Circular 120 on Public Offerings and Restricted Placements

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Central Bank of Haiti
CIRCULAR
No. 120
TO BANKS AND
INVESTMENT PROMOTION COMPANIES
In compliance with Articles 4, 5, 7, 109, 161, 171, 191, and 199 of the Law of May 14, 2012 on Banks and Other Financial Institutions, banks and investment promotion companies are required to adhere to these standards regarding public offerings and restricted placements.
SECTION I
GENERAL PROVISIONS

1. Purpose
   This circular determines the conditions under which financial securities may be offered, issued, traded, and held in the market, the roles and responsibilities of the various participants and stakeholders, with the triple objective of protecting investors, maintaining market confidence, and preventing unfair competition in the financial system. It does not apply to public securities.
2. Definitions
   The following definitions apply to this circular:
   a) Share: A negotiable instrument issued by a joint-stock company that evidences a proprietary right in that company. b) Public Offering: The issuance or transfer of financial securities to the general public, utilizing either advertising or solicitation. Proposing the issuance of financial securities through a restricted placement does not constitute a public offering. c) Information Asymmetry: A situation in which participants in a market or contract do not possess the same information, or one party possesses more information than the other. d) Material Changes: Changes occurring in the control, capital, commercial activities, operations, or generally the business of an issuer that may influence purchase and holding decisions for its securities, and thus impact the value of said securities.

[2] e) Cash Account: An account that investors must fund and from which acquired securities will be settled. This account will be debited or credited based on transactions executed by investors or on their behalf, including the receipt of funds for the acquisition of securities, the receipt of income generated by acquired securities, the proceeds from the sale or redemption of securities, the payment of fees, commissions, taxes, levies, or any other general charges. f) Securities Account: An account in which securities acquired by investors are registered and held. It must be linked to a cash account in which credits or debits related to purchase or sale transactions are recorded. g) Placement Advisor: A natural person responsible for providing investment advice and information on financial securities, investment services, or related services to clients of the Investment Service Provider for whom they work. h) Material Changes Declaration: An act by which the issuer informs investors of material changes occurring in the company's life. i) Insider Trading: The act of executing or allowing the execution, directly or indirectly through an intermediary, one or more transactions based on privileged information. j) Solicitation: The act of visiting individuals at their home, residence, workplace, or in public places with the aim of advising the subscription of financial securities. Offers made by sending documents, telephone communication, or any other means of communication are also considered solicitation. k) Dematerialization: The conversion of a share or bond certificate from physical to electronic form. Dematerialization involves opening a securities account or dematerialized account to enable the electronic registration, holding, and management of securities. l) Duty of Advice: The duty to guide the investor's choice based on suitability criteria and to form an opinion on what should or should not be done. m) Distribution: The action of offering the securities subject to the prospectus approved by the BRH to a potential audience, meeting the conditions or characteristics specified in said documents, through an advertising campaign or solicitation activities. n) Issuer: A Haitian joint-stock company meeting the eligibility criteria imposed by this circular that issues financial securities either through a Restricted Placement or through a Public Offering. o) Issuance: The creation and circulation of financial securities in the primary market. p) Custody of Securities: The function consisting of ensuring the holding, accounting, and management of issuance accounts and securities accounts. q) Accurate Information: Information free of errors.

