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Responses to ACSPC Request for Public InputGeneral Impact of Sarbanes-Oxley ActQuestion 9. Has SOX changed the capital raising plans of smaller companies? If yes, how have those plans changed?a) Has SOX affected the thinking of smaller companies about buying or being acquired by other companies or looking for merger partners or acquisition targets? Explain your answer and indicate any way in which SOX has changed a smaller company from a buyer to a seller of a business, or vice versa. The following answers have been received: 08/02/2005 13:57:44 God, yes, SOX changed the capital raising plans of smaller companies. See my answers to questions 1, 2 and 5 above. 08/02/2005 17:44:12 The cost of compliance is higher and information flow is more restrictive 08/02/2005 23:36:32 Small companies might not go public and some may be taken private. 08/03/2005 01:39:17 Small firms are now planning to "exit" by selling to larger companies. Entering the public market has been made far more unattractive. 08/03/2005 07:01:34 devastated. look how long the process is to go public and the costs. the little guy has been shut out again...dont want to sound like a populist, but i believe the regulatory environment should be loosened, and quite frankly, the tightening policy of the last few years is classice overreach. You're concerns are justified... 08/03/2005 08:55:04 Yes, we have thought very seriously about converting to private, however the need for future capital is a factor. It may just prevent us from growing as we would like. 08/03/2005 08:58:39 Yes. Would not allow small stock holders to participate in owning our community bank. 08/03/2005 10:40:26 Yes! Less income means reduced capital which means reduced ability to expand. 08/03/2005 11:03:25 Not for us. 08/03/2005 12:17:58 is more difficutl to be sure. 08/03/2005 13:55:42 I do not know. 08/03/2005 15:01:40 Smaller companies will have to wait until they reach a certain size to go public since there are certain staff requirements to comply with SOX. Wc could not have complied with the SOX requirements when we $100 million in assets because of the staffing requirements of having atleast two CPAs on staff, one to do the work and another to check it. We traditionally relied on our outside accounting firms, one our internal auditor and one our outside auditor, to perform important control checks. Having outsiders to perform important control procedures is not permissible under SOX, according to our external auditors. Although our external auditors may be now performing the same functions as before SOX, management can not rely on their control procedures. Someone within the company has to recheck everything before external auditors perform there reviews. 08/03/2005 15:22:49 Under current rules, we are scheduled to comply unless relief is provded based upon our small market capitalization. Raising capital for us would not create an issue; however, if we were already not a public company, current rules would defintely be an issue in future listing and capital raising. 08/03/2005 18:01:35 Please look into item no 29 08/03/2005 18:05:44 Smaller companies that are privately held will continue to be private rather than go public with the costs associated with it. 08/03/2005 18:30:29 x 08/03/2005 19:54:33 I do not have an opinion on this question. 08/03/2005 19:55:50 INTEGRITY! 08/04/2005 09:17:19 SOX is requiring more capital to be in compliance. This comes back to entrepreneurs and those trying to raise money for a business venture. When raising capital, SOX cost requirements have to be considered. 08/04/2005 09:37:56 Real companies will always raise funds and it is always difficult - SOX is just another hurdle 08/04/2005 09:39:15 No comment 08/04/2005 10:40:16 I would expect that they would do whatever they could to stay under the reporting requirements which means their access to new shareholders is limited. 08/04/2005 12:09:05 If you are already a public registrant, no really. If you aren't, absolutely! 08/04/2005 13:38:24 Not as of yet. 08/04/2005 14:20:27 I cannot answer this question. 08/04/2005 18:05:44 Not sure 08/05/2005 10:54:31 No 08/05/2005 12:38:34 Integrity 08/05/2005 12:44:28 No 08/05/2005 15:34:53 Has not affected us. We are a very well capitalized company before and after SOX. 08/05/2005 15:43:46 For banks that I have contact with that are NOT SOX obligated, they universially state that they will not pursue ANY capital startegy that would require them to fall within the registration realm. 08/05/2005 16:45:38 SOX may have changed some companies capital raising plans, but if so, perhpas that isn't such a bad thing. Do we really need companies that decide that honesty and accuracy are "bad for them" to be raising capital in the first place? Probably not. Does this mean some companies that are honest might not make it? It could mean that. Does it mean that just becasue I want to go puiblic that I should - definitely not. There needs to be a litmus test of readiness for the public market, but too often, that is not fully considered and comapnies fail, tkaing investor's cpaital with them. The more sound that a company that goes public is, the more sound the market is likely to be.Making the barrier be tha companies should be ready to enter the public market, and then the market actually breeds the strongest survivors. I think of this in a very Darwinian sense: the strong shall survive and not all worthy champions will reach their potential. This is merely natural selection at work in the marketplace. 