JOBS Act: Rulemaking Status and Assessing its First Year .../media/... · This is MoFo. 7 An Equity Strategist Perspective On 2012 A persistent focus on the macro picture versus specific

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JOBS Act: Rulemaking Status

and Assessing its First Year

NY2 715833

Participants:

Tymour Okasha

Anna Pinedo

March 7, 2013

This is MoFo. 2

The JOBS Act

Enacted on April 5, 2012.

Title I (IPO On Ramp) and Titles V and VI (Exchange Act

registration/deregistration thresholds) are effective.

Title II rules to lift the ban on general solicitation and general

advertising in Rule 506 offerings were proposed on August 29, 2012

and have not yet been adopted.

Title III (crowdfunding) and Title IV (Regulation A+) require

rulemaking, and rules have not yet been proposed or adopted.

Three required studies have been delivered.

This is MoFo. 3

IPO Market Trends

This is MoFo. 4

Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13

(2.0)

0.0

2.0

4.0

$6.0

Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13

(6.0)

(4.0)

(2.0)

0.0

2.0

4.0

$6.0

Actively-Managed Fund Flows (1) Asset Class and Equity Sector Performance

____________________

Sources: FactSet, Bloomberg and AMG Data as of February 22, 2013. (1) Domestic weekly fund flows since June 1, 2012 excluding ETF activity. Bloomberg IPO Index is a market cap weighted index that consists of

110 recent IPOs. Light blue shading represents equity indices and S&P 500 equity subsectors.

$bn Weekly US Equity Fund Flows

$bn Weekly Bond Fund Flows 2012

+$129.0bn

4Q 2012

+$35.3bn

2013 YTD

+$24.9bn

2012

($51.4bn)

4Q 2012

($30.6bn)

2013 YTD

+$11.1bn

Active equity funds have finally seen inflows as bond inflows wane &

capital leaves money markets – potential seeds of the “Great

Rotation”

Equities started 2013 strongly on better risk appetite – yet the rally & macro/political risks have led to a modest correction.

While “defensive” equities have performed best most recently, IPOs

& small-caps remain well higher for 2013YTD

The Beginning of

the “Great Rotation?”

2013YTD Asset Class Performance & Fund Flows

This is MoFo. 5

2013YTD Equity Issuance Update

Base Deal AftermarketPricing Deal as % of File / Offer / Offer / Green-

Date Issuer ($mm) Mkt Val Offer 1 Day Current shoe? Deal Type Industry

02/21/13 Achillion Pharmaceuticals $126 16% (11.9%) -- 5.5% a Marketed Healthcare

02/21/13 TAL International Group 175 11% (4.9%) (2.6%) (1.8%) Block Transportation

02/21/13 Kinder Morgan Energy Ptn. LP 345 2% (2.1%) -- 0.2% Overnight Utility & Energy

02/21/13 Generac Holdings 350 14% (2.6%) (2.5%) (1.6%) Block Industrial

02/21/13 TRW Automotive Holdings 593 8% (1.5%) (2.4%) (1.8%) Block Auto/Truck

02/20/13 Terreno Realty Corp 83 26% (2.8%) 3.6% 4.3% a Overnight Real Estate

02/20/13 Oncolytics Biotech 32 8% (14.4%) (2.5%) (1.0%) Overnight Healthcare

02/20/13 NorthStar Realty Finance Corp 252 15% (3.0%) 1.4% 0.5% Block Real Estate

02/20/13 Michael Kors Holdings 1,538 12% (5.2%) (4.1%) (3.9%) Marketed Retail

02/14/13 Kosmos Energy 330 8% (13.7%) (3.6%) (6.6%) Marketed Oil & Gas

02/14/13 Cliffs Natural Resources 261 6% (20.8%) (0.5%) (8.7%) a Marketed Mining

02/14/13 Armour Residential REIT 445 17% (3.5%) (2.1%) (2.9%) Block Real Estate

02/14/13 Pioneer Natural Resources 1,152 7% 1.0% 2.0% (0.8%) a Marketed Oil & Gas

02/14/13 Nielsen Holdings 1,253 11% (3.5%) (0.5%) (0.9%) a Marketed Prof. Services

02/14/13 LyondellBasell Industries 1,538 4% (1.3%) (0.5%) (3.5%) Block Chemicals

02/13/13 Limoneira Co 33 14% (15.7%) 0.5% 7.7% Marketed Agribusiness

02/13/13 CalAmp Corp 42 12% (1.3%) 10.6% 17.1% a Marketed Technology

02/13/13 BioMed Realty Trust Inc 260 7% (2.1%) 2.3% 4.7% Overnight Real Estate

02/13/13 Sensata Technologies Holding 502 8% (0.7%) (0.6%) (2.8%) Block Technology

02/12/13 Atlas Financial Holdings Inc 24 35% (2.7%) 1.7% 1.7% Marketed Insurance

02/12/13 Newcastle Investment Corp 210 8% (2.5%) 2.6% 3.6% a Block Real Estate

02/12/13 HCA Holdings Inc 1,800 11% (1.8%) 1.3% (0.7%) Block Healthcare

02/12/13 American Capital Mortgage Invst. 513 34% (3.5%) 0.2% (0.6%) a Block Real Estate

02/12/13 Ocean Rig UDW Inc 126 5% (4.0%) (3.9%) (11.0%) Block Oil & Gas

02/12/13 Team Health Holdings Inc 322 14% (1.6%) (0.8%) (1.6%) Block Healthcare

02/12/13 Primerica Inc 82 4% (1.5%) (1.1%) (2.6%) Block Insurance

02/11/13 WNS Holdings Ltd 161 23% (3.9%) 5.9% 10.6% a Marketed Prof. Services

02/11/13 Axis Capital Holdings Ltd 108 2% (2.0%) 1.0% 3.0% Block Insurance

02/11/13 Gulfport Energy Corp 295 10% (8.0%) 4.5% (2.9%) a Marketed Oil & Gas

02/07/13 BreitBurn Energy Partners LP 258 13% (3.7%) (1.2%) (1.5%) a Overnight Oil & Gas

