SEC Charges IR Exec. With Selective Disclosure

As a timely reminder to those of us who work with public companies, the SEC just charged an investor relations person at a public company with selective disclosure of what was material non-public information.

Those of us who’ve worked with public companies for many years recall the outrageous abuses which prompted Reg FD in order to promote full and fair disclosure of material financial information.

Even after Reg FD, however, occasionally company executives forget or get sloppy about following the disclosure rules strictly.

This case, then, is a valuable reminder to us all.  Please click here to take you to the article by Holland & Knight which describes the circumstances of the case.

http://www.jdsupra.com/legalnews/sec-charges-former-head-of-investor-rela-32855/?utm_source=jds&utm_medium=twitter&utm_campaign=securities
Post by Dennis McCarthy
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Affordable Care Act – Helpful Webinar

The Affordable Care Act is a complicated law which will impact most companies and employees.

While this is not a direct capital market issue, the cost and confusion created, will likely have an impact on US employment, a critical problem.

This webinar includes an helpful overview by E&Y, the accounting and consulting firm, plus a review of the practical impact on Ranstad, the staffing firm.

The link to the webinar is below.  You can click on it or copy and paste it into your browser.

http://w.on24.com/r.htm?e=610321&s=1&k=FF4CD644A91F7E91E5C76EBDE0E392EB

Raising Equity for Small Cap Public Companies Series

Dennis McCarthy – (213) 222-8260 – dennis@monarchbayassociates.com

See “Equity Series” above on navigation bar.

Today, Wall Street investors are receptive to buying public company stock, even IPOs, initial public offerings, which is a sure sign of investor appetite. 

So, in this receptive Wall Street environment, many small cap public companies are considering raising equity capital.

Now, small cap public companies have many more options for the mechanics of raising equity.  That’s a good thing but requires company management to make some choices, preferably good choices.

To help companies to better understand what options are available as well as some of the tricks and traps, I created a series of videos on raising equity for small cap public companies.

In this equity series, I’ll address topics including:

  • How to get the best deal.
  • What are key regulatory rules.
  • What are the available mechanisms for raising equity and
  • What are the pro’s and con’s of each mechanism.

Each of my videos will be short and focused on one element of the topic.

I plan to supplement my videos with contributions from other professionals who will add their special expertise to the series.

I hope you’ll enjoy this series.  Give me your feedback to make it even better.

 

Flood of Corporate Bonds

Dennis McCarthy – (213) 222-8260 – dennis@monarchbayassociates.com

Right now, corporations are raising capital in record amounts by selling high grade bonds.

Can you blame them?  High grade corporate bonds are priced today at record low interest rates.

Even at these record low yields, investors are buying corporate high grade bonds in large volumes.

Investors are seeking interest rates that offer positive yields over inflation. 

The traditional source of yield for many investors, US Treasuries, seems no longer attractive.

 So, what’s the take-away here. 

You should at least consider raising capital through issuing corporate bonds if your company could rationally raise debt of roughly $100 million or more.

Contact me to discuss raising debt to capture this opportunity, or any capital market topic. 

www.lockinlowrate.com

 

2012 Proxy Season – Initial Results

Dennis McCarthy – (213) 222-8260 – dennis@monarchbayassociates.com

Webinar Linkhttp://www.equilar.com/webinar/2012-proxy-trends/archive.html

My recent post, entitled “Herding Cats” described proxy advisors as a powerful new voice for investors especially at proxy season.

Today’s post offers an initial recap of the 2012 proxy season:

what were the key issues on which proxy advisors played a role;

what were the companies’ responses; and  

what were the vote results?

Latham & Watkins, a law firm, and Equilar, executive compensation consultants, produced a valuable webinar covering these topics. The link is below.

The key issue this proxy season was “pay for performance”. 

Executive compensation, in general, is likely to be a hot button issue for several years so I recommend listening to the Latham and Equilar webinar.

Please subscribe to my blog to stay informed of these and other capital markets developments. 

Please call me to help your company to raise equity or debt or to complete M&A projects. Thank you. 

