Equity Capital Markets 2006/07 Country Q&A United States United States Stephen Giove, Danielle Carbone and Ferdinand Erker, Shearman & Sterling LLP www.practicallaw.com/0-203-1882 EQUITY CAPITAL MARKETS: GENERAL Requirements for registration 1. Please give a brief overview of the equity market in your ju- Public offerings of securities must be registered under the risdiction. Has it been active? What were the large deals over Securities Act of 1933 (Securities Act). Registration is the past year? accomplished by publicly filing a registration statement with the SEC and the SEC declaring the registration statement effective. A registration statement contains two parts: Overall activity in the US equity markets has increased signif- icantly over the last several years. Although there were fewer ■ A prospectus, which is the main marketing document for the than 90 initial public offerings (IPOs) in 2003, there were offering (see Questions 8 to 12). more than 200 in each of 2004 and 2005. The aggregate value of IPOs has also increased significantly, from over ■ Other technical information that is made public but is not US$17 billion (about EUR13.5 billion) in 2003 to more than distributed to investors, including undertakings by the com- US$36 billion (about EUR28.5 billion) in 2005, although pany and exhibits. 2005 was down from more than US$46 billion (about EUR36.4 billion) offered in 2004. The results for the first half If the offered securities will be listed on an exchange, a separate of 2006 − over 100 completed IPOs with an aggregate value registration statement must be filed with the SEC under the of over US$20 billion (about EUR15.87 billion) − are slightly Securities Exchange Act of 1934 (Exchange Act). An Exchange better than those for the comparable periods in 2004 and Act registration statement filed in connection with a concurrent 2005. offering generally may incorporate most required disclosure by referring to the prospectus contained in the Securities Act Some of the largest IPOs (based on offering amount) in 2005 and registration statement. Country Q&A the first half of 2006 were: Often, to gain a secondary listing on a US exchange (see ■ MasterCard Incorporated. Question 24), a non-US company may only list its shares with the exchange and register them under the Exchange Act ■ Huntsman Corporation. without issuing any additional shares in a public offering or filing a Securities Act registration statement. In such a case, ■ PanAmSat Holding Corporation. the Exchange Act registration statement is significantly longer, as it must include all the information that otherwise ■ Lazard Ltd. might be incorporated by reference to a Securities Act registra- tion statement. ■ KKR Financial Corp. Once the registration statements become effective, which in the case of a concurrent public offering usually occurs on the 2. Is there a distinction between admission to listing and ad- same day that the price for the offered securities is mission to trading? determined, the issuer becomes subject to the public reporting requirements of the Exchange Act and must comply, on an ongoing basis, with the SEC's rules and the exchange on To trade on a US exchange, a security must be registered with which the shares are listed. the Securities and Exchange Commission (SEC) and listed with the exchange (see box, The regulatory authorities for listing Requirements for listing and admission to trading). As a result, there is no practical distinction between admission to listing and admission to The US equity capital markets each have specific listing criteria trading. that a company and the listed securities must satisfy for an initial listing, as well as for continued listing (see Questions 3 and 25). PLCCROSS-BORDER HANDBOOKS www.practicallaw.com/equitieshandbook 137 ©This article was first published in the PLC Cross-border Equity Capital Markets Handbook 2006/07 and is reproduced with the permission of the publisher, Practical Law Company. For further information or to obtain copies please contact [email protected], or visit www.practicallaw.com/equitieshandbook Country Q&A United States Equity Capital Markets 2006/07 3. Please describe the main equity capital market(s) and sum- ❑ Earnings test. Pre-tax earnings from continuing opera- marise the following in relation to each market: tions and after minority interest, amortisation and equity in the earnings or losses of investees must total at least ■ The regulator. US$10 million (about EUR7.9 million) for the last three fiscal years, with a minimum of US$2 million (about ■ Any limits on the size of company. EUR1.6 million) in each of the two most recent fiscal years, and positive amounts in all three fiscal years; ■ Any minimum trading record required. ❑ Valuation/revenue with cash flow test. All of the follow- ■ Any working capital requirements. ing criteria must be met: ■ Number of companies traded. - global market capitalisation is at least US$500 mil- lion (about EUR396 million); ■ Annual cost of being listed. - revenue during the