Marketed Average YTD (32): 333 15% (4.4%) 4.4% 5.0% 19 of 32 32

Overnight Average YTD (30): 151 12% (4.4%) 1.5% 5.4% 20 of 30 30

Block Average YTD (22): 465 11% (2.8%) (0.8%) (1.1%) 5 of 22 22

Base Mkt Val Base Deal Aftermarket

Pricing Deal at Offer as % of % File / Offer / Offer / Green-

Date Issuer ($mm) ($mm) Mkt Val Sec. Offer 1 Day Current shoe? Industry

02/14/13 Xoom Corp $101 $509 20% 17% 14.3% 59.3% 27.1% a FIG Tech

02/14/13 Orchid Island Capital 35 50 71% - 0.0% (1.3%) (1.7%) Finance

02/11/13 Connectone Bancorp 45 133 34% - 1.8% 5.9% 5.0% a Finance

02/07/13 ZAIS Financial Corp 120 169 71% - NA (6.1%) (4.7%) Real Estate

02/07/13 New Source Energy Ptn. 80 147 54% - 0.0% (2.6%) 0.0% Oil & Gas

02/07/13 Health Insur. Innovations 65 187 35% - (6.7%) (2.1%) (10.5%) Finance

02/06/13 ExOne 95 230 41% 6% 20.0% 47.3% 48.1% a Industrial

02/05/13 Boise Cascade 247 871 28% - 23.5% 24.5% 27.6% a Industrial

01/31/13 Zoetis 2,239 13,000 17% 100% 10.6% 19.3% 25.3% a Healthcare

01/31/13 KaloBios Pharmaceuticals 70 191 37% - (38.5%) 0.0% (11.0%) Healthcare

01/30/13 TRI Pointe Homes 233 537 43% 27% 13.3% 12.1% 6.2% a Industrial

01/28/13 Gladstone Land Corp 50 91 55% - NA 0.0% 0.7% Real Estate

01/28/13 Stemline Therapeutics 33 69 48% - (16.7%) 18.0% 24.9% a Healthcare

01/24/13 Bright Horizons Fam. Sol. 222 1,383 16% - 10.0% 28.7% 28.1% a Services

01/24/13 LipoScience Inc 45 125 36% - (35.7%) 16.1% 12.2% a Healthcare

01/17/13 Norwegian Cruise Line 447 3,809 12% - 11.8% 30.5% 57.8% a Transport.

01/17/13 CyrusOne 314 1,178 27% - 11.8% 11.6% 15.4% a Real Estate

01/17/13 SunCoke Energy Ptn. LP 257 597 43% - (5.0%) (4.0%) 6.5% Oil & Gas

01/16/13 CVR Refining LP 600 3,790 16% - 0.0% 0.2% 21.0% a Oil & Gas

01/14/13 USA Compression Ptn. LP 198 524 38% - (10.0%) (2.2%) 1.9% Utility

Average (20): 275 1,380 37% 8% 0.3% 12.8% 14.0% 12 of 20

Median (20): 111 370 36% - 0.9% 8.7% 9.3%

____________________

Source: Dealogic as of February 22, 2013. Includes SEC registered follow-on offerings greater than $20mm. Excludes BCC/SPACs, BDCs, rights offerings, and closed-end funds.

Includes SEC registered IPOs greater than $20mm. Excludes BCC/SPACs, BDCs and closed-end funds.

Deals on the Road

2013 equity issuance is off to a fast start – 104 deals for $33.2bn year-to-date, vs. 87 deals for $15.2bn in the same 2012 period

IPOs have seen a solid reception in 2013 amidst broader equity bullishness. While

few datapoints are marketing currently, IPOs ex-biotech have priced 6.4% above the

filed midpoints & 14/15 have priced in or above the range

2013 IPO Pricings & Pipeline 2013 Add-On Pricings – 30 Most Recent

Expected Base Deal Base Deal %

Date Issuer ($mm) % Mkt. Val Secondary Industry

03/05/13 Professional Diversity Netw ork 20 12.0% -- Prof. Services

This is MoFo. 6

2012 Asset Class Performance & Fund Flows Actively-Managed Fund Flows (1) Asset Class and Equity Sector Performance

$bn Monthly US Equity Fund Flows

$bn Monthly Bond Fund Flows Domestic:

+$129bn

Global: +$256bn

Domestic: ($51bn)

Global: ($90bn)

____________________

Sources: FactSet, Bloomberg and AMG Data as of December 31, 2012. (1) Domestic weekly fund flows since January 1, 2012 excluding ETF activity. Bloomberg IPO Index is a market cap weighted index that consists

of 110 recent IPOs. Light blue shading represents equity indices and S&P 500 equity subsectors.

This is MoFo. 7

An Equity Strategist Perspective On 2012

A persistent focus on the macro picture versus specific sector or company fundamentals

Broad periods of widespread “risk-on” or “risk-off”

Equities were loved or loathed as a group, leaving little opportunity for individual outperformance

Investors turned to larger, more stable domestic investment opportunities, preferably with yield

A crowded fixed income market further encouraged allocations to skew towards income-surrogate equities

The S&P 500’s performance illustrates this “default” behavior despite persistent uncertainty and a lack of conviction on behalf of equity buyers

Active Portfolio Managers faced stiff fund outflows all year and found it difficult to pick relative “winners”

ETFs tracking broad market indexes continue to be the beneficiaries of equity investors’ preference for low-risk, low-cost equity exposure

Large-Cap Equities Were King

The S&P 500 outperformed small-cap US equities, global equities, corporate bonds, and government bonds

Return of Capital Was Rewarded

Equities with a capital return strategy outperformed as investors pursued yield, garnering a 15.1% return

Actively-Managed Portfolios Struggle Again

Portfolio managers continued to struggle to outperform their benchmarks as “alpha” remained elusive. Only 31% of large-cap active funds outperformed overall, including 40% for growth funds and 23% for value funds

Key Equity Market Themes in the Year that Was

____________________

Source: BofA Merrill Lynch Strategy research, November 2012.

This is MoFo. 8

2012 IPO Issuance Levels in Context

Post Facebook IPO

(May 17, 2012)

4

16

20

17

11

4

11

78

19

64

10

15

20

25

30

0

5

10

15

20

25 # Deals VIX

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Euro Sovereign Debt Crisis

(Aug. 2011 – Nov. 2011)

8

15

8

18

21

10

14

4

02

15

10

10

20

30

40

50

0

5

10

15

20

25# Deals VIX


Flash Crash

(May 6, 2010)

87

39

0

40

80

120

160

2012Non-Tech Tech

83

42

0

40

80

120

160

2011Non-Tech Tech

67

1415

1012

10 11 10

1819

20

10

20

30

40

50

0

5

10

15

20

25# Deals VIX


IPO Market Has Struggled to Regain 2004-2007 Issuance Levels

____________________

Source: Bloomberg and Dealogic as of December 31, 2012. Includes SEC registered IPOs greater than $20mm base deal. Excludes SPACs, BDCs and CLEFs.

2012

2011

2010

107

45

0

40

80

120

160

2010Non-Tech Tech

$43.7bn

Proceeds

2010 2011 2012

Midpoint / Offer (11.1%) (7.1%) (10.1%)

% In/Above Range: 54.2% 60.2% 50.6%

Offer / 1 Month 7.7% 3.7% 12.8%

Non-Tech IPOs

Tech IPOs 2010 2011 2012

Midpoint / Offer: (4.9%) 7.7% 2.6%

% In/Above Range: 66.7% 76.2% 74.4%

Offer / 1 Month: 20.8% 12.7% 25.9%

Receptivity & Performance

# D

eals

# D

eals

# D

eals

$40.7bn

Proceeds

$45.9bn

Proceeds

2010 2011 2012

Tech Issuance: 29.6% 33.6% 31.0%

Non-Tech Issuance: 70.4% 66.4% 69.0%

% of Total Issuance

126

125

152

The IPO market has been open and receptive to growth companies, but clearly less open to more moderate growth stories

From 2004 to 2007, the US IPO market saw roughly 200 IPOs a year. Is 120 to 150 the “new normal?”

