Participants:
Tymour Okasha
Anna Pinedo
David Lynn
March 7, 2013
NY2 715833
© 2010 Morrison & Foerster LLP | All Rights Reserved | mofo.com
JOBS Act: Growing Momentum
The JOBS Act
 Enacted on April 5, 2012.
 Title I (IPO On Ramp) and Titles V and VI (Exchange Act
registration/deregistration thresholds) are effective.
 Title II rules to lift the ban on general solicitation and general
advertising in Rule 506 offerings were proposed on August 29, 2012
and have not yet been adopted.
 Title III (crowdfunding) and Title IV (Regulation A+) require
rulemaking, and rules have not yet been proposed or adopted.
 Three required studies have been delivered.
This is MoFo.
2
IPO Market Trends
This is MoFo.
3
2013YTD Asset Class Performance & Fund Flows
Equities started 2013 strongly on better risk appetite – yet the rally & macro/political risks have led to a modest correction.
Asset Class and Equity Sector Performance
Actively-Managed Fund Flows (1)
$bn
Weekly US Equity Fund Flows
$6.0
2012
4Q 2012
($51.4bn) ($30.6bn)
2013 YTD
+$11.1bn
4.0
The Beginning of
the “Great Rotation?”
2.0
0.0
(2.0)
(4.0)
(6.0)
Jun-12
$bn
$6.0
Jul-12
Aug-12
Sep-12
Oct-12
Nov-12
Dec-12
Jan-13
2012
4Q 2012
+$129.0b +$35.3bn
n
Weekly Bond Fund Flows
Feb-13
2013 YTD
+$24.9bn
4.0
2.0
0.0
(2.0)
Jun-12
While “defensive” equities have performed best most recently, IPOs
& small-caps remain well higher for 2013YTD
Jul-12
Aug-12
Sep-12
Oct-12
Nov-12
Dec-12
Jan-13
Feb-13
Active equity funds have finally seen inflows as bond inflows wane &
capital leaves money markets – potential seeds of the “Great
Rotation”
____________________
Sources: FactSet, Bloomberg and AMG Data as of February 22, 2013. (1) Domestic weekly fund flows since June 1, 2012 excluding ETF activity. Bloomberg IPO Index is a market cap weighted index that consists of
110 recent IPOs. Light blue shading represents equity indices and S&P 500 equity subsectors.
This is MoFo.
4
2013YTD Equity Issuance Update
2013 equity issuance is off to a fast start – 104 deals for $33.2bn year-to-date, vs. 87 deals for $15.2bn in the same 2012 period
2013 Add-On Pricings – 30 Most Recent
2013 IPO Pricings & Pipeline
Pricing
Date
Base
Deal
($mm)
Issuer
02/14/13 Xoom Corp
02/14/13 Orchid Island Capital
02/11/13 Connectone Bancorp
Mkt Val
at Offer
($mm)
Base Deal
as % of
Mkt Val
%
Sec.
$101
$509
20%
17%
35
50
71%
-
Aftermarket
Offer /
Offer / Green1 Day
Current shoe?
File /
Offer
14.3%
0.0%
a
59.3%
27.1%
(1.3%)
(1.7%)
Industry
a
-
1.8%
5.9%
5.0%
120
169
71%
-
NA
(6.1%)
(4.7%)
Real Estate
02/07/13 New Source Energy Ptn.
80
147
54%
-
0.0%
(2.6%)
0.0%
Oil & Gas
02/07/13 Health Insur. Innovations
65
187
35%
-
(6.7%)
(2.1%)
02/06/13 ExOne
95
230
41%
6%
20.0%
47.3%
48.1%
a
01/31/13 KaloBios Pharmaceuticals
01/30/13 TRI Pointe Homes
01/28/13 Gladstone Land Corp
01/28/13 Stemline Therapeutics
01/24/13 Bright Horizons Fam. Sol.
01/24/13 LipoScience Inc
(10.5%)
Finance
Finance
Industrial
247
871
28%
-
23.5%
24.5%
27.6%
a
Industrial
2,239
13,000
17%
100%
10.6%
19.3%
25.3%
a
Healthcare
70
191
37%
-
(38.5%)
233
537
43%
27%
13.3%
50
91
55%
-
NA
0.0%
(11.0%)
12.1%
6.2%
0.0%
0.7%
Healthcare
a
Industrial
--
5.5%
02/21/13 TAL International Group
175
11%
(4.9%)
(2.6%)
02/21/13 Kinder Morgan Energy Ptn. LP
345
2%
(2.1%)
--
02/21/13 Generac Holdings
350
14%
(2.6%)
02/21/13 TRW Automotive Holdings
593
8%
(1.5%)
Healthcare
(3.0%)
1.4%
0.5%
Block
Real Estate
1,538
12%
(5.2%)
(4.1%)
(3.9%)
Marketed
Retail
8%
(13.7%)
(3.6%)
(6.6%)
Marketed
Oil & Gas
02/20/13 Michael Kors Holdings
02/14/13 Kosmos Energy
330
02/14/13 Cliffs Natural Resources
261
6%
(20.8%)
(0.5%)
(8.7%)
02/14/13 Armour Residential REIT
445
17%
(3.5%)
(2.1%)
(2.9%)
7%
1.0%
2.0%
(0.8%)
a
Marketed
Oil & Gas
(3.5%)
(0.5%)
(0.9%)
a
Marketed
Prof. Services
02/14/13 LyondellBasell Industries
1,538
45
125
36%
-
(35.7%)
16.1%
12.2%
a
Healthcare
02/13/13 CalAmp Corp
447
3,809
12%
-
11.8%
30.5%
57.8%
a
Transport.
314
1,178
27%
-
11.8%
11.6%
15.4%
a
Real Estate
Average (20):
275
1,380
37%
Median (20):
111
370
36%
0.0%
0.2%
(2.2%)
8%
0.3%
12.8%
-
0.9%
8.7%
Oil & Gas
a
21.0%
1.9%
Oil & Gas
Utility
14.0% 12 of 20
9.3%
Deals on the Road
Issuer
Professional Diversity Netw ork
Base Deal
($mm)
20
Base Deal
% Mkt. Val
12.0%
--
Industry
Prof. Services
IPOs have seen a solid reception in 2013 amidst broader equity bullishness. While
few datapoints are marketing currently, IPOs ex-biotech have priced 6.4% above the
filed midpoints & 14/15 have priced in or above the range
4%
(1.3%)
(0.5%)
(3.5%)
Block
Chemicals
33
14%
(15.7%)
0.5%
7.7%
Marketed
Agribusiness
42
12%
(1.3%)
10.6%
17.1%
7%
(2.1%)
2.3%
4.7%
02/13/13 BioMed Realty Trust Inc
260
02/13/13 Sensata Technologies Holding
502
02/12/13 Atlas Financial Holdings Inc
24
02/12/13 Newcastle Investment Corp
210
02/12/13 HCA Holdings Inc
a
Marketed
Technology
Overnight
Real Estate
Technology
8%
(0.7%)
(0.6%)
(2.8%)
Block
35%
(2.7%)
1.7%
1.7%
Marketed
Insurance
8%
(2.5%)
2.6%
3.6%
Block
Real Estate
a
1,800
11%
(1.8%)
1.3%
(0.7%)
02/12/13 American Capital Mortgage Invst.
513
34%
(3.5%)
0.2%
(0.6%)
02/12/13 Ocean Rig UDW Inc
126
5%
(4.0%)
(3.9%)
(11.0%)
Block
Oil & Gas
02/12/13 Team Health Holdings Inc
322
14%
(1.6%)
(0.8%)
(1.6%)
Block
Healthcare
02/12/13 Primerica Inc
%
Secondary
Real Estate
11%
02/13/13 Limoneira Co
(10.0%)
Mining
Block
1,253
Services
-
Marketed
1,152
Healthcare
6.5%
a
02/14/13 Nielsen Holdings
a
-
Real Estate
15%
a
38%
Overnight
a
252
02/20/13 NorthStar Realty Finance Corp
28.1%
16%
Auto/Truck
Overnight
24.9%
524
Block
4.3%
28.7%
3,790
(1.8%)
(1.0%)
18.0%
198
Industrial
(2.4%)
3.6%
10.0%
600
Block
(2.5%)
(16.7%)
01/14/13 USA Compression Ptn. LP
(1.6%)
(2.8%)
-
01/16/13 CVR Refining LP
Utility & Energy
(2.5%)
(14.4%)
-
(4.0%)
Transportation
Overnight
8%
16%
(5.0%)
Block
0.2%
26%
48%
-
(1.8%)
32
69
43%
Healthcare
83
1,383
597
Industry
Marketed
02/20/13 Oncolytics Biotech
33
257
Deal Type
a
02/20/13 Terreno Realty Corp
222
01/17/13 SunCoke Energy Ptn. LP
Greenshoe?
02/14/13 Pioneer Natural Resources
01/17/13 CyrusOne
03/05/13
(11.9%)
Real Estate
01/17/13 Norwegian Cruise Line
Expected
Date
16%
Aftermarket
Offer /
Offer /
1 Day
Current
Finance
34%
01/31/13 Zoetis
$126
Base
Deal
($mm)
FIG Tech
133
02/05/13 Boise Cascade
File /
Offer
Issuer
02/21/13 Achillion Pharmaceuticals
45
02/07/13 ZAIS Financial Corp
Deal
as % of
Mkt Val
Pricing
Date
82
4%
(1.5%)
(1.1%)
(2.6%)
23%
(3.9%)
5.9%
10.6%
108
2%
(2.0%)
1.0%
3.0%
295
10%
(8.0%)
4.5%
02/07/13 BreitBurn Energy Partners LP
258
13%
(3.7%)
Marketed Average YTD (32):
333
15%
(4.4%)
Overnight Average YTD (30):
151
12%
(4.4%)
Block Average YTD (22):
465
11%
(2.8%)
02/11/13 WNS Holdings Ltd
161
02/11/13 Axis Capital Holdings Ltd
02/11/13 Gulfport Energy Corp
a
Block
Healthcare
Block
Real Estate
Block
Insurance
a
Marketed
Prof. Services
Block
Insurance
(2.9%)
a
Marketed
Oil & Gas
(1.2%)
(1.5%)
a
Overnight
Oil & Gas
4.4%
5.0%
19 of 32
32
1.5%
5.4%
20 of 30
30
(0.8%)
(1.1%)
5 of 22
22
____________________
Source: Dealogic as of February 22, 2013. Includes SEC registered follow-on offerings greater than $20mm. Excludes BCC/SPACs, BDCs, rights offerings, and closed-end funds.
Includes SEC registered IPOs greater than $20mm. Excludes BCC/SPACs, BDCs and closed-end funds.
This is MoFo.
5
2012 Asset Class Performance & Fund Flows
Asset Class and Equity Sector Performance
Actively-Managed Fund Flows (1)
$bn Monthly US Equity Fund Flows
$bn
Monthly Bond Fund Flows
Domestic: ($51bn)
Global: ($90bn)
Domestic:
+$129bn
Global: +$256bn
____________________
Sources: FactSet, Bloomberg and AMG Data as of December 31, 2012. (1) Domestic weekly fund flows since January 1, 2012 excluding ETF activity. Bloomberg IPO Index is a market cap weighted index that consists
of 110 recent IPOs. Light blue shading represents equity indices and S&P 500 equity subsectors.
This is MoFo.
6
An Equity Strategist Perspective On 2012

