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SEC Announces New Investor Advisory Committee Members

Posted in SEC News

The SEC announced the appointment of three new members to the Investor Advisory Committee (see: https://www.sec.gov/news/pressrelease/2016-137.html).  The Committee will hold its next meeting, which is open to the public, on July 14th.   The agenda for the upcoming meeting includes a discussion of sustainability reporting, which we have previously blogged about.

Complimentary Teleconference: All Things Canadian

Posted in Events, PIPEs, Private Placements

On July 27, 2016, at 1:00 p.m. EDT, Morrison & Foerster Partner Ze’-ev Eiger will be joined by Stikeman Elliott Partner Tim McCormick in hosting a complimentary teleconference entitled “All Things Canadian.” The speakers will discuss the rules of the road for securities offerings by non-Canadian issuers selling into Canada. The program will also cover the prospectus regime applicable to Canadian issuers, with a focus on the shelf registration process and on dual-listed issuers.

Topics will include:

  • Shareholder requirements for private placements, PIPEs and registered directs;
  • Completing a confidentially marketed offering;
  • Considerations for at-the-market offerings;
  • Timing of filing, approval and withdrawal requirements; and
  • Which JOBS Act accommodations are available to Canadian issuers?

CLE credit is pending for California and New York.

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

PLI Seminar: Understanding the Securities Laws 2016

Posted in Crowdfunding, Events, Private Placements, Regulation A+, Rule 144A

On July 21-22, 2016, Practising Law Institute will host its “Understanding the Securities Laws 2016” seminar. This program will provide an overview and discussion of the basic aspects of the U.S. federal securities laws by leading in-house and law firm practitioners as well as SEC staff. Emphasis will be placed on the interplay among the Securities Act of 1933, the Securities Exchange Act of 1934, the Sarbanes-Oxley Act, the Dodd-Frank Act, the JOBS Act, the securities related provisions of the FAST Act and related SEC regulations, and on how securities lawyers can solve practical problems that arise in the context of public and private offerings, SEC reporting, mergers and acquisitions and other common corporate transactions.

Morrison & Foerster Partner Anna T. Pinedo will lead a session entitled “Securities Act Exemptions” on Day One of the program. Topics will include:

  • Exempt securities versus exempt transactions;
  • Private placements;
  • Regulation D offerings;
  • Regulation A+ offerings;
  • Intrastate offerings;
  • Crowdfunding;
  • Employee equity awards;
  • Rule 144A high yield and other offerings;
  • Regulation S offerings to “non-U.S. persons”; and
  • Resales of restricted and controlled securities: Rule 144, Section 4(a)(7) and 4(a)(1½).

PLI will provide CLE credit.

For more information, or to register, please click here.

SEC to Address Board Diversity

Posted in Diversity, SEC News

In a recent speech, SEC Chair Mary Jo White addressed board diversity.  Chair White cited some important statistics in her remarks.  She noted that minority directors on boards of the top 200 companies on the S&P 500 have stagnated at 15% for the last several years, and the percentage of these companies with at least one minority director actually declined from 90% in 2005 to 86% in 2015.  Chair White also cited the GAO study (addressed in a prior post), which estimates that it would take more than 40 years for women’s representation on boards to be on par with men’s.  The SEC Staff is preparing a recommendation to the Commission to propose amending proxy statement disclosures to require that companies include more meaningful board diversity disclosures on board members and nominees.  See Chair White’s full remarks here:  https://www.sec.gov/news/speech/chair-white-icgn-speech.html.

SEC Issues C&DIs for Securities Act Rule 701

Posted in C&DI, Disclosure Requirements, SEC News

On June 23, 2016, the SEC Division of Corporation Finance (the “Division”) issued new Compliance and Disclosure Interpretations (“C&DIs”) for Securities Act Rule 701.  The new C&DIs address the exemption for offers and sales of securities pursuant to certain compensatory benefit plans and contracts relating to compensation.  Highlights of the C&DIs include the following:

