The JOBS Act: A Reshaping of the Capital Markets Landscape. Discussion and Reference Materials April 2, 2012

Transcription

1 The JOBS Act: A Reshaping of the Capital Markets Landscape Discussion and Reference Materials April 2, 2012

2 The JOBS Act: A Reshaping of the Capital Markets Landscape The JOBS Act is a game-changer for most private companies and other capital markets participants. o Emerging Growth Companies will access the public markets in a new way, be covered by research analysts more freely and be subject to less onerous disclosure than companies that are currently public At the same time, the JOBS Act provides new paths for private companies to raise funds and enhances the ability of private companies to stay private. There are still many questions about the practical application of the JOBS Act. We view the JOBS Act as the most important modernization of the securities laws since the 2005 Reforms. 2

3 <Presentation Title/Client Name> Going Public in a New Regulatory World: Emerging Growth Companies and the Simplified IPO Path Emerging Growth Companies ( EGCs ), with their lessened disclosure requirements and more liberal research analyst coverage, will represent the majority of new IPOs. EGCs, and those working on their behalf, will be able to engage in pre-registration communications with QIBs and accredited investors to test the waters. Confidential registration statement submissions by EGCs will afford these issuers greater flexibility regarding disclosure of sensitive information. Analysts will be able to cover EGCs more freely, and bankers and research analysts will have liberalized communication requirements. 3

4 The Emerging Growth Company: A New Category of Issuer Subject to Less Rigorous Regulation An EGC is a company with less than $1b in annual gross revenue in the most recently completed year, so the majority of companies going public will qualify as EGCs. o An EGC is a new category of issuer for purposes of SEC, FINRA and exchange regulation If an issuer elects to forgo the exemptions available to EGCs with respect to changes in accounting standards, it must do so no later than the time it files the final amendment to its IPO registration statement. An issuer who has sold equity securities publicly on or before December 8, 2011 cannot become an EGC. WHEN DOES A COMPANY STOP BEING AN EMERGING GROWTH COMPANY? Last day of first fiscal year in which revenue is > $1b Last day of fiscal year that is 5 years after date of first public equity sale Date on which the company has issued more than $1b in nonconvertible debt in the preceding 3 year period Date on which the company becomes a large accelerated filer: Equity held by non-affiliates > $700m Subject to reporting requirements for 12 calendar months Filed at least one Annual Report, and Not a smaller reporting company 4

5 The Emerging Growth Company: An EGC Will Be Subject to Significantly Less Burdensome Disclosure Requirements Financial Disclosure Reduced financial disclosure requirements: Presentation of only two years of audited financials and selected financial data for IPO registrations; more limited selected financial data in other registration statements and SEC reports. Market adoption of the reduced disclosure is an open question. Accounting Standards SOX Internal Controls Delayed adoption of new or revised accounting standards: An EGC will be able to comply with new or revised accounting standards under U.S. GAAP or IFRS on the private company schedule, if the standard is also applicable to private companies. Internal controls exemption: An EGC will be exempt from the auditor attestation requirements under Section 404(b) of SOX relating to internal controls over financial reporting. Executive Comp. Scaled disclosure: Reduced executive compensation disclosure covering fewer executive officers for fewer years; relief from inclusion of CD&A; exemptions from certain Dodd-Frank provisions, such as say-on-pay and say-on-frequency votes. Auditor Matters Relief from possible future rules: An EGC will not be subject to any auditor rotation requirements adopted by the PCAOB and not be required to present an auditor discussion and analysis section in filings, if required of issuers in the future. 5

6 <Presentation Title/Client Name> IPO Procedural Changes: Taking an EGC Public Presents New Opportunities for Issuers and Underwriters An EGC, or a person working on its behalf, may communicate orally or in writing with QIBs and institutional accredited investors prior to filing the registration statement. o Communications must be to test the waters o Previously, this communication would have been an impermissible offer to sell or a solicitation of offers to buy securities An EGC can submit its draft IPO registration statement on a confidential basis. o All submissions by the EGC must be publicly filed at least 21 days prior to the beginning of a road show so while the JOBS Act will delay public disclosure, it will not prevent public disclosure o Gives EGCs flexibility to begin the review process with the SEC without publicly disclosing confidential or sensitive information Future changes to Reg. S-K and the decimalization protocol could result from Congressionally directed SEC studies. 6