A persistent focus on the macro picture
versus specific sector or company
fundamentals

Broad periods of widespread “risk-on”
or “risk-off”

Equities were loved or loathed as a
group, leaving little opportunity for
individual outperformance

Investors turned to larger, more stable
domestic investment opportunities,
preferably with yield

A crowded fixed income market further
encouraged allocations to skew towards
income-surrogate equities

The S&P 500’s performance illustrates
this “default” behavior despite persistent
uncertainty and a lack of conviction on
behalf of equity buyers

Active Portfolio Managers faced stiff
fund outflows all year and found it
difficult to pick relative “winners”

ETFs tracking broad market indexes
continue to be the beneficiaries of equity
investors’ preference for low-risk, lowcost equity exposure
Key Equity Market Themes in the Year that Was
Large-Cap Equities Were King
Return of Capital Was Rewarded
The S&P 500 outperformed small-cap US equities, global
equities, corporate bonds, and government bonds
Equities with a capital return strategy outperformed as
investors pursued yield, garnering a 15.1% return
Actively-Managed Portfolios Struggle Again
Portfolio managers continued to struggle to outperform their benchmarks as “alpha” remained elusive. Only 31%
of large-cap active funds outperformed overall, including 40% for growth funds and 23% for value funds
____________________
Source: BofA Merrill Lynch Strategy research, November 2012.
This is MoFo.
7
2012 IPO Issuance Levels in Context



From 2004 to 2007, the US IPO market saw
roughly 200 IPOs a year. Is 120 to 150 the
“new normal?”
Some of this change is related to periodic
event-related “closures” in each of the last
three years
The “risk-on/risk-off” mentality has
contributed to a market that is only reliable
for the most attractive growth companies
A confirmed rotation into equities should
create a more receptive environment for
moderate growth, sponsor-backed
companies
IPO Market Has Struggled to Regain 2004-2007 Issuance Levels
2012
25
# Deals
VIX
20
20
19
160
17
16
25
120
15
11
20
11
8
10
6
7
5
$45.9bn
Proceeds
30
Post Facebook IPO
(May 17, 2012)
4
4
4
0
# Deals

The IPO market has been open and
receptive to growth companies, but clearly
less open to more moderate growth stories
15
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
25
# Deals
VIX
2012
Dec
Non-Tech
18
20
15
40
15
8
160
120
14
15
10
30
8
20
4
5
0
% of Total Issuance
29.6%
33.6%
31.0%
70.4%
66.4%
69.0%
2010
2011
2012
(4.9%)
66.7%
20.8%
7.7%
76.2%
12.7%
2.6%
74.4%
25.9%
Tech IPOs
Midpoint / Offer:
% In/Above Range:
Offer / 1 Month:
Apr
May
Jun
Jul
Aug
Sep
25
# Deals
VIX
2011
2012
(11.1%)
54.2%
7.7%
(7.1%)
60.2%
3.7%
(10.1%)
50.6%
12.8%
Nov
14
15
19
Non-Tech
20
120
12
10
10
160
40
15
10
11
30
10
7
20
5
0
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
____________________
Source: Bloomberg and Dealogic as of December 31, 2012. Includes SEC registered IPOs greater than $20mm base deal. Excludes SPACs, BDCs and CLEFs.
This is MoFo.
2011
Dec
50
Flash Crash
(May 6, 2010)
18
6
2010
Oct
83
Tech
2010
20
Non-Tech IPOs
Midpoint / Offer
% In/Above Range:
Offer / 1 Month
Mar
10
Dec
# Deals
Tech Issuance:
Non-Tech Issuance:
2012
Feb
42
0
10
Jan
125
80
40
2
0
2011
Tech
$40.7bn
Proceeds
50
Euro Sovereign Debt Crisis
(Aug. 2011 – Nov. 2011)
21
10
2010
87
2011
10
Receptivity & Performance
39
0
10
Jan
126
80
40
# Deals

