The 2012 JOBS Act:
Changing the Way Companies
Raise Capital
Thursday June 7, 2012
7:15 a.m. - 9:00 a.m.
The Houstonian Hotel, Club & Spa
111 North Post Oak Lane
Houston, Texas 77024
Today’s Presenters
Brian Fenske
Partner, Houston
Fulbright & Jaworski L.L.P.
bfenske@fulbright.com
+1 713 651 5557
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Brian focuses on corporate, securities and transactional
matters.
Serves as securities counsel for a number of public
companies and also regularly represents pre-public start
ups and emerging growth companies.
He recently completed IPOs for Rosetta Stone Inc. and
RigNet Inc. Brian’s full bio can be viewed at
www.fulbright/bfenske
Today’s Presenters
Gerry Pecht
Partner, Houston
Fulbright & Jaworski L.L.P.
gpecht@fulbright.com
+1 713 651 5431
• Gerry is the chair of Fulbright’s Securities Litigation,
Investigations and SEC enforcement group.
• He concentrates his practice in the area of securities litigation
and SEC enforcement, Director and Officer liability and
internal corporate investigations.
• His clients include private equity, venture capital, reporting
companies, Directors and Officers, technology companies,
and emerging growth companies.
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Today’s Presenters
Chuck Powell
Partner, Houston
Fulbright & Jaworski L.L.P.
cpowell@fulbright.com
+1 713 651 5431
• Chuck handles venture capital, angel capital, private
equity financings and public offerings.
• His clients are venture capital funds and technology
companies, including businesses involved in the energy
technology, life science and information technology
industries.
• Chuck has closed over 320 seed, angel, venture capital,
private equity and IPO transactions ranging from $500,000 to
$600,000,000.
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Today’s Presenters
Peter Stokes
Partner, Austin
Fulbright & Jaworski L.L.P.
pstokes@fulbright.com
+1 512 536 5287
• Peter has spent his entire career representing clients in securities
lawsuits and enforcement matters.
• He has substantial experience defending clients against shareholder
class and derivative lawsuits including financial restatements, mergers
and acquisitions, going private transactions, auction rate securities, IPO
litigation, tender offers and cases involving allegations of GAAP
violations, insider trading, antitrust and regulatory violations, "channel
stuffing," illegal short sales and breaches of fiduciary duty.
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Significance of JOBS Act
™ Less legal burdens on private offerings
• Raise up to $50 million through Reg A
™ Easier to go public
™ Significant cost savings for IPO process
™ Issuers can determine investor interest before filing
™ Confidential initiation of SEC registration process
™ Streamlined financial statements
™ On-ramp period provides newly public companies
transitional relief from more costly requirements
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JOBS Act
™ GOAL OF JOBS ACT
• Mitigate burdens on smaller companies
(i.e., emerging growth companies)
seeking to raise money and create
employment
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JOBS Act
™THE JOBS ACT IS ONLY A STARTING
POINT
• SEC required to issue rules
implementing legislative changes
• Until new rules are issued the old
legislative/regulatory regime is in place
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JOBS Act
™ IMPORTANT DATES
• July 4, 2012 - regulations issued to Rules 506 and
144A
• December 31, 2012 - crowdfunding exemption and
crowdfunding intermediaries regulations issued
• SEC’s regulations will provide additional
information regarding the utilization of the JOBS Act
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Warning
™ JOBS ACT decreases regulatory
burdens but it does NOT decrease the
liability for false statements
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Warning
™ IMPACT ON (NON) PRIVATE
PLACEMENTS
• The current prohibition on “general solicitation”
is eliminated (along with the uncertainties of that
phrase).
• Eliminates rescission risk
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Important Change
If all purchasers are accredited investors
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Currently: an issuer must reasonably believe
an investor is accredited
New requirement: the issuer must take
reasonable steps to verify accredited
investor status
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New Regulation A+
™ IPO LITE
• Aggregate amount of securities issued
capped at $50 million in a 12month period
ƒ SEC may increase this amount
at 2 year intervals
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New Regulation A+ (Continued)
™Securities issued will not be restricted
securities subject to regulatory holding
period
™Reg A securities will no longer be subject
to state blue sky laws (except state antifraud rules)
™Eligible securities: equity, debt, debt with
equity conversions and certain guarantees
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SEC Rulemaking to come
What to look for:
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Scope of offering documents;
Exclusions of certain securities;
Disqualification (“bad actor”) provisions
Definition of “qualified purchaser”; and
Pre-offering solicitation requirements.
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What is Crowdfunding?