Some of this change is related to periodic event-related “closures” in each of the last three years

The “risk-on/risk-off” mentality has contributed to a market that is only reliable for the most attractive growth companies

A confirmed rotation into equities should create a more receptive environment for moderate growth, sponsor-backed companies

This is MoFo. 9

A look at IPOs That Impacted Sentiment in 2012 Value Creation, Destruction, and Investor Impact

Current Δ Mkt Cap

Pricing Deal Val Mkt Cap in 2012 2012 % IPO to

Date Issuer ($mm) ($mm) ($mm) Change Current Industry

02/10/11 Kinder Morgan Inc 3,293.6 40,021.0 13,980.5 9.8% 17.8% Energy

05/18/11 LinkedIn 405.7 12,337.2 6,107.6 82.2% 155.2% Technology

11/16/11 Delphi Automotive plc 529.7 12,146.4 5,076.1 77.6% 73.9% Auto/Truck

12/14/11 Michael Kors Holdings Ltd 1,085.6 10,193.0 4,993.9 87.3% 155.2% Retail

03/09/11 HCA Holdings Inc 4,353.9 13,362.8 3,745.5 36.9% 0.6% Healthcare

03/29/11 Apollo Global Management LLC 565.4 6,421.0 1,931.1 39.9% (8.6%) Finance

03/29/11 Qihoo 360 Technology Co Ltd 201.9 3,543.5 1,703.2 89.2% 104.8% Technology

05/23/11 Yandex NV 1,434.8 7,243.7 880.7 9.3% (13.8%) Technology

11/03/11 Rentech Nitrogen Partners LP 300.0 1,462.4 837.0 130.5% 88.5% Chemicals

01/27/11 InterXion Holding NV 304.6 1,614.5 731.9 76.7% 82.8% Technology

11/03/11 Groupon Inc 805.0 3,186.8 (10,079.4) (76.4%) (75.7%) Technology

12/15/11 Zynga Inc 1,000.0 1,850.2 (4,730.9) (74.9%) (76.4%) Technology

04/13/11 Arcos Dorados Holdings Inc 1,436.6 2,506.0 (1,795.7) (41.7%) (29.6%) Consumer

06/16/11 Bankrate Inc 344.9 1,245.6 (904.3) (42.1%) (17.0%) Technology

03/24/11 ServiceSource International Inc 137.3 442.0 (672.1) (62.7%) (41.5%) Technology

10/13/11 Ubiquiti Networks Inc 121.4 1,074.9 (592.9) (33.4%) (19.1%) Technology

12/14/11 Laredo Petroleum Holdings Inc 342.1 2,328.9 (517.1) (18.6%) 6.8% Energy

05/25/11 Lone Pine Resources Inc 195.0 104.7 (491.3) (82.5%) (90.5%) Energy

05/24/11 Active Network Inc 189.8 297.4 (440.6) (63.9%) (67.3%) Technology

05/25/11 Freescale Semiconductor 883.2 2,733.2 (372.8) (13.0%) (38.8%) Technology

Current Δ Mkt Cap

Pricing Deal Val Mkt Cap Since IPO IPO to

Date Issuer ($mm) ($mm) ($mm) Current Industry

10/11/12 Workday 732.6 9,055.9 4,567.7 94.6% Technology

10/10/12 Realogy Holding 1,242.0 5,876.2 2,362.1 55.4% Real Estate

12/06/12 Western Gas Eq. Partners LP 434.7 6,555.9 1,920.2 36.1% Energy

06/28/12 ServiceNow 241.2 3,754.4 1,589.2 66.8% Technology

03/07/12 Nationstar Mortgage Holdings 268.3 2,800.9 1,587.6 121.3% Finance

07/25/12 Northern Tier Energy LP 261.6 2,338.3 1,308.9 81.7% Energy

04/18/12 Splunk 263.9 2,861.8 1,288.8 70.7% Technology

05/02/12 Carlyle Group LP 671.0 7,913.6 1,214.6 18.3% Finance

01/24/12 Guidewire Software 132.3 1,646.6 1,011.0 128.6% Technology

04/04/12 Retail Properties of America 292.6 2,761.7 953.5 49.6% Real Estate

05/17/12 Facebook 16,006.9 57,669.6 (23,577.6) (29.9%) Technology

05/03/12 PetroLogistics LP 595.0 1,889.8 (473.2) (20.4%) Energy

03/14/12 Allison Transmission Holdings 690.3 3,730.1 (441.6) (11.2%) Auto/Truck

04/19/12 Midstates Petroleum Company 358.8 458.9 (394.3) (47.0%) Energy

10/25/12 WhiteWave Foods Co 391.0 2,688.4 (252.6) (8.6%) Consumer

04/17/12 SandRidge Mississippian Trust II 627.9 809.0 (225.2) (22.5%) Energy

03/28/12 CafePress Inc 85.5 98.7 (223.9) (69.6%) Technology

02/21/12 Ceres Inc 74.8 112.6 (202.6) (65.1%) Cleantech

02/01/12 Matador Resources Co 178.6 455.7 (201.0) (31.7%) Energy

04/24/12 Envivio Inc 69.8 45.8 (194.1) (81.1%) Technology

2012 IPO Performance by Market Cap Change 2011 IPOs – Performance in 2012

____________________

Source: Dealogic and Bloomberg as December 31, 2012. Includes SEC registered IPOs greater than $20mm since January 1, 2011. Excludes SPACs and CLEFs. Dark shading represents Tech IPO.

"Winners” and “Losers" are often assessed on % movement, but market cap expansion / contraction is more reflective of sentiment and impact on portfolio returns

Market cap change is a valuable proxy, but constrained IPO floats mean that public investors do not experience all of the profit or loss

The largest 2012 IPO value creators were comprised of a broad make-up of sectors, led by Tech but also with finance, real estate, energy, & retail

Notably, the 3 best-performing Tech IPOs were software issuers

Deals that lost shareholder value are led by Facebook, which shed ~$23bn in market cap and ~$4.5bn in public float (equal to ~15% of the non-FB IPO issuance for all of 2012)

Class of 2011 IPO performance during 2012 also had a substantial impact on receptivity to new deals, especially within Tech

Of the top 10 value decliners this year from 2011’s IPO crop, 7 were Tech issuers (4 from internet)

Groupon and Zynga highlight the list, with the 2012 struggles of each sapping demand for new stories

This is MoFo. 10

2013 Outlook from the Research Community

Strategists Are Estimating a ~7% Increase in the S&P 500 in 2013

____________________

Source: Bloomberg.