$43.7bn
Proceeds
152
45
80
107
40
0
2010
Non-Tech
Tech
8
A look at IPOs That Impacted Sentiment in 2012
Value Creation, Destruction, and Investor Impact
2012 IPO Performance by Market Cap Change








"Winners” and “Losers" are often assessed
on % movement, but market cap
expansion / contraction is more reflective
of sentiment and impact on portfolio
returns
Market cap change is a valuable proxy,
but constrained IPO floats mean that
public investors do not experience all of
the profit or loss
The largest 2012 IPO value creators were
comprised of a broad make-up of sectors,
led by Tech but also with finance, real
estate, energy, & retail
Notably, the 3 best-performing Tech IPOs
were software issuers
Deals that lost shareholder value are led
by Facebook, which shed ~$23bn in
market cap and ~$4.5bn in public float
(equal to ~15% of the non-FB IPO issuance
for all of 2012)
Class of 2011 IPO performance during
2012 also had a substantial impact on
receptivity to new deals, especially within
Tech
Of the top 10 value decliners this year
from 2011’s IPO crop, 7 were Tech issuers
(4 from internet)
Groupon and Zynga highlight the list,
with the 2012 struggles of each sapping
demand for new stories
Pricing
Date
Issuer
Current Δ Mkt Cap
Deal Val Mkt Cap Since IPO IPO to
Current
($mm)
($mm)
($mm)
Industry
2011 IPOs – Performance in 2012
Pricing
Date
Issuer
732.6
9,055.9
4,567.7
94.6% Technology
02/10/11 Kinder Morgan Inc
1,242.0
5,876.2
2,362.1
55.4% Real Estate
12/06/12 Western Gas Eq. Partners LP
434.7
6,555.9
1,920.2
36.1%
06/28/12 ServiceNow
241.2
3,754.4
1,589.2
03/07/12 Nationstar Mortgage Holdings
268.3
2,800.9
1,587.6
121.3%
Finance
07/25/12 Northern Tier Energy LP
261.6
2,338.3
1,308.9
81.7%
Energy
04/18/12 Splunk
263.9
2,861.8
1,288.8
70.7% Technology
05/02/12 Carlyle Group LP
671.0
7,913.6
1,214.6
18.3%
01/24/12 Guidewire Software
132.3
1,646.6
1,011.0
128.6% Technology
04/04/12 Retail Properties of America
292.6
2,761.7
953.5
49.6% Real Estate
16,006.9
57,669.6
05/03/12 PetroLogistics LP
595.0
1,889.8
(473.2) (20.4%)
03/14/12 Allison Transmission Holdings
690.3
3,730.1
(441.6) (11.2%) Auto/Truck
04/19/12 Midstates Petroleum Company
358.8
458.9
10/25/12 WhiteWave Foods Co
391.0
2,688.4
04/17/12 SandRidge Mississippian Trust II
627.9
809.0
03/28/12 CafePress Inc
85.5
98.7
02/21/12 Ceres Inc
74.8
10/11/12 Workday
10/10/12 Realogy Holding
05/17/12 Facebook
02/01/12 Matador Resources Co
04/24/12 Envivio Inc
Current Δ Mkt Cap
2012 % IPO to
in 2012
Deal Val Mkt Cap
Change Current
($mm)
($mm)
($mm)
9.8%
17.8%
Industry
Energy
3,293.6
40,021.0
13,980.5
05/18/11 LinkedIn
405.7
12,337.2
6,107.6
82.2% 155.2% Technology
11/16/11 Delphi Automotive plc
529.7
12,146.4
5,076.1
77.6%
12/14/11 Michael Kors Holdings Ltd
1,085.6
10,193.0
4,993.9
87.3% 155.2%
03/09/11 HCA Holdings Inc
4,353.9
13,362.8
3,745.5
36.9%
03/29/11 Apollo Global Management LLC
565.4
6,421.0
1,931.1
39.9%
03/29/11 Qihoo 360 Technology Co Ltd
201.9
3,543.5
1,703.2
89.2% 104.8% Technology
1,434.8
7,243.7
880.7
9.3% (13.8%) Technology
11/03/11 Rentech Nitrogen Partners LP
300.0
1,462.4
837.0
130.5%
88.5% Chemicals
01/27/11 InterXion Holding NV
304.6
1,614.5
731.9
76.7%
82.8% Technology
11/03/11 Groupon Inc
805.0
3,186.8
(10,079.4) (76.4%) (75.7%) Technology
12/15/11 Zynga Inc
1,000.0
1,850.2
(4,730.9) (74.9%) (76.4%) Technology
04/13/11 Arcos Dorados Holdings Inc
1,436.6
2,506.0
(1,795.7) (41.7%) (29.6%) Consumer
06/16/11 Bankrate Inc
344.9
1,245.6
(904.3) (42.1%) (17.0%) Technology
03/24/11 ServiceSource International Inc
137.3
442.0
(672.1) (62.7%) (41.5%) Technology
10/13/11 Ubiquiti Networks Inc
121.4
1,074.9
(592.9) (33.4%) (19.1%) Technology
(223.9) (69.6%) Technology
12/14/11 Laredo Petroleum Holdings Inc
342.1
2,328.9
(517.1) (18.6%)
112.6
(202.6) (65.1%) Cleantech
05/25/11 Lone Pine Resources Inc
195.0
178.6
455.7
(201.0) (31.7%)
05/24/11 Active Network Inc
69.8
45.8
05/25/11 Freescale Semiconductor
Energy
66.8% Technology
Finance
(23,577.6) (29.9%) Technology
(394.3) (47.0%)
(252.6)
Energy
Energy
(8.6%) Consumer
(225.2) (22.5%)
Energy
Energy
(194.1) (81.1%) Technology
05/23/11 Yandex NV
73.9% Auto/Truck
Retail
0.6% Healthcare
(8.6%)
Finance
6.8%
Energy
104.7
(491.3) (82.5%) (90.5%)
Energy
189.8
297.4
(440.6) (63.9%) (67.3%) Technology
883.2
2,733.2
(372.8) (13.0%) (38.8%) Technology
____________________
Source: Dealogic and Bloomberg as December 31, 2012. Includes SEC registered IPOs greater than $20mm since January 1, 2011. Excludes SPACs and CLEFs. Dark shading represents Tech IPO.
This is MoFo.
9
2013 Outlook from the Research Community





