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Jobs Act Presentation 10.11.12 C

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Ricklawboston

The JOBS Act eases several securities laws and regulations to promote capital formation for small companies and startups. It allows general solicitation for Rule 506 private offerings, increases the limit for Regulation A "mini-IPOs", and enables equity crowdfunding. The Act also creates a new category of "Emerging Growth Company" that benefits from reduced disclosure and reporting requirements during their IPO process and for up to five years as a public company. Implementation depends on final SEC rulemaking but the JOBS Act aims to stimulate the economy by lowering barriers for small businesses seeking to raise funds.

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JOBS Act: Eases Capital Formation IPO Candidates and Private Companies Jonathan Guest Richard Lucash McCarter & English, LLP McCarter & English, LLP jguest@mccarter.com rlucash@mccarter.com 617.449.6598 617.449.6568 10.11.12
Securities Laws ♦ Federal Laws impacted by JOBS Act – Securities Act of 1933  “Emerging Growth Company” – new defined term  Rule 506/Rule 144A  Regulation A – Securities Exchange Act of 1934 ♦ State “Blue Sky” laws – still relevant – “disclosure review” or “merit qualification” – Federal preemption in limited circumstances 2
JOBS Act ♦ Jumpstart Our Business Startups Act – Enacted April 5, 2012 – Requires SEC rulemaking for full implementation – SEC has issued some FAQs and proposed rules ♦ Bipartisan attempt to stimulate economic growth by lowering barriers to raising capital I. Reduces requirements for small company IPOs II. Removes restrictions on general solicitation and advertising in Rule 506/rule 144A offerings III. Allows equity crowdfunding for U.S. companies, subject to limitations IV. Increases max. size of “mini-IPOs” to $50 Million V. Eases mandatory SEC reporting triggers 3
Crowdfunding ♦ Funding a project or venture by raising small amounts of money from a large number of people ♦ Not possible (for equity) pre-JOBS Act ♦ New exemption from registration – Companies may raise up to $1M in 12 mo. – Federal preemption of state Blue Sky laws – No wealth thresholds for investor participation,  wealth does impact amount that can be invested – Limited disclosure requirements  Partly determined by amount of financing 4
Crowdfunding ♦ Companies required to use approved portals – Portals must be registered with SEC and FINRA – Obligations of portals TBD 5
Rule 506 Change Under JOBS Act ♦ General solicitation/advertising permitted when SEC adopts new rules ♦ Rule 506 purchasers limited to “accredited” investors – natural persons; income and net worth tests – Institutional accredited investors 6
Rule 506 and Rule 144A – SEC proposed rules require issuer to “take reasonable steps to verify purchasers are accredited” – avoids rigid tests, verification methods may vary ♦ Unpaid third-party finders permitted for Rule 506 offerings ♦ “Old” rules for 506 offerings without general advertising/solicitation remain 7