Shareholder Vote

Shareholder Vote

DirectMarkets Update

Dennis McCarthy – (213) 222-8260 – dennis@monarchbayassociates.com

I had a chance to speak with Kevin Lupowitz, head of the Direct Markets unit of Rodman & Renshaw about  the planned launch of the service.

DirectMarkets is an online system to permit public companies to sell shares to investors in a manner that bypasses much of the current Wall Street process.

Regarding the launch, Kevin indicated that investors were currently signing up to become bidders.  Presumably, many of Rodman’s current deal investors would form the initial investor pool.

We might see the first deal processed through the DirectMarkets platform within the next couple weeks.

I asked Kevin a question that has been nagging me, don’t many small and microcap companies need the assistance of bankers and salesmen to get offerings done.

Bankers to advise the company on market conditions and prepare marketing materials.  Salesmen to alert investors to the deal.  Together, the two intermediate the deal terms if needed.

Kevin admitted that the system might benefit from human intervention, at least initially.

He cited his experience at Liquidnet, an automated block trading system, however, to indicate that he’s seen investors get comfortable with automated systems.

I know we’ll all be watching this launch with great interest.  If DirectMarkets succeeds, it’s bound to have a major impact on the small cap market on Wall Street.  But more on that next time.

The JOBS Act – Update

Dennis McCarthy – (213) 222-8260 – dennis@monarchbayassociates.com

The new JOBS Act, intended to make it easier for smaller companies to raise capital, was signed into law by the President on April 5th.

First, let me say that I welcome the reduction in the regulatory burden on smaller companies.  I hope this spirit of deregulation will be extended to existing small cap public companies which continue to operate under the old burdens.

However, some needed changes to encourage capital formation by smaller companies aren’t as easily handled through legislation.  For example, thin liquidity in many small cap stocks has several causes and would require several fixes.  Lack of liquidity, therefore, will likely continue to plague smaller cap stocks.

Also, we can’t legislate good judgment.  Even under the former, so-called stricter rules, investors shoveled money into Chinese stocks, many of which proved to be unwise investments.  The new JOBS Act places even greater responsibility on investors to exert good judgment.

Experience tells me that companies considering raising capital should take advantage of these relaxed rules as soon as possible before some visible blow-ups or disasters trigger re-tightening of the rules.

The following links provide helpful summaries and analyses of the JOBS Act.  Thank you.

Sheppard Mullin: http://www.corporatesecuritieslawblog.com/capital-markets-president-obama-signs-jobs-act-landmark-reform-for-small-and-emerging-growth-companies-now-law.html

TroyGould: http://troygould.com/index.cfm?fuseaction=content.contentDetail&ID=9187&tID=303

Latham & Watkins:http://w.on24.com/r.htm?e=445288&s=1&k=17FD77D843F6EAE8A36641AD5AE93257

New JOBS Act – Outlined

My friend, Louis Dienes, at TroyGould Attorneys is planning to distribute early next week an updated summary of the JOBS Act just signed into law.

At the end of March, Louis had prepared the following outline of the new JOBS Act for quick reading.

Here is a shortened link to the TroyGould website page: http://bit.ly/HoRMFE

Here is the page content headed up by Louis’ smiling face.

Client Alert

Louis Dienes

Louis R. Dienes
310.789.1212
LRD@troygould.com
PRACTICE AREAS
Business Finance
Corporate
Emerging Growth Companies
and Venture Capital

Intellectual Property
Mergers and Acquisitions
Securities

The JOBS Act bill is intended to stimulate economic growth by improving access to the capital markets for emerging growth companies     JOBS Act Makes Major Revisions to Securities Laws; Eases Capital-Raising for Smaller Companies

On March 27, 2012, the U.S. House of Representatives passed the Jumpstart Our Business Startups Act (the JOBS Act), following with strong bipartisan support the U.S. Senate’s March 22, 2012, passage of the JOBS Act.  It is widely expected that President Obama will sign the act into law later this week.

The JOBS Act is intended to stimulate job creation and economic growth by improving access to the capital markets for emerging growth companies.