08/05/2005 19:33:08 Raise more rather than less. Aditional capital required for regulatory costs. 08/06/2005 13:52:06 Definitely. More seeking capital from non-public sources to avoid compliance costs of SOX. 08/08/2005 11:39:29 Our company issued trust preferred securities instead of issuing more stock. SOX is only one piece of that puzzle, the other being the tax impact of dividends versus interest expense to the company. 08/08/2005 14:06:10 For companies that are already public, I do not think it will have a significant impact. Companies will always do what they have to do to remain competitive. It just becomes more expensive. I do think that for some smaller startup companies that they may find the cost of equity to become cost prohibitive thus they may have to find otehr sources of capital (debt) that may not have been as attractive in the pre SOX 404 era. Small community banks will go out initially and raise say 10 to 15 million in capital in a private placement to get the bank going. They have less than 500 shareholders. A year later they may need to raise additional capital to fund continued growth of the bank. They do not want a secondary offering to put them over the 500 shareholder limit. Community banks are very cognizant of the 500 shareholder limit because they do not want to fall under the SOX 404 compliance rules. That would be a significant drain on their relatively scarce amount of capital. If there is no other way, they will of couse pay the price. But that is an instance where a small company sees the SOX 404 rules as a significant roadblock to making them a viable, profitable enterprise. 08/08/2005 15:43:24 It will delay many public offerings. Many smaller companies will not be able to meet the SOX 404 requirements. 08/08/2005 21:39:10 Our analysis shows that fewer small companies will access the U.S. markets to raise capital via IPO's due to the additional cost of being public vs. private. Companies that already pubic, and pay the cost of SOX compliance are not hindered in raising capital via secondary offerings or private placements. 08/09/2005 09:30:31 Under SOX, more focus will be placed on managing number of shareholders. Smaller companies will look for other sources of capital. 08/09/2005 16:26:34 No. 08/09/2005 17:25:10 Only in that I think companies will go private if they can - that is if they can raise capital without being public and subject to onerous regulations like SOX. 08/10/2005 09:04:41 no comment 08/10/2005 13:44:39 Not for us. 08/10/2005 16:00:18 We may have to raise more capital to cover some of our costs! 08/10/2005 17:18:15 No comment 08/10/2005 22:09:27 Only if earning deteriorate. And that will be the case in a stagnant economy. 08/11/2005 08:35:22 a) Yes, the prospect of 'SOX compliance' creates two new concerns: a) a concern that the target resluts in 'buying' a significant deficiency; b)the intergration of new processes into 'NewCo. It is much more difficult for a small organization to provided needed resources to successfully integrate under SOX. 08/11/2005 20:27:22 NO! not to my knowledge, with the exception that why would a company want to be subject to the cost of SOX. 08/12/2005 13:12:10 It has not changed our plans, but it certainly has changed those which have chosen to go private. I have no insight to those other than banking companies. 08/12/2005 14:46:45 Not in our case. The cost of first year implementation and review charged by the external auditors was very high. However, it has not impacted our capital raising plans. 08/12/2005 16:35:01 I believe more companies are avoiding the public capital markets. 08/13/2005 12:39:43 DON'T KNOW 08/15/2005 13:08:27 Other than the decision to become public, no. There is, on the other hand, significant effort devoted to SOX compliance, which could be better directed. 08/15/2005 14:27:30 Not in my experience 08/15/2005 14:33:20 We will be more careful in the future when deciding capital stratigies. 08/15/2005 15:10:05 They're trying to delist if possible because no auditor or agency has held up a business case of a successful methodology used by a small company that pleased auditors and the pcaob. 08/15/2005 15:13:01 Absolutely. The costs associated with being public are just too high for companies wanting to go public unless they want to raise $50+ million. As a result, more companies are staying private and tapping into the venture capital companies and banks for their funds. Mind you, these aren't always the best sources of funds. 08/15/2005 15:14:45 Not for us......... 08/15/2005 16:33:43 If the current conditions persist, we will be going private, not having the slightest interest in accessing the public markets for capital. 