Mini-IPOs Under Regulation A Currently (rarely used) ♦ Permits sales of securities to the public – No investor qualification requirements – May “test the waters” before filing offering documents – Shares freely tradable ♦ Offering statement reviewed by SEC – Streamlined disclosure requirements (vis-a-vis IPO) ♦ Limited to $5 million in 12 month period 8
Mini-IPOs Under Regulation A + JOBS Act ♦ Increases $$ threshold to $50 million in 12 mo. ♦ Blue Sky laws pre-empted if sales only to “qualified purchasers” (to be defined by SEC) or shares are listed ♦ Must file disclosure information with SEC and make periodic reports, incl. audited financials ♦ Imposes prospectus liability under Section 12(a)(2) ♦ No specific deadline for new rules 9
Emerging Growth Company ♦ “Emerging Growth Company” – a new category of issuer ♦ Qualify as EGC if – total gross revenues in most recent fiscal year < $1B and – no registered public offering before 12/8/12 10
Emerging Growth Company ♦ Remain EGC until earliest of: – Annual gross revenues exceed $1B – Last day of fiscal year that is 5th anniversary of common equity IPO – Issued more than $1B non-convertible debt during previous 3 year period – Becomes “large accelerated filer” - public float above $700M 11
Emerging Growth Company – IPO process ♦ IPO “process” benefits for ECGs: – Confidential submission of registration statements – Pre-IPO research reports by broker/dealer not deemed an “offer” or “sale” – Can communicate with QIBs and accredited institutional investors to “test the waters” – Only 2 years of audited financial statements (and related MD&A); can omit certain “selected financial data” 12
Emerging Growth Company – May elect reduced executive compensation disclosure available to “smaller reporting companies” (no CD&A, 3 rather than 5 NEOs, 2 years’ summary compensation) 13
Emerging Growth Company – post-IPO Reduced SEC reporting post-IPO – exempt from: – Auditor attestation report (SOX 404) – Shareholder advisory votes on executive comp (“say-on-pay”) – Executive compensation comparisons – Mandatory audit firm rotation – “Pay v. performance” information and CEO v. median employee compensation comparison 14
’34 Act reporting threshold increase ♦ Current law: 500 shareholders of record (and more than 300 U.S. residents) plus $10 million total assets triggers obligation of foreign company to file reports with the SEC ♦ JOBS Act: holders of record increased to 2,000 and fewer than 500 not “accredited” (compensation plan awardees exempt) ♦ Listed “foreign private issuers” can still elect Rule 12g3-2(b) exemption 15
Takeaways 1. JOBS Act should make capital formation easier 2. But a lot depends on SEC rules 3. Crowdfunding by small investors not yet permitted – SEC rules are coming 4. Rule 506 with general solicitation will require special attention to accredited investor verification techniques 5. Emerging growth company attractive for issuers: easier IPO and “slower route” to full SEC compliance 6. Reg A+ could be attractive “middle route” for raising capital and creating liquidity 16
Panelists Questions? Jonathan Guest Richard Lucash McCarter & English, LLP McCarter & English, LLP jguest@mccarter.com rlucash@mccarter.com 617.449.6598 617.449.6568 17