[3] r) Precise Information: Complete information communicated clearly and correctly. Precision differs from accuracy in that information that is inherently accurate could be imprecise if the issuer omitted to communicate other information or an element of information that could have modified the public's assessment of its situation. s) Privileged Information: Information not known or not yet known to the public and obtained due to the person's position, functions, or relationships with the issuer, and not yet factored into the valuation and pricing of the issuer's securities. t) Sincere Information: Information that contains both positive and negative elements, where applicable. The sincerity of the information implies that both positive and negative elements related to the information in question are communicated. u) Insider: Directors and executives of any company operating in the financial market, as well as all persons in a professional relationship with that company who hold privileged information regarding the prospects or situation of a company whose securities are issued or traded in the market, or regarding the development prospects of said securities. v) Investor: Any natural or legal person with financing capacity who purchases financial securities from an issuer to obtain a return. w) Sophisticated Investor: An investor presumed to possess the skills and resources necessary to understand the risks inherent in financial securities transactions. The following categories of persons qualify as sophisticated investors when acting for their own account: banks and other financial institutions referred to in Article 2 of the Law of May 14, 2012 on Banks and Other Financial Institutions; joint-stock companies able to demonstrate a paid-up share capital of at least one hundred twenty million gourdes; autonomous state agencies, mixed joint-stock companies, and mixed-economy companies duly authorized by their board of directors; pension or retirement funds duly authorized by their board of directors or any other body designated by law or statutes for this purpose; insurance and reinsurance companies; international organizations; natural persons who can demonstrate either a personal net worth of sixty million gourdes, or a professional activity for at least three years requiring knowledge of investment in financial instruments; and Investment Service Providers acting for their own account or under a specific and explicit mandate from one of the aforementioned categories. x) Non-Sophisticated Investor: Any investor who does not meet the conditions to be qualified as a sophisticated investor. y) Financial Market: The market where shares and bonds and all other financial securities admitted by the BRH are issued and traded. This market enables all operations related to the issuance of financial securities through public offerings or restricted placements. z) Primary Market: The market where securities are issued and sold for the first time.

[4] aa) Secondary Market: The market where transactions occur on securities already sold in the primary market. bb) Investor Information Memorandum (IIM): A document prepared within the framework of a restricted placement containing a synthesis of information regarding, among other things, the securities to be issued, the issuer's activities, its executives, and its financial situation. cc) Bond: A negotiable instrument issued by an issuer during a borrowing. It is delivered to the lender as representation of its claim or held by an Investment Service Provider in dematerialized form. dd) Duty of Warning: The obligation to specifically draw the client's attention to the potential dangers of a given transaction, as well as to alert them to the dangers of a solicited transaction, without however being required to refuse it. ee) Duty to Inquire: The obligation to inquire with current and potential clients about information regarding their knowledge and experience in investment matters, their financial situation, and their investment objectives, in order to categorize them, recommend suitable products, or manage their portfolio appropriately for their situation. ff) Public Offer: Communication addressed to potential investors, within the framework of a public offering in any form and by any means whatsoever, inviting them to purchase or subscribe to financial securities. gg) Securities Transaction: Any activity or transaction relating to a security, including subscription, payment, sale, purchase, and registration with the Central Depository. hh) Placement: The search for potential subscribers on behalf of an issuer within the framework of an issuance, and the collection of orders for this purpose. This search requires a communication approach to stimulate the interest of potential subscribers, notably through advertising or solicitation. An investment made by a client seeking a return also constitutes a placement. ii) Restricted Placement: Placement with sophisticated investors and/or a group of non-sophisticated investors not exceeding thirty-five (35) persons. jj) Investment Service Provider: Any bank, any investment promotion company, and any other entity approved by the BRH whose corporate purpose includes the activity of placement or investment advice in financial securities or securities. It acts as an intermediary between the issuer and the BRH, and between the issuer and investors within the framework of a securities issuance. kk) Firm Commitment: The direct purchase by the Provider, from the issuer, of all or part of the securities subject to the issuance at an agreed price, with a view to their subsequent placement with its clients. ll) Prospectus: A detailed information note containing the offer intended for the public that the issuer must produce for the issuance of its financial securities within the framework of a public offering.