08/15/2005 16:41:14 Not in our case. But it has increased the costs of raising the capital. 08/15/2005 18:59:52 The plans have changed by raising capital 1)privately or (2)in Canada. 08/16/2005 09:51:21 Unsure 08/16/2005 10:10:36 Yes, D & O insurance is more expensive and harder to get. Underwriters need to be concerned about the ability of the company to become SOX compliant. 08/16/2005 10:21:17 I don't know. 08/16/2005 10:26:28 admin costs would take up a larger proportion of funds to be raised 08/16/2005 10:27:48 Smaller may be better! If one creates barriers without cause, then institutions will retreat to the level of least restraint and burden. That is why so many small institutions are going private, they don't need the burden and they will keep their capital needs below levels that they might otherwise attain if not impeded by the regulatory and legislative process. 08/16/2005 10:42:02 Of course. Companies must think twice about the public offering option due to the incredible burden caused by our current regulatory environment. In addition to SOX, look at the foolishness and "bad accounting" required under FAS123R! 08/16/2005 10:44:16 As I noted above, I would think companies would want to stay private if possible and possible take deals to Cananda, etc. 08/16/2005 11:18:54 I believe they have looked to private sources of funding more frequently, to avoid the additional costs associated with meeting the regulatory reporting burden. 08/16/2005 11:52:16 Yes - please see response to #4 above. 08/16/2005 12:14:10 As stated above it takes a much larger revenue base before a public offering can be considered. Together with the expensing of stock options and ESPP this has hindered both raising capital and attracting people 08/16/2005 12:15:34 Unknown, but I would guess that small companies would want to remain private longer due to all of the rules and activities involved. 08/16/2005 12:40:54 No more IPO's. Sell out, or go private 08/16/2005 12:42:56 Do not know as we currently are not raising capital. 08/16/2005 13:04:14 I would expect that start-up companies and small fast growing private companies will have more difficulty becoming a public company due to the added compliance costs of being a public company. 08/16/2005 13:12:04 Yes; to some extent but the SOX problem here is not as great as addresssed in other areas as presented above. The capital raising difficulty has increased, however. 08/16/2005 13:19:29 Given the FDIC capitalization requirements, we were forced to raise capital just prior to SOX coming into place, and doing so made use a public company. We have tried viewing this in hindsight to see what other options we may have had, and while we would do almost anything to not be in the current position we are in as a newly public company, we simply had no options but to take on that burden. 08/16/2005 13:20:23 No impact on our capital plans 08/16/2005 13:25:32 SOX, coupled with the trementdous pools of private capital, have caused many smaller companies to stay private. The old paradigm of private-public-get acquired has shifted to private-private capital raise-get acquired. 08/16/2005 13:27:00 Yes. See the answer to question 1. 08/16/2005 13:30:33 We have not raised any capital for 5 years, so I have no opinion. 08/16/2005 14:08:05 No. 08/16/2005 14:23:10 SOX has probably changed the capital raising plans for smaller companies such that public capital is less attractive than private capital. 08/16/2005 15:15:12 Yes, definitely. Most small companies are rethinking their capital plans. Especially if new capital will require them to be a registered company. Our company is very well capitalized, so we are not in the capital raising mode, but if in the future capital changes would force changes in the way SOX is applied, we definite would reconsider any proposal. 08/16/2005 16:08:50 Yes. Most smaller, private companies would rather sell the company. My belief is that over time, we will have fewer and fewer small, publicly traded companies. 08/16/2005 16:09:47 Yes. If a small company has a choice between going public and staying private, if there is a way to raise the required capital, they will stay private. 08/16/2005 16:16:04 NA 08/16/2005 16:45:09 YES! It has forced smaller companies to look at various alternatives due to the added costs and complexities. 08/16/2005 18:35:41 n/a for us. 08/16/2005 19:18:56 I believe that smaller companies are not so readily considering raising money in the public markets if they are not yet public. I believe that small public company valuations have been diminished because of the costs of compliance, evectively raising the cost of capital - whether it be from the public markets or from private debt and equity sources. 08/16/2005 21:40:38 Not for us. 08/17/2005 10:59:57 Most definatley it has influenced our plans away from the Public Equity Markets for future capital. 08/17/2005 12:28:22 No 08/17/2005 12:36:00 I can't speak to this directly. I would assume that public stock offerings are less attractive. I know that such offerings are down in my industry, but I do not know what ofter factors exist. 08/17/2005 12:48:33 Cost and difficulty obtaining competent Directors. Especially Audit Ctte. Chairman. 