2013-End Implied Implied 2013

Bank Strategist S&P 500 2013 Return 2013 EPS EPS Growth

BofA Merrill Lynch Savita Subramanian 1,600 12.2% $110.00 7.8%

Bank of Montreal Brian Belski 1,575 10.4% $106.25 7.3%

Barclays Barry Knapp 1,525 6.9% $105.00 4.0%

Citigroup Tobias Levkovich 1,615 13.2% $108.00 4.9%

Credit Suisse Andrew Garthwaite 1,550 8.7% $104.90 4.8%

Deutsche Bank David Bianco NA NA $108.00 4.9%

Goldman Sachs David Kostin 1,575 10.4% $107.00 7.0%

HSBC Garry Evans 1,560 9.4% NA NA

JPMorgan Thomas Lee 1,580 10.8% $110.00 4.8%

Morgan Stanley Adam Parker 1,434 0.5% $98.71 (1.3%)

Oppenheimer John Stoltzfus 1,585 11.1% $108.00 5.9%

RBC Myles Zyblock NA NA $104.00 4.0%

Stifel Nicolaus Barry Bannister 1,500 5.2% $115.00 NA

UBS Jonathan Golub 1,425 (0.1%) $108.00 3.8%

Wells Fargo Gina Martin Adams 1,390 (2.5%) $103.00 3.0%

Mean (15): 1,532 7.4% $106.85 4.7%

Median (15): 1,560 9.4% $107.50 4.8%

Min (15): 1,390 (2.5%) $98.71 (1.3%)

Max (15): 1,615 13.2% $115.00 7.8%

Street equity strategists currently forecast a constructive equity market in 2013, with returns in the ~7% area supported by ~5% EPS growth

Only 2 of 13 analysts publishing S&P forecasts predict a down 2013 market

Meanwhile 12 of 13 analysts forecast 2013 EPS growth of at least 3%

Clearly, US fiscal/budget negotiations and European developments will ultimately drive 2013 results

Other key drivers cited by analysts include:

Momentum in US housing market

China slowdown / recovery

Commodity price declines

Middle East geopolitical tension

This is MoFo. 11

Could 2013 Mark the Start of the “Great Rotation?”

'80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '120

3

6

9

12

15

1818

10 Year US Treasury Yield

All-Time Low Bond Yields Set the Stage for Equity Bullishness

____________________

Source: Bloomberg.

Global Exposure?

Tech is the most globally exposed industry sector; as global growth recovers in 2013 that exposure should be a major tailwind for Tech

equity flows and performance

Tech Stands to Disproportionately Benefit from the Rotation

Secular Growth?

Secular growth is a longer-term strategy vs cyclical; many of the most exciting secular growth

stories are directly or indirectly related to Tech, creating a long-term investment thesis

Balance Sheet Strength?

Tech is the only sector with net cash, but also has the third-lowest dividend payout ratio (29%). While Tech dividends are growing faster than any

other sector, its large cash balances and substantial financial flexibility mean there is

plenty of scope to put capital to work

Attractive Valuation?

While Tech has historically traded at a 20% premium to the market, it currently trades at a discount despite its numerous growth themes.

Relative to the sector’s historical average forward P/E multiple, there is more than 30% upside

potential for Tech equities

With bond yields at record lows, the outperformance in fixed income has likely come to an end. Assuming positive global

macro developments, 2013 could be the year to start the “Great Rotation” from bonds back to equities

Fixed income markets have seen unprecedented demand and performance in recent years, leading to all-time low bond yields

Fund flows have consistently been coming out of equities in favor of the safe-haven fixed income markets

If a confluence of macroeconomic events unfolds favorably, street equity strategists expect a paradigm shift in investment strategy, with aggressive re-allocation to equities

Bond yields should rise dramatically in concert with a rally in equities to new all-time highs (S&P above 1500)

Tech stands to benefit more than most (overweight along with Industrials and Energy) due to favorable sector fundamentals

Moderate growth stories that have been out of favor during the early recovery stand to gain the most favor

This is MoFo. 12

Title I: The On-Ramp

This is MoFo. 13

EGC Status

This is MoFo. 14

Title I: EGCs

An “emerging growth company” (an “EGC”) is defined as an issuer

(including a foreign private issuer) with total annual gross revenues

of less than $1 billion (subject to inflationary adjustment by the SEC

every five years) during its most recently completed fiscal year.

An issuer can qualify as an EGC if it first sold its common stock in a

registered offering on or after December 9, 2011.

This is MoFo. 15

Title I: EGCs (cont’d)

The SEC Staff has noted that an issuer can take advantage of the

benefits of EGC status, even though its initial public offering of

common equity securities occurred on or before December 8, 2011.

In this regard, the SEC Staff notes that if an issuer would otherwise qualify as an

EGC but for the fact that its initial public offering of common equity securities

occurred on or before December 8, 2011, and such issuer was once an Exchange

Act reporting company but is not currently required to file Exchange Act reports,

then the SEC Staff would not object if such issuer takes advantage of all of the

benefits of EGC status for its next registered offering and thereafter, until it triggers

one of the disqualification provisions.

This position is not available to an issuer that has had the registration of a class of

its securities revoked pursuant to Exchange Act Section 12(j).

The SEC Staff notes that, based on the particular facts and

circumstances, the EGC status of an issuer may be questioned if it

appears that the issuer ceased to be a reporting company for the

purpose of conducting a registered offering as an EGC.

This is MoFo. 16


In Question 53 of the September 28, 2012 FAQs, the SEC Staff

addresses EGC status in the context of certain spin-offs, focusing the

analysis on whether the issuer, and not its parent, meets the EGC

requirements.

The SEC Staff notes that, based on the particular facts and

circumstances, the EGC status of an issuer may be questioned if it

appears that the issuer or its parent is engaging in a transaction for

the purpose of converting a non-EGC into an EGC, or for the

purpose of obtaining the benefits of EGC status indirectly when it is

not entitled to do so directly.

This is MoFo. 17


The SEC Staff indicated in its May 3, 2012 FAQs that asset-backed

issuers and registered investment companies do not qualify as

EGCs; however, business development companies could qualify as

EGCs.

Whether an issuer is an EGC seems to be determined at this point

on somewhat of a sliding scale.

For example, with issuers that are not operating companies, such as royalty trusts,

the Staff seems inclined to say that those cannot be EGCs, because they are really

not the type of issuer contemplated by the Title I “on-ramp” for EGCs.

This is MoFo. 18


The SEC Staff has provided guidance through its FAQs confirming

that an EGC should be able to rely on certain of Title I’s disclosure,

communications and confidential submission benefits in the context

of an exchange offer or a merger.

This guidance notes that even if EGCs are availing themselves of the

JOBS Act provisions in the context of an exchange offer or a merger,

they will still have to comply with all of the applicable rules for tender

offers and proxy solicitations at the same time.

This is MoFo. 19


On November 14, 2012, The Wall Street Journal published a story

highlighting how a number of companies going public have not

availed themselves of the looser requirements contemplated by the

“IPO on-ramp” provisions in Title I of the JOBS Act, suggesting a

stigma associated with being identified as an EGC.

Initial trends suggest that marketing considerations may play the

most significant role for an EGC in deciding whether to utilize the

benefits of Title I, and that, at least at this point, there is little appetite

for straying too far from market norms, even if some cost savings can

be achieved.