most recent 12-month period is at least US$100 million (about EUR79 million); and The main equity capital markets are the New York Stock Exchange (NYSE) and the National Association of Securities - cash flow for the last three fiscal years is at least Dealers Automatic Quotation System (NASDAQ) (see box, The US$25 million (about EUR19.8 million) in total with regulatory authorities for listing and admission to trading). positive amounts in all three fiscal years. Regulator ❑ Pure valuation/revenue test. Both of the following criteria must be met: The SEC, an independent agency of the US government, is the main US securities regulator and administers the federal securi- - global market capitalisation is at least US$750 mil- ties laws, including the Securities Act and the Exchange Act. The lion (about EUR594 million); and SEC has rulemaking and enforcement authority. - revenue during the most recent fiscal year is at least The NYSE and the National Association of Securities Dealers US$75 million (about EUR59.4 million). (NASD), which currently regulates NASDAQ, are self-regulatory organisations (SROs). They administer their own rules and ❑ Affiliated company test. All of the following criteria must policies, and regulate the activities of their members. The rules be met: of the NYSE and NASDAQ are subject to SEC review and approval. - global market capitalisation is at least US$500 mil- lion; Size limits, trading record and working capital - the company has an operating history of at least 12 NYSE quantitative listing requirements. The NYSE has domestic months; listing standards for US companies and alternate listing standards for non-US companies. A non-US company can list - the listing company's parent or affiliated company is Country Q&A under either set of standards. Although the financial criteria an NYSE-listed company; and under the domestic listing standards are less stringent, the share distribution criteria are based on shareholdings in the US only - the listing company's parent or affiliated company re- and do not take into account shareholdings outside the US. The tains control of, or is under common control with, the alternate listing standards take into account the worldwide distri- listing company. bution of a company's shares, and consequently many non-US companies choose to qualify under those standards. Under the alternate listing standards, an issuer must satisfy the following criteria: Under the domestic listing standards, an issuer must satisfy the following criteria: ■ Share distribution. A minimum of 5,000 shareholders world- wide must each hold at least 100 shares and at least 2.5 ■ Share distribution. A minimum of 2,000 shareholders in the million shares must be publicly held worldwide. US must each hold at least 100 shares and at least 1.1 mil- lion shares must be publicly held in the US. ■ Market capitalisation. Publicly-held shares worldwide must have a market value of US$100 million (or US$60 million ■ Market capitalisation. Publicly-held shares in the US must (about EUR48 million) for companies qualifying under the have a market value of US$60 million (about EUR48 mil- affiliated company test (see above)). lion) at the time of the IPO. ■ Financial tests. One of the following tests must be satisfied: ■ Financial tests. One of the following tests must be satisfied: 138 PLCCROSS-BORDER HANDBOOKS www.practicallaw.com/equitieshandbook ©This article was first published in the PLC Cross-border Equity Capital Markets Handbook 2006/07 and is reproduced with the permission of the publisher, Practical Law Company. For further information or to obtain copies please contact [email protected], or visit www.practicallaw.com/equitieshandbook Equity Capital Markets 2006/07 Country Q&A United States ❑ Earnings test. Pre-tax earnings from continuing opera- ❑ at least 1.1 million shares with a market value of at least tions and after minority interest, amortisation and equity US$18 million (about EUR14.3 million) are publicly in the earnings or losses of investees must total at least held; US$100 million for the last three fiscal years, with a minimum of US$25 million in each of the most recent ❑ shareholders' equity is at least US$30 million (about two fiscal years. EUR23.8 million); and ❑ Valuation/revenue with cash flow test. All of the follow- ❑ there are at least three registered and active market ing criteria must be met: makers. - global market capitalisation is at least US$500 mil- ■ Entry Standard 3. All of the following criteria must be met: lion (about EUR396 million); ❑ either a market value of listed securities of US$75 mil- - revenue during the most recent 12-month period is at lion (about EUR59.4 million) or total assets and revenue least US$100 million; and of US$75 million each for either the most recently com- pleted fiscal year or for two of the last three most - cash flow for the last three fiscal years is at least recently completed fiscal years; US$100 million in total with a minimum of US$25 million in each of the most recent two fiscal years.