The JOBS Act contains a number of provisions designed to ease capital-raising for private companies, including:

Allows equity-based crowdfunding

  • “Crowdfunding” activities are permitted, so that issuers may raise up to $1 million from a large pool of small investors, subject to limitations based on investor income levels.  Issuers will be allowed to rely on investor certifications of income.
  • An investor with an annual income or net worth of less than $100,000 may invest no more than the greater of $2,000 or 5% of his or her annual income or net worth in any 12‑month period in a given company, and an investor with an annual income or net worth of more than $100,000 may invest up to 10% of his or her annual income or net worth annually (with a cap of $100,000 per investor, per company annually).
  • Companies relying on these provisions must satisfy the following financial statement requirements:
    • Raising amounts up to $100,000 annually requires the certification of the principal financial officer that the financial statements are true and correct;
    • Amounts between $100,000 and $500,000 annually will require review by an independent public accountant; and
    • Amounts above $500,000 annually will require audited financial statements.
  • Offerings will have to be conducted through a broker or a “funding portal.”
    • Issuers may not advertise the terms of the offering other than to direct investors, brokers or funding portals.
    • Issuers will be required to file with the SEC and provide to investors and intermediaries a range of information regarding the offering and the issuer (at least 21 days prior to the first sale to any investor and not less than annually thereafter).
  • Securities issued will be “covered securities” and exempt from state Blue-Sky registration.
  • Securities issued will be subject to transfer restrictions (with limited exceptions) for one year.

Removes the prohibitions on general solicitation or general advertising when conducting private placements under Rule 506 of Regulation D

  • The SEC must remove the prohibition on general solicitation or general advertising when conducting private placements under Rule 506 of Regulation D, thus allowing companies to advertise broadly when conducting private placements.

Increases threshold for Regulation A “mini public offerings”

  • The JOBS Act raises the limit for offerings under Regulation A (the little used small offerings exemption) from $5 million to $50 million and exempts Reg A offerings from state securities laws, so long as the securities are:
    • Offered or sold over a national securities exchange, or
    • Sold to “qualified purchasers” – a term that will need to be defined by SEC rulemaking.
  • The revised Regulation A will require issuers to file audited financial statements annually with the SEC, and the JOBS Act directs the SEC to develop rules relating to periodic disclosure by Regulation A issuers and to develop rules requiring an issuer to file and distribute to prospective investors an offering statement containing specified disclosures.

Initial Public Offering “On-Ramp”

  • The JOBS Act creates a category of issuer called an “emerging growth company,” which is defined as a company with under $1 billion in annual revenue.
  • A company will remain an emerging growth company until the earliest of:
    • Five years after the company’s initial public offering (IPO);
    • When the company becomes a “large accelerated filer,” defined as an issuer with in excess of $700 million in unaffiliated public float;
    • When the company has issued $1.0 billion or more of non-convertible debt in the previous three years, or
    • When the company reaches $1 billion or more in annual revenue.
  • Under the JOBS Act, emerging growth companies:
    • Will be permitted to include only two years of audited financial statements (and two years of Management Discussion & Analysis and selected financial information) in its IPO registration statement, and future filings would not need to go back any earlier
    • Will not be required to provide an auditor attestation of management’s assessment of internal controls for financial reporting created under Sarbanes Oxley
    • Will be exempt from certain accounting requirements, including the audit firm rotation and the supplemental information by audit firm requirements
    • Will be exempt from shareholder approval requirements of executive compensation (“Say on Pay”)
  • Research reports relating to emerging growth companies and research communications with investors and management will be made easier:
    • Investment banks will be permitted to publish research during the pendency of a public offering, even if they are the company’s underwriters.
    • The research analyst conflict of interest rules related to marketing of IPOs and “three-way” communication between research, investment banking and management will not apply.
    • There will be no post pricing quiet period or booster shot restrictions on research reports or other communications.
    • Emerging growth companies and their authorized representatives will be permitted to communicate orally or in writing with Qualified Institutional Buyers and Institutional Accredited Investors to determine interest in a potential offering whether before or after the filing of a registration statement for the offering.
  • The SEC will permit IPO filings by emerging growth companies to be made confidentially.
  • A company may only qualify as an emerging growth company if its first sale of common equity pursuant to an effective registration statement occurred after December 8, 2011.