[5] mm) Approved Prospectus: Prospectus bearing the official mention contained in Article 19 of this circular. nn) Advertising: Solicitation relating to a security, addressed to the public, regardless of the media used, print or oral press, signage, audiovisual methods, electronic means, internet, social media, etc., relating to financial securities. oo) Subscriber: Any natural or legal person who gives an order for the acquisition or transfer of securities, proposed within the framework of an issuance, to an Investment Service Provider. pp) Placement Syndicate: A group of Providers, with a lead manager chosen by the issuer, responsible for placing the securities subject to the contemplated issuance. qq) Financial Security or Security: A title representing a part of a company's capital (share) or a part of its debt (debt security: bond) and all other hybrid or derivative securities authorized by the BRH. rr) Visa: A BRH document authorizing the publication of the prospectus, without which no offer may be made directly or indirectly via Public Offering. The visa indicates compliance with investor information disclosure requirements and is absolutely not an opinion on the quality of the investment in terms of risk and return.
3. Securities Admitted to Issuance
The securities admitted to issuance are:
a) Ordinary or preferred shares; b) Short, medium, and long-term bonds. These include, without limitation, convertible bonds, indexed bonds, and all types of bonds admitted in practice by the banking and financial community; c) Shares and bonds comprising the regulatory and supplementary capital of financial institutions; d) Any other security that the BRH may accept taking into account the evolution of the financial market in Haiti. Only registered securities are admitted to the financial market.
4. Responsibility for Submitted Information
The persons responsible for the information submitted in the prospectus are notably the issuer, independent auditors, and Providers. The prospectus must clearly identify each of these persons by name and function, or, in the case of legal entities, by its name and address. The signature of natural or legal persons assuming responsibility for the information in the prospectus, its updates, or modifications must be preceded by the mention provided for this purpose by this circular. Any person who, in any capacity, affixes their signature to the prospectus is responsible for their part.

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Any communication of false information in the prospectus may lead to the liability of the signing persons, whenever they cannot prove that they signed in good faith and that the false information was communicated or confirmed to them by the competent persons or bodies of the issuer.
5. Main Market Participants
The main participants in the financial market are issuers, independent auditors, Investment Service Providers, investors, the BRH, and, where applicable, the Central Depository.
SECTION II - ISSUERS
6. General Eligibility Conditions for Issuer Status
Only joint-stock companies with five (5) years of existence and whose capital is fully paid up are eligible for issuer status.
To issue financial securities, whether through a public offering or based on the restricted placement regime for which Articles 7, 8, and 14 establish additional requirements, the issuer must meet the following criteria:

1. have reached its profitability threshold, unless the securities subject to the issuance are backed by a bank guarantee or any other guarantee accepted by the BRH;
2. possess a minimum share capital of twenty-five million (25,000,000.00) gourdes;
3. have functional administration and management bodies composed of members possessing the necessary knowledge and skills in business administration and whose reputation is not tarnished by facts calling their integrity into question;
4. demonstrate sound management consistent with good governance practices, namely justifying:
   a. the existence of an effective board of directors that meets regularly and whose members are technically capable of making decisions within their competence, notably setting strategic objectives and evaluating the quality of senior management's work. This is a board that reports to a general assembly fully exercising its duties and ensuring the effective implementation, by senior management, of the independent auditor's recommendations; b. the regular holding of the shareholders' general assembly during which financial statements, reports, budgets, and other forward-looking documents are adopted by a very large majority and decisions are made collegially;
   c. the existence of internal policies and regulations within its organization;
5. maintain accounting in accordance with generally recognized accounting standards;
6. be regularly audited by an independent auditor for at least two (2) years prior to the issuance process;
7. be in compliance with tax laws.
   The BRH reserves the right to set other criteria taking into account the evolution of economic and financial activities.
   The BRH reserves the right to exempt companies resulting from a merger-acquisition procedure or from a group of companies from the five (5) years of existence requirement provided in the provisions of the first paragraph of this article.

