Category Archives: SEC Regulations

Reg A+ it and they will come. Kinda sorta.

Excellent recap of Reg A+ in the WSJ.

“According to the Securities and Exchange Commission, 94 companies had filed to raise a total of $1.7 billion under Reg A+ as of early June. Of those, 45 offerings seeking to raise a total of $785 million have qualified to raise funds, and just a few have actually completed their offerings.

The low tally highlights some of the challenges that small companies continue to face, as well as the JOBS Act’s limited progress in achieving its objectives. But the weak market for initial public offerings hasn’t helped.

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Among the biggest problems for the companies trying to raise funds is that they aren’t prepared for the amount of marketing needed to attract a big enough pool of potential investors.”

That last paragraph is the most germane to this blog. Vintage is the #1 Reg A+ filing agent, by far. We’ve seen our share of companies file their 1-A… and many have yet to meet their expectations. And that word – expectations – is certainly where the problem may lay. RegA+ is just a year old. To imagine seasoned “players” to walk out of the corn is not the expectation to set. RegA+ is NOT the new shell or reverse merger… there is no “get-rich-quick” path here. It’s called a mini-IPO for a simple reason – it requires the same business fortitude found with traditional IPO (form S-1) event.

That said, let’s look at a year by the numbers:

  • 94 companies
  • $1.7 billion
  • 5 offerings qualified
  • A few have actually completed their offerings

94 companies is one every 2.75 business days! $6,500,000 raised every business day! That seems like great progress for a one-year-old!   It’s much too soon to judge a “completion” rate – as he vast amount of variables that propel any company’s success is vast: marketing, management, products and promise. But the top of the funnel is strong.

Coincidentally, (ahem) one company that is the poster child for Reg A+ success is presenting live today to an audience of live, online investors at virtualinvestorconferences.com.

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Elio Motors has put all the right pieces in place for a successful Reg A+ IPO, but most essentially, marketing. One example is they reached into their database of enthusiastic motor-fans to create “investomers.” Learn more, free. Their CEO is presenting live at 1:00 PM ET.

Following in Elios’ marketing footprint (but presenting 45 minutes earlier ) is ShiftPixy. You can read their offering prospectus here.

To close out using more baseball metaphors, a Reg A+ filing was not built to be a home run. At best, it’s a base hit – and management needs to work diligently to bring the “mini-IPO” runner home, base by base, communication by communication. Reg A+ is less expensive than a normal IPO, but NOT less effort.

Interested in the Reg A+ process? DOWNLOAD our worksheet here.

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SEC proposes new S-K regulation for mining companies’ disclosures

The SEC offered rules to reform Regulation S-K in regard to the property disclosure requirements for mining companies.

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On June 16, 2016, the SEC announced the proposed rules will support global mining disclosure standards and “give investors more comprehensive information of a registrant’s mining properties that they can use to make informed investment decisions.”

PER THE SEC, the new ruling will:

  • Provide one standard that requires registrants to disclose mining operations that are material to the company’s business or financial condition
  • Require a registrant to disclose mineral resources and material exploration results in addition to its mineral reserves
  • Permit disclosure of mineral reserves to be based on a preliminary feasibility study or a final feasibility study
  • Provide updated definitions of mineral reserves and mineral resources
  • Require, in tabular format, summary disclosure for a registrant’s mining operations as a whole as well as more detailed disclosure for material individual properties
  • Require that every disclosure of mineral resources, mineral reserves and material exploration results reported in a registrant’s filed registration statements and reports be based on, and accurately reflect information and supporting documentation prepared by, a “qualified person”
  • Require a registrant to obtain a technical report summary from the qualified person, which identifies and summarizes for each material property the information reviewed and conclusions reached by the qualified person about the registrant’s exploration results, mineral resources or mineral reserves

Investors, lawyers and corporations are invites to comment over the next 60 days. To submit comments, use the SEC’s Internet submission form or send an e-mail to rule-comments@sec.gov

The complete text of the Proposed Rules is available here.

TGIV! Vintage offers courtesy hardcopy of the SEC’s Concept Release on corporate disclosure modernization

If you work in investor relations, undoubtedly you’re beginning to study the SEC’s 341-page Concept Release that is studying corporate disclosure with fresh, 21st century eyes. Time will tell, but this seems very important. 

Fortunately, to ease your eyes from PC and/or tablet screen strain, Vintage is printing the Concept Release into a book. It’s still 341 pages but at least now you can read it with your feet up.

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http://e.prnewswire.com/SEC-Disclosure-Concept-Release.html


The SEC’s summary: 

“The Commission is publishing this concept release to seek public comment on modernizing certain business and financial disclosure requirements in Regulation S-K.”

