An issuer with equity securities that are publicly traded often seeks to use its equity securities as consideration in an acquisition of another business. If the target business is privately held, the acquirer may seek to privately place the equity securities with the owners of the target rather than registering the securities due to the lead-time required for the registration process or for other reasons. The following discussion addresses many of the securities law issues that public companies should consider when using privately placed equity as acquisition currency, including a discussion of upcoming changes in the private placement landscape precipitated by the Jumpstart Our Business Startups Act (“JOBS Act”), signed into law by President Obama on April 5, 2012.
Securities Regulation
Division of Corporation Finance Announces Temporary Procedure for Confidential Submission of Draft Registration Statements
On April 5, 2012, shortly after President Obama signed the Jumpstart Our Business Startups (JOBS) Act into law, the Division of Corporation Finance of the Securities and Exchange Commission announced the procedure that an Emerging Growth Company (EGC) should follow for the confidential submission of its draft registration statement, as permitted under Sec. 106(a) of the JOBS Act, until the Division implements a system for electronic submission. An EGC should submit one copy of its draft registration statement in a text searchable PDF file on CD/DVD or, alternatively, submit it in paper (without staples or binding), together with a transmittal letter in which the company confirms its EGC status, to:
Jumpstart Our Business Startups (JOBS) Act Changes the Public and Private Capital Markets Landscape
On March 27, 2012, the House passed the Jumpstart Our Business Startups Act (“JOBS Act”), as amended and passed by the Senate on March 22. It is widely anticipated that President Obama will quickly sign the JOBS Act into law.
U.S. House Passes Bill Reforming IPO Process for Smaller Companies
On March 8, 2011, the House of Representatives approved the JOBS (Jumpstart Our Business Startups) Act by a vote of 390 to 23. The JOBS Act is a package of six bills aimed at reviving the market for initial public offerings and other financing options for smaller companies by easing the rules governing capital formation in an effort to encourage private-sector job creation.
SEC Staff Grants No-Action Letter Excluding Proxy Access Shareholder Proposal
In a significant decision, the staff of the Securities and Exchange Commission today issued a no-action letter concurring that a proxy access shareholder proposal could be excluded from a company’s proxy materials under Rule 14a‑8. The proposal, submitted to Textron Inc. by John Chevedden on behalf of Kenneth Steiner, requested adoption of a bylaw amendment permitting shareholders to include in the company’s proxy materials director candidates nominated by any shareholder(s) that had continuously held one percent of the company’s voting securities for two years or by any group of shareholders “of whom one hundred or more satisfy SEC Rule 14a‑8(b) eligibility requirements.
Final SEC Conflict Minerals Rules Delayed
Contrary to the expectations of many that the SEC would imminently release its final conflict minerals rules, on March 6, 2012, at a hearing before the House Committee on Appropriations on the SEC fiscal year 2013 budget request, SEC Chairman Schapiro indicated that the rules will not be adopted until “the middle of the year.” Schapiro stated that the SEC needs “the next couple of months” to complete the rules as the conflict minerals rulemaking is “so complex” and “so out of the ordinary for the SEC.
ISS Extends Deadline for GRId 2.0 Data Confirmation and Release
Institutional Shareholder Services (ISS) announced today that it has extended the deadline for companies to review their updated GRId 2.0 data and submit corrections before GRId 2.0 is implemented. The deadline was previously Thursday February 23, 2012, at 8pm Eastern Time. The updated deadline is now Monday, February 27, 2012, at 8pm Eastern Time. ISS has also announced that the updated GRId scores will now be released on Monday, March 5, 2012, instead of the previously announced date of February 27, 2012.
SEC Provides Guidance on Say-on-Pay Description Language
On February 13, 2012, the Securities and Exchange Commission provided guidance on how a company should describe its advisory vote to approve executive compensation that is required by Rule 14a-21 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), on its proxy card and voting instruction form. While the interpretation specifically addresses only the phrasing on the proxy card, best practice is to use the same terminology when identifying the voting item within the proxy statement. The guidance was provided under Compliance and Disclosure Interpretation (“C&DI”) Question 169.07 and stated the following:
Form 13H Filing Requirements for “Large Traders”
Under new SEC Rule 13h-1, entities and natural persons must register with the SEC ten (10) days after becoming “large traders,” as defined in the rule. The initial filing of Form 13H was due by December 1, 2011 for entities and natural persons who were large traders on or after the rule’s October 3, 2011 effective date. Rule 13h-1(b)(1) also requires all large traders to file an annual Form 13H 45 days after each full calendar year-end, unless they have filed for inactive status, and no later than the end of any calendar quarter if the information on the form becomes stale.
Amendments to Form 10-K and 10-Q
Effective Friday, January 27, 2012, Form 10-K was amended by changing the heading for Part I, Item 4 to read “Mine Safety Disclosures.” Similarly, Part II, Item 4 of Form 10-Q was amended in the same manner. Previously, these item headings had read, “Removed and Reserved,” but as the new headings indicate they will now be used to provide disclosures required under Section 1503 of the Dodd-Frank Act. Amendments were also made to Form 20-F and Form 40-F to provide for disclosures by foreign issuers. The substantive disclosure requirements for these items consists only of a statement whether, if applicable, disclosures required under Section 1503 of the Dodd-Frank Act and under newly adopted Item 104 of Regulation S-K are included as an exhibit to the filing. Those disclosures apply only to an issuer that is an operator, or that has a subsidiary that is an operator, of a coal or other mine covered by the Federal Mine Safety and Health Act of 1977, and require information regarding specified health and safety violations, orders and citations, related assessments and legal actions, and mining-related fatalities. The Commission estimated that only approximately 100 issuers filing Form 10-K will be required to provide the disclosures called for by the new provisions. All other issuers can state that the item is “not applicable,” but will want to note the change in the item headings for their filings.