08/17/2005 16:18:39 We plan to go private, and we do not intend to ever go public again while the SOX compliance rules remain in effect. If we were not yet publicly traded and we needed to raise funds, we would not consider the IPO route because of SOX compliance rules. We spent over 4% of our revenues on SOX complaince costs in 2004, and no company can afford that expense level. 08/17/2005 18:49:20 We have worked with over 10 companies planning an IPO and the impact has been positive - to get their house in order from a controls and financial reporting process before the IPO which only makes it a better public company coming out of the box. 08/17/2005 18:49:27 No. SOX has definitly not reduced our cost of raising capital. If SOX genuinely provided investors with lower risk we would have seen our PE ratio, and the market's PE ratio increase post SOX and vs. foreign exchanges. I have no evidence this has happened, do you? 08/17/2005 19:31:08 Yes. We would not have good public in today's regulatory environment. 08/17/2005 21:27:12 Unsure. 08/17/2005 22:55:14 I believe it has delayed initial public offerings of small companies, which results in less private financing available for future start-ups. 08/18/2005 08:03:31 SOX causes expenses in amount of about USD$1M per year for a small company plus a substantial acquistion or management time (opportunity loss). 08/18/2005 15:26:25 a) The significant effort required for 404 complaince can be a decisive factor in whether or not to buy a business. The controls may seem to be very sound and appropriate, but the costs to prove this are prohibitive. 08/19/2005 02:56:12 No effect. 08/19/2005 11:44:44 As mentioned above I think companies will explore other sources of capital before becoming public. It will also impact the decision-making process of SB filers on whether to sell additional stock and become an accelerated filer. 08/19/2005 13:49:01 As smaller companies growth becomes dependent on acquisition targets a key consideration point is the level of the target´s compliance with the requirements of SOX. The basis for this consideration is the cost that the acquiring company will have to invest to document the controls in order to meet SOX compliance. This cost would be incurred whether or not any change occurs to the processes that the target company follows; it becomes a fixed cost to acquire. The result would be for the acquiring company to attempt to reduce the acquisition cost to cover the additional SOX cost, resulting in lower proceeds to the seller. In an environment of business consolidations it becomes more imperative to be compliant with SOX 404; if a target is not compliant the suitor could potentially walk away from a potential acquisition. 08/19/2005 14:40:28 It has created an environment whereby Sr. Management is much more cautious and spends more time evaluating other options rather than seek raising captial through public markets. 08/19/2005 14:50:07 Clearly for those companies considering delisting, raising capital will become a challenge. 08/19/2005 17:03:28 They are focused more on debt, rather than equity. 08/21/2005 03:34:34 I belive that smaller companies will tend to raise funds outside the US, in European markets. 08/21/2005 04:46:26 Companies are looking for opportunities to go private rather than public. 08/21/2005 22:19:50 Yes, if smaller companies don't have to go public to raise capital, they would more carefully consider the ramifications of going public. 08/22/2005 14:21:23 Not sure. 08/22/2005 15:20:23 a) Yes. In looking at acquisition costs, we have to take into account the effort required to comply with SOX, especially if the target is a foreign company that is likely to resist the efforts. 08/22/2005 15:47:02 No. 08/22/2005 15:47:34 No. 08/22/2005 17:54:28 I do not believe that SOX has changed the plans of small companies to raise capital yet, but SOX will raise the cost of capital because of the negative economic effects on smaller companies. 08/22/2005 17:56:59 Without full current compliance, it is always a common question, that has to be answered by talking about the cost, which tends to be veiwed as non productive cost 08/22/2005 19:27:18 Yes. Part of the proceeds will have to go to SOX. How can this help but impact the capital plan! 08/22/2005 20:10:17 Our company went public in 1987 and has never needed nor gone to the public for additional funding subsequent to that time. But at this point, any goal would be to take the company private, not go to the public for additional funding. 08/23/2005 00:42:38 negative impact. 08/23/2005 07:47:56 The Sox increase the amount of capital raising in order to pay for SOX implementation 08/23/2005 09:50:27 They need to raise more capital to pay for the increased costs and raise prices of products to cover expenses. 08/23/2005 15:56:30 Yes. many small companies have considered venture capital funds to take the company private. 08/23/2005 16:49:34 No opinion 08/23/2005 18:10:00 Absolutely. 