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PLI Webinar: Capital-Raising using Regulation A+

Posted in Events, Regulation A+

On April 6, 2015, at 1:00 pm EST, Morrison & Foerster Partners Anna Pinedo and David Lynn will participate in a PLI Webinar on capital-raising using Regulation A+.  On March 25, 2015, the U.S. Securities and Exchange Commission unanimously adopted final rules, which will be effective this summer, that amend Regulation A.  Regulation A+ will provide an important capital-raising alternative for private companies in the United States and Canada.  A Regulation A+ offering may be used in connection with a primary offering of newly issued shares by a company or to resell securities held by existing stockholders.  Whether you are contemplating a Regulation A+ offering as a precursor to an IPO, as a liquidity opportunity for existing holders or as an alternative to a traditional IPO, you will need to understand the requirements of the final rule.  In this webinar, speakers will discuss:

  • Tier 1 and Tier 2 offerings;
  • Eligible issuers and eligible securities;
  • Availability for selling securityholders;
  • Communications rules and testing the waters;
  • Disclosure, financial statement and other filing requirements;
  • Ongoing reporting requirements for Tier 2 issuers; and
  • Concurrent Regulation A+ and Exchange listings.

PLI will provide CLE credit.

To register for this session, or for more information, please click here.

A-Okay, Regulation A+

Posted in Regulation A+, SEC News

This is a very brief, initial summary.  We will be reporting on the final rule in an upcoming alert.  The SEC’s proposed rules already had provided a very practical format for private issuers seeking to raise capital.  The proposing release generated mixed comments, with practitioners largely supporting the SEC’s proposal, and others raising concerns about the pre-emption of state securities review.

From today’s open meeting, and without having yet reviewed the final rules, it sounds like the SEC has taken an approach that seeks to promote capital formation, while preserving the disclosure requirements (both initial disclosure requirements and periodic reporting requirements for larger offerings) and other investor protection measures that were central to the proposing release.

The final rule establishes two tiers:  Tier 1, for offerings that raise up to $20 million in proceeds in a 12-month period, including no more than $6 million of securities sold on behalf of selling securityholders, and a Tier 2, for offerings that raise up to $50 million in proceeds, including no more than $15 million of securities sold on behalf of selling securityholders.  This will permit smaller and emerging companies to have an opportunity to raise substantial capital.  The $50 million limit is, by statute, subject to periodic review by the SEC to determine whether the threshold is reasonable.  The final rule also will include a limitation on the overall amount of securities that may be sold on behalf of selling securityholders.

The exemption will not be available to certain bad actors and to other entities, such as investment companies.

The final rule, consistent with the proposed rule, modernizes the offering process by, for example, requiring that Regulation A+ offering statements be filed on EDGAR.  The final rule incorporates a confidential submission process, similar to that available to EGCs relying on the JOBS Act, as well as the use of test-the-waters communications.  Consistent with the proposed rule, a Tier 2 offering will be subject to rigorous disclosure standards, including a requirement to include audited financial statements, as well as to an investor limit. Issuers conducting Tier 2 offerings will also be subject to a requirement to file annual, semiannual and current event reports.

Most important to the success of Tier 2 offerings, Tier 2 offerings, given the detailed disclosure requirements and SEC review, will not be subject to state securities review.  In addition, the final rule provides for a Tier 2 issuer to concurrently file a short-form Form 8-A to register a class of securities under Exchange Act Section 12(g) or 12(b)—this means that a Tier 2 issuer will, if it chooses to do so, be able to conduct a Regulation A+ offering and list on a national securities exchange.