7 Liberalized Analyst Regulations: Flexible Communication Rules and Increased Ability to Publish Reports <Presentation Title/Client Name> Analysts covering an EGC may publish reports prior to, during and after the offering. o Publication of research by a participating underwriter of an EGC proposing to conduct common equity public offerings is not an offer to sell a security o Elimination of the black-out on research reports after IPO and prior to lock-up expiration for participating underwriters Liberalized communication rules will allow bankers to arrange communications between research analysts and investors. o Research analysts will also be able to communicate with management of EGC issuers in the presence of the banking team Uncertainty around the way conflict of interest rules will be conformed to these liberalizations for EGCs and liability concerns should be considered in determining changes to bank protocol. THE JOBS ACT IN CONTEXT Leaves in place many existing SEC, FINRA, and stock exchange conflict of interest rules, including with respect to compensation, firewalls, supervision, whistle-blower protection and disclosure. Further guidance will be required to determine the interrelationship between the JOBS Act requirements and undertaking required pursuant to the 2003 Global Settlement (as amended) or any other agreement with state AGs or regulators. 7

8 New Options for Private Companies: Public Solicitations, Crowdfunding and New Exemptions <Presentation Title/Client Name> While the path to becoming public for an EGC will be simpler, the ability of private companies to raise funds and remain private will be enhanced as a result of the JOBS Act. General solicitations and advertising will be allowed in Reg. D and Rule 144A offerings. Crowdfunding will allow smaller companies to access funding from a large group of investors. The new Section 3(b)(2) exemption will facilitate offerings of up to $50m with enhanced issuer disclosure. The JOBS Act provides for an increase in the 12(g) holders of record threshold to 2,000 persons or 500 persons who are not accredited investors for most companies. 8

9 General Solicitations: Public Solicitation and Advertising for Private Offerings The JOBS Act will permit general solicitations and advertising in most Reg. D and Rule 144A private placement offerings. o JOBS Act directs SEC to revise Rule 506 of Reg. D to allow general solicitations and advertising if all purchasers are accredited investors and to revise Rule 144A to allow general solicitations and advertising if all purchasers are reasonably believed to be QIBs o An offering that employs general solicitations and advertising, and otherwise complies with Reg. D, shall not be considered a public offering o Applicable to all issuers (public and private) The JOBS Act directs the SEC to make the changes to allow general solicitations and advertising by July [ ], Persons who maintain an exchange platform for securities offered and sold under Reg. D or who provide ancillary services, such as due diligence services, and do not receive compensation with respect to purchases or sales of securities, will not be required to register as broker-dealers. 9

10 Crowdfunding: Small Investments from a Large Pool JOBS Act creates a new registration exemption for companies to raise up to $1m in small investments over 12 months from a large pool of investors. The SEC has been directed to adopt rules to address crowdfunding by December [ ], o Crowdfunding investors will be excluded from the 12(g) shareholder limit for private companies Companies raising capital will be required to use a broker dealer or funding portal as an intermediary. Imposes informational requirements: o Business information, financial information, use of proceeds, funding progress reports, final price disclosure, annual reports, and others to be determined by the Commission Limits on the amount individuals can invest via crowdfunding per year. One year transfer restriction on shares purchased. WHAT S A FUNDING PORTAL? Newly-defined entity that does not solicit purchases, sales or offers, and does not offer investment advice or recommendations. Must register with the SEC, but will not be required to register as a broker-dealer. 10

11 Small Company Capital Formation: Exemption 3(b)(2): A New Registration Exemption for Offerings up to $50m New Section 3(b)(2): The JOBS Act requires the SEC to adopt a new exemption from registration for offerings up to $50m. The new exemption builds on existing Reg. A, but expands investor protections, including: o Audited financial statements o Possibility of requirement for electronically filed offering circular and periodic disclosure o Liability under Section 12(a)(2) for misstatements and omissions Will be covered securities and will benefit from federal preemption. 11

12 12(g) Holders of Record: An Increase in the Holders of Record Threshold to 2,000 Persons The JOBS Act increases the holders of record threshold at which a company must register under the Exchange Act. o Total assets threshold of $10m remains unchanged The definition of securities held of record will exclude securities held by a person who received the securities in exempt transactions through an employee compensation plan or securities issued in crowdfunding transactions. o The SEC is required to adopt safe harbor provisions for shares issued under employee compensation plans o Increasing the ability of companies to stay private may lead some companies to forgo public offerings. HOLDERS OF RECORD THRESHOLDS FOR PUBLIC REGISTRATION AFTER THE JOBS BILL A company must register a class of securities under the Exchange Act and file periodic reports at certain holders of record thresholds: o 2,000 persons, or o 500 persons who are not accredited investors The bank holding company threshold is also increased to 2,000 persons. 12