  • An acquirer in a merger transaction that assumed the target company’s derivative securities does not need an exemption if, at the time of the grant by the target, the compensatory benefit plan under which the securities were issued permitted the assumption without the consent of the holders of the derivative securities.
  • Securities underlying the derivative securities are considered to have been sold on the date of the grant of the derivative securities. As such, so long as the target company complied with Rule 701 at the time the derivative securities assumed were originally granted, the exercise or conversion of the derivative securities would be exempt.
  • Post-merger, in determining the amount of securities that the acquirer may sell pursuant to Rule 701(d), the acquirer must include the aggregate sales price and amount of securities for which the target company claimed the Rule 701 exemption during the same 12-month period for which the acquirer is making the determination.
  • Post-merger, to calculate compliance with Rule 701(d)(2) going forward, an acquirer may use either (1) a pro forma balance sheet as of its most recent balance sheet date that reflects the merger as if it had occurred on that date, or (2) a balance sheet date after the merger that will reflect the total assets and outstanding securities of the combined entity.
  • Where an obligation to provide disclosure pursuant to Rule 701(e) is triggered, an issuer may elect to provide financial statements that follow the requirements of either Tier 1 or Tier 2 Regulation A offerings, without regard to whether the amount of sales that occurred pursuant to Rule 701 during the time period contemplated in Rule 701(e) would have required the issuer to follow the Tier 2 financial statement requirements in a Regulation A offering of the same amount.
  • For assumed derivative securities where the target company was required to provide Rule 701(e) disclosures post-merger, the acquirer would assume the disclosure obligation and would satisfy it by providing information required under Rule 701(e).
  • Post-merger, in determining whether the amount of securities the acquirer sold during any consecutive 12-month period exceeds $5 million, the acquirer must include any securities that the target company sold during the same period.

The C&DIs are available at: https://www.sec.gov/divisions/corpfin/guidance/securitiesactrules-interps.htm

FINRA Proposes Amendments to Communications Rule to Help Clarify Application to Debt Research Reports

Posted in Communications, FINRA, Research

On June 24, 2016, FINRA proposed amendments to its communications rule, Rule 2210, to help clarify the application of Rule 2210 to debt research reports, in light of the new debt research rule, Rule 2242.  The implementation date for the proposed amendments is July 16, 2016, which is the current effective date for Rule 2242.

The proposed amendments help clarify Rule 2210 in four main respects.  First, the proposed amendments would (1) streamline the scope of approval permitted by supervisory analysts to specifically reference the definition of “debt research report” in Rule 2242(a)(3) and (2) add a specific reference to the exceptions to such definition under Rule 2242(a)(3)(A), thus making the references to debt research-related retail communications consistent with the references to equity research-related retail communications.  The proposed amendments also would maintain the ability for a supervisory analyst to approve other research communications (e.g., research on options), provided that the supervisory analyst has technical expertise in the product area and any other required registrations for such product.  Second, the proposed amendments would make the exception from pre-use approval requirements under Rule 2210(b)(1)(D)(i) consistent for debt and equity research communications.  Third, the proposed amendments would (1) except debt research reports from the disclosure requirements of Rule 2210(d)(7) (applicable to retail communications that include a recommendation of securities) and (2) except public appearances by debt research analysts from the disclosure requirements of Rule 2210(f)(2) (applicable to an associated person recommending a security) for consistency purposes.  Fourth, the proposed amendments would make technical changes to Rules 2210(d)(7) and (f)(5) to make the rule language more readable.

The text of the proposed amendments to Rule 2210 is available at:  http://www.finra.org/sites/default/files/rule_filing_file/SR-FINRA-2016-021.pdf

SEC Proposes to Amend Smaller Reporting Company Definition

Posted in Capital Formation, Disclosure Requirements, EGCs, SEC News

In the years following the JOBS Act, which created the term “emerging growth company” and made available certain disclosure and other accommodations to companies that qualified as EGCs, there has been renewed focus on scaled disclosure.  Today, the Securities and Exchange Commission has proposed amendments to the definition of “smaller reporting company” as used in the SEC rules and regulations. The proposed amendments, which would expand the number of registrants that qualify as smaller reporting companies, are intended to promote capital formation and reduce compliance costs for smaller registrants, while maintaining investor protections. Registrants with less than $250 million in public float would qualify, as would registrants with zero public float if their revenues were below $100 million in the previous year.

Read our client alert here:

See the proposing release here:  https://www.sec.gov/rules/proposed/2016/33-10107.pdf.

