60750558_4 legal aspects of level i adrs october 22, 2009 new york eduardo vidal

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Legal Aspects of Level I ADRs

Legal Aspects of Level I ADRs

October 22, 2009New YorkOctober 22, 2009New York

Eduardo Vidal

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ContentsContents

I. Introduction

II. Advantages

III. Easily Established

IV. Private Placements

V. Legal Implications

VI. Conclusion

I. Introduction

II. Advantages

III. Easily Established

IV. Private Placements

V. Legal Implications

VI. Conclusion

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• Level III programs allow capital raising, but • Require registration with SEC, which

includes:– Form F-1– Form 20-F– Reconciling financial statements– Sarbanes-Oxley Act of 2002

• Level III programs allow capital raising, but • Require registration with SEC, which

includes:– Form F-1– Form 20-F– Reconciling financial statements– Sarbanes-Oxley Act of 2002

IntroductionIntroduction

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Introduction (cont.)Introduction (cont.)

• Level II programs do not allow capital raising, but

• Also require registration with SEC,– Usually following a private placement,– Pursuant to an exchange offer

• Level II programs do not allow capital raising, but

• Also require registration with SEC,– Usually following a private placement,– Pursuant to an exchange offer

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Introduction (cont.)Introduction (cont.)

• Level I programs also do not allow capital raising, but

• ADRs are not registered with the SEC– Traded over-the-counter– Pursuant to an exemption

• Level I programs also do not allow capital raising, but

• ADRs are not registered with the SEC– Traded over-the-counter– Pursuant to an exemption

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AdvantagesAdvantages• Introduction to international capital

markets• Most convenient way to trade for

international investors:– Denominated in U.S. dollars,

– Settlements occur in accordance with New

York rules, and– In the world’s most liquid capital market

• Introduction to international capital markets

• Most convenient way to trade for international investors:– Denominated in U.S. dollars,

– Settlements occur in accordance with New

York rules, and– In the world’s most liquid capital market

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Advantages (cont.)Advantages (cont.)

• SEC requirements do not include:– Form F-1– Form 20-F– Reconciling financial statements– Sarbanes-Oxley Act of 2002

• SEC requirements do not include:– Form F-1– Form 20-F– Reconciling financial statements– Sarbanes-Oxley Act of 2002

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• Can be established quickly– Web page– In English– Same information as provided in Brazil

• Easy to terminate

• Can be established quickly– Web page– In English– Same information as provided in Brazil

• Easy to terminate

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• ADRs are traded on the over-the-counter electronic markets in New York– Pink OTC

• No listing requirements

• ADRs are traded on the over-the-counter electronic markets in New York– Pink OTC

• No listing requirements

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Easily EstablishedEasily Established

• First, present financial information electronically in accordance with Rule 12g3-2(b)

• In October 2008, amendments to Rule 12g3-2(b)came into effect

– No longer paper filings

• First, present financial information electronically in accordance with Rule 12g3-2(b)

• In October 2008, amendments to Rule 12g3-2(b)came into effect

– No longer paper filings

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Easily Established (cont.)Easily Established (cont.)

• Issuers are automatically exempted from registration requirements

• Do not have to apply with or notify the SEC,so long as they– Are listed on the Bovespa– Publish financial information on their

website, and– Do not have any public securities listed in

the U.S. capital markets

• Issuers are automatically exempted from registration requirements

• Do not have to apply with or notify the SEC,so long as they– Are listed on the Bovespa– Publish financial information on their

website, and– Do not have any public securities listed in

the U.S. capital markets

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• To comply with these requirements, the issuer should promptly publish, in English on its website

• All information that, – Since the first day of its most recently

completed fiscal year, – It has made public to investors in Brazil

• To comply with these requirements, the issuer should promptly publish, in English on its website

• All information that, – Since the first day of its most recently

completed fiscal year, – It has made public to investors in Brazil


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• Publish only information that is material to an investment decision

• Such as, for example:– Financial condition and results of operations– Changes in business– Related transactions

• Publish only information that is material to an investment decision

• Such as, for example:– Financial condition and results of operations– Changes in business– Related transactions


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• Second, a Deposit Agreement must be entered into by issuer and depositary

• Setting forth the program’s terms and conditions

• Issuer subjects itself to the jurisdiction of Federal courts in the State of New York

• Issuer appoints an authorized agent in New York to receive service of process

• Second, a Deposit Agreement must be entered into by issuer and depositary

• Setting forth the program’s terms and conditions

• Issuer subjects itself to the jurisdiction of Federal courts in the State of New York

• Issuer appoints an authorized agent in New York to receive service of process


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• Third, Form F-6 must be filed by the depositary with the SEC:

– Simplified registration statement

– Signed by majority of issuer’s board of directors

• Third, Form F-6 must be filed by the depositary with the SEC:

– Simplified registration statement

– Signed by majority of issuer’s board of directors


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Private PlacementsPrivate Placements

• Typically involve two simultaneous offerings:– Rule 144A

– Regulation S

• Using different, though almost identical, deposit agreements

• Information requirements of Rule 144A(d)(4)– Satisfied by compliance with Rule 12g3-2(b)

• Typically involve two simultaneous offerings:– Rule 144A

– Regulation S

• Using different, though almost identical, deposit agreements

• Information requirements of Rule 144A(d)(4)– Satisfied by compliance with Rule 12g3-2(b)

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Private Placements (cont.)Private Placements (cont.)

• Regulation S allows the sale of ADRs outside the United States

– Following a “restricted period” of 40 days,

– May establish an over-the-counter ADR program in the United States

• Regulation S allows the sale of ADRs outside the United States

– Following a “restricted period” of 40 days,

– May establish an over-the-counter ADR program in the United States

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Legal ImplicationsLegal Implications

• SEC anti-fraud provisions apply– But no capital is raised

• U.S. Foreign Corrupt Practices Act (“FCPA”)– Do not apply to Level I programs– Exemption from registration

• SEC anti-fraud provisions apply– But no capital is raised

• U.S. Foreign Corrupt Practices Act (“FCPA”)– Do not apply to Level I programs– Exemption from registration

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Legal Implications (cont.)Legal Implications (cont.)

• New Rule 12g3-2(b) facilitates the creation of unsponsored programs,

• Established without any issuer participation

– But not permitted in Brazil

• New Rule 12g3-2(b) facilitates the creation of unsponsored programs,

• Established without any issuer participation

– But not permitted in Brazil

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ConclusionConclusion

• Level I ADR program– Raises the profile of Brazilian issuers in

international capital markets – The compliance process is relatively simple– The issuer must make available

> in English> on its Website

– The same information it makes available on its home market

• Level I ADR program– Raises the profile of Brazilian issuers in

international capital markets – The compliance process is relatively simple– The issuer must make available

> in English> on its Website

– The same information it makes available on its home market

60750558_4 legal aspects of level i adrs october 22, 2009 new york eduardo vidal

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