13 Effectiveness of the JOBS Act: Immediate Changes in Some Cases; Commission Rule-Making in Others <Presentation Title/Client Name> Amendments to financial reporting and auditing standards for EGCs Immediately Amendments to compensation disclosure and corporate governance for EGCs Generally, immediately; exemption from rules requiring pay-for-performance and pay-ratio disclosure obligations will be effective immediately upon the effectiveness of rules adopted by the SEC Pre- and post-filing test the waters communications for EGCs Immediately Publication of research reports by participating underwriters for EGCs Immediately Securities analyst conflict rules with respect for EGCs Immediately, but there may be risks to undertaking these activities in the absence of guidance from FINRA and the stock exchanges, and until the effect of the JOBS Act on the 2003 global settlement agreement can be more fully determined Timing of publication of research reports for EGCs and appearances by broker-dealers Immediately, but there may be risks to undertaking these activities in the absence of guidance from FINRA 13

14 Effectiveness of the JOBS Act: Immediate Changes in Some Cases; Commission Rule-Making in Others <Presentation Title/Client Name> Confidential submission of draft registration statements by EGCs Immediately, but the SEC will likely need time to establish a submission protocol Elimination of prohibitions on general solicitation and advertising Requires implementation rules to be issued by the SEC by July [ ], 2012 Crowdfunding Requires implementation rules to be issued by the SEC by December [ ], 2012 New Section 3(b) exemption Requires implementation rules to be issued by the SEC; no deadline established Increased shareholder thresholds for public company reporting Immediately; SEC required to adopt rules to revise definition of held of record and establish safe harbor for shares issued under employee compensation plans; SEC to adopt rules for held of record thresholds for banks and bank holding companies by April [ ],

15 Gibson Dunn: An Experienced Partner in Capital Markets Dealmaking A premier law firm, recognized as one of the best global firms o Gibson Dunn was named the winner of the Chambers USA Award for Excellence 2011 in the category of Securities Regulation, Enforcement and Advisory. The Excellence Awards are based on the research for the 2011 edition of Chambers USA: America s Leading Lawyers for Business and reflect a law firm s preeminence in key practice areas, as well as notable achievements over the past 12 months including outstanding work, impressive strategic growth and excellence in client service. o o o o Consistently ranked among top 10 U.S. corporate law firms by Corporate Board Member magazine Chambers USA: America s Leading Lawyers for Business 2011, an independent and comprehensive research-based directory, awarded Gibson Dunn 204 rankings, with the firm and its attorneys achieving a total of 53 first-tier rankings, 15 of which were firm practice group rankings Named by Euromoney as one of the top 25 law firms worldwide The 2012 edition of IFLR1000, a guide to the world s leading financial law firms, names Gibson Dunn as a recommended firm in six U.S. categories Preeminent capital markets practice, with practice group members located in the leading domestic and international financial centers Unparalleled access to decision-makers at the SEC 15

16 Our People: Contacts to Assist You Address Questions about the JOBS Act <Presentation Title/Client Name> California David M. Hernand ( , Michelle Hodges ( , Ari Lanin ( , Jonathan Layne ( , David Lee ( , Stewart McDowell ( , James Moloney ( , Douglas Smith ( , Sean Sullivan ( , Peter Wardle ( , Dallas Jeff Chapman ( , Robert Little ( , Denver Richard Russo ( , Robyn Zolman ( , International Joe Barbeau ( , Claibourne Harrison (+44-(0) , Paul Harter (+971-(0) , Emad Khalil ( , New York J. Alan Bannister ( , Barbara Becker ( , Andrew L. Fabens ( , John Gaffney ( , Lois Herzeca ( , Kevin Kelley ( , Glenn R. Pollner ( , Washington, D.C. Howard B. Adler ( , Anne Benedict ( , Blaise F. Brennan ( , Steve Glover ( , Amy Goodman ( , K. Susan Grafton ( , Elizabeth Ising ( , Brian Lane ( , Ronald Mueller ( , John F. Olson ( , 16

