Yesterday the U.S. Court of Appeals for the D.C. Circuit heard oral argument in a suit challenging the SEC’s conflict minerals rules, which were mandated under the Dodd-Frank Act and issued by the SEC on August 22, 2012. The case came to the D.C. Circuit on appeal from a July 2013 district court decision upholding the SEC’s rules. The rules had been challenged by the National Association of Manufacturers, the U.S. Chamber of Commerce and the Business Roundtable (the “Appellants”).
SEC Proposes Rules to Implement “Regulation A-Plus” Exemption Under the JOBS Act
The Securities and Exchange Commission today proposed rules to implement a new exemption from registration for securities offerings made pursuant to Section 3(b)(2) of the Securities Act of 1933 (Securities Act), as mandated by Section 401 of the Jumpstart Our Business Startups Act (JOBS Act). This new offering exemption is commonly referred to as “Regulation A-Plus.
SEC Corp Fin Staff Issues “Bad Actor” Rule Compliance and Disclosure Interpretations
On December 4, 2013, the Staff of the SEC’s Division of Corporation Finance issued new Compliance and Disclosure Interpretations (C&DIs) providing guidance on rules recently adopted by the SEC that prohibit certain felons and other “bad actors” from participating in private securities offerings that rely on Rule 506 of Regulation D under the Securities Act of 1933 (Securities Act). The rule generally applies to the issuer, certain third parties that participate in the offering, and certain controlling persons, officers and affiliates of the issuer and such third parties (covered persons).
NASDAQ Amends New Compensation Committee Independence Criteria to Provide Flexibility
The NASDAQ Stock Market LLC (“NASDAQ”) has amended its new rules on compensation committee independence to provide additional flexibility for committee members to meet the independence criteria. As a result of the amendment, NASDAQ rules will no longer prohibit a director from serving on a listed company’s compensation committee if the director receives fees from the company. Instead, boards must consider any fees in determining whether a director is eligible to serve on the committee. This change provides additional flexibility for companies and aligns NASDAQ’s compensation committee independence criteria with those of the New York Stock Exchange (“NYSE”).
SEC Corp Fin Staff Issues General Solicitation Interpretations Under the JOBS Act
On November 13, 2013, the Staff of the SEC’s Division of Corporation Finance issued new Compliance and Disclosure Interpretations (C&DIs) providing guidance on recent rule amendments lifting the ban on general solicitation in securities offerings made pursuant to Rule 506(c) of Regulation D under the Securities Act of 1933 (Securities Act) and Rule 144A under the Securities Act, as mandated by the Jumpstart Our Business Startups Act (JOBS Act).
ISS Opens Comment Period for 2014 Proxy Voting Policies
On October 22, 2013, Institutional Shareholder Services (“ISS”) announced two proposed changes to its 2014 U.S. proxy voting policy. ISS requested comments on the proposed changes, which can be submitted via e-mail to policy@issgovernance.com by November 4, 2013. ISS will take the comments into account when issuing its 2014 proxy voting policies. It is important to note that ISS’s final U.S. policy updates for 2014, which are expected to be released in November, may reflect additional changes beyond the two on which ISS has solicited comments.
SEC Proposes Crowdfunding Rules
Yesterday, the Securities and Exchange Commission (the “SEC”) held an open meeting to approve the release of proposed crowdfunding rules implementing Title III of the 2012 Jumpstart Our Business Startups Act (the “JOBS Act”). Once the SEC adopts final implementing rules, the crowdfunding exemption contained in Section 4(a)(6) of the Securities Act of 1933 (the “Securities Act”) will allow U.S. private companies (primarily startups and small businesses) to raise up to $1 million in any 12-month period from pools of small investors without registration under the Securities Act. The fundraising will be required to be conducted through a registered intermediary—either a registered broker or an online “funding portal.” While the SEC missed the December 31, 2012 deadline to adopt implementing rules, it now appears to be moving ahead full speed with the proposed rulemaking.
Vanguard Proactively Reaching Out to Companies to Address Governance Concerns
In anticipation of the 2014 proxy season, Vanguard is sending letters to approximately 350 companies to proactively engage with them on governance issues. The letters are tailored to the individual companies and identify governance practices at the companies that Vanguard believes are not in line with what Vanguard views as best practices.
Private Placement of Publicly Traded Equity Securities as Consideration in an M&A Transaction after the JOBS Act
In April 2012, we wrote here about the potential future impact of the Jumpstart Our Business Startups Act (“JOBS Act”) on M&A transactions in which an acquirer seeks to issue its privately placed equity securities as consideration in an acquisition. Our discussion at the time focused on the conditions of Rule 506 of Regulation D under the Securities Act of 1933 (the “Securities Act”) and, in particular, the tension faced by issuers that are required to determine the offerees’ status as “accredited investors” or as otherwise suitable to evaluate the potential investment. We noted that such issuers have historically been prohibited from using any form of “general solicitation” when offering securities in such transactions. Subsequently, in July 2013, the SEC adopted final rules (effective September 23, 2013) to eliminate the absolute prohibition against general solicitation in securities offerings conducted pursuant to Rule 506, as required by Section 201(a) of the JOBS Act (Gibson Dunn’s summary and analysis of the rules may be found here). The following discussion updates our earlier post to address the legal and practical effects of these new rules for M&A transactions that include a private placement component.
SEC Staff Grants Request to Exclude Rule 14a-8 Shareholder Proposal Regarding Repayment of Student Loans
Gibson Dunn successfully represented DeVry Inc. in obtaining no-action relief from the SEC staff (the “Staff”) for the exclusion of a shareholder proposal requesting that DeVry “annually report to shareholders on the expected ability of students at Company-owned institutions to repay their student loans.” The shareholder proposal, which was submitted by the New York City Comptroller’s Office on behalf of several New York City pension funds, specified particular quantitative and other information to be included in the requested report. DeVry’s no-action request argued that DeVry could exclude the shareholder proposal under Rule 14a-8(i)(7) as relating to DeVry’s ordinary business operations because the proposal implicated decisions concerning product quality. The no-action request identified shareholder proposal precedents relating to the quality of products or services in other industries (such as beverages and banking) and pointed out that, similar to those precedents, the proposal at issue was focused on the quality of DeVry’s educational services. In a response letter dated September 6, 2013, the Staff concurred that the shareholder proposal could be excluded, noting that “the proposal focuses primarily on information the company should provide regarding the quality of its educational services” and that “[p]roposals that concern product quality are generally excludable under rule 14a-8(i)(7).” The Staff’s decision to grant DeVry’s no-action request is notable because the Staff had denied a no-action request earlier this year regarding an identical shareholder proposal submitted to another company. The earlier no-action request had also asserted that the proposal was excludable under Rule 14a-8(i)(7), but its reasoning focused on the proposal’s infringement of the company’s risk assessment practices and compliance with laws rather than on how the proposal implicated the quality of the company’s products or services. The Staff’s concurrence with DeVry’s no-action request highlights the importance of identifying the appropriate issue that may support exclusion of a shareholder proposal, exploring and addressing any precedents and clearly articulating the reasons for which the proposal implicates a particular basis for exclusion.