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Category Archives: JOBS Act

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SEC Reconsidering Pre-IPO Quiet Period

Posted in JOBS Act, SEC News

After the recent complaints that smaller investors were not as informed as larger ones about the Facebook IPO, the SEC is reviewing the “quiet period” rules. These rules restrict the communications that an issuer may have with investors during an IPO.  Attached is a letter (posted by the Wall Street Journal) that SEC Chairman, Mary Schapiro, sent to Rep. Darrell Issa, Chairman of the House Committee on Oversight and Government Reform, in response to his concerns about the IPO process.

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SEC Lifts Ban on General Solicitation in Private Placements

Posted in JOBS Act, SEC News

On July 10, 2013, the Securities and Exchange Commission adopted a new rule to eliminate the ban on general solicitation and general advertising for certain private securities offerings, as required by Section 201(a) of the JOBS Act.  The final rule amends Rule 506 to permit issuers to use general solicitation and general advertising to offer their securities, provided that all purchasers of securities are accredited investors and the issuer takes “reasonable steps to verify” that such purchasers are accredited investors.

In connection with the new rule, the SEC voted to issue a rule proposal requiring issuers to provide additional information about Rule 506 offerings.  Under the proposal, issuers that intend to engage in general solicitation as part of a Rule 506 offering would, in addition to the current requirements, be required to file the Form D at least 15 calendar days prior to engaging in general solicitation.  Also, within 30 days of completion of an offering, issuers would be required to update the information contained in the Form D.  The proposal would require issuers to include certain legends on any written general solicitation material and to file, on a temporary basis, those written materials with the SEC.  Issuers would be disqualified from relying on Regulation D for one year if the issuer, or any predecessor or affiliate of the issuer, did not comply, within the last five years, with the Form D filing requirements in a Rule 506 offering.


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JOBS Act: Filing of Draft Registration Statements

Posted in JOBS Act, SEC News

In June the SEC announced that it was building an EDGAR-based system through which certain Emerging Growth Companies and foreign private issuers could submit draft registration statements for non-public and confidential review. Today the SEC announced that the new EDGAR sysstem will be available on Monday, October 1, 2012. On that date, issuers may choose to submit their draft registration statements either using the current secure email system or via the new EDGAR system. In a future announcement, the SEC will make the filing via the new EDGAR system mandatory.

The SEC posted a brief set of instructions on using the new EDGAR system on the SEC web site.


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NYSE Proposes Amendments to Listing Requirements to Accomodate the JOBS Act

Posted in JOBS Act, Securities Exchanges

In response to the enactment of the Jumpstart Our Business Startups Act (the “JOBS Act”), the New York Stock Exchange (“NYSE”) proposes to amend Sections 102.01C and 103.01B of the NYSE’s Listed Company Manual (the “Manual”) to permit the listing of companies on the basis of two years of reported financial data as permitted under the JOBS Act.

Specifically, these amendments provide that a company which qualifies as an emerging growth company (“EGC”) may choose to include only two years of audited financial data in the registration statement used in connection with the “first sale of common equity securities of the issuer pursuant to an effective registration statement under the Securities Act of 1933” (the “initial public offering date”), rather than the three years of audited financial data that had previously been required. In addition, for as long as a company remains an EGC, it is not required to file selected financial data for any period prior to the earliest period for which it had included audited financial statements in its initial public offering registration statement in (i) any subsequent registration statement filed under the Securities Act of 1933 or (ii) any Exchange Act of 1934 registration statement. 

An issuer that is an EGC will continue to be considered an EGC until the earliest of:

  • the last day of the fiscal year during which it had total annual gross revenues of at least $1 billion;
  • the last day of the fiscal year following the fifth anniversary of its initial

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SEC Guidance for JOBS Act

Posted in JOBS Act, SEC News

Over the past month the SEC has provided guidance regarding the Jumpstart Our Business Startups Act of 2012, or JOBS Act, which became law on April 5, 2012. The most recent guidance is in the form of Frequently Asked Questions on Title I, available May 3, 2012, as a supplement to prior FAQs on Title I issued April 16, 2012. Title I of the JOBS Act provides scaled disclosure provisions for emerging growth companies, including, among other things, (i) two years of audited financial statements in the registration statement for an initial public offering of common equity securities, (ii) the smaller reporting company version of Item 402 of Regulation S-K, and (iii) no requirement for Sarbanes-Oxley Act Section 404(b) auditor attestations of internal control over financial reporting. Title I also enables emerging growth companies to use test-the-waters communications with Qualified Institutional Buyers and institutional accredited investors, and liberalizes the use of research reports on emerging growth companies. The FAQs clarify how an issuer can qualify as an emerging growth company, applicable dates for qualification and registration, and various reporting and disclosure requirements.