17 Our Offices: Global Support, Local Offices 24/7 commitment Brussels Avenue Louise Brussels Belgium +32 (0) Century City 2029 Century Park East Los Angeles, CA Dallas 2100 McKinney Avenue Suite 1100 Dallas, TX Denver 1801 California Street Suite 4200 Denver, CO Dubai The Exchange Building 5, Level 4 Dubai International Finance Centre P.O. Box Dubai, United Arab Emirates +971 (0) Hong Kong 33/F Gloucester Tower, The Landmark 15 Queen s Road Central Hong Kong London Telephone House 2-4 Temple Avenue London EC4Y 0HB +44 (0) Los Angeles 333 South Grand Avenue Los Angeles, CA Munich Widenmayerstraße 10 D München Germany New York 200 Park Avenue New York, NY Orange County 3161 Michelson Drive Irvine, CA Palo Alto 1881 Page Mill Road Palo Alto, CA Paris 166, rue du faubourg Saint Honoré Paris France +33 (0) São Paulo Rua Funchal, 418, 35 andar Sao Paulo Brazil +55(11) San Francisco 555 Mission Street San Francisco, CA Singapore One Raffles Quay Level #37-01, North Tower Singapore Washington, D.C Connecticut Avenue, N.W. Washington, D.C

18 Blaise Brennan is Of Counsel in the Washington D.C. office of Gibson, Dunn & Crutcher. He is a member of the firm s Corporate Transactions practice group and its Securities Regulation and Corporate Governance practice group. Mr. Brennan focuses his practice on equity and debt capital markets transactions, mergers and acquisitions, acquisition finance, corporate governance matters, and securities regulatory issues. Blaise F. Brennan Washington D.C bbrennan@gibsondunn.com Mr. Brennan has represented U.S. and non-u.s. companies, private equity sponsors and investment banks in connection with a wide variety of transactions, including IPOs and other equity offerings, private placements (including PIPEs), rights offerings, high yield debt offerings, bank financing transactions, private note issuances, equity self-tender offers and going-private transactions, debt tender offers and consent solicitations, acquisitions and divestitures. He has also advised U.S. and non-u.s. public companies and voluntary filers in matters relating to corporate governance, Exchange Act reporting, disclosure and compliance, national securities exchange compliance, accounting restatements, strategic initiatives, and operational matters. Prior to joining Gibson Dunn, Mr. Brennan served on the executive staff at the U.S. Securities and Exchange Commission from 2009 through 2011 as counsel to Commissioners Kathleen L. Casey and Daniel M. Gallagher. Mr. Brennan advised primarily on regulatory recommendations from the Division of Corporation Finance, including implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act, working closely with the Division s leadership and staff on these matters. In addition, he advised the Commissioners and worked closely with leadership and staff on recommendations from the Office of the Chief Accountant, including matters relating to the PCAOB, and recommendations from the Enforcement Division. Mr. Brennan also served briefly in the Office of the Chief Counsel of the Division of Corporation Finance. Prior to serving at the SEC, Mr. Brennan was an associate in the London and Washington, D.C. offices of Latham & Watkins LLP from 2001 to Mr. Brennan received his J.D. cum laude from the Georgetown University Law Center in He received his Bachelor of Arts in Economics from Davidson College in

19 Andrew Fabens is a partner in the New York office of Gibson, Dunn & Crutcher. He is a member of the firm's Corporate Transactions and Securities Practice Groups. Andrew Fabens New York afabens@gibsondunn.com Mr. Fabens advises companies on long-term and strategic capital planning, representing issuers and underwriters in public and private corporate finance transactions, both in the United States and internationally. His experience encompasses initial public offerings, follow-on equity offerings, investment grade, high-yield and convertible debt offerings and offerings of preferred, hybrid and derivative securities. In addition, he regularly advises companies and investment banks on corporate and securities law issues, including M&A financing, spin-off transactions, liability management programs, disclosure and reporting obligations under U.S. federal securities laws, corporate governance issues and stock exchange listing obligations. Mr. Fabens is included in the 2011 edition of The Legal 500 US and ranked in the 2011 edition of Chambers USA: America s Leading Lawyers for Business, where he is noted as being able to readily adapt to his client s style, understand what they need and deliver it. He is described as so amazingly even-keeled that nothing throws him. Mr. Fabens earned his Juris Doctor from Columbia Law School in He earned a Bachelor of Arts cum laude from the University of Michigan in

