In researching and updating our treatise, Exempt and Hybrid Securities Laws, we regularly review recent literature regarding capital markets developments.  The principal underlying thesis of the treatise has been that exempt and hybrid offerings were becoming significantly more important as capital-raising tools.  While that was true although not necessarily obvious when we first published the treatise, it seems to be a trend that has become even more pronounced in recent years, even affecting the number of IPOs.  Each week, we’ll be posting our “favorite” articles on these topics.  Herewith, the first installment:

Unicorns, Guardians, and the Concentration of the U.S. Equity Markets, Amy Deen Westbrook and David A. Westbrook.  This article discusses the more concentrated ownership of both private and public companies in recent years, including the closely held nature of most unicorns.  Given the concentration of ownership in successful privately held companies and in most public companies today, the article addresses the governance and stewardship issues that this ownership concentration poses.

The Twilight of Equity Liquidity, Jeff Schwartz, 34 Cardozo L. Rev. 531.  This article discusses a new approach to regulating companies, with the cornerstone being a new market for newly public companies (a “venture exchange”), which should be designed to encourage companies to pursue IPOs and revive the IPO market, as well as a more extensive “on-ramp” or phasing in of regulatory requirements as companies mature.

Regulating Unicorns:  Disclosure and the New Private Economy, Jennifer Fan, 57 B.C. L. Rev. 583.  This article discusses the unicorn phenomenon and the need to re-think regulation to address the growth of privately held companies with robust valuations and dispersed ownership.

Morrison & Foerster is pleased to share with our clients and friends the 2017 Proxy Season Field Guide. With an environment of heightened shareholder activism and focus on compensation and corporate governance disclosures, The Proxy Season Field Guide provides you with an overview of recent legislative, regulatory and shareholder developments, and provides information on how these developments will impact you in the 2017 proxy season.

View our 2017 Proxy Season Field GuideIf you would like a hard copy, please email tstarer@mofo.com.

The Investor Responsibility Research Center (IRRC) Institute and Institutional Shareholders Services (ISS) recently issued a joint study titled “Board Refreshment Trends at S&P 1500 Firms,” which analyzes demographic trends from 2008 through 2016 for corporate boards of companies in the S&P 1500 Composite Index (“S&P 1500 Companies”). Highlights of the study include the following:

  • Board Tenure. Director tenure is steadily rising.  Average and median director tenure were 8.7 years and 7 years, respectively.
    • Gender Tenure Gap. However, a notable gender tenure gap persists. Average tenure for female directors in 2016 was 6.4 years, compared to 9.2 years for male directors.
  • Age of Directors. As of 2016, the average age of directors was 62.5 years old, which was the highest level during the study period.
    • Widening of Gender Age Gap. Like tenure, the study found a notable age gap regarding gender. The average age of male directors was 63.1 years old, while the average age of female directors was 59.8 years old.
    • Age Distribution. The number of “older” directors (i.e., those in their seventies and eighties) was the only age group to increase from 2008 through 2016 in headcount; as of 2016, this group occupied 20.4% of all board seats.
  • Renewal and Retention Rates.
    • Increase in New Directors. The rate of “new” directors nearly doubled from 2008 to 2016—in 2016, almost one out of every 10 directors had no prior board experience.
    • Changes to Board Composition. For the first time since 2008, more than 50% of S&P 1500 Companies added at least one new director to their boards in 2015. From 2012 to 2016, the prevalence of “zero change” boards steadily decreased.
    • Demographics of New Directors. From 2008 to 2016, women and persons aged 50 to 59 years old made up the majority of the incoming class of “new” directors.
  • Ethnicity and Race.
    • Slow, Steady, Increases in Gender Diversity. Gains in gender diversity were gradual among S&P 1500 Companies, as the number of female board members increased from 11.9% (in 2008) to 17.8% (in 2016). In 2008, 33% of all boards were all male—however, this number dropped to 13.8% in 2016.
    • Low Minority Representation. As of 2016, minority directors filled slightly more than 10% of all board seats. While S&P 1500 Companies with larger capitalizations typically had at least one minority director, S&P 1500 Companies with smaller capitalizations typically had no minority representation.

A copy of the study is available at: https://irrcinstitute.org/wp-content/uploads/2017/01/IRRCI-Board-Refreshment-Trends-FINAL.pdf.