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Jobs Act Presentation 10.11.12 C

  • 1. JOBS Act: Eases Capital Formation IPO Candidates and Private Companies Jonathan Guest Richard Lucash McCarter & English, LLP McCarter & English, LLP jguest@mccarter.com rlucash@mccarter.com 617.449.6598 617.449.6568 10.11.12
  • 2. Securities Laws ♦ Federal Laws impacted by JOBS Act – Securities Act of 1933  “Emerging Growth Company” – new defined term  Rule 506/Rule 144A  Regulation A – Securities Exchange Act of 1934 ♦ State “Blue Sky” laws – still relevant – “disclosure review” or “merit qualification” – Federal preemption in limited circumstances 2
  • 3. JOBS Act ♦ Jumpstart Our Business Startups Act – Enacted April 5, 2012 – Requires SEC rulemaking for full implementation – SEC has issued some FAQs and proposed rules ♦ Bipartisan attempt to stimulate economic growth by lowering barriers to raising capital I. Reduces requirements for small company IPOs II. Removes restrictions on general solicitation and advertising in Rule 506/rule 144A offerings III. Allows equity crowdfunding for U.S. companies, subject to limitations IV. Increases max. size of “mini-IPOs” to $50 Million V. Eases mandatory SEC reporting triggers 3
  • 4. Crowdfunding ♦ Funding a project or venture by raising small amounts of money from a large number of people ♦ Not possible (for equity) pre-JOBS Act ♦ New exemption from registration – Companies may raise up to $1M in 12 mo. – Federal preemption of state Blue Sky laws – No wealth thresholds for investor participation,  wealth does impact amount that can be invested – Limited disclosure requirements  Partly determined by amount of financing 4
  • 5. Crowdfunding ♦ Companies required to use approved portals – Portals must be registered with SEC and FINRA – Obligations of portals TBD 5
  • 6. Rule 506 Change Under JOBS Act ♦ General solicitation/advertising permitted when SEC adopts new rules ♦ Rule 506 purchasers limited to “accredited” investors – natural persons; income and net worth tests – Institutional accredited investors 6
  • 7. Rule 506 and Rule 144A – SEC proposed rules require issuer to “take reasonable steps to verify purchasers are accredited” – avoids rigid tests, verification methods may vary ♦ Unpaid third-party finders permitted for Rule 506 offerings ♦ “Old” rules for 506 offerings without general advertising/solicitation remain 7
  • 8. Mini-IPOs Under Regulation A Currently (rarely used) ♦ Permits sales of securities to the public – No investor qualification requirements – May “test the waters” before filing offering documents – Shares freely tradable ♦ Offering statement reviewed by SEC – Streamlined disclosure requirements (vis-a-vis IPO) ♦ Limited to $5 million in 12 month period 8
  • 9. Mini-IPOs Under Regulation A + JOBS Act ♦ Increases $$ threshold to $50 million in 12 mo. ♦ Blue Sky laws pre-empted if sales only to “qualified purchasers” (to be defined by SEC) or shares are listed ♦ Must file disclosure information with SEC and make periodic reports, incl. audited financials ♦ Imposes prospectus liability under Section 12(a)(2) ♦ No specific deadline for new rules 9
  • 10. Emerging Growth Company ♦ “Emerging Growth Company” – a new category of issuer ♦ Qualify as EGC if – total gross revenues in most recent fiscal year < $1B and – no registered public offering before 12/8/12 10
  • 11. Emerging Growth Company ♦ Remain EGC until earliest of: – Annual gross revenues exceed $1B – Last day of fiscal year that is 5th anniversary of common equity IPO – Issued more than $1B non-convertible debt during previous 3 year period – Becomes “large accelerated filer” - public float above $700M 11
  • 12. Emerging Growth Company – IPO process ♦ IPO “process” benefits for ECGs: – Confidential submission of registration statements – Pre-IPO research reports by broker/dealer not deemed an “offer” or “sale” – Can communicate with QIBs and accredited institutional investors to “test the waters” – Only 2 years of audited financial statements (and related MD&A); can omit certain “selected financial data” 12
  • 13. Emerging Growth Company – May elect reduced executive compensation disclosure available to “smaller reporting companies” (no CD&A, 3 rather than 5 NEOs, 2 years’ summary compensation) 13
  • 14. Emerging Growth Company – post-IPO Reduced SEC reporting post-IPO – exempt from: – Auditor attestation report (SOX 404) – Shareholder advisory votes on executive comp (“say-on-pay”) – Executive compensation comparisons – Mandatory audit firm rotation – “Pay v. performance” information and CEO v. median employee compensation comparison 14
  • 15. ’34 Act reporting threshold increase ♦ Current law: 500 shareholders of record (and more than 300 U.S. residents) plus $10 million total assets triggers obligation of foreign company to file reports with the SEC ♦ JOBS Act: holders of record increased to 2,000 and fewer than 500 not “accredited” (compensation plan awardees exempt) ♦ Listed “foreign private issuers” can still elect Rule 12g3-2(b) exemption 15
  • 16. Takeaways 1. JOBS Act should make capital formation easier 2. But a lot depends on SEC rules 3. Crowdfunding by small investors not yet permitted – SEC rules are coming 4. Rule 506 with general solicitation will require special attention to accredited investor verification techniques 5. Emerging growth company attractive for issuers: easier IPO and “slower route” to full SEC compliance 6. Reg A+ could be attractive “middle route” for raising capital and creating liquidity 16
  • 17. Panelists Questions? Jonathan Guest Richard Lucash McCarter & English, LLP McCarter & English, LLP jguest@mccarter.com rlucash@mccarter.com 617.449.6598 617.449.6568 17