Street equity strategists currently
forecast a constructive equity
market in 2013, with returns in
the ~7% area supported by ~5%
EPS growth
Strategists Are Estimating a ~7% Increase in the S&P 500 in 2013
Bank
Strategist
2013-End
S&P 500
Implied
2013 Return
2013 EPS
Implied 2013
EPS Growth
BofA Merrill Lynch
Savita Subramanian
1,600
12.2%
$110.00
7.8%
Bank of Montreal
Brian Belski
1,575
10.4%
$106.25
7.3%
Barclays
Barry Knapp
1,525
6.9%
$105.00
4.0%
Citigroup
Tobias Levkovich
1,615
13.2%
$108.00
4.9%
Meanwhile 12 of 13 analysts
forecast 2013 EPS growth of at
least 3%
Credit Suisse
Andrew Garthwaite
1,550
8.7%
$104.90
4.8%
Deutsche Bank
David Bianco
NA
NA
$108.00
4.9%
Goldman Sachs
David Kostin
1,575
10.4%
$107.00
7.0%
Clearly, US fiscal/budget
negotiations and European
developments will ultimately
drive 2013 results
HSBC
Garry Evans
1,560
9.4%
NA
NA
JPMorgan
Thomas Lee
1,580
10.8%
$110.00
4.8%
Morgan Stanley
Adam Parker
1,434
0.5%
$98.71
(1.3%)
Oppenheimer
John Stoltzfus
1,585
11.1%
$108.00
5.9%
RBC
Myles Zyblock
NA
NA
$104.00
4.0%
Stifel Nicolaus
Barry Bannister
1,500
5.2%
$115.00
NA
UBS
Jonathan Golub
1,425
(0.1%)
$108.00
3.8%
Wells Fargo
Gina Martin Adams
1,390
(2.5%)
$103.00
3.0%
Mean (15):
1,532
7.4%
$106.85
4.7%
Median (15):
1,560
9.4%
$107.50
4.8%
Min (15):
1,390
(2.5%)
$98.71
(1.3%)
Max (15):
1,615
13.2%
$115.00
7.8%
Only 2 of 13 analysts publishing
S&P forecasts predict a down
2013 market
Other key drivers cited by
analysts include:

Momentum in US housing
market

China slowdown / recovery

Commodity price declines

Middle East geopolitical
tension
____________________
Source: Bloomberg.
This is MoFo.
10
Could 2013 Mark the Start of the “Great Rotation?”




Fixed income markets have seen
unprecedented demand and
performance in recent years, leading
to all-time low bond yields
Fund flows have consistently been
coming out of equities in favor of the
safe-haven fixed income markets
All-Time Low Bond Yields Set the Stage for Equity Bullishness
With bond yields at record lows, the outperformance in fixed
income has likely come to an end. Assuming positive global
macro developments, 2013 could be the year to start the
“Great Rotation” from bonds back to equities
18
18
15
12
9
If a confluence of macroeconomic
events unfolds favorably, street
equity strategists expect a paradigm
shift in investment strategy, with
aggressive re-allocation to equities
6
Bond yields should rise dramatically
in concert with a rally in equities to
new all-time highs (S&P above 1500)
Tech Stands to Disproportionately Benefit from the Rotation
3
0
'80
10 Year US Treasury Yield
'82
'84
'86
'88
Global Exposure?
'90
'92
'94


Tech stands to benefit more than
most (overweight along with
Industrials and Energy) due to
favorable sector fundamentals
Tech is the most globally exposed industry
sector; as global growth recovers in 2013 that
exposure should be a major tailwind for Tech
equity flows and performance

Moderate growth stories that have
been out of favor during the early
recovery stand to gain the most favor
Balance Sheet Strength?

Tech is the only sector with net cash, but also
has the third-lowest dividend payout ratio (29%).
While Tech dividends are growing faster than any
other sector, its large cash balances and
substantial financial flexibility mean there is
plenty of scope to put capital to work
'96
'98
'00
'02
'04
Secular Growth?
'06
'08
'10
'12

Secular growth is a longer-term strategy vs
cyclical; many of the most exciting secular growth
stories are directly or indirectly related to Tech,
creating a long-term investment thesis
Attractive Valuation?