Thursday, March 9, 2017
12:30 p.m. – 2:00 p.m. EST

As the Trump Administration takes charge in 2017, the only thing that seems inevitable is that the regulatory and enforcement outlook will change. Initial indications point to a desire to relax or repeal certain regulations that may be regarded as burdensome to public companies. Also, proposed legislation would relax certain corporate governance and compensation-related measures that formed part of the Dodd-Frank Act. Proposed legislation also would address the types of cost-benefit analysis that would be required to support proposed regulation.

Don’t miss this chance to learn SEC regulations’ status and how they will likely change from experts who have been directly involved in rule-making and implementation of U.S. securities laws.

Topics to be discussed include:

  • Rules that were proposed but not adopted by the SEC as part of the Dodd-Frank Act rule-making mandate;
  • What to expect as far as corporate governance and executive compensation requirements;
  • Final rules adopted pursuant to the Dodd-Frank Act mandate relating to extractive minerals and specialized disclosures;
  • Future of the Disclosure Effectiveness initiative;
  • Likely status of the rules proposed by the SEC and not yet adopted;
  • Proposed changes affecting investment companies and their likely status; and
  • Anticipated enforcement areas of focus.

Speakers:

  • Andrew J. “Buddy” Donohue
    Former Chief of Staff, Director of Enforcement, and Director of Investment Management, SEC
  • Roberta Karmel
    Centennial Professor of Law, Brooklyn Law School,
    former SEC Commissioner
  • Robert Khuzami
    Partner, Kirkland & Ellis LLP, former Director of Enforcement, SEC
  • Troy Paredes
    Paredes Strategies LLC, former SEC Commissioner
  • Anna Pinedo
    Partner, Morrison & Foerster LLP

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

Please contact cmg-events@mofo.com for a promotional code for discounted $99 tuition.

On February 1, 2017, the NYSE issued separate Listed Company Compliance Guidance memoranda for both U.S. companies (“Domestic Companies”) and foreign private issuers (“FPIs”) listed on the NYSE. Below is a brief overview of several of the developments and ongoing policies covered in the memoranda:

  • Proposed Rule Changes Related to Shortened Settlement Cycle. Consistent with the 2016 proposal by the SEC to amend Exchange Act Rule 15c6-1(a) to shorten the standard settlement cycle from T+3 to T+2, the NYSE announced that it has proposed to adopt new NYSE rules to reflect “regular way” settlement as occurring on T+2.
  • NYSE MKT Timely Alert/Material News Policy. The NYSE reminded listed companies that Part 4 of the NYSE’s Company Guide requires listed companies to release promptly news or information which might be reasonably expected to materially affect the market for the company’s securities.
  • Changes to the Date of a Listed Company’s Earnings Release. Given that a change in the earnings announcement date can sometimes affect the trading price of a company’s securities, the NYSE stated that it is important for listed companies to promptly and broadly disseminate to the market: (i) news of the scheduling of earnings announcements and (ii) changes in that schedule.
  • Record Dates. The NYSE explained that listed companies are required to notify the NYSE at least 10 calendar days in advance of all record dates set for any purpose.
  • Meeting Dates. The NYSE recommended that shareholders receive notice of the listed company’s required annual shareholders’ meeting, along with proxy materials, at least 20 days before the meeting date.
  • Shareholder Meetings and Proxy Materials. The NYSE reminded listed companies that they must solicit proxies for any annual or special meetings of shareholders, and must file three definitive copies of all proxy materials with the NYSE no later than the mailing date of the materials.
  • Redemption and Conversion of Listed Securities. The NYSE noted that listed companies should promptly contact their Corporate Actions analyst prior to issuing an announcement about the redemption or conversion of a listed security.

Copies of the memoranda are available at:

https://www.nyse.com/publicdocs/nyse/regulation/nyse-mkt/2017_NYSE_MKT_Listed_Company_Compliance_Guidance_Memo_for_Domestic_Companies.pdf

https://www.nyse.com/publicdocs/nyse/regulation/nyse-mkt/2017_NYSE_MKT_Listed_Company_Compliance_Guidance_Memo_for_Foreign_Private_Issuers.pdf

Tuesday, December 13, 2016

Yitzhak Rabin Center
8 Haim Levanon Street
Tel Aviv, Israel

We have been witnessing significant changes in the U.S. capital markets, bringing about new challenges for IPO candidates, as well as opportunities to access better, and deeper, private capital markets. Join us at the Rabin Center for a complimentary session that will include engaged discussions regarding:

  • The IPO market in the United States and the ReIPO™ for listed companies;
  • Club IPOs:  insider participation in IPOs;
  • The “better” reverse merger:  merging into already public operating companies with failed clinical programs;
  • Is the pre-IPO private the new IPO?  A look at private financing markets in the United States;
  • Block trades and bought deals;
  • Areas of SEC focus for reporting companies; and
  • Recent U.S. securities laws developments.