On April 11, 2012, the SEC issued FAQs to provide guidance regarding Title V and Title VI of the JOBS Act. These titles provide for an increase in the number of holders of record that triggers periodic reporting requirements with the SEC under the Exchange Act. The FAQs provide information regarding how issuers can terminate a not yet effective registration process, or alternatively deregister an effective registration, …


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SEC Issues Additional JOBS Act FAQs: Generally Applicable Questions on Title I of the JOBS Act

Posted in JOBS Act, SEC News

On April 16, 2012, the SEC Division of Corporation Finance issued additional Frequently Asked Questions to provide guidance on the implementation and application of the Jumpstart Our Business Startups Act (the "JOBS Act"), based on its current understanding of the JOBS Act and in light of its existing rules, regulations and procedures. These FAQs address questions of general applicability under Title I of the JOBS Act. Title I provides scaled disclosure provisions for emerging growth companies, including, among other things, two years of audited financial statements in the Securities Act of 1933 registration statement for an initial public offering of common equity securities, the smaller reporting company version of Item 402 of Regulation S-K, and no requirement for Sarbanes-Oxley Act Section 404(b) auditor attestations of internal control over financial reporting. Title I also enables emerging growth companies to use test-the-waters communications with Qualified Institutional Buyers or "QIBs" and institutional accredited investors and liberalizes the use of research reports on emerging growth companies.


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SEC Issues Additional JOBS Act FAQs: Changes to the Requirements for Exchange Act Registration and Deregistration

Posted in JOBS Act, SEC News

On April 11, 2012, the SEC Division of Corporation Finance issued additional Frequently Asked Questions to provide guidance on the implementation and application of the Jumpstart Our Business Startups Act (the "JOBS Act"), based on its current understanding of the JOBS Act and in light of its existing rules, regulations and procedures. These FAQs address questions relating to the changes to the requirements for Securities Exchange Act of 1934 (the "Exchange Act") registration and deregistration. Specifically, the FAQs address questions relating to how these changes affect the requirement of issuers (including bank holding companies) to register a class of equity security under Section 12(g) of the Exchange Act and the ability of bank holding companies to deregister a class of equity security under Section 12(g) of the Exchange Act or to suspend a reporting obligation under Section 15(d) of the Exchange Act.


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SEC Issues JOBS Act FAQs

Posted in JOBS Act, SEC News

On April 10, 2012, the SEC Division of Corporation Finance issued Frequently Asked Questions to provide guidance on the implementation and application of the Jumpstart Our Business Startups Act (the “JOBS Act”), based on its current understanding of the JOBS Act and in light of its existing rules, regulations and procedures. These FAQs address questions relating to the confidential submission of registration statements for review pursuant to new Securities Act Section 6(e). Section 6(e) provides that an emerging growth company may confidentially submit to the SEC a draft registration statement for confidential, non-public review by the SEC staff prior to public filing, provided that the initial confidential submission and all amendments are publicly filed not later than 21 days before the date on which the issuer conducts a road show, as defined in Securities Act Rule 433(h)(4).


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The JOBS Act – Creation of the “Emerging Growth Company”

Posted in General Business News, JOBS Act, SEC News

On April 5, 2012, President Obama signed into law the Jumpstart Our Business Startups Act of 2012, the JOBS Act. The Act implements measures relating to the IPO process and reporting requirements for a new category of issuer known as the “emerging growth company,” or EGC. The Act defines an EGC as a company with annual gross revenues of less than $1 billion during its most recent fiscal year. A company will retain its EGC status until the earliest of:

·         The first fiscal year after its annual revenues exceed $1 billion.

·         The first fiscal year following the fifth anniversary of its IPO.

·         The date on which the company had, during the previous three-year period, issued more than $1 billion in non-convertible debt.

·         The date on which the company qualifies as a large accelerated filer.

IPO Process

 

The Act amends applicable federal securities laws to exempt EGCs from:

·         The requirement to publicly file an IPO registration statement. An EGC may confidentially submit its registration statement and any amendments to the SEC.

·         The requirement to include three years of audited financial statements in an IPO registration statement. EGCs only need to include two years of audited financial statements. Likewise, the MD&A need only include two years of discussion and analysis.

·         Restrictions on communications ahead of public offerings, provided the EGC communicates only with qualified institutional buyers or accredited investors. This allows EGCs to “test the waters” before a contemplated offering.

The Act also


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JOBS Act Update: $50 Million Public Offering Exemption (“Super” Regulation A)

Posted in General Business News, JOBS Act

Section 401 of the Jumpstart Our Business Startups Act, or JOBS Act (expected to be signed into law by President Obama on April 5, 2012) permits securities offerings of up to $50 million in any 12-month period under a new exemption to be established by the SEC under Section 3(b) of the Securities Act of 1933.  Regulation A (the small public offering exemption) provides the current exemption under Section 3(b), which is capped at $5 million and is not available to Exchange Act reporting companies.  The $5 million cap is arguably one of the biggest disadvantages of a Regulation A offering.

Securities issued under the new $50 million exemption may be sold publicly and will not be considered restricted securities.  The new exemption requires the SEC to issue implementing rules regarding delivery of the offering statement and other information about the issuer to investors.  Issuers must file audited financial statements annually and may solicit interest in the offering before filing an offering statement, subject to additional rules to be set by the SEC.  The JOBS Act does not set a deadline for this rulemaking.
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JOBS Act Update: Threshold for Exchange Act Registration Will Increase

Posted in General Business News, JOBS Act

Currently, under Section 12(g) of the Securities Exchange Act of 1934, companies with more than $10 million in assets whose equity securities are held of record by more than 500 holders must file periodic reports with the SEC. While the $10 million threshold had been raised from time to time over the years from an original $1 million level, the 500 holders of record requirement has never been changed.