Changes to the IPO market and more familiarity with the on-ramp

provisions may ultimately result in an evolving view of EGC status.

This is MoFo. 20

Benefits Afforded

To EGCs

This is MoFo. 21

Title I: EGCs

On December 17, 2012, the SEC approved the PCAOB’s Auditing

Standard No. 16, “Communications with Audit Committees.”

The approval of Auditing Standard No. 16 represents the first time

that the SEC has used its authority under the JOBS Act to determine

that a new auditing standard applies to audits of EGCs.

Section 103(a)(3)(C) of the Sarbanes-Oxley Act, as amended by

Section 104 of the JOBS Act, provides that any additional rules

adopted by the PCAOB subsequent to April 5, 2012 do not apply to

the audits of EGCs, unless the Commission determines that the

application of such additional requirements is necessary or

appropriate in the public interest, after considering the protection of

investors and whether the action will promote efficiency, competition,

and capital formation.

This is MoFo. 22

Title I: Confidential Submission

Title I provides that the SEC Staff must review all EGC initial public

offering registration statements confidentially.

An EGC may confidentially submit a draft registration statement for an initial public

offering for nonpublic review, provided that the initial confidential submission and all

amendments are publicly filed with the SEC no later than 21 days prior to the

issuer’s commencement of a “road show” (as defined in Securities Act Rule

433(h)(4)).

EGCs have been taking advantage of the confidential review process.

Consideration of the impact on a “dual-track” strategy.

Possible to use a press release

Possible to share the confidential submission with a limited number of investors

Adverse effects on the visibility of the IPO pipeline.

Timing considerations relative to the marketing of the offering.

This is MoFo. 23

Title I: Confidential Submission (cont’d)

Draft registration statements are submitted via EDGAR using

submission form types DRS and DRS/A.

While some have commented on how the confidential submissions

process has reduced visibility into the IPO pipeline, the Staff is not

planning to make information available about the submissions.

In practice, EGCs have been availing themselves of the confidential

submission process

When to flip from confidential to public

Must publicly file at least 21 days before commencing a road show

For these purposes, what is a “road show”?

Many issuers are choosing to flip from confidential to public earlier in the process

Timing should be discussed with the working group

This is MoFo. 24

Title I: Test-the-Waters

Title I of the JOBS Act provides EGCs, or any other person that they

authorize, the flexibility to engage in oral or written communications

with QIBs and institutional accredited investors in order to gauge

their interest in a proposed offering, whether prior to or following the

first filing of any registration statement, subject to the requirement

that no security may be sold unless accompanied or preceded by a

Section 10(a) prospectus.

There are no form or content restrictions on these communications,

and there is no requirement to file written communications with the

SEC, however the SEC has asked for written test-the-waters

communications in connection with their review.

This is MoFo. 25

Title I: Test-the-Waters (cont’d)

In August 22, 2012 FAQs, the SEC Staff addressed the requirements

of Rule 15c2-8(e) in the context of test-the-waters communications.

The FAQ notes that while the JOBS Act does not amend Rule 15c2-

8(e), an EGC or a financial intermediary acting on the EGC’s behalf

may engage in discussions with institutional investors to gauge their

interest in purchasing EGC securities before the EGC has filed its

registration statement with the SEC and after the EGC has filed its

registration statement.

During this period, the underwriter may discuss price, volume and market demand

and solicit non-binding indications of interest from customers.

Soliciting such a non-binding indication of interest, in the absence of other factors,

would not constitute a “solicitation” for purposes of Rule 15c2-8(e).

This is MoFo. 26

Title I: Test-the-Waters (cont’d)

The form and content of test-the-waters communications will vary

based on the issuer, the issuer’s industry, the underwriters and the

nature of buy-side interest in the offering.

Underwriting agreements for an emerging growth company offering

will typically include a representation that the issuer has not engaged

in any communications in reliance on Section 5(d), other than as

disclosed as an exception to the representation.

There is a concern on the part of the underwriters about limiting the manner in

which these types of communications occur.

The SEC Staff has been asking to review written test the waters

materials.

This is MoFo. 27

Title I: Disclosure Requirements

PRIOR TO JOBS ACT UNDER THE JOBS ACT

Financial

Information in

SEC Filings

3 years of audited financial statements

2 years of audited financial statements for

smaller reporting companies

Selected financial data for each of 5 years

(or for life of issuer, if shorter) and any

interim period included in the financial

statements

2 years of audited financial statements

Not required to present selected financial

data for any period prior to the earliest

audited period presented in connection with

an IPO

Within 1 year of IPO, EGC would report 3

years of audited financial statements

Confidential

Submissions of

Draft IPO

Registration

Statement

No confidential filing for U.S. issuers

Confidential filing for FPIs only in specified

circumstances

EGCs (including FPIs that are EGCs) may

submit a draft IPO registration statement for

confidential review prior to public filing,

provided that such submission and any

amendments are publicly filed with the SEC

not later than 21 days before the EGC

conducts a “road show.” This supersedes the

SEC’s December 2011 position on confidential

submissions by FPIs.

This is MoFo. 28

Title I: Disclosure Requirements (cont’d)


Communications

Before and During

The Offering

Process

Limited ability to “test-the-waters” EGCs, either prior to or after filing a

registration statement, may “test-the-waters”

by engaging in oral or written communications

with QIBs and institutional accredited

investors to determine interest in an offering

Auditor

Attestation on

Internal Controls

Auditor attestation on effectiveness of

internal controls over financial reporting

required in second annual report after IPO

Non-accelerated filers not required to

comply

Transition period for compliance of up to 5

years

Accounting

Standards

Must comply with applicable new or revised

financial accounting standards

Not required to comply with any new or

revised financial accounting standard until

such standard applies to companies that

are not subject to Exchange Act public

company reporting

EGCs may choose to comply with non-EGC

accounting standards but may not

selectively comply

This is MoFo. 29



Executive

Compensation

Disclosure

Must comply with executive compensation

disclosure requirements, unless a smaller

reporting company (which is subject to

reduced disclosure requirements)

Upon adoption of SEC rules under Dodd-

Frank will be required to calculate and

disclose the median compensation of all

employees compared to the CEO

May comply with executive compensation

disclosure requirements by complying with

the reduced disclosure requirements

generally available to smaller reporting

companies

Exempt from requirement to calculate and

disclose the median compensation of all

employees compared to the CEO

FPIs entitled to rely on other executive

compensation disclosure requirements

Say on Pay Must hold non-binding advisory

stockholder votes on executive

compensation arrangements

Smaller reporting companies are currently

exempt from say on pay until 2013

Exempt from requirement to hold non-binding

advisory stockholder votes on executive

compensation arrangements for 1 to 3 years

after no longer an EGC

This is MoFo. 30

Market practice in terms of EGC disclosure accommodations is still

developing

Financial information: more EGCs have elected to present financial information for

a longer period – general three years

Executive compensation: most EGCs are availing themselves of the reduced

disclosure requirements

Auditor attestation: most EGCs are affirmatively choosing to avail themselves of

the delayed implementation


This is MoFo. 31

Title I: Disclosures

The SEC staff expects to see:

Cover page disclosure regarding EGC status

Summary box disclosures

Risk factors that specifically address the issuer’s decision to rely on EGC

accommodations

MD&A discussion to the extent that the issuer is electing to delay adoption of new

accounting standards and/or defer auditor attestation

This is MoFo. 32

Title I: Research The JOBS Act permits a broker-dealer to publish or distribute a

research report about an EGC that proposes to register an offering

under the Securities Act or has a registration statement pending, and

the research report will not be deemed an “offer” under the Securities

Act, even if the broker-dealer will participate or is participating in the

offering.