While Tech has historically traded at a 20%
premium to the market, it currently trades at a
discount despite its numerous growth themes.
Relative to the sector’s historical average
forward P/E multiple, there is more than 30%
upside potential for Tech equities
____________________
Source: Bloomberg.
This is MoFo.
11
Title I: The On-Ramp
This is MoFo.
12
EGC Status
This is MoFo.
13
Title I: EGCs
 An “emerging growth company” (an “EGC”) is defined as an issuer
(including a foreign private issuer) with total annual gross revenues
of less than $1 billion (subject to inflationary adjustment by the SEC
every five years) during its most recently completed fiscal year.
 An issuer can qualify as an EGC if it first sold its common stock in a
registered offering on or after December 9, 2011.
This is MoFo.
14
Title I: EGCs (cont’d)
 The SEC Staff has noted that an issuer can take advantage of the
benefits of EGC status, even though its initial public offering of
common equity securities occurred on or before December 8, 2011.
 In this regard, the SEC Staff notes that if an issuer would otherwise qualify as an
EGC but for the fact that its initial public offering of common equity securities
occurred on or before December 8, 2011, and such issuer was once an Exchange
Act reporting company but is not currently required to file Exchange Act reports,
then the SEC Staff would not object if such issuer takes advantage of all of the
benefits of EGC status for its next registered offering and thereafter, until it triggers
one of the disqualification provisions.
 This position is not available to an issuer that has had the registration of a class of
its securities revoked pursuant to Exchange Act Section 12(j).
 The SEC Staff notes that, based on the particular facts and
circumstances, the EGC status of an issuer may be questioned if it
appears that the issuer ceased to be a reporting company for the
purpose of conducting a registered offering as an EGC.
This is MoFo.
15
Title I: EGCs (cont’d)
 In Question 53 of the September 28, 2012 FAQs, the SEC Staff
addresses EGC status in the context of certain spin-offs, focusing the
analysis on whether the issuer, and not its parent, meets the EGC
requirements.
 The SEC Staff notes that, based on the particular facts and
circumstances, the EGC status of an issuer may be questioned if it
appears that the issuer or its parent is engaging in a transaction for
the purpose of converting a non-EGC into an EGC, or for the
purpose of obtaining the benefits of EGC status indirectly when it is
not entitled to do so directly.
This is MoFo.
16
Title I: EGCs (cont’d)
 The SEC Staff indicated in its May 3, 2012 FAQs that asset-backed
issuers and registered investment companies do not qualify as
EGCs; however, business development companies could qualify as
EGCs.
 Whether an issuer is an EGC seems to be determined at this point
on somewhat of a sliding scale.
 For example, with issuers that are not operating companies, such as royalty trusts,
the Staff seems inclined to say that those cannot be EGCs, because they are really
not the type of issuer contemplated by the Title I “on-ramp” for EGCs.
This is MoFo.
17
Title I: EGCs (cont’d)
 The SEC Staff has provided guidance through its FAQs confirming
that an EGC should be able to rely on certain of Title I’s disclosure,
communications and confidential submission benefits in the context
of an exchange offer or a merger.
 This guidance notes that even if EGCs are availing themselves of the
JOBS Act provisions in the context of an exchange offer or a merger,
they will still have to comply with all of the applicable rules for tender
offers and proxy solicitations at the same time.
This is MoFo.
18
Title I: EGCs (cont’d)
 On November 14, 2012, The Wall Street Journal published a story
highlighting how a number of companies going public have not
availed themselves of the looser requirements contemplated by the
“IPO on-ramp” provisions in Title I of the JOBS Act, suggesting a
stigma associated with being identified as an EGC.
 Initial trends suggest that marketing considerations may play the
most significant role for an EGC in deciding whether to utilize the
benefits of Title I, and that, at least at this point, there is little appetite
for straying too far from market norms, even if some cost savings can
be achieved.
 Changes to the IPO market and more familiarity with the on-ramp
provisions may ultimately result in an evolving view of EGC status.
This is MoFo.
19
Benefits Afforded
To EGCs
This is MoFo.
20
Title I: EGCs
 On December 17, 2012, the SEC approved the PCAOB’s Auditing
Standard No. 16, “Communications with Audit Committees.”
 The approval of Auditing Standard No. 16 represents the first time
that the SEC has used its authority under the JOBS Act to determine
that a new auditing standard applies to audits of EGCs.
 Section 103(a)(3)(C) of the Sarbanes-Oxley Act, as amended by
Section 104 of the JOBS Act, provides that any additional rules
adopted by the PCAOB subsequent to April 5, 2012 do not apply to
the audits of EGCs, unless the Commission determines that the
application of such additional requirements is necessary or
appropriate in the public interest, after considering the protection of
investors and whether the action will promote efficiency, competition,
and capital formation.
This is MoFo.
21
Title I: Confidential Submission
 Title I provides that the SEC Staff must review all EGC initial public
offering registration statements confidentially.
 An EGC may confidentially submit a draft registration statement for an initial public
offering for nonpublic review, provided that the initial confidential submission and all
amendments are publicly filed with the SEC no later than 21 days prior to the
issuer’s commencement of a “road show” (as defined in Securities Act Rule
433(h)(4)).
 EGCs have been taking advantage of the confidential review process.
 Consideration of the impact on a “dual-track” strategy.
 Possible to use a press release
 Possible to share the confidential submission with a limited number of investors
 Adverse effects on the visibility of the IPO pipeline.
 Timing considerations relative to the marketing of the offering.
This is MoFo.
22
Title I: Confidential Submission (cont’d)
 Draft registration statements are submitted via EDGAR using
submission form types DRS and DRS/A.
 While some have commented on how the confidential submissions
process has reduced visibility into the IPO pipeline, the Staff is not
planning to make information available about the submissions.
 In practice, EGCs have been availing themselves of the confidential
submission process
 When to flip from confidential to public
 Must publicly file at least 21 days before commencing a road show
 For these purposes, what is a “road show”?
 Many issuers are choosing to flip from confidential to public earlier in the process
 Timing should be discussed with the working group
This is MoFo.
23
Title I: Test-the-Waters
 Title I of the JOBS Act provides EGCs, or any other person that they
authorize, the flexibility to engage in oral or written communications
with QIBs and institutional accredited investors in order to gauge
their interest in a proposed offering, whether prior to or following the
first filing of any registration statement, subject to the requirement
that no security may be sold unless accompanied or preceded by a
Section 10(a) prospectus.
 There are no form or content restrictions on these communications,
and there is no requirement to file written communications with the
SEC, however the SEC has asked for written test-the-waters
communications in connection with their review.
This is MoFo.
24
Title I: Test-the-Waters (cont’d)
 In August 22, 2012 FAQs, the SEC Staff addressed the requirements
of Rule 15c2-8(e) in the context of test-the-waters communications.
 The FAQ notes that while the JOBS Act does not amend Rule 15c28(e), an EGC or a financial intermediary acting on the EGC’s behalf
may engage in discussions with institutional investors to gauge their
interest in purchasing EGC securities before the EGC has filed its
registration statement with the SEC and after the EGC has filed its
registration statement.
 During this period, the underwriter may discuss price, volume and market demand
and solicit non-binding indications of interest from customers.
 Soliciting such a non-binding indication of interest, in the absence of other factors,
would not constitute a “solicitation” for purposes of Rule 15c2-8(e).
This is MoFo.
25
Title I: Test-the-Waters (cont’d)
 The form and content of test-the-waters communications will vary
based on the issuer, the issuer’s industry, the underwriters and the
nature of buy-side interest in the offering.
 Underwriting agreements for an emerging growth company offering
will typically include a representation that the issuer has not engaged
in any communications in reliance on Section 5(d), other than as
disclosed as an exception to the representation.
 There is a concern on the part of the underwriters about limiting the manner in
which these types of communications occur.
 The SEC Staff has been asking to review written test the waters
materials.
This is MoFo.
26
Title I: Disclosure Requirements
PRIOR TO JOBS ACT
UNDER THE JOBS ACT
Financial
Information in
SEC Filings
 3 years of audited financial statements
 2 years of audited financial statements for
smaller reporting companies
 Selected financial data for each of 5 years
(or for life of issuer, if shorter) and any
interim period included in the financial
statements
 2 years of audited financial statements
 Not required to present selected financial
data for any period prior to the earliest
audited period presented in connection with
an IPO
 Within 1 year of IPO, EGC would report 3
years of audited financial statements
Confidential
Submissions of
Draft IPO
Registration
Statement
 No confidential filing for U.S. issuers
 Confidential filing for FPIs only in specified
circumstances
EGCs (including FPIs that are EGCs) may
submit a draft IPO registration statement for
confidential review prior to public filing,
provided that such submission and any
amendments are publicly filed with the SEC
not later than 21 days before the EGC
conducts a “road show.” This supersedes the
SEC’s December 2011 position on confidential
submissions by FPIs.
This is MoFo.
27
Title I: Disclosure Requirements (cont’d)
PRIOR TO JOBS ACT
UNDER THE JOBS ACT
Communications
Before and During
The Offering
Process
Limited ability to “test-the-waters”
EGCs, either prior to or after filing a
registration statement, may “test-the-waters”
by engaging in oral or written communications
with QIBs and institutional accredited
investors to determine interest in an offering
Auditor
Attestation on
Internal Controls
 Auditor attestation on effectiveness of
internal controls over financial reporting
required in second annual report after IPO
 Non-accelerated filers not required to
comply
Transition period for compliance of up to 5
years
Accounting
Standards
Must comply with applicable new or revised
financial accounting standards
 Not required to comply with any new or
revised financial accounting standard until
such standard applies to companies that
are not subject to Exchange Act public
company reporting
 EGCs may choose to comply with non-EGC
accounting standards but may not
selectively comply
This is MoFo.
28
Title I: Disclosure Requirements (cont’d)
PRIOR TO JOBS ACT
UNDER THE JOBS ACT