Use of social media and internet to raise small amounts of
capital from a relatively large base of participants
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Issuer cap: $1 million in preceding 12 months
Investor cap: greater of $2,000 or 5% of annual
income or net worth (if net worth or annual
income less than $100,000)
OR
10% of investor’s annual income or net worth not to exceed $100,000 (if net worth or income is
at least $100,000)
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Crowdfunding
™ IMPORTANT: Cap applies to all
investments for an individual in the 12month period
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Crowdfunding
Limitations on offers and sales:
• Must be sold through a crowd funding
intermediary - a broker or through a
qualified funding portal
Align What is crowd funding portal?
• Cannot recommend securities or offer such
advice
• Cannot manage or hold funds
• Cannot be compensated for sale of securities
so listed on portal
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Crowdfunding Disclosure Obligations
™ DISCLOSURE BURDENS
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Issuer must make substantive disclosures to SEC,
investors and relevant broker or funding portal
Level of disclosure increases by amount of money
raised, e.g., if more than $500,000 need to provide
audited financial statements
Updates on status of achieving offering amount
Identify larger shareholders (those owning more than
20% of a class of stock)
Valuation methodologies
Annual results of operations
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Crowdfunding (Other Issues)
NOTE: shares sold via crowdfunding have limited
regulatory liquidity for 12 months
• Personal liability for misstatements and rights of
rescission
• Crowdfunding securities are exempt from state
blue sky law (except anti-fraud)
• Downsides for corporate activities with an
investor base of non-accredited investors
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Staying Private Longer
™ Old Rule: companies limited to 500
shareholders of one class
™New Rule: companies limited to 2,000
shareholders of one class or 500
non-accredited record holders
™If a company goes over these limits it has to
begin making public company filings
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IPO On-Ramp Legislation
™Jobs Act consists of six separate bills
™Title I is IPO on-ramp bill
™Title I provisions are generally effective
immediately (retroactive to Dec. 9,
2011), but expect SEC rulemaking to
clarify some items
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IPO On-Ramp:To Whom it Applies
™IPO on-ramp legislation applies to
Emerging Growth Companies
™Defined as companies with gross annual
revenue of less than $1 billion during their
most recently completed fiscal year
(indexed for inflation every five years)
™Probably includes about 90% of IPOs
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Emerging Growth Companies
™Can maintain EGC status until last day of
fiscal year after 5th anniversary of IPO
™Lose status if (i) achieve market cap of $700
million or more held by non-affiliates (large
accelerated filer), (ii) annual gross revenues
exceed $1 billion, or (iii) issue more than
billion in debt any three year period
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Testing the Waters
™ EGCs can make offers to Qualified Institutional
Buyers or Institutional Accredited Investors before or
during registration process
™ Allows EGCs to determine market interest before
starting roadshow
™ Applies to issuers and “any person authorized to act
on behalf of issuer” – that will likely require SEC
interpretation and/or change in underwriting
agreement practice
™ SEC staff has indicated they may want to see any
written “test-the-waters” materials
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Confidential SEC Filings
™ EGCs allowed to file registration statement
confidentially via a new email system
™ Removes disincentive about disclosing confidential
information if unsure IPO will be successful
™ No filing fee or officer or director signatures or
consents required (but do need signed audit report)
™ Must publicly file initial submission and all
amendments at least 21 days before road show (must
include all filing fees, consents and signatures)
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Contents of Confidential EGC
Registration Statements
™Early SEC comments have required:
• Description of when issuer may lose EGC status;
• Brief description of the various new EGC
exemptions;
• Disclosure regarding the EGC’s election regarding
extended new or revised accounting standards
(discussed below), including that the EGC’s
financials may not be comparable to those of nonEGCs if it makes the election.
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Financial Statements
™ EGCs may go public with only two years of audited
financials rather than three
™ Three year phase in to current requirements – add
one year of financials each year
™ By end of three years, issuer will have three years of
audited financials and two additional years of
selected financial data
™ Selected financial data, which requires five years of
financial data for non-EGCs, can be limited to two
years
™ MD&A can also be limited to those two years
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Analyst Research
™ Analysts can now issue research on EGCs before, during
and after IPO (FINRA rules may limit)
™ More flexibility for bankers to be involved in arranging
communications between investors and analysts and for
investment bankers to be present when analysts meet with
company management
™ Global Settlement restricts these practices so only smaller
banks not part of the settlement may currently take
advantage of some of these changes
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Executive Compensation Disclosure
™Three, rather than five, named executive
officers
™Two, rather than three, years of compensation
data
™No compensation discussion and analysis
narrative
™Abbreviated tables
™Abbreviated change of control disclosure
™No disclosure of compensation policies and
practices related to risk management
Other IPO On-Ramp Elements
™ These items are phase-in rules exempting EGCs for
up to five years after IPO unless lose EGC status
• Exempt from having to have audit of internal controls
for up to five years
• Exempt from say-on-pay, say-on-frequency, say-ongolden parachutes, pay-for-performance graph and
CEO pay ratio disclosure
• Can elect to follow private company phase in for new
GAAP requirements (must make irrevocable election
that applies to all new GAAP requirements)