08/23/2005 21:11:03 Smaller companies have had an incresingly difficult time in generating both investment from the publich market and adequate liquidity for management flexibility. That will get worse. Roughly 1/3 of public companies < $200MM in revenue have lost analyst coverage in recent years. Institutional investors pay little attention to small cap companies leaving their stocks thinly traded among a modest number of retail investors. As a result smaller companies are and will have an increasingly difficult time of access capital pools through their public stock offerings. For the most part continuing growth is the only path that can allow stock prices to generate significant capital..an avenue not open to or practical for most small companies. For many, going private has the best opportunity to improve access to capital and improve liguidity. For many it is huge step and runs counter cultural to why these small companies became public in the first place. 08/24/2005 08:50:18 We went public in January so no, it did not change our intentions. 08/24/2005 11:28:21 Yes. More companies are accessing the private equity markets (we did a raise last year whereas we likely would have done an IPO had SOX not been enacted) and looking at foreign capital markets to raise equity. 08/24/2005 12:24:07 a) Sox costs worsen the financial results of smaller companies disproportionately and make them less attractive acquisition candidates. Sox makes it more likely that smaller companies will sell to larger players to eliminate unnecessary cost. 08/24/2005 14:30:13 Its just another cost that you have to add into being a public company. The cost of documenting, testing, reporting, new systems and the cost of the auditors doing their assessment all has to be assessed. 08/24/2005 16:19:27 Need more capital to cover professional fees. 08/24/2005 16:26:56 We believe that the increased costs of becoming or remaining public will result in smaller companies viewing private capital as more attractive compared to public capital. The time and cost required to comply with SOX 404 may cause smaller companies to delay consideration or implementation of public offerings. 08/24/2005 16:51:40 a) It has nearly taken them out of the public market. Any small cap company today is being told to "go private" in order to avoid the expense of compliance. There is a huge private equity market waiting to grab these companies. Of course, those equity firms frequently hope that the climate will change and they will be able to take the private company public in a few years. Result: the small public shareholder will lose the opportunity to invest in startups. 08/24/2005 16:54:47 don't know 08/24/2005 20:16:09 The SOX expense has certainly redirected plans we had for capital investments. We have postponed plans to upgrade technolgy until we know what the cost of 404 will end up being. Raising capital is not an issue for our bank as we are very well capitalized but it has redirected where we had planned deploy some of our capital. 08/25/2005 15:23:41 No. 08/25/2005 16:04:36 Yes - a new cost has to be considered. 08/25/2005 17:02:43 We are already public so the effect on plans has not been significant alghouth due to the cost of compliance, we now need to raise more money to cover the costs. 08/26/2005 12:41:42 No impact at this time. 08/26/2005 13:07:22 SOX will have a "chilling effect" on smaller companies raising capital through the sale of stock if the number of additional shareholders would trigger registration. 08/26/2005 15:31:29 Depending on the size and liquidity of the company, Sarbanes-Oxley compliance costs may have to be financed. 08/26/2005 16:22:08 I am sure it has. Our company has not been in the capital markets, but I believe SOX is a deterrent to companies that might want to go public. 08/26/2005 17:46:13 The US IPO market is no longer a valid option for thetypical smaller company and so capital raising is much more limited. A lot of companies are driven to M&A instead of IPOs, stifeling innovation and entrepreneurship. 08/26/2005 19:53:54 Yes it has virtually caused them to try to ignore the public route just to avoid the new regulations. 08/27/2005 11:21:03 No changes have resulted from our view. We specialize in audits of these smaller public companies and we see lots of creativity and volume in fundraising still. 08/28/2005 23:37:43 Yes. Private equity placement is now the preferred vehicle for capital raising for upper middle market companies. 08/29/2005 07:07:37 Absolutely. A small company would now be more inclined to go public in London or get acquired. 08/29/2005 10:21:15 While we have no current plans to raise additional capital in the public markets, the SOX impact is something we heavily consider in all such planning. 08/29/2005 10:21:25 While we have no current plans to raise additional capital in the public markets, the SOX impact is something we heavily consider in all such planning. 08/29/2005 11:21:29 It may becuase some small companies that were thinking about going public may not becuase of the regulatory burden involved. 08/29/2005 14:18:47 Allegedly, SOX has caused some firms to remain private. How widespread this phenomenon may be is subject to skepticism. I have no concrete idea of how common it may be, but I believe that if a firm can´t comply with having sufficient internal controls to be in the publicly-traded realm, then perhaps it doesn´t belong in the publicly-traded realm. 