Some of the 340 questions address these points:

  • Principles-based or prescriptive approach to disclosure rules
  • Provide disclosure “layers” to different audiences based on their needs
  • Line item over-disclosure on non-financial matters
  • The materiality of sustainability matters
  • Periodic report exhibit filing requirements of Regulation S-K
  • Scaling requirement by market-cap or sector
  • The fate of the 10-Q
  • Readability and navigability of disclosure documents
  • Recognizing how digital technology has changed the way in which investors consume information
  • For the next 90-days, the public can respond to 340 questions.

Read more here.

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The SEC and the discussion of modernizing corporate disclosure

Last week, the SEC issued a 341-page concept release looking for public views via questions about the disclosure requirements for “periodic reports” (including earnings).

The focus/goal is reforming both the actual content of corporate disclosures as well as the manner these disclosures are presented and delivered. The SEC first tickled these ideas at the end 2013 in their JOBS Act recommendations to Congress.

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The SEC’s summary: 

“The Commission is publishing this concept release to seek public comment on modernizing certain business and financial disclosure requirements in Regulation S-K.”

  • How (and if) specific disclosures are important or useful to making investment and voting decisions and whether more, less or different information might be needed
  • How (and if) we could revise our current requirements to enhance the information provided to investors while considering whether the action will promote efficiency, competition, and capital formation
  • How (and if) we could revise our requirements to enhance the protection of investors
  • How (and if) our current requirements appropriately balance the costs of disclosure with the benefits
  • How (and if) we could lower the cost to registrants of providing information to investors, including considerations such as advancements in technology and communications
  • How (and if) we could increase the benefits to investors and facilitate investor access to disclosure by modernizing the methods used to present, aggregate and disseminate disclosure

For the next 90-days, the public can respond to 340 questions sorted into three buckets:

  1. S-K disclosure framework
  2. Information for investment and voting decisions
  3. Presentation and delivery of important information

This discussion is fundamental to next-gen investor relations practitioners and, gulp, to service providers.

From ReedSmith LLP:

“The concept release re-examines some of the most basic foundations of the U.S. disclosure regime and raises fundamental questions about whether the materiality standard is still the best approach to crafting disclosure and whether public companies should write their disclosure for sophisticated, institutional investors rather than for the individual investor. All of the questions posed by the SEC consider the need to balance investor protection with the cost to public companies of preparing disclosure.”

Some of the 340 questions address these points:

  • Principles-based or prescriptive approach to disclosure rules
  • Provide disclosure “layers” to different audiences based on their needs
  • Line item over-disclosure on non-financial matters
  • The materiality of sustainability matters
  • Periodic report exhibit filing requirements of Regulation S-K
  • Scaling requirement by market-cap or sector
  • The fate of the 10-Q
  • Readability and navigability of disclosure documents
  • Recognizing how digital technology has changed the way in which investors consume information

I guess we know what will be on the agenda at the 2016 NIRI Annual Conference this June.

Experts from Vintage and McDermott Will & Emery to Teach Life Sciences Executives the Intricacies of Crowdfunding and SEC Regulation A+

Process and practical advice presentation at Life Science Nation hosted “Redefining Early Stage Investments” Conference on April 11, Houston, TX 

NEW YORK, APRIL 8, 2016 / Vintage, the capital markets, corporate services and institutional & fund services division of PR Newswire, is pleased to announce that their Vice President of Operations, Gordon Ruckdeschel, has joined a panel of industry experts to offer insight of the process and success of the SEC Regulation A+.

Ruckdeschel is a frequent presenter on the topic and is co-presenting with McDermott Will & Emery LLP partners, Eric Orsic, Chicago, and Gary Emmanuel, New York.

To watch an online, video presentation featuring Ruckdeschel and Orsic, please click here: http://e.prnewswire.com/mcdermott-vintage-rega-video.html

To watch an online, video presentation featuring Ruckdeschel and Orsic, please click here.

Agenda:

New Sources of Capital for Your Life Science Company

The SEC has just released the long awaited crowdfunding regulations on the heels of Regulation A+ that went effective in June. Together they create two new exciting pathways to raise capital for your growing life science company. Whether you are raising $1 million or up to $50 million, hear from experts who can guide you through the process with practical advice to see if these new alternatives are right for you. You’ll learn how to “Test the Waters” to assess potential investor interest, learn how to prepare the streamlined Form 1-A and how to create a market for your shares.

Ruckdeschel, Orsic and Emmanuel will be presenting at 11:00 am Central.