SEC Increases Net Worth Threshold for “Qualified Clients” under Rule 205-3 of the Advisers Act

Posted in Dodd-Frank News, SEC News

On June 14, 2016, the SEC issued an order (the “Order”) to increase the net worth threshold for “qualified clients” under Rule 205-3 of the Investment Advisers Act of 1940, as amended (the “Advisers Act”), from $2 million to $2.1 million.  Rule 205-3 currently allows an investment adviser to charge a client (a “qualified client”) performance fees if:

  • the client has at least a certain dollar amount in assets under management (currently, $1,000,000) with the investment adviser immediately after entering into the advisory contract;
  • if the investment adviser reasonably believes, immediately prior to entering into the advisory contract, that the client either (A) had a net worth of more than a certain dollar amount (currently, $2,000,000) (the “net worth test”) or (B) is a “qualified purchaser” as defined in Section 2(a)(51)(A) of the Investment Company Act of 1940, as amended, at the time the advisory contract is entered into; or
  • the client is (A) an executive officer, director, trustee, general partner, or person serving in a similar capacity, of the investment adviser or (B) is a “knowledgeable employee” of the investor adviser.

The adjustment to the net worth threshold is being made pursuant to a five-year indexing adjustment required by Section 205(e) of the Advisers Act and Section 419 of the Dodd-Frank Act.  The effective date of the increase to the net worth threshold is August 15, 2016.  Qualified clients that enter into advisory contracts in reliance on the net worth test prior to the effective date will be “grandfathered” in under the prior net worth threshold.

A copy of the Order is available at: http://www.sec.gov/rules/other/2016/ia-4421.pdf

IFLR Webinar – Jack be Nimble, Jack be Quick: Planning for Financings in Volatile Markets

Posted in Events, IPO On-Ramp, Late Stage Investments, Private Placements, Public Companies

Thursday, July 12, 2016
11:00 a.m. – 12:30 p.m. EDT

Volatile capital markets and the rapidly changing financial landscape make it important for issuers to recognize changes quickly and adjust their financing strategies accordingly. For example, for an issuer that contemplated an IPO or is in the IPO queue, it is important to become familiar with other financing alternatives, such as venture debt or late-stage or mezzanine debt, as well as institutional equity private placements. Each of these markets is quite different. Familiarity with investor expectations and documentation requirements is essential in order to put your company in the best position to make crisp decisions. For issuers that already have their securities listed on a non-U.S. securities exchange, which may offer limited liquidity, it may be time to consider undertaking a U.S. IPO in order to establish a more liquid market for their securities.  Already public companies considering their next capital raise also must be nimble–a PIPE transaction may be an attractive (and available) financing alternative. During this session, the speakers will discuss:

  • Current market conditions;
  • Financing alternatives for pre-IPO companies;
  • The market for venture debt;
  • The late-stage (or “cross-over”) private placement market;
  • Options to consider on the way to an IPO;
  • The ReIPO™;
  • Financing alternatives for recently public companies; and
  • PIPE transactions and other financing alternatives.

CLE credit is pending for California and New York.

For more information, or to register, please click here.

Practice Pointers on Navigating the Securities Act’s Prohibition on General Solicitation and General Advertising

Posted in C&DI, Communications, General Solicitation, JOBS Act News, SEC News

The SEC has not explicitly defined the terms “general solicitation” or “general advertising” in Regulation D under the Securities Act of 1933.  However, Rule 502(c) of Regulation D lists several examples of general solicitation and general advertising, including (1) any advertisement, article, notice or other communication published in any newspaper, magazine, or similar media or broadcast over television or radio and (2) any seminar or meetings whose attendees have been invited by any general solicitation or general advertising.  These are communications that are not targeted or directed to a specific individual or to a particular audience, but rather broad-based communications that may reach potential investors not known to the issuer or its financial intermediary.  Over time, the SEC Staff has provided guidance, mainly through no-action letters and more recently through Compliance and Disclosure Interpretations, regarding the types of communications that would be viewed as a “general solicitation.”  In our “Practice Pointers on Navigating the Securities Act’s Prohibition on General Solicitation and General Advertising,” we summarize the SEC Staff’s guidance in this area for issuers, broker-dealers and other third-party participants.

The practice pointers are available at: http://www.mofo.com/~/media/Files/Articles/2016/06/160600PracticePointersGeneralSolicitation.pdf