The JOBS Act also prohibits any self-regulatory organization such as

FINRA and the SEC from adopting any rule or regulation that would

restrict a broker-dealer from participating in certain meetings relating

to EGCs.

This is MoFo. 33

Title I: Research (cont’d)

No SRO or the SEC may adopt or maintain any rule or regulation

prohibiting a broker-dealer from publishing or distributing a research

report or making a public appearance with respect to the securities of

an EGC following an offering or in a period prior to (although notably

not after) expiration of a lock-up.

The JOBS Act removes restrictions on who within an investment

bank can arrange for communications between research analysts

and prospective investors in connection with an EGC IPO, permitting

investment bankers to be involved in those arrangements.

Further, a research analyst is permitted to engage in any

communications with an EGC’s management when other employees

of the investment bank, including the investment bankers, are

present.

This is MoFo. 34


On August 22, 2012, the SEC’s Division of Trading and Markets

published a highly anticipated series of JOBS Act FAQs entitled

“About Research Analysts and Underwriters,” which addressed

various research-related matters.

The FAQs reiterate that Section 105 of the JOBS Act is intended to

permit research analysts to participate in meetings with issuer

management, but research analysts cannot engage in efforts to

solicit banking business.

This is MoFo. 35


The FAQs note that a research analyst attending a meeting with

investment banking colleagues could outline the firm’s research

program and factors considered in the analysis of a company and

ask follow-up questions of management.

After an investment banking firm has been retained, the research analyst could

participate in sales force discussions along with company management in order to

educate the sales force about trends in the industry and research’s views.

The FAQs emphasize that the objective of the JOBS Act was to

eliminate burdens on the management of emerging growth

companies resulting from having to take part in separate meeting

with banking and with research personnel, but not to weaken any of

the safeguards intended to mitigate conflicts of interest. In this

respect, the FAQs confirm that Regulation AC is not affected by the

JOBS Act.

This is MoFo. 36


The FAQs clarify that the JOBS Act should be understood to apply to

NYSE Rule 472 to the same extent as it applies to NASD Rule 2711.

Further, the FAQs explain that the Staff views the prohibition on quiet

period rules contained in Section 105(d)(2) as applying to the quiet

periods on research at the termination, waiver, modification, etc. of a

lock-up agreement (in connection with an emerging growth company

IPO or a follow-on offering) regardless of the means by which the

lock-up period comes to a close.

This is MoFo. 37

Title I: Research (cont’d) FINRA implemented a series of rule changes to modify NASD Rule

2711 and NYSE Rule 472, including:

An exception to Rule 2711(c)(4) that permits research analysts to attend meetings

with issuer management that are also attended by investment banking personnel,

including pitch meetings, provided that the research analysts do not engage in any

prohibited conduct, such as soliciting investment banking business. (Rule 472

includes a similar exception).

An amendment to NASD 2711 to eliminate the following quiet periods with respect

to an IPO of an EGC: NASD Rule 2711(f)(1)(A) which imposes a 40-day quiet

period after an IPO on a member that acts as a manager or co-manager of the

IPO; NASD Rule 2711(f)(2) which imposes a 25-day quiet period after an IPO on a

member that participates as an underwriter or dealer (other than manager or co-

manager) of the IPO; and NASD Rule 2711(f)(4) with respect to the 15-day quiet

period applicable to IPO managers and co-managers prior to the expiration, waiver

or termination of a lock-up agreement.

An amendment to NASD Rule 2711(f)(4) to eliminate the 10-day quiet period on

managers and co-managers following a secondary offering and the quiet periods

after the expiration, waiver or termination of a lock-up agreement for such an

offering.

This is MoFo. 38

SEC Report on Decimalization On July 20, 2012, the SEC delivered to Congress the report required

by Section 106 of the JOBS Act, which directed the SEC to examine

the impact of decimalization on IPOs and the impact of this decade-

old change on liquidity for small- and mid-cap securities.

If the SEC determines that securities of emerging growth companies should be

quoted or traded using a minimum increment higher than $0.01, then the SEC

may, by rule, not later than 180 days following enactment of the JOBS Act,

designate a higher minimum increment between $0.01 and $0.10.

Not surprisingly, the Staff concluded that decimalization may have

been one of a number of factors that have influenced the IPO

market.

The Staff recommends that the Commission should not proceed with

specific rulemaking to increase tick sizes, but should gather more

information.

This is MoFo. 39

SEC Roundtable on Decimalization

The SEC held a roundtable on decimalization on February 5, 2012.

The roundtable included various panel discussions on issues

affecting smaller or emerging companies and raised many questions

on implementation of tick size

Recommendation: that a pilot program be implemented that would

permit an assessment of the impact on smaller companies

This is MoFo. 40

Study on Regulation S-K

Under Title I the SEC was required to present to Congress its

findings and recommendations following a review of Regulation S-K

that is intended to analyze current registration requirements and

determine whether these requirements can be updated, modified or

simplified in order to reduce costs and other burdens on emerging

growth companies.

The study was required within 180 days of enactment.

The SEC Staff is continuing to work on the study.

This is MoFo. 41

Title II

This is MoFo. 42

Title II: Rule 506 Changes

Title II directs the SEC to eliminate the ban on general solicitation

and general advertising for certain offerings under Rule 506 of

Regulation D, provided that the securities are sold only to accredited

investors, and under Rule 144A offerings, provided that the

securities are sold only to persons who the seller (and any person

acting on behalf of the seller) reasonably believes is a QIB.

Rule 506 is the most popular means for conducting a private offering,

because it permits issuers to raise an unlimited amount of money

and preempts state securities laws.

This is MoFo. 43

Title II: SEC Proposal

On August 29, 2012, the SEC proposed amendments to Rule 506 of

Regulation D and Rule 144A under the Securities Act to implement

Section 201(a) of the JOBS Act.

Public comments were due on the proposed rules by October 5,

2012.

The SEC has not yet adopted final rules, so the Title II provisions are

not currently in effect.

This is MoFo. 44

Title II: SEC Proposal (cont’d)

The SEC’s proposed rules implement a bifurcated approach to Rule

506 offerings.

As proposed, an issuer may still choose to conduct a private offering in reliance on

Rule 506 without using general solicitation.