Executive
Compensation
Disclosure
 Must comply with executive compensation
disclosure requirements, unless a smaller
reporting company (which is subject to
reduced disclosure requirements)
 Upon adoption of SEC rules under DoddFrank will be required to calculate and
disclose the median compensation of all
employees compared to the CEO
 May comply with executive compensation
disclosure requirements by complying with
the reduced disclosure requirements
generally available to smaller reporting
companies
 Exempt from requirement to calculate and
disclose the median compensation of all
employees compared to the CEO
 FPIs entitled to rely on other executive
compensation disclosure requirements
Say on Pay
 Must hold non-binding advisory
stockholder votes on executive
compensation arrangements
 Smaller reporting companies are currently
exempt from say on pay until 2013
Exempt from requirement to hold non-binding
advisory stockholder votes on executive
compensation arrangements for 1 to 3 years
after no longer an EGC
This is MoFo.
29
Title I: Disclosure Requirements (cont’d)
 Market practice in terms of EGC disclosure accommodations is still
developing
 Financial information: more EGCs have elected to present financial information for
a longer period – general three years
 Executive compensation: most EGCs are availing themselves of the reduced
disclosure requirements
 Auditor attestation: most EGCs are affirmatively choosing to avail themselves of
the delayed implementation
This is MoFo.
30
Title I: Disclosures
 The SEC staff expects to see:
 Cover page disclosure regarding EGC status
 Summary box disclosures
 Risk factors that specifically address the issuer’s decision to rely on EGC
accommodations
 MD&A discussion to the extent that the issuer is electing to delay adoption of new
accounting standards and/or defer auditor attestation
This is MoFo.
31
Title I: Research
 The JOBS Act permits a broker-dealer to publish or distribute a
research report about an EGC that proposes to register an offering
under the Securities Act or has a registration statement pending, and
the research report will not be deemed an “offer” under the
Securities Act, even if the broker-dealer will participate or is
participating in the offering.
 The JOBS Act also prohibits any self-regulatory organization such as
FINRA and the SEC from adopting any rule or regulation that would
restrict a broker-dealer from participating in certain meetings relating
to EGCs.
This is MoFo.
32
Title I: Research (cont’d)
 No SRO or the SEC may adopt or maintain any rule or regulation
prohibiting a broker-dealer from publishing or distributing a research
report or making a public appearance with respect to the securities of
an EGC following an offering or in a period prior to (although notably
not after) expiration of a lock-up.
 The JOBS Act removes restrictions on who within an investment
bank can arrange for communications between research analysts
and prospective investors in connection with an EGC IPO, permitting
investment bankers to be involved in those arrangements.
 Further, a research analyst is permitted to engage in any
communications with an EGC’s management when other employees
of the investment bank, including the investment bankers, are
present.
This is MoFo.
33
Title I: Research (cont’d)
 On August 22, 2012, the SEC’s Division of Trading and Markets
published a highly anticipated series of JOBS Act FAQs entitled
“About Research Analysts and Underwriters,” which addressed
various research-related matters.
 The FAQs reiterate that Section 105 of the JOBS Act is intended to
permit research analysts to participate in meetings with issuer
management, but research analysts cannot engage in efforts to
solicit banking business.
This is MoFo.
34
Title I: Research (cont’d)
 The FAQs note that a research analyst attending a meeting with
investment banking colleagues could outline the firm’s research
program and factors considered in the analysis of a company and
ask follow-up questions of management.
 After an investment banking firm has been retained, the research analyst could
participate in sales force discussions along with company management in order to
educate the sales force about trends in the industry and research’s views.
 The FAQs emphasize that the objective of the JOBS Act was to
eliminate burdens on the management of emerging growth
companies resulting from having to take part in separate meeting
with banking and with research personnel, but not to weaken any of
the safeguards intended to mitigate conflicts of interest. In this
respect, the FAQs confirm that Regulation AC is not affected by the
JOBS Act.
This is MoFo.
35
Title I: Research (cont’d)
 The FAQs clarify that the JOBS Act should be understood to apply to
NYSE Rule 472 to the same extent as it applies to NASD Rule 2711.
 Further, the FAQs explain that the Staff views the prohibition on quiet
period rules contained in Section 105(d)(2) as applying to the quiet
periods on research at the termination, waiver, modification, etc. of a
lock-up agreement (in connection with an emerging growth company
IPO or a follow-on offering) regardless of the means by which the
lock-up period comes to a close.
This is MoFo.
36
Title I: Research (cont’d)
 FINRA implemented a series of rule changes to modify NASD Rule
2711 and NYSE Rule 472, including:
 An exception to Rule 2711(c)(4) that permits research analysts to attend meetings
with issuer management that are also attended by investment banking personnel,
including pitch meetings, provided that the research analysts do not engage in any
prohibited conduct, such as soliciting investment banking business. (Rule 472
includes a similar exception).
 An amendment to NASD 2711 to eliminate the following quiet periods with respect
to an IPO of an EGC: NASD Rule 2711(f)(1)(A) which imposes a 40-day quiet
period after an IPO on a member that acts as a manager or co-manager of the
IPO; NASD Rule 2711(f)(2) which imposes a 25-day quiet period after an IPO on a
member that participates as an underwriter or dealer (other than manager or comanager) of the IPO; and NASD Rule 2711(f)(4) with respect to the 15-day quiet
period applicable to IPO managers and co-managers prior to the expiration, waiver
or termination of a lock-up agreement.
 An amendment to NASD Rule 2711(f)(4) to eliminate the 10-day quiet period on
managers and co-managers following a secondary offering and the quiet periods
after the expiration, waiver or termination of a lock-up agreement for such an
offering.
This is MoFo.
37
SEC Report on Decimalization
 On July 20, 2012, the SEC delivered to Congress the report required
by Section 106 of the JOBS Act, which directed the SEC to examine
the impact of decimalization on IPOs and the impact of this decadeold change on liquidity for small- and mid-cap securities.
 If the SEC determines that securities of emerging growth companies should be
quoted or traded using a minimum increment higher than $0.01, then the SEC
may, by rule, not later than 180 days following enactment of the JOBS Act,
designate a higher minimum increment between $0.01 and $0.10.
 Not surprisingly, the Staff concluded that decimalization may have
been one of a number of factors that have influenced the IPO
market.
 The Staff recommends that the Commission should not proceed with
specific rulemaking to increase tick sizes, but should gather more
information.
This is MoFo.
38
SEC Roundtable on Decimalization
 The SEC held a roundtable on decimalization on February 5, 2012.
 The roundtable included various panel discussions on issues
affecting smaller or emerging companies and raised many questions
on implementation of tick size
 Recommendation: that a pilot program be implemented that would
permit an assessment of the impact on smaller companies
This is MoFo.
39
Study on Regulation S-K
 Under Title I the SEC was required to present to Congress its
findings and recommendations following a review of Regulation S-K
that is intended to analyze current registration requirements and
determine whether these requirements can be updated, modified or
simplified in order to reduce costs and other burdens on emerging
growth companies.
 The study was required within 180 days of enactment.
 The SEC Staff is continuing to work on the study.
This is MoFo.
40
Title II
This is MoFo.
41
Title II: Rule 506 Changes
 Title II directs the SEC to eliminate the ban on general solicitation
and general advertising for certain offerings under Rule 506 of
Regulation D, provided that the securities are sold only to accredited
investors, and under Rule 144A offerings, provided that the
securities are sold only to persons who the seller (and any person
acting on behalf of the seller) reasonably believes is a QIB.
 Rule 506 is the most popular means for conducting a private offering,
because it permits issuers to raise an unlimited amount of money
and preempts state securities laws.
This is MoFo.
42
Title II: SEC Proposal
 On August 29, 2012, the SEC proposed amendments to Rule 506 of
Regulation D and Rule 144A under the Securities Act to implement
Section 201(a) of the JOBS Act.
 Public comments were due on the proposed rules by October 5,
2012.
 The SEC has not yet adopted final rules, so the Title II provisions are
not currently in effect.
This is MoFo.
43
Title II: SEC Proposal (cont’d)
 The SEC’s proposed rules implement a bifurcated approach to Rule
506 offerings.
 As proposed, an issuer may still choose to conduct a private offering in reliance on
Rule 506 without using general solicitation.
 In order to implement this approach, the SEC proposed new
paragraph (c) in Rule 506, which would permit the use of general
solicitation, subject to the following conditions:
 the issuer must take reasonable steps to verify that the purchasers of the securities
are accredited investors;
 all purchasers of securities must be accredited investors, either because they
come within one of the enumerated categories of persons that qualify as accredited
investors or the issuer reasonably believes that they qualify as accredited
investors, at the time of the sale of the securities; and
 the conditions of Rule 501 and Rules 502(a) and 502(d) are satisfied.
This is MoFo.
44
Title II: SEC Proposal (cont’d)
 “Reasonable efforts” to verify investor status may differ depending
on the facts and circumstances, and the SEC provides the following
non-exhaustive list of factors that may be appropriate to consider:
 The nature of the purchaser. The SEC describes the different types of accredited
investors, including broker-dealers, investment companies or business
development companies, employee benefit plans, and wealthy individuals and
charities.
 The nature and amount of information about the purchaser. Simply put, the SEC
states that “the more information an issuer has indicating that a prospective
purchaser is an accredited investor, the fewer steps it would have to take, and vice
versa.”
 The nature of the offering. The nature of the offering may be relevant in
determining the reasonableness of steps taken to verify status, i.e., issuers may be
required to take additional verification steps to the extent that solicitations are
made broadly, such as through a website accessible to the general public, or
through the use of social media or email. By contrast, less intrusive verification
steps may be required to the extent that solicitations are directed at investors that
are pre-screened by a reliable third party.