Learn about Reg A+ now 

To watch an online, video presentation featuring Ruckdeschel and Orsic, please click here: http://e.prnewswire.com/mcdermott-vintage-rega-video.html

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About Vintage

Vintage, a PR Newswire division, is a top-three provider of full-service regulatory compliance and shareholder communications services, delivered across our three practice areas: Capital Markets, Corporate Services and Institutional & Fund Services. Founded in 2002 and acquired by PR Newswire in 2007, Vintage has evolved to become the industry’s intelligent value choice. We deliver a flexible balance of people, facilities and technology to ensure that regulatory compliance and shareholder communications processes are efficient, transparent and painless. Services include IPO registrations, transactions, virtual data rooms, EDGAR & XBRL filing, typesetting, financial printing and investor relations websites.

About McDermott Will & Emery

McDermott Will & Emery is a premier international law firm with a diversified business practice. Numbering more than 1,100 lawyers, we have offices in Boston, Brussels, Chicago, Dallas, Düsseldorf, Frankfurt, Houston, London, Los Angeles, Miami, Milan, Munich, New York, Orange County, Paris, Rome, Seoul, Silicon Valley and Washington, D.C. Further extending our reach into Asia, we have a strategic alliance with MWE China Law Offices in Shanghai. http://www.mwe.com 

About PR Newswire

PR Newswire is the premier global provider of multimedia platforms that enable marketers, corporate communicators, sustainability officers, public affairs and investor relations officers to leverage content to engage with all their key audiences. Having pioneered the commercial news distribution industry over 60 years ago, PR Newswire today provides end-to-end solutions to produce, optimize and target content — from rich media to online video to multimedia — and then distribute content and measure results across traditional, digital, mobile and social channels. Combining the world’s largest multi-channel, multi-cultural content distribution and optimization network with comprehensive workflow tools and platforms, PR Newswire enables the world’s enterprises to engage opportunity everywhere it exists. PR Newswire serves tens of thousands of clients from offices in the Americas, Europe, Middle East, Africa and the Asia-Pacific region, and is a UBM plc company. 

Media Contact:
Bradley H. Smith
Director of Marketing, IR and Compliance Services
PR Newswire & Vintage
+1 201.942.7157

bradley.smith@prnewswire.com

Significance, materiality and the newly monikered “non-deal 8-K”

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Wednesday’s blog post on 8-Ks for M&A brought up an interesting discussion about materiality. Unlike IR’s “non-deal 8-k,” an 8-K for M&A can be determined by quantitative math-based triggers called significance tests.

M&A 8-Ks can be defined by the significance testing described in Rule 3-05 of Regulation S-X. Rather than “being material,” the results are referred to as “significant” and the end math affects the pro forma 8-K.

Investment test = purchase price ÷ acquirer total assets

Asset test = target total assets ÷ acquirer total assets

Income test = target pre-tax income ÷ acquirer pre=tax income

When the significance results of any of these tests is greater than 20%, pro forma financial statements will generally be required to be filed via an 8-K/A mentioned yesterday. For a deep dive on this, Sherman & Sterling is recommended reading.

“Non-deal 8-K” material triggered events include:

  • Entering into amending or terminating a material contract
  • Material dispositions
  • The disclosure of quarterly or annual financial results
  • Material financing arrangements
  • The acceleration of material financing obligations
  • Material exit or disposal activities (bankruptcy or receivership)
  • Delisting or noncompliance with a listing rule
  • Unregistered sales of the company’s equity securities
  • A change in accountants
  • A change in auditors
  • A change in compensation of certain officers
  • A determination that the company’s previously issued financial statements should no longer be relied upon (restatement)
  • Changes in the board of directors
  • The appointment, retirement, resignation or termination of certain executive officers, or the entry into or amendment of a material compensatory arrangement with such officers
  • Charter and bylaw amendments
  • Amendments to or waivers of the company’s code of ethics
  • Voting results of shareholders’ meetings
  • Material debt incurred
  • Changes in control of the company

With some exceptions, 8-K are generally required to be filed with or furnished to the SEC within four business days after the occurrence of the event to be disclosed. RegFD defines the outer boundary for “prompt disclosure” to mean as soon as reasonably practical, but within 24 hours or by the start of the next day’s trading on the NYSE, regardless of where or whether the company’s stock is traded.

PS: a “non-deal 8-K” is not really a thing. It simply sounded more IR-ish than saying a “normal 8-K” in this blog post. 

 

How many 8-Ks are needed for the (average) M&A?

First off, not all acquisitions require an 8-K. That’s a different discussion on event materiality and their triggers. That advice is wisely served by securities lawyers who have a solid background in understanding the SEC rules and defining market-practice materiality. Firms like EY can advise on the intricacies of pro forma and Reg S-X.  Phew.