20 Brian J. Lane is a partner in the Washington D.C. office of Gibson, Dunn & Crutcher. He is a member of the firm's Corporate Transactions and Securities Regulation and Corporate Governance Practice Groups. Brian J. Lane Washington D.C blane@gibsondunn.com Mr. Lane counsels companies on the most sophisticated corporate governance and regulatory issues under the federal securities laws. He is a nationally recognized expert in his field as an author, media commentator, and conference speaker. BTI Consulting Group named Mr. Lane as a 2011 BTI Client Service All-Star for delivering outstanding legal skills enveloped in a rare combination of practical business knowledge, extraordinary attention to client needs and noteworthy responsiveness. He was also: Listed in the 2012 edition of The Best Lawyers in America for securities law, corporate governance and compliance law, selected by Chambers and Partners as a Leading Lawyer in Securities Regulation in its Chambers USA: America s Leading Lawyers for Business Guide for 2011, named by Washingtonian Magazine as one of Washington s Top Lawyers for securities law in 2009 and named the Leading Lawyer for Corporate Governance: Internal Investigations in the Washington D.C. area by Legal Times in Mr. Lane ended a 16 year career with the Securities and Exchange Commission ( SEC ) as the Director of the Division of Corporate Finance where he supervised over 300 attorneys and accountants in all matters related to disclosure and accounting by public companies (e.g. M&A, capital raising, disclosure in periodic reports and proxy statements). In his practice, Mr. Lane advises a number of companies undergoing investigations relating to accounting and disclosure issues. Since joining the firm in January of 2000, Mr. Lane has counseled companies on many diverse issues relating to the details of federal securities law, including: advising companies in public and private offerings, developing unique and sophisticated securities products and transactions, assisting companies in their response to SEC inquiries from the Divisions of Corporation Finance and Enforcement and resolving issues with their disclosure and accounting, helping public companies resolve accounting issues with their auditors and the SEC, advising audit committees and conducting special investigations on their behalf, and providing corporate governance advice. Mr. Lane has represented many of the best known companies domestically and internationally, assisting them to better understand and comply with the intricacies of the federal securities laws. Mr. Lane received his law degree in 1983 from the American University, Washington College of Law and earned a B.A. degree magna cum laude in 1980 from Washburn University. 20

21 Stewart L. McDowell is a partner in the San Francisco office of Gibson, Dunn & Crutcher. She is a member of the firm's Corporate Transactions Department and is Co-Chair of the firm's Capital Markets Practice. Ms. McDowell's practice involves the representation of business organizations as to mergers and acquisitions, capital markets transactions, SEC reporting, corporate governance and general corporate matters. She represents both buyers and sellers in connection with U.S. and cross-border mergers, acquisitions and strategic investments. She also represents has significant experience representing both underwriters and issuers in a broad range of both debt and equity securities offerings. Ms. McDowell received her law degree from the University of Virginia School of Law in 1995 and her Bachelor of Arts degree from Princeton University in Stewart McDowell San Francisco smcdowell@gibsondunn.com Ms. McDowell is a member of the California State Bar and the New York Bar Association. 21

22 Glenn R. Pollner is a partner in the New York office of Gibson, Dunn & Crutcher, where he is a member of the Corporate Transactions Practice Group. Mr. Pollner's practice focuses on capital markets transactions, and on other corporate and securities law matters. Mr. Pollner regularly represents issuers, investment banks and investors in public and private debt and equity capital markets transactions, including securities offerings, tender offers, exchange offers, consent solicitations and restructuring transactions. Mr. Pollner also advises issuers, investment banks and investors on corporate and securities law issues generally, including disclosure and reporting obligations under U.S. federal securities laws, corporate governance issues, issues arising under the Sarbanes-Oxley Act, state corporate law issues, listed company obligations under stock exchange rules, and in connection with mergers and acquisitions and other strategic transactions. Glenn R. Pollner New York gpollner@gibsondunn.com Mr. Pollner's experience spans a wide range of industries, including health care and life sciences, technology, telecommunications, media and entertainment, financial services, consumer and retail, and REITs. Mr. Pollner s experience extends to both domestic and cross-border transactions. Mr. Pollner received his Juris Doctor in 1991 cum laude from the Boston University School of Law, where he was a G. Joseph Tauro Scholar and an editor of the Annual Review of Banking Law. He received his Bachelor of Science degree cum laude in Accounting from the State University of New York at Albany in