This is MoFo.
45
Title II: SEC Proposal (cont’d)
 The SEC confirmed the view that Congress did not intend to
eliminate the existing “reasonable belief” standard in Rule 501(a) of
the Securities Act or for Rule 506 offerings.
 It confirmed that if a person were to supply false information to an issuer claiming
status as an accredited investor, the issuer would not lose the ability to rely on the
proposed Rule 506(c) exemption for that offering, provided the issuer “took
reasonable steps to verify that the purchaser was an accredited investor and had a
reasonable belief that such purchaser was an accredited investor.”
 The SEC also proposed to add a separate check box for issuers to
indicate whether they are claiming an exemption under Rule 506(c).
 The SEC confirmed that privately offered funds can make a general
solicitation under amended Rule 506 without losing the ability to rely
on the exclusions from the definition of an “investment company”
available under Section 3(c)(1) and 3(c)(7) of the Investment
Company Act.
This is MoFo.
46
Title II: SEC Proposal (cont’d)
 In addition to the proposed changes to Rule 506, the SEC proposed
to amend Rule 144A to eliminate references to “offer” and “offeree,”
and thus require only that the securities are sold to a QIB or to a
purchaser that the seller and any person acting on behalf of the
seller reasonably believe is a QIB.
 Under this proposed amendment, resales of securities pursuant to
Rule 144A could be conducted using general solicitation, so long as
the purchasers are limited in this manner.
This is MoFo.
47
Title II: SEC Proposal (cont’d)
 Some of the comments which have been submitted call on the
Commission to, among other things, adopt the Dodd-Frank –
mandated bad actor rules at the same time the changes to Rule 506
are adopted, impose restrictions on the form and content of general
solicitation materials, and establish a non-exclusive safe harbor with
respect to the reasonable steps to verify requirement.
 Other commenters have suggested that the SEC should review the
definition of “accredited investor” and consider an investments held
standard, or a financial literacy standard.
This is MoFo.
48
Likely Impacts of Title II Changes
 Assessing the impact of the changes:
 Rule 506 rulemaking may have the most significant impact on private offerings by
funds
 Private offerings by private companies likely to be affected
 Private offerings by already public companies, or PIPE transactions, unlikely to be
affected
 Rule 144A offerings unlikely to be impacted
This is MoFo.
49
Matching Platforms
 Title II clarifies that persons who maintain certain online or other
platforms to conduct Rule 506 offerings that will use general
advertising or general solicitation will not, by virtue of this activity, be
required to register as a broker or a dealer pursuant to Section 15 of
the Exchange Act, provided that certain specified conditions are
satisfied.
 In order not to be subject to registration as a broker-dealer, these
matching services or platforms must not receive transaction–based
compensation, take possession of customer funds or securities, or
participate in documentation.
This is MoFo.
50
Title II: FAQs
 On February 5, 2013, the SEC Division of Trading & Markets
published a FAQs to address the matchmaking site provisions
 Provides clarifications:
 A platform cannot permit an issuer to conduct a general solicitation in a Rule 506
offering until the SEC rules are finalized
 SEC staff interprets “compensation” broadly (not just transaction-based
compensation)
 Co-investment in securities is permitted
 A venture fund may operate a matchmaking site
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Title III
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JOBS Act - Crowdfunding
Crowdfunding
Entrepreneur
The
“Crowd”
Funding Portal or Broker
$$$
$$$
• An “all or none” offering.
• No limits on the number or sophistication of investors.
• Issuer information (including financial information) required.
• All offering activities must be conducted through an intermediary.
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Crowdfunding
 Title III provides an exemption that could apply to crowdfunding offerings, to
be implemented by SEC rules adopted within 270 days.
 The aggregate amount sold to all investors by the issuer, including any
amount sold in reliance on the exemption during the 12-month period
preceding the date of the transaction, is not more than $1,000,000.
 The aggregate amount sold to any investor by the issuer, including any
amount sold in reliance on the exemption during the 12-month period
preceding the date of the transaction, does not exceed:
 The greater of $2,000 or 5 percent of the annual income or net worth of the
investor, as applicable, if either the annual income or the net worth of the investor
is less than $100,000; or
 10 percent of the annual income or net worth of an investor, as applicable, not to
exceed a maximum aggregate amount sold of $100,000, if either the annual
income or net worth of the investor is equal to or more than $100,000.
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Crowdfunding (cont’d)
 The transaction must be conducted through a broker or “funding
portal.”
 Information will be filed and provided to investors regarding the
issuer and offering, including financial information based on the
target amount offered.
 The provision would prohibit issuers from advertising the terms of the
exempt offering, other than to provide notices directing investors to
the funding portal or broker, and would require disclosure of amounts
paid to compensate solicitors promoting the offering through the
channels of the broker or funding portal.
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Crowdfunding (cont’d)
 Issuers relying on the exemption would need to file with the SEC and
provide to investors, no less than annually, reports of the results of
operations and financial statements.
 A purchaser in a crowdfunding offering could bring an action against
an issuer for rescission in accordance with Section 12(b) and Section
13 of the Securities Act, as if liability were created under Section
12(a)(2) of the Securities Act, in the event that there are material
misstatements or omissions in connection with the offering.
 Securities sold on an exempt basis under this provision would not be
transferrable by the purchaser for a one-year period beginning on the
date of purchase, except in certain limited circumstances.
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Crowdfunding (cont’d)
 The exemption would only be available for domestic issuers that are
not reporting companies under the Exchange Act and that are not
investment companies, or as the SEC otherwise determines is
appropriate.
 Bad actor disqualification provisions similar to those required under
Regulation A would also be required for exempt crowdfunding
offerings.
 Funding portals would not be subject to registration as a brokerdealer, but would be subject to an alternative regulatory regime,
subject to SEC and SRO authority, to be determined by rulemaking
by the SEC and SRO.
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Crowdfunding (cont’d)
 A funding portal is defined as an intermediary for exempt
crowdfunding offerings that does not:
 offer investment advice or recommendations;
 solicit purchases, sales, or offers to buy securities offered or displayed on its
website or portal;
 compensate employees, agents, or other persons for such solicitation or based on
the sale securities displayed or referenced on its website or portal;
 hold, manage, possess, or otherwise handle investor funds or securities; or