08/29/2005 14:53:30 Yes. To raise capital the company needs to be profitable, SOX has made that a lot harder. 08/29/2005 15:31:21 No change for our bank as we are well capatilized. 08/29/2005 16:10:53 Of course---why would you go public and take on a level of cost that substantially reduces your profitability. 08/29/2005 16:20:53 It has not affected us at this point. 08/29/2005 17:09:27 Yes, because of the costs (both external and internal, smaller companies will seek out alternative capital raising options. 08/29/2005 17:12:26 Not sure. 08/29/2005 17:12:43 a) As a company looks for targets, it will likely focus on companies that it can more easily integrate into its existing internal control environment. 08/29/2005 17:36:32 Yes. We must attempt to appeal to private capital. 08/29/2005 19:02:32 Yes, loans and bond issues are cheaper and less of a time commitment. 08/29/2005 19:05:24 a) The costs imposed by SOX have created a drag on shareholder value. As a result, SOX has made it more attractive for smaller companies to look for a buyer. In particular, smaller companies may view acquisition by a private equity fund as the preferred method to maximize shareholder value and/or access capital. We believe the pace of smaller companies searching for a private equity fund buyer will increase unless relief is provided from the SOX 404 regulatory overkill. 08/29/2005 21:00:01 No - just made them more difficult. Particularly as it relates to going public, mergers, acquisitions, etc. 08/29/2005 22:40:58 a) SOX has forced smaller companies to consider selling or merging thier business to leverage the high compliance costs related to SOX. This in turn causes reduction in the work force of the smaller companies and has a negative outcome for employees. 08/30/2005 15:04:16 Yes, recently our company raised one million dollars - to complete an acquisition. The complexity of this SB2 filings and the requirements for subsequent updates is excessively burdensome. The current mind set is to avoid raising capital - at all costs to avoid the filling burden. Obviously, this will have an adverse impact on the company's growth. 08/30/2005 15:07:00 Yes. Smaller companies are turning to private funding alternatives and putting off accessing the public markets because of the cost both financial and distraction of management. 08/30/2005 16:27:18 Why enter the capital market if all it bring is increased regulatory cost. 08/30/2005 17:08:46 Yes, if fewer smaller companies have considered equity capital markets as a source of capital and instead looked to private equity/debt. 08/30/2005 17:23:36 I can see from our own managing company that trying to limit the number of investors to stay private in new businesses obviously raises the amount of capital that any one investor has to come up with. This effectively squeezes out the small investor. 08/30/2005 18:26:14 Compliance with the current disclosure system is a major consideration for us when raising acquisition capital. None of our major competitors are subject to the disclosure requirements, so we must evaluate the competitive disadvantage disclosure puts us in when making decisions on raising acquisition capital. 08/30/2005 18:48:02 If raising capital, alone, is the issue, many small companies will now think of alternatives to going public. 08/30/2005 18:51:48 We believe that SOX will discourage many small companies from raising public funds because of the costs of compliance. 08/30/2005 19:47:16 Yes, the capital raising plans of small companies, both public and private, has been affected. Private companies are less likely to go public at an early stage due to the costs and the headaches of being a public entity and small companies that are already public have turned more often to PIPES and other forms of private financing. 08/30/2005 21:07:56 Yes. 08/30/2005 21:39:41 Yes, SOX has negatively impacted capital raising plans of smaller companies, who we expect will have less access to public markets if there is any risk of non-compliance with SOX. For example, when our Company sought to raise capital in Q2 of 2005, we were limited in our U.S. capital markets efforts by the delay in receiving our auditors opinion on our SOX 404 report, and we therefore issued convertible debt in Canada under a Regulation S exemption. 08/30/2005 23:57:28 Yes. More active in capital rasing in order to cover the extra cost on SOX. 08/31/2005 08:31:59 Yes, SOX has increased the costs of US corporations, so the payback to investors is longer. 08/31/2005 09:09:25 Just need more funding to stay in business if the company is already operating at a loss. 08/31/2005 10:19:14 Smaller companies may decide to seek private investment in lieu of trying to go public, thus saving on the cost of SOX compliance as a SEC registrant. 08/31/2005 10:21:37 Not that I am aware. 08/31/2005 14:00:12 a) SOX compliance issues would be a factor in any proposed acquisition. 