Title V of the Jumpstart Our Business Startups Act, or JOBS Act (expected to be singed into law soon by President Obama), amends Section 12(g)(1) of the Exchange Act to increase the holders of record threshold for most issues to either (i) 2,000 persons, or (ii) 500 persons who are not accredited investors. For banks and bank holding companies, the threshold number of record holders will be increased to 2,000 persons.

Title V of the JOBS Act also provides that persons holding securities received pursuant to an employee compensation plan in transactions exempted from the registration requirements of Section 5 of the Securities Act of 1933 (e.g., because they were issued under Rule 701 of the Securities Act) will be excluded from being counted as holders of record for purposes of the Section 12(g) calculation. The JOBS Act notably did not otherwise alter how holders of record are determined and beneficial owners of securities who hold shares in “street name” will generally not be counted as holders of record. Shares held in “street name” by the Depository Trust Company will continue …


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JOBS Act Update: Rule 506 Private Placements Could be a Little Less “Private”

Posted in General Business News, JOBS Act

Section 201 of the Jumpstart Our Business Startups Act, or JOBS Act (expected to be signed into law soon by President Obama), requires the SEC to change the rules of a Rule 506 private placement to allow for general solicitation or general advertising so long as all purchasers are accredited investors.

Currently, Rule 502(c) prohibits an issuer in a private placement, or any person on its behalf, from offering or selling securities by any form of general advertising, including any ad, article, or notice published in any newspaper or magazine, on TV, or over the radio.

Depending on how the Commission revises its rules (they have 90 days from enactment), this change could significantly expand the way companies seek investors for private offerings. Imagine cold calls, Internet pop-ups, billboards, and hedge fund ads on TV. Of course the issuer will have to take reasonable steps to verify that purchasers are accredited investors, which is something responsible issuers do anyway.

Proponents argue lifting the ban on advertising promotes transparency, while critics (including key members of the Commission) argue the ban is an important protection against general solicitations reaching unsophisticated investors who may be duped by unscrupulous offers.

The JOBS Act further provides that any person who maintains a platform or mechanism for such advertisements does not have to register as a broker-dealer as long as they receive no compensation in connection with the purchase or sale of a security and do not have possession of customer funds or securities, among other …


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JOBS Act Update: Crowdfunding

Posted in General Business News, JOBS Act

The U.S. House of Representatives, by a vote of 380 to 41, has passed the Jumpstart Our Business Startups Act, or JOBS Act in the form previously approved by the Senate last week. The bill now goes to President Obama, who is expected to sign it into law. The JOBS Act significantly impacts the securities laws, including through a new way to raise money known as “crowdfunding.”

The JOBS Act creates a new securities registration exemption known as “crowdfunding” that issuers can rely on to sell up to $1 million worth of securities to non-accredited investors as long as no individual investor invests more than: (a) $2,000 or 5% of the investor’s annual income in any 12-month period (for investors with annual income or net worth less than $100,000); or (b) 10% of the investor’s annual income or net worth up to $100,000 in any 12-month period (for investors with annual income or net worth in excess of $100,000). And, these “crowdfunders” do not count toward the newly-increased shareholders of record threshold that triggers Exchange Act registration under Section 12(g).

The securities may only be issued through a registered broker-dealer or “funding portal” over the internet that complies with additional requirements. The issuer has certain disclosure requirements during the offering process and following the offering.

Crowdfunding is a popular concept among those who see it as a way to empower smaller investors and smaller companies without access to traditional angel investors. However, regulators, including SEC Chairman Schapiro, have raised concerns …


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Accredited Investors and Crowdfunding

Posted in General Business News, JOBS Act

In February the SEC issued a Small Entity Compliance Guide that provides a summary of the relatively new net worth standard in the definition of “accredited investor” under the Securities Act, as required by the Dodd-Frank Act.  Section 413(a) of the Dodd-Frank Act requires that the value of a person’s primary residence be excluded when determining whether the person has net worth in excess of $1 million in order to qualify as an “accredited investor.”

The Dodd-Frank Act has made it a bit harder to be an accredited investor, and yet the Senate is currently considering a version of the Jumpstart Our Business Startups Act or JOBS Act passed by the House earlier this month that would make it easier for non-accredited investors to participate in “crowdfunding.”  The JOBS Act would create a new registration exemption that issuers could rely on to sell up to $1-2 million worth of securities to non-accredited investors as long as no individual investor invests more than the lesser of $10,000 or 10% of the investor’s annual income in any 12-month period.  And, these “crowdfunders” would not count toward the 500 shareholders of record threshold that triggers Exchange Act registration under Section 12(g).

Furthermore, for those issuers that want to continue to sell to accredited investors, the JOBS Act would require the SEC to amend Regulation D to permit general solicitation and advertising in Rule 506 offerings sold only to accredited investors.

Both provisions blur the line between public and private offerings and potentially pit …


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