Press Release
http://www.sec.gov/news/pressrelease/2015-49.html#.VRLxXE10yFh

Commissioner Statements regarding Regulation A+

Chair White
http://www.sec.gov/news/statement/statement-at-open-meeting-on-rule-15b9-1-and-reg-a.html#.VRLUUr90y9I

Commissioner Aguilar
http://www.sec.gov/news/statement/helping-small-businesses-and-protecting-investors.html#.VRLbGr90y9I

Commissioner Piwowar
http://www.sec.gov/news/statement/adoption-of-regulation-a-amendments.html#.VRLxH010yFg

Commissioner Gallagher
http://www.sec.gov/news/statement/032515-ps-dmg-a.html#.VRLw3k10yFg

Chair White’s Testimony on SEC Initiatives

Posted in Dodd-Frank News, JOBS Act News, Regulation A+, SEC News

In testimony today, Chair White provided a brief update on various rulemaking initiatives.  She noted that, in connection with the Dodd-Frank Act mandates, the Division of Corporation Finance continues to work to implement provisions of the Dodd-Frank Act relating to executive compensation matters and payments by resource extraction issuers, and is currently conducting the review of the accredited investor definition.  On the JOBS Act, Chair White noted that tomorrow the Commission will meet to consider a final rule implementing Regulation A+ (Title IV of the Act).  She did not comment on Title III, crowdfunding.  She noted that the Division of Corporation Finance is developing recommendations for updating disclosure requirements in furtherance of the work done on the JOBS Act-mandated Regulation S-K study.  She noted that the Commission intends to continue evaluating the tick size pilot program.  The text of the testimony is available here:  http://www.sec.gov/news/testimony/2015-ts032415mjw.html#.VRGymU10yFg.

On the Hill this Week….

Posted in Capital Formation, Dodd-Frank News, JOBS Act News

On March 24th, the U.S. Senate Committee on Banking, Housing and Urban Affairs Subcommittee on Securities, Insurance and Investment will hold a hearing on “Capital Formation and Reducing Small Business Burdens.”  Information about the hearing is available here:  http://www.banking.senate.gov/public/index.cfm?FuseAction=Hearings.Hearing&Hearing_id=72b34807-258f-41be-ae69-42bcdb0c150a.

Also on March 24th, the U.S. House Committee on Financial Services will hold a hearing, “Examining the SEC’s Agenda, Operations and FY 2016 Budget Request.”  Chair White is the only witness testifying at the hearing and is expected to address the SEC’s rulemaking progress toward implementation of the Dodd-Frank Act and the JOBS Act.

A+ or Not?

Posted in JOBS Act News, Regulation A+, SEC News

The SEC has scheduled an open meeting for this Wednesday to consider whether to adopt rules and forms related to the offer and sale of securities pursuant to Section 3(b) of the Securities Act of 1933 to implement Section 401 of the Jumpstart Our Business Startups Act—or, in other words, whether to adopt the Reg A+ rules.  See here for the meeting notice:  http://www.sec.gov/news/openmeetings/2015/ssamtg032515.htm.  As we have written in prior blog posts, the utility and future of Reg A+ will turn largely on state pre-emption for Tier 2 (or larger) Reg A+ offerings.

A Comparison of FINRA Proposed Rule 2241 (Equity) v. Proposed Rule 2242 (Debt)

Posted in FINRA, Research

In November 2014, and further amended in February 2015, FINRA announced a comprehensive revision of the equity research rule currently numbered as NASD Rule 2711 and proposed a debt research rule modeled on the equity research rule.  The equity research rule would be numbered FINRA Rule 2241 and the debt research rule would be numbered FINRA Rule 2242.  The amended rule proposals can be found here: SR-FINRA-2014-047 (equity) and SR-FINRA-2014-048 (debt).  The structures of the two rules are very similar but there are important differences.  To guide your analysis of the two rules, here is a link to a line-by-line comparison of the two rules.