7. Restricted Placement - Obligation to Submit an Investor Information Memorandum (IIM)
   Before undertaking a restricted placement, any issuer is subject to the obligation to prepare an Investor Information Memorandum (IIM) with the assistance of an Investment Service Provider, which must carry out the necessary due diligence in accordance with professional best practices. The IIM must contain accurate, sincere, and precise information to enable investors to evaluate, with full knowledge, the issuer's financial situation and prospects. It is accompanied by a certificate signed by the issuer stating that it contains no false or misleading information. The IIM must clearly indicate the categories of persons authorized to subscribe to the securities subject to the issuance as well as the potential risks associated with the placement. To this end, it will contain, on its cover page, the mentions conforming to Annex III of this circular. The IIM must be communicated to the targeted categories of investors by all means and be downloadable on the websites of the Investment Service Provider and the issuer, if the latter has one. The issuer and the Provider are responsible for communicating the updated IIM to any person who purchases a security from an initial holder. The information memorandum and continuous information documents are transmitted to the BRH in electronic form for deposit in the Restricted Placements Register for archival and statistical purposes, and not for visa purposes. The Provider must ensure that the subscriber belongs to one of the investor categories provided for in Article 21 of this circular and keep a copy of the document attesting to said belonging. The Provider is required to have them sign a form attesting that they recognize and fully assume the risks associated with such a placement. Banks that undertake a restricted placement for their own account are subject to the same obligations provided in this article.
8. Public Offering – Obligation to Prepare and Publish an Approved Prospectus
   The issuance of all financial securities offered, directly or indirectly, in the financial market through a public offering must be previously authorized by the BRH. To obtain authorization, any issuer is subject to the obligation to prepare a prospectus. For the preparation of the prospectus, the issuer is required to engage an Investment Service Provider duly approved by the BRH. This Provider must carry out the necessary due diligence in accordance with professional best practices. The necessary due diligence generally includes detailed discussions with the issuer's directors and executives during the preparation of the draft prospectus, inspection of the issuer's main asset elements, examination of its important contracts (such as financing contracts), examination of its financial statements and financial plan, as well as discussions with the issuer's senior management, its auditors, and its external advisors or experts prior to the submission of the prospectus.
9. Prospectus Content and Quality of Information
   The content of the prospectus and its updates must conform to Annex I of this circular. The prospectus must contain accurate, sincere, precise, comparable, and understandable information enabling the public to form its judgment on the issuer's financial situation and prospects, as well as on the rights attached to the securities. Failing to present a prospectus conforming to this circular, the BRH may require a Provider to make or have made modifications, or to rectify any situation relating to violations noted by the independent auditor. Failing to comply with the actions required by the BRH, the authorization request will be simply rejected. The prospectus must be signed by the person authorized to bind the issuing company as well as by all persons
10. Additional Information in the Case of a Group of Companies
    In the event that an issuing company controls one or more other companies, it must present, in addition to its individual financial statements, the consolidated financial statements of the group.
    If all or part of the placement proceeds are intended to finance the acquisition of a business, the BRH may require:
    a) identification of the target company and the procedure for the acquisition transaction; b) financial statements of the target company; c) pro-forma consolidated financial statements combining, as of the issuer's most recent balance sheet date, the assets and liabilities of the issuer and the target company; d) the objectives of the acquisition and their impact on the company's situation and performance. When the BRH deems this information useful to investors, it may require, for the year preceding the issuer's most recent balance sheet date, or permit, for each of the three years preceding this date, the presentation in the prospectus of pro forma financial statements combining:
    a) the income statement of the issuer and that of the target company; b) the cash flow statement of the issuer and that of the target company.
    Any information document relating to debt securities or preferred dividend shares must contain information on the coverage of commitments by assets and profits.
    The BRH may require that the financial statements of a company subject to the control of another company be presented separately in the prospectus, whether consolidated or not with those of the issuer.
    When the report of the independent auditor of a company subject to the control of another company contains reservations, this report and these financial statements must be filed with the prospectus.
    The BRH may permit the presentation in the prospectus of non-consolidated financial statements as additional information.
    When a loan is secured, the prospectus shall contain, in addition to the sections required for the issuer, a complete presentation