In order to implement this approach, the SEC proposed new

paragraph (c) in Rule 506, which would permit the use of general

solicitation, subject to the following conditions:

the issuer must take reasonable steps to verify that the purchasers of the securities

are accredited investors;

all purchasers of securities must be accredited investors, either because they

come within one of the enumerated categories of persons that qualify as accredited

investors or the issuer reasonably believes that they qualify as accredited

investors, at the time of the sale of the securities; and

the conditions of Rule 501 and Rules 502(a) and 502(d) are satisfied.

This is MoFo. 45

Title II: SEC Proposal (cont’d) “Reasonable efforts” to verify investor status may differ depending on

the facts and circumstances, and the SEC provides the following

non-exhaustive list of factors that may be appropriate to consider:

The nature of the purchaser. The SEC describes the different types of accredited

investors, including broker-dealers, investment companies or business

development companies, employee benefit plans, and wealthy individuals and

charities.

The nature and amount of information about the purchaser. Simply put, the SEC

states that “the more information an issuer has indicating that a prospective

purchaser is an accredited investor, the fewer steps it would have to take, and vice

versa.”

The nature of the offering. The nature of the offering may be relevant in

determining the reasonableness of steps taken to verify status, i.e., issuers may be

required to take additional verification steps to the extent that solicitations are

made broadly, such as through a website accessible to the general public, or

through the use of social media or email. By contrast, less intrusive verification

steps may be required to the extent that solicitations are directed at investors that

are pre-screened by a reliable third party.

This is MoFo. 46


The SEC confirmed the view that Congress did not intend to

eliminate the existing “reasonable belief” standard in Rule 501(a) of

the Securities Act or for Rule 506 offerings.

It confirmed that if a person were to supply false information to an issuer claiming

status as an accredited investor, the issuer would not lose the ability to rely on the

proposed Rule 506(c) exemption for that offering, provided the issuer “took

reasonable steps to verify that the purchaser was an accredited investor and had a

reasonable belief that such purchaser was an accredited investor.”

The SEC also proposed to add a separate check box for issuers to

indicate whether they are claiming an exemption under Rule 506(c).

The SEC confirmed that privately offered funds can make a general

solicitation under amended Rule 506 without losing the ability to rely

on the exclusions from the definition of an “investment company”

available under Section 3(c)(1) and 3(c)(7) of the Investment

Company Act.

This is MoFo. 47


In addition to the proposed changes to Rule 506, the SEC proposed

to amend Rule 144A to eliminate references to “offer” and “offeree,”

and thus require only that the securities are sold to a QIB or to a

purchaser that the seller and any person acting on behalf of the

seller reasonably believe is a QIB.

Under this proposed amendment, resales of securities pursuant to

Rule 144A could be conducted using general solicitation, so long as

the purchasers are limited in this manner.

This is MoFo. 48


Some of the comments which have been submitted call on the

Commission to, among other things, adopt the Dodd-Frank –

mandated bad actor rules at the same time the changes to Rule 506

are adopted, impose restrictions on the form and content of general

solicitation materials, and establish a non-exclusive safe harbor with

respect to the reasonable steps to verify requirement.

Other commenters have suggested that the SEC should review the

definition of “accredited investor” and consider an investments held

standard, or a financial literacy standard.

This is MoFo. 49

Likely Impacts of Title II Changes

Assessing the impact of the changes:

Rule 506 rulemaking may have the most significant impact on private offerings by

funds

Private offerings by private companies likely to be affected

Private offerings by already public companies, or PIPE transactions, unlikely to be

affected

Rule 144A offerings unlikely to be impacted

This is MoFo. 50

Matching Platforms

Title II clarifies that persons who maintain certain online or other

platforms to conduct Rule 506 offerings that will use general

advertising or general solicitation will not, by virtue of this activity, be

required to register as a broker or a dealer pursuant to Section 15 of

the Exchange Act, provided that certain specified conditions are

satisfied.

In order not to be subject to registration as a broker-dealer, these

matching services or platforms must not receive transaction–based

compensation, take possession of customer funds or securities, or

participate in documentation.

This is MoFo. 51

Title II: FAQs

On February 5, 2013, the SEC Division of Trading & Markets

published a FAQs to address the matchmaking site provisions

Provides clarifications:

A platform cannot permit an issuer to conduct a general solicitation in a Rule 506

offering until the SEC rules are finalized

SEC staff interprets “compensation” broadly (not just transaction-based

compensation)

Co-investment in securities is permitted

A venture fund may operate a matchmaking site

This is MoFo. 52

Title III

This is MoFo. 53

JOBS Act - Crowdfunding

Funding Portal or Broker

Crowdfunding

Entrepreneur

$$$ $$$

The “Crowd”

• An “all or none” offering.

• No limits on the number or sophistication of investors.

• Issuer information (including financial information) required.

• All offering activities must be conducted through an intermediary.

This is MoFo. 54

Crowdfunding

Title III provides an exemption that could apply to crowdfunding offerings, to be implemented by SEC rules adopted within 270 days.

The aggregate amount sold to all investors by the issuer, including any amount sold in reliance on the exemption during the 12-month period preceding the date of the transaction, is not more than $1,000,000.

The aggregate amount sold to any investor by the issuer, including any amount sold in reliance on the exemption during the 12-month period preceding the date of the transaction, does not exceed:

The greater of $2,000 or 5 percent of the annual income or net worth of the investor, as applicable, if either the annual income or the net worth of the investor is less than $100,000; or

10 percent of the annual income or net worth of an investor, as applicable, not to exceed a maximum aggregate amount sold of $100,000, if either the annual income or net worth of the investor is equal to or more than $100,000.

This is MoFo. 55

Crowdfunding (cont’d)

The transaction must be conducted through a broker or “funding

portal.”

Information will be filed and provided to investors regarding the

issuer and offering, including financial information based on the

target amount offered.

The provision would prohibit issuers from advertising the terms of the

exempt offering, other than to provide notices directing investors to

the funding portal or broker, and would require disclosure of amounts

paid to compensate solicitors promoting the offering through the

channels of the broker or funding portal.

This is MoFo. 56


Issuers relying on the exemption would need to file with the SEC and

provide to investors, no less than annually, reports of the results of

operations and financial statements.

A purchaser in a crowdfunding offering could bring an action against

an issuer for rescission in accordance with Section 12(b) and Section

13 of the Securities Act, as if liability were created under Section

12(a)(2) of the Securities Act, in the event that there are material

misstatements or omissions in connection with the offering.

Securities sold on an exempt basis under this provision would not be

transferrable by the purchaser for a one-year period beginning on the

date of purchase, except in certain limited circumstances.

This is MoFo. 57


The exemption would only be available for domestic issuers that are

not reporting companies under the Exchange Act and that are not

investment companies, or as the SEC otherwise determines is

appropriate.

Bad actor disqualification provisions similar to those required under

Regulation A would also be required for exempt crowdfunding

offerings.

Funding portals would not be subject to registration as a broker-

dealer, but would be subject to an alternative regulatory regime,

subject to SEC and SRO authority, to be determined by rulemaking

by the SEC and SRO.