 engage in other activities as the SEC may determine by rulemaking.
 The provision preempts state securities laws by making exempt
crowdfunding securities “covered securities,” however, some state
enforcement authority and notice filing requirements would be
retained.
 State regulation of funding portals would also be preempted, subject
to limited enforcement and examination authority.
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Intermediary Comparison
Broker-Dealer
Funding Portal
Regulatory Environment
Well-established SEC and
FINRA rules regarding
registration and ongoing
obligations
To be-established SEC
and FINRA rules regarding
registration and ongoing
obligations.
Conduct of Business
Handling customer funds
and securities, making
recommendations,
compensating for sales of
securities, etc.
Restrictions on activities
traditionally considered to
be those of a brokerdealer.
Costs
Significant registration
costs, as well as ongoing
compliance costs
Expected to be less
ongoing obligations, thus
less costs involved.
Availability of
Crowdfunding Exemption
Available for issuers using
broker-dealer’s platform.
Available for issuers using
funding portal’s platform.
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Title IV
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Title IV: Offering Exemption
 The JOBS Act establishes a new offering exemption similar to
Regulation A.
 Under the exemption, an issuer will be able to offer and sell up to
$50 million in securities within a 12-month period without Securities
Act registration. The issuer may offer equity securities, debt
securities, and debt securities convertible or exchangeable for equity
interests, including any guarantees of such securities.
 The SEC Staff is working on proposed rules, although there is no
deadline in the JOBS Act for these rules.
 Legislation has been introduced that would set an implementation
deadline for SEC action
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Comparative Overview
REGULATION A
EXEMPT PUBLIC OFFERING
SECTION 3(B)(2)
EXEMPT PUBLIC OFFERING
Offering Limit
Up to $5 million within the prior 12month period.
Up to $50 million within the prior 12month period.
SEC Filing
Requirements
Must file with the SEC a Form 1-A,
which is reviewed by the SEC Staff.
Must file with the SEC and distribute
to investors an offering statement,
which will likely be reviewed by the
SEC Staff.
Blue Sky
Requirements
Blue sky law compliance is required,
without in many cases the possibility for
a more streamlined “registration by
coordination” process.
Blue sky law compliance is
required, except when the securities
are offered and sold on a national
securities exchange, or the
securities are offered or sold to a
qualified purchaser.
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Comparative Overview (cont’d)
REGULATION A
EXEMPT PUBLIC OFFERING
SECTION 3(B)(2)
EXEMPT PUBLIC OFFERING
Limitations on
Investors
No limits on investors, except to the
extent imposed under state laws.
No limits on investors, except to the
extent imposed under state laws.
Restrictions on
Resale of
Securities
No restrictions on the resale of
securities, except to the extent that the
securities are held by affiliates.
No restrictions on the resale of
securities, except to the extent that
the securities are held by affiliates.
Offering
Communications
An issuer may “test the waters” to
determine if there is interest in a
proposed offering prior to filing the
Form 1-A. Sales literature may be
used before the filing of the Form 1-A,
after filing, and following qualification.
An issuer may “test the waters” to
determine if there is interest in a
proposed offering prior to filing an
offering statement.
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Comparative Overview (cont’d)
REGULATION A
EXEMPT PUBLIC OFFERING
SECTION 3(B)(2)
EXEMPT PUBLIC OFFERING
Financial
Statement
Requirements
A current balance sheet, as well as
income statements for a period of two
years, as well as any interim period.
Financial statements must be prepared
in accordance with GAAP but do not
have to conform to Regulation S-X and,
in most cases, do not have to be
audited.
Audited financial statements must
be included in the offering
statement, as determined by the
SEC.
Disqualification
Provisions
Felons and bad actors disqualified from
the offering in accordance with
Securities Act Rule 262.
Felons and bad actors disqualified
from the offering in accordance with
rules adopted under Section 926 of
the Dodd-Frank Act.
Periodic
Reporting
No reporting required after the offering,
other than to disclose the use of
proceeds.
Audited financial statement must be
filed and provided to investors
annually, and the SEC may require
other periodic disclosures.
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Titles IV: Section 3(b)(2) offerings
 Likely that the SEC staff will incorporate the existing Regulation A
framework into Section 3(b)(2)
 Section 3(b)(2) offerings may be used:
 By private issuers who seek to remain non-reporting, or
 By private issuers as a smaller IPO, in conjunction with an exchange listing
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GAO Study of Regulation A
 The JOBS Act directed the GAO to undertake a study concerning the
factors impeding greater use of currently Regulation A.
 The GAO study examines trends in Regulation A offerings, noting
that the number of offerings increased from 1992 through 1997.
 Since 1997, however, the number of Regulation A offerings has
declined.
 The study notes that issuers have tended to favor Regulation D
offerings.
 Unless the SEC’s rules, and the approach implemented by state
regulators, are clear and practical, issuers may continue to favor
Regulation D.
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Title V and VI
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Titles V and VI: Thresholds
 The SEC’s April 11, 2012 FAQs provided that these provisions were
immediately effective, so issuers were able to avail themselves of the
higher thresholds for registration and deregistration (only for banks
and bank holding companies) upon effectiveness of the Act.
 The SEC has provided no-action relief to banks seeking to exit the
reporting system given the higher holder of record level specifically
applicable to banks and bank holding companies.
 The Staff has indicated that it is actively working on
recommendations for a rule that would establish when securities
obtained in an employee benefit plan can be excluded when
counting the number of holders of record.
 Legislation proposed to correct inadvertent omission of savings and
loan associations in the JOBS Act provisions
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SEC Report on Rule 12g5-1(b)(3)
 On October 16, 2012 the Staff of the SEC published a study
assessing whether the SEC has sufficient tools to enforce the antievasion provisions of Section 12g5-1(b)(3).
 The study concludes that the statutes, rules and procedures as
currently formulated provide the Division of Enforcement with
sufficient tools to investigate and bring a case for Section 12(g)
violations based on Rule 12g5-1(b)(3).
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Next Steps
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Looking ahead
 SEC to finalize Rule 506 rulemaking, likely in conjunction with
finalizing the bad actor provisions
 SEC to propose crowdfunding rules
 Continued discussion regarding the “accredited investor” standard
 Discussion of disclosure accommodations for smaller public
companies and potentially revamping S-K
 Reporting for companies that are OTCBB or that have securities
traded in a private secondary market
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