Articles have been met and identifying the specific Article
numbers; |
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Underwriting agreement; |
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Employee Share Ownership Scheme; |
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Documentation; |
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Application for Listing; |
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Private placement documents; |
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Registrar and the Transfer Agent Agreement; |
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Selling Agent Agreement; |
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Issuing Office Agreement; |
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Expert’s consent; |
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Director’s consent; |
Other documents which will arise during the course of the project.
Since the Prospectus has to be registered/approved by a number of third party
regulatory bodies, it is prudent for the attorney to maintain contact and a
good working relationship with all of these bodies during the course of drafting.
There are issues of confidentiality to be considered here, of course, but it
makes no sense to wait until the last draft and then find that one or other
of the regulatory bodies has a fundamental problem with some issue which has
already been plugged into the marketing campaign and cannot now be reversed.
In addition to sending out the draft at various stages to be approved by the
directors, lead broker, public relations team etc., the lawyer will also, therefore,
have to maintain negotiations with:
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The Registrar of Companies (who may direct that negotiations
be done with the Solicitor General on her behalf). |
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The General Manager of the Jamaica Stock Exchange. |
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The Financial Services Commission. |
In every big public issue, there are issues which will require the attorney’s
advice. In addition, he should be sure to keep the clients aware of:
The main differences between how a private and public company functions;
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Their duties as directors and officers of a public company; |
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The reporting requirements which the company will now have; |
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The fact that even though they may retain the majority stake this is no
longer “their company”; |
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The increased requirements for transparency in matters; |
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The need to have a broad board of directors, including independent directors. |
At the end of the day, the issue is complete, the listing is made and everybody
lives happily ever after. The lawyer is rewarded with a reasonable fee and moves
on the next adventure.
(Lance S. Hylton is an Attorney-at-Law at Myers, Fletcher & Gordon)
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