This is MoFo. 58


A funding portal is defined as an intermediary for exempt crowdfunding offerings that does not: offer investment advice or recommendations;

solicit purchases, sales, or offers to buy securities offered or displayed on its website or portal;

compensate employees, agents, or other persons for such solicitation or based on the sale securities displayed or referenced on its website or portal;

hold, manage, possess, or otherwise handle investor funds or securities; or

engage in other activities as the SEC may determine by rulemaking.

The provision preempts state securities laws by making exempt crowdfunding securities “covered securities,” however, some state enforcement authority and notice filing requirements would be retained.

State regulation of funding portals would also be preempted, subject to limited enforcement and examination authority.

This is MoFo. 59

Intermediary Comparison Broker-Dealer Funding Portal

Regulatory Environment Well-established SEC and

FINRA rules regarding

registration and ongoing

obligations

To be-established SEC

and FINRA rules regarding

registration and ongoing

obligations.

Conduct of Business Handling customer funds

and securities, making

recommendations,

compensating for sales of

securities, etc.

Restrictions on activities

traditionally considered to

be those of a broker-

dealer.

Costs Significant registration

costs, as well as ongoing

compliance costs

Expected to be less

ongoing obligations, thus

less costs involved.

Availability of

Crowdfunding Exemption

Available for issuers using

broker-dealer’s platform.

Available for issuers using

funding portal’s platform.

This is MoFo. 60

Title IV

This is MoFo. 61

Title IV: Offering Exemption

The JOBS Act establishes a new offering exemption similar to

Regulation A.

Under the exemption, an issuer will be able to offer and sell up to

$50 million in securities within a 12-month period without Securities

Act registration. The issuer may offer equity securities, debt

securities, and debt securities convertible or exchangeable for equity

interests, including any guarantees of such securities.

The SEC Staff is working on proposed rules, although there is no

deadline in the JOBS Act for these rules.

Legislation has been introduced that would set an implementation

deadline for SEC action

This is MoFo. 62

Comparative Overview REGULATION A

EXEMPT PUBLIC OFFERING

SECTION 3(B)(2)


Offering Limit Up to $5 million within the prior 12-

month period.

Up to $50 million within the prior 12-

month period.

SEC Filing

Requirements

Must file with the SEC a Form 1-A,

which is reviewed by the SEC Staff.

Must file with the SEC and distribute

to investors an offering statement,

which will likely be reviewed by the

SEC Staff.

Blue Sky

Requirements

Blue sky law compliance is required,

without in many cases the possibility for

a more streamlined “registration by

coordination” process.

Blue sky law compliance is

required, except when the securities

are offered and sold on a national

securities exchange, or the

securities are offered or sold to a

qualified purchaser.

This is MoFo. 63

REGULATION A


SECTION 3(B)(2)


Limitations on

Investors

No limits on investors, except to the

extent imposed under state laws.

No limits on investors, except to the

extent imposed under state laws.

Restrictions on

Resale of

Securities

No restrictions on the resale of

securities, except to the extent that the

securities are held by affiliates.

No restrictions on the resale of

securities, except to the extent that

the securities are held by affiliates.

Offering

Communications

An issuer may “test the waters” to

determine if there is interest in a

proposed offering prior to filing the

Form 1-A. Sales literature may be

used before the filing of the Form 1-A,

after filing, and following qualification.

An issuer may “test the waters” to

determine if there is interest in a

proposed offering prior to filing an

offering statement.

Comparative Overview (cont’d)

This is MoFo. 64

REGULATION A


SECTION 3(B)(2)


Financial

Statement

Requirements

A current balance sheet, as well as

income statements for a period of two

years, as well as any interim period.

Financial statements must be prepared

in accordance with GAAP but do not

have to conform to Regulation S-X and,

in most cases, do not have to be

audited.

Audited financial statements must

be included in the offering

statement, as determined by the

SEC.

Disqualification

Provisions

Felons and bad actors disqualified from

the offering in accordance with

Securities Act Rule 262.

Felons and bad actors disqualified

from the offering in accordance with

rules adopted under Section 926 of

the Dodd-Frank Act.

Periodic

Reporting

No reporting required after the offering,

other than to disclose the use of

proceeds.

Audited financial statement must be

filed and provided to investors

annually, and the SEC may require

other periodic disclosures.

Comparative Overview (cont’d)

This is MoFo. 65

Titles IV: Section 3(b)(2) offerings

Likely that the SEC staff will incorporate the existing Regulation A

framework into Section 3(b)(2)

Section 3(b)(2) offerings may be used:

By private issuers who seek to remain non-reporting, or

By private issuers as a smaller IPO, in conjunction with an exchange listing

This is MoFo. 66

GAO Study of Regulation A

The JOBS Act directed the GAO to undertake a study concerning the

factors impeding greater use of currently Regulation A.

The GAO study examines trends in Regulation A offerings, noting

that the number of offerings increased from 1992 through 1997.

Since 1997, however, the number of Regulation A offerings has

declined.

The study notes that issuers have tended to favor Regulation D

offerings.

Unless the SEC’s rules, and the approach implemented by state

regulators, are clear and practical, issuers may continue to favor

Regulation D.

This is MoFo. 67

Title V and VI

This is MoFo. 68

Titles V and VI: Thresholds

The SEC’s April 11, 2012 FAQs provided that these provisions were

immediately effective, so issuers were able to avail themselves of the

higher thresholds for registration and deregistration (only for banks

and bank holding companies) upon effectiveness of the Act.

The SEC has provided no-action relief to banks seeking to exit the

reporting system given the higher holder of record level specifically

applicable to banks and bank holding companies.

The Staff has indicated that it is actively working on

recommendations for a rule that would establish when securities

obtained in an employee benefit plan can be excluded when

counting the number of holders of record.

Legislation proposed to correct inadvertent omission of savings and

loan associations in the JOBS Act provisions

This is MoFo. 69

SEC Report on Rule 12g5-1(b)(3)

On October 16, 2012 the Staff of the SEC published a study

assessing whether the SEC has sufficient tools to enforce the anti-

evasion provisions of Section 12g5-1(b)(3).

The study concludes that the statutes, rules and procedures as

currently formulated provide the Division of Enforcement with

sufficient tools to investigate and bring a case for Section 12(g)

violations based on Rule 12g5-1(b)(3).

This is MoFo. 70

Next Steps

This is MoFo. 71

Looking ahead

SEC to finalize Rule 506 rulemaking, likely in conjunction with

finalizing the bad actor provisions

SEC to propose crowdfunding rules

Continued discussion regarding the “accredited investor” standard

Discussion of disclosure accommodations for smaller public

companies and potentially revamping S-K

Reporting for companies that are OTCBB or that have securities

traded in a private secondary market

Documents

JOBS Act: Rulemaking Status and Assessing its First Year .../media/... · This is MoFo. 7 An Equity Strategist Perspective On 2012 A persistent focus on the macro picture versus specific