Back to the Future? (Regional Exchanges and Venture Exchanges)

Posted in SEC News

Last week, in connection with the meeting of the SEC’s Advisory Committee on Small and Emerging Companies, both Commissioner Aguilar and Commissioner Gallagher expressed interest in, and support for, a more thorough assessment of the utility of venture exchanges as a means of promoting capital formation.  Later in the week, speaking on the West Coast at Stanford Law School, Commissioner Stein also addressed venture exchanges and indicated her support for a concept release from the SEC regarding venture exchanges.  Tomorrow, the Subcommittee on Securities, Insurance and Investment of the Senate Committee on Banking, Housing and Urban Affairs will conduct a hearing on “Venture Exchanges and Small-Cap Companies.”  Stephen Luparello, the Director of the SEC’s Division of Trading and Markets, is scheduled to testify.  Additional information regarding the hearing and the testimony (when posted) is available here:   http://www.banking.senate.gov/public/index.cfm?FuseAction=Hearings.Hearing&Hearing_ID=68652d9f-3c34-4620-a9ec-58740e3a4750.

Commissioner Stein also raised the possibility of “regional exchanges.”  In her remarks, she noted that, “Some view regional exchanges as a possible way to help to increase secondary market liquidity for smaller companies.”  Once upon a time, we had several regional exchanges.

This voyage back to the future might well seem more appropriate once the SEC actually completes the rulemaking required of it by the JOBS Act.  In terms of facilitating liquidity, it would seem that a simpler and more immediate approach would be to address in its final Regulation A+ rules a means of consummating a Tier 2 Regulation A+ offering and effecting a concurrent listing of securities on an existing national securities exchange without the added requirement to prepare and file a Form 10.

Developments from Meeting of Advisory Committee on Small and Emerging Companies

Posted in Advisory Committee on Smaller and Emerging Companies

The Committee discussed:  Regulation A+; secondary market trading for private securities; venture capital exchanges; and the accredited investor definition.  The presentation materials are available from the SEC website at http://www.sec.gov/info/smallbus/acsec.shtml.

In the introductory remarks made by Commissioner Gallagher, he emphasized the importance of taking steps in order to promote liquidity in the market for private securities.  Gallagher noted that the SEC “can increase the ability of an investor to exit his or her investment in these markets and decrease the illiquidity discount of the investment, and [the SEC] can enhance oversight of and transparency into issuers, thereby promoting investor protection.  And that in turn will increase investors’ willingness to participate in the primary issuance of securities, which enhances capital formation for these small companies that are the lifeblood of our economy.”  Many companies are choosing to remain private longer and, as a result, raising capital in private offerings.  Although several platforms have developed that provide a venue for transacting in sales/resales of restricted securities, a number of impediments remain that hamper further growth.  AnneMarie Tierney of SecondMarket provided an overview of a number of the most significant issues (see: http://www.sec.gov/info/smallbus/acsec/slides-acsec-meeting-030415-secondary-trading-tierney.pdf).  A codification of the Section 4(a)(1-1/2) exemption certainly would address many of the issues.

Both Commissioner Gallagher and Commissioner Aguilar addressed the potential benefits associated with the development of venture exchanges.  Commissioner Aguilar suggested that a venture exchange that is limited to smaller cap companies may provide a secondary market.  However, he cautioned that prior experiences with venture exchanges were not successful and therefore any initiative should take into account the difficulties encountered by these exchanges.

The Committee considered and discussed the Regulation A+ proposed rule and heard from a NASAA representative regarding the multi-state coordinated review for Regulation A offerings.

Finally, the Committee considered the “accredited investor” definition and, essentially, recommended a “do no harm” approach, including avoiding changes that would have the effect of excluding retirement assets or otherwise limiting the investor universe.

2015 Proxy Season Field Guide

Posted in Public Companies

Morrison & Foerster is pleased to share with our clients and friends the 2015 Proxy Season Field Guide. The 2015 proxy season occurs in an environment of heightened shareholder activism and an ever-increasing focus on compensation and corporate governance disclosures. This Proxy Season Field Guide provides you with an overview of recent legislative, regulatory and shareholder developments, and provides guidance on how these developments will impact you in the 2015 proxy season.

To download the guide, please click here.  If you would like a hard copy, please e-mail hlawrence@mofo.com.