08/31/2005 14:00:16 The regulatory system has creased a set of "orphans" in the capital makrets - that being smaller companies. Small companies definitely have a harder time raising capital as a result because it's difficult to compete for attention against the large companies. 08/31/2005 14:12:37 a) SOX has impacted the thinking of smaller companies in that many are making some minimal investment in compliance with certain of the standards. These companies believe that some consideration of SOX in their processes and controls will allow them to obtain higher valuations in acquisition transactions with other companies (especially those that are public or plan to become public soon). 08/31/2005 14:25:37 Most small companies today are going to the private debt market. You should stay away from public stock offerings if you can. 08/31/2005 14:32:46 Unsure. 08/31/2005 15:19:27 Yes, more and more small companies are seeking out private investors rather than taking to the public markets. Overhead savings alone substantially increase the ROI. 08/31/2005 16:05:33 Most definitely. It limits the smaller investor because companies look for larger investors to keep the number under 500 so they won't be classified as a public company. 08/31/2005 16:13:45 a) SOX has affected the thinking of smaller companies to consider being acquired due to the requirments of SOX. Smaller companies in many instances see the requirements of SOX as being more disproportionately more costly for smaller companies and less able to compete. 08/31/2005 16:16:33 9. Our company acquires ownership positions in smaller companies. One of the determinants of the acquisition is SOX compliance, or the ability to become SOX compliant. Our company prefers acquisition targets that have a strong internal control system and a healthy corporate culture. However, SOX has not reduced our investment risk taking. Also, smaller companies that we have dealt with are looking at avenues for raising capital other than an IPO. Many smaller companies do not want the cost associated with a public company, in terms of dollars and resources. Some companies have preferred to be acquired by a larger company rather than become a public company, or have preferred to stay private. 08/31/2005 17:16:33 They sure won't go public. 08/31/2005 17:57:10 a) Yes, as a smaller company we are more open to selling the company to a larger company due to the SOX burden on us as a small company. 08/31/2005 18:22:30 We have not seen much change from our audit clients, however we continue to see increasing activity from private equity groups. Deals funded by these groups may have been funded previously through a public offering. It is difficult to determine whether this has occurred because of a decrease in competitiveness of public capital for smaller companies, or the amount of money that has moved to the private equity groups. We tend to believe it is more a result of the latter. 08/31/2005 18:23:08 Yes, smaller companies may look to more bonds and other instruments to raise capital, particularly if it impacted their filing status. 08/31/2005 19:16:05 9. Small companies today are being targeted by most investment firms for going private transactions. Many of these are structured more to management´s benefit than that of investors. Smaller companies are turning more to private placement transactions. Again, many of these transactions are structured by the private investors in their own favor and at a cost to public investors. 08/31/2005 20:55:07 I am sure it will, as the exit strategy will be impacted. It will not be easy to go public, therefore most start ups will exit by the acquisition path. This will have a negative impact on innovation and creativeness in this country. I an aure other countries will be happy to jump in here. So we are already outsourcing a lot of our jobs and now by default we will outsource innovation. Sad Day! 09/01/2005 11:40:19 a) I believe transactions with smaller companies are more difficult with the need to ensure that they are 404 compliant and the risk of acquisition of a company that is not. 09/01/2005 14:30:54 As mentioned in this respondent´s answer to question number 5 above, SOX has had a negative impact on the ability to raise outside capital under favorable terms. Venture capitalists and other sophisticated investors must have an exit strategy before they invest. Traditionally this exit (taking of profits) has been via an IPO. The IPO strategy is not now attractive, as it will raise operating costs and drain management time. Selling a small company to a larger one is now the preferred exit strategy. We believe that this has the long-term effect of reducing competition because it promotes consolidation. There is also less incentive for management to seek outside capital, making a sell out of their company more likely in the future as investors seek to cash in. 09/01/2005 17:12:34 Yes. Small companies will look for alternatives to going public. 09/04/2005 07:42:16 Yes. Due to the need to suport SOX, and since it is less ready and still in the works, capital raisings are delayed.
http://www.sec.gov/info/smallbus/acspc/acspc_rpc9.htm
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