Below is a chart of the physical 8-K requirements an acquiring issuer needs to calendar. This is what we do.

merger8-k

All this would follow the S-4 filing, which also has caveats to materiality as well as if shares are actually exchanged. An S-4 is only required when the equity shares of the acquirer is being used as the “currency” (i.e. exchange offer) and only then if the target company’s shares are also publicly held. S-4s are not required for cash deals or most deals with privately held targets.

IPOs slower to price regardless of fewer SEC comments in S-1 registration workflow

How-Your-IPO-S-1-Filing-Flows-To-&-From-The-SEC_2016-1

Click to download the S-! workflow whitepaper

Nothing is more certain than death, taxes and comments back from the SEC on your S-1 registration’s first draft.

It’s part of the vetting process that protects investors from, on the light-side of the spectrum, overly enthusiastic corporate projections and on the dark-side… straight up fraudulent disclosures.

To view an illustration of the process, download this whitepaper.

Comments generally fall into these eight categories:

  • Back-up (third party) verification
  • Cheap stock
  • Executive compensation and executive employment agreements
  • Financial & accounting
  • Market positioning claims
  • Non-GAAP financial measures
  • Revenue recognition
  • Segment reporting

As you see in the chart below, with data from Proskauer’s 2016 IPO Study, the lowest number of SEC comments received in a first round comment letter was 11, the average was 31 and the highest was 78. One point is clear when you juxtapose the different sectors: financial services companies received the highest number of comments. Click image to enlarge.

IPO-comments

All sectors did have fewer overall comments from previous years, which (hopefully) indicates their internal diligence is steadily improving – although the pace from initial filing to final pricing is 20% slower. Market conditions are assumed the cause. Slow and steady wins (raises) the race (capital).

Filing a Form 8-K is a walk in the park for mitigating risk

Presenting to a group of 150 people about the ease (and importance) of filing a SEC Form 8-K aligned with that same day’s annual 5-K run – which, unlike filing an 8-K with Vintage, was literally an uphill battle.

8-k

The key macro point of the discussion was the frustration – and opinions – many companies face due to the grey of what is “material.” 8-K filings are not an expensive file – better safe than sorry.

Some concrete 8-K trigger events:

  • Entering into materially amending or terminating a material contract
  •  Material acquisitions or dispositions
  • The disclosure of quarterly or annual financial results
  • Material financing arrangements
  • The acceleration of material financing obligations
  • Material exit or disposal activities
  • Delisting or noncompliance with a listing rule
  • Unregistered sales of the company’s equity securities
  • A change in accountants
  • A determination that the company’s previously issued financial statements should no longer be relied upon
  • Changes in the board of directors
  • The appointment, retirement, resignation or termination of certain executive officers, or the entry into or amendment of a material compensatory arrangement with such officers
  • Charter and bylaw amendments
  • Amendments to or waivers of the company’s code of ethics
  • Voting results of shareholders’ meetings

With some exceptions, reports on Form 8-K are generally required to be filed with or furnished to the SEC within four business days after the occurrence of the event to be disclosed.

An 8-K is also your first line of RegFD defense should a non-public material information get a selective disclosure Charley horse. Regulation FD defines the outer boundary for “prompt disclosure” to mean as soon as reasonably practical, but within 24 hours or by the start of the next day’s trading on the NYSE, regardless of where or whether the company’s stock is traded.

 

Understanding “plain English” when filing with the SEC

The irony of the SEC defining “plain English” is not lost on me. Read any regulation (our annual guidebooks are great for that) and you’ll understand. That said, regulations are complex for the protection of both issuer and investor. It’s not the most transparent version of English, however.

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Here is how plain English is defined for proxy materials per Rule 421(d) under the Securities Act Presentation of Information in Prospectuses

  • To enhance the readability of the prospectus, you must use plain English principles in the organization, language, and design of the front and back cover pages, the summary, and the risk factors section.
  • You must draft the language in these sections so that at a minimum it substantially complies with each of the following plain English writing principles:
    • Short sentences
    • Definite, concrete, everyday words
    • Active voice
    • Tabular presentation or bullet lists for complex material, whenever possible
    • No legal jargon or highly technical business terms
    • No multiple negatives.
  • In designing these sections or other sections of the prospectus, you may include pictures, logos, charts, graphs, or other design elements so long as the design is not misleading and the required information is clear.
    • You are encouraged to use tables, schedules, charts and graphic illustrations of the results of operations, balance sheet, or other financial data that present the data in an understandable manner. Any presentation must be consistent with the financial statements and non-financial information in the prospectus.
    • You must draw the graphs and charts to scale. Any information you provide must not be misleading.

If you’re  designing your proxy materials and have any visual questions, ask your Vintage representative to see past samples of our work. If you have vocabulary questions – ask your securities lawyer.

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