Speakers:

  • Anna Pinedo
    Partner, Morrison & Foerster LLP
  • James Tanenbaum
    Partner, Morrison & Foerster LLP
  • Leonard Rosen
    Chief Executive Officer, Barclays Israel

Additional speakers to be announced at a later date.

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

Wednesday, November 30, 2016
11:00 a.m. – 12:30 p.m. EST

Traditionally, most public companies in the US were organized as C-corporations. However, tax developments in recent years have given corporate planners a wide range of new tools to structure a public company. For example, tax pass-through MLP and REIT structures are spreading into new asset classes. Also, traditional double taxed ‘C’ corporations are using tax pass-through entities, including partnerships, to reduce or eliminate entity-level taxes as well as optimize their internal structures with tax ‘disregarded entities’. These new tools lead to a variety of tax choices in deciding how to structure a public company.

During this briefing, which is intended for a general audience, the speakers will explain the structures, restrictions and pitfalls in this evolving hybrid world of C-corporations mixed with tax pass-throughs. Specifically, they will discuss:

  • Master limited partnerships;
  • REITs and alternative assets that may qualify as ‘real estate’;
  • Business development companies;
  • Consolidated groups of corporations and disregarded entities; and
  • Up-C structures.

Speakers:

CLE credit is pending for California and New York.

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

Wednesday, October 19, 2016
12:00 p.m. – 1:00 p.m. EDT

Morrison & Foerster Partners Marty Dunn and David Lynn will host a teleconference entitled “Sending Your Message: Communications Rules for Offerings.” During this session, we will focus on the SEC’s communications rules applicable to public and private companies when they are engaged in securities offerings. We will discuss:

  • Materiality;
  • Press releases;
  • Research reports;
  • Non-deal roadshows;
  • Free Writing Prospectuses;
  • Regulation FD; and
  • General solicitation and general advertising, revisited.

CLE credit is pending for California and New York.

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

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.

On May 24, 2016, the Biotechnology Innovation Organization (BIO) published a study, “Emerging Therapeutic Company Investment and Deal Trends,” which collects ten years of data to identify trends affecting “emerging therapeutic companies” (“ETCs”).  ETCs are companies that are (1) developing therapeutics with a lead drug in research and development (“R&D”), or (2) have a drug on the market, but have less than $1 billion in sales at the time of the transaction.

The study focuses on venture capital, initial public offerings (“IPOs”), follow-on public offerings, licensing, and acquisitions.

Venture Capital Trends

Venture funding reached a record high of $6.8 billion during 2015, which included the largest biotech venture capital deal on record, raising $446 million.  The study also found that Series A financing nearly doubled from 2014 to 2015.  The study found that nearly 70% of venture capital funding in 2015 went to early-stage companies and nearly $2 billion was invested in oncology companies.  Although oncology companies were successful in obtaining venture capital funding, the study found that funding was inconsistent across disease areas, as companies in certain disease areas have not rebounded well since the financial crisis.

IPO Trends

The study found that IPOs for ETCs were strong during 2015, with 39 companies going public.  The study found that a positive effect of the JOBS Act has been the increase in the average amount raised per IPO for R&D stage companies from $68 million in 2012 to $90 million in 2015.  Another trend that the study identified was that the clinical development stage that ETCs are in at the time of their IPOs has shifted in recent years.  In the years approaching the financial crisis, there were no Preclinical or Phase I company IPOs in the United States, yet during 2012 to 2015, there were 34 such IPOs.  According to the study, this shift in IPO activity may represent an increased preference for investing in early-stage companies.  When considering the disease type for companies that have obtained IPO financing, the study noted that neurology companies raised $1.05 billion, the highest amount of capital across disease type.

Other Trends

The study also found that: (1) during 2014 to 2015, follow-on public offerings by ETCs increased from $8.9 billion to $16.1 billion; and (2) licensing proved to be a critical aspect of capital raising (reaching a record high of $7.1 billion) and an alternative investment strategy to acquisitions, as 38% of all ETCs partnered during 2015.

A copy of the study is available at: https://www.bio.org/sites/default/files/BIO_Emerging_Therapeutic_Company_Report_2006_2015_Final.pdf