Increases the number of record shareholders that require an issuer to become an SEC-reporting company

  • The maximum number of shareholders of record that a private company can have before it must register with the SEC as a public company has been increased from 500 to 2,000, so long as fewer than 500 are non-accredited investors, and excluding shareholders who received employee compensation plan securities and “crowdfunding” investors.

When will these changes take effect?

  • The timing relating to these provisions varies:
    • Changes to the number of shareholders of record requiring an issuer to become an SEC reporting company will be effective upon enactment;
    • The SEC must make the changes to Rule 506 regarding general solicitation within 90 days;
    • The SEC  must enact rules facilitating the crowdsourcing provisions within 270 days; and
    • Changes to Regulation A will require SEC rulemaking, but no time limit is set by the JOBS Act.
About TroyGould
Founded in 1970, TroyGould is a Los Angeles law firm with a diverse client base and a practice covering a broad range of business transactions, litigation, and legal counseling, with emphasis in the areas of corporate finance, mergers & acquisitions, real estate, financial services, entertainment, employment, tax, and competitive business practices.
©2012 TroyGould PC. All Rights Reserved. The information in this e-mail has been prepared by TroyGould PC for informational purposes only and not as legal advice. Neither the transmission, nor your receipt, of information from this correspondence create an attorney-client relationship between you and TroyGould PC. You are receiving this email from TroyGould PC because you have a business relationship with our firm and/or its attorneys.
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www.troygould.com 

It’s Deja Vu All Over Again

 

(213) 222-8260

dennismccarthy@ariesmgmt.com

Yogi Berra was right:  “It’s Déjà vu all over again.” 

Those of us who’ve been in the financial markets for a number of years have seen Wall Street prices rise and fall periodically.  I can’t predict exactly when they’ll rise or fall but I’m certain they will.

Therefore, when stock prices fall across the board, I don’t panic. I know it’s a cycle; prices will rise again eventually. 

Also, experience has taught me that when stock prices fall, public companies should once again pull out and dust off for consideration certain time tested corporate actions.

It’s kind of like pulling out the snow gear this time of year.  It’s a ritual.

What kind of corporate actions are appropriate to consider when stock prices drop?

First, I would say is stock buybacks. 

Yes, I know that my prior blog post cited a McKinsey Quarterly article reporting that companies don’t actually buy back stock when stock prices are low. 

My point is that public companies should consider a buyback program and, if appropriate, follow through.

Next, not to be paranoid, but public companies should review their takeover defenses.

Particularly now when big companies are awash in cash and their organic growth has slowed, big companies may see acquisitions as a smart means to get growth by putting their cash to work. Heaven knows, cash earns nothing sitting in the bank.

There’re a number of common takeover defenses, some which vary depending upon the company’s state of incorporation.  Common defenses include poison pills, staggered boards, shareholder vote submission and vote threshold provisions.

What I’m recommending here is that a company review with its Board, attorneys, investment bankers and IR professionals just what’s appropriate for the company given its circumstances.

Third, be proactive about M&A.

Rather than sit back and wait for a suitor to call, go ahead, evaluate your competition and all the adjacent players, those companies which are not direct competitors but are nearby.  Make sure your analysis includes all the global players too. It’s a very small world now.

For companies operating in several businesses, you really must evaluate each business independently.  Who knows, this might even lead to a split-off like that of ITT and Sara Lee.   

The goal of this analysis is to determine where there are good fits with your company, where one plus one equals three or more.  Even if you don’t immediately act on the analysis, you’re better off knowing the landscape if a suitor calls.

While you’re looking at alternatives, you should consider whether a “go private” or “go dark” transaction makes sense for your company.  Unfortunately, for many companies, the cost of being public outweighs the benefits.

I can help your company to consider all these actions in a timely and cost efficient manner .

Please contact me with questions or to discuss any of these projects.