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SEC Concept Release On Private Offerings

On June 18, 2019, the SEC issued a 211-page concept release and request for public comment on ways to simplify, harmonize, and improve the exempt (private) offering framework. The concept release seeks input on whether changes should be made to improve the consistency, accessibility, and effectiveness of the SEC’s exemptions for both companies and investors, including identifying potential overlap or gaps within the framework.

From a high level the SEC is seeking public comment on (i) whether the exemptive framework as a whole is effective for both companies and investors; (ii) ways to improve, harmonize and streamline the exemptions; (iii) whether there are gaps in the regulations making it difficult for smaller companies to raise capital; (iv) whether the limitations on who can invest and amounts that can be invested (i.e., accredited investor status) pose enough investor protection and conversely create undue obstacles to capital formation; (v) integration and transitioning from one offering exemption to another; (vi) the use of

July 2, 2019

Nasdaq Proposed Changes In Listing Qualifications

In April, 2019, Nasdaq filed two proposed rule changes with the SEC which would amend the initial listing qualification standards. On April 3, 2019, Nasdaq filed a proposed rule change to amend initial listing standards related to liquidity. For a review of the Nasdaq Capital Market’s current initial listing standards, see HERE and related to direct listings, see HERE. In particular, to help assure adequate liquidity for listed securities, Nasdaq proposes to revise its initial listing criteria to (i) exclude restricted securities from the Exchange’s calculations of a company’s publicly held shares, market value of publicly held shares and round lot holders; (ii) impose a new requirement that at least 50% of a company’s round lot holders must each hold shares with a market value of at least $2,500; and (iii) adopt a new listing rule requiring a minimum average daily trading volume for OTC traded securities at the time of their listing.

On April 18, 2019 Nasdaq filed

June 25, 2019

Structuring The Private Placement Or Venture Deal – Part 2

Back in 2013 I wrote a series of blogs about preparing for and then structuring a private placement or venture deal. In today’s world where public markets are more difficult to access for smaller companies, it is a topic worth revisiting. There are three primary aspects to the private placement or venture capital arena. The first is getting dressed for the ball – i.e., preparing a company to be viewed and assessed by investors including the due diligence process; the second is determining valuation or deciding to avoid a determination through convertible instruments; and the third is structuring the deal itself.

In this two-part blog series I am discussing each of these aspects. This first part addressed pre-deal considerations including valuation considerations and can be read HERE. This part two discusses structuring and documenting the deal.

Structuring The Deal

Although structuring a private placement and negotiating with a venture capital group are very different, the underlying mechanics of investments

June 18, 2019

Structuring The Private Placement Or Venture Deal – Part 1

In this two-part blog series I will discuss each of these aspects. This first part addresses pre-deal considerations including valuation considerations. Part two will address structuring and documenting the deal.

Although structuring a private placement and negotiating with a venture capital group are very different, the underlying mechanics of investments are universal. In a venture capital

June 11, 2019

Rule Changes For OTCQB And OTCQX

Effective April 16, 2019, the OTC Markets has implemented rule changes for companies listed on the OTCQB. Effective May 2, 2019, OTC Markets has implemented changes to the initial and continued quotation requirements for companies listed on the OTCQX. This is the second set of amendments implemented this year. Effective January 19, 2019, OTC Markets amended its rules to require all U.S.-incorporated OTCQB and OTCQX companies to provide verified share data through a transfer agent that participates in its Transfer Agent Verified Shares Program. See my blog HERE, which includes an as of then up to date summary of the OTCQX initial and ongoing listing requirements.

OTCQX Amendments

The May 2019 OTCQX amendments: (i) add a 10% freely tradeable public float requirement; (ii) amend the SPAC qualifications to require a $20 million public float replacement the former $25 million net tangible asset requirement; (iii) adding that in the event that the company’s closing bid price falls below

June 4, 2019

Nasdaq Direct Listing Rule Change

On April 3, 2018, Spotify made a big board splash by debuting on the NYSE without an IPO. Instead, Spotify filed a resale registration statement registering the securities already held by its existing shareholders. The process is referred to as a direct listing. As most of those shareholders had invested in Spotify in private offerings, they were rewarded with a true exit strategy and liquidity by becoming the company’s initial public float. On April 26, 2019, Slack Technologies followed suit, filing a resale Form S-1 with an anticipated direct listing on to the NYSE.

Around this time last year, I published a blog on the direct listing process focusing on the differences between a direct listing onto a national exchange and one onto OTC Markets – see HERE. As the process seems to be gaining in popularity, on February 15, 2019 Nasdaq amended its direct listing process rules. This blog is focused on the Nasdaq direct

May 28, 2019

SEC Proposes Amendments to Accelerated and Large Accelerated Filer Definitions

As promised by SEC Chair Jay Clayton almost a year ago when the SEC amended the definition of a “smaller reporting company” as contained in Securities Act Rule 405, Exchange Act Rule 12b-2 and Item 10(f) of Regulation S-K (see HERE ), on May 9, 2019, the SEC proposed amendments to the definitions of an “accelerated filer” and “large accelerated filer.”

In June 2018, the SEC amended the definition of a smaller reporting company (SRC) to include companies with less than a $250 million public float or if a company does not have an ascertainable public float or has a public float of less than $700 million, a SRC is one with less than $100 million in annual revenues during its most recently completed fiscal year. At that time the SEC did not amend the definitions an accelerated filer or large accelerated filer. As a result, companies with $75 million or more of public float that qualify as SRCs remained

May 21, 2019

The 20% Rule – Private Placements

Nasdaq and the NYSE American both have rules requiring listed companies to receive shareholder approval prior to issuing twenty percent (20%) or more of the outstanding securities in a transaction other than a public offering at a price less than the Minimum Price, as defined in the rule. Nasdaq Rule 5635 sets forth the circumstances under which shareholder approval is required prior to an issuance of securities in connection with: (i) the acquisition of the stock or assets of another company (see HERE); (ii) equity-based compensation of officers, directors, employees or consultants (see HERE); (iii) a change of control (see HERE); and (iv) transactions other than public offerings. NYSE American Company Guide Sections 711, 712 a 713 have substantially similar provisions.

Nasdaq and the NYSE recently amended their rules related to issuances in a private placement to provide greater flexibility and certainty for companies to determine when a shareholder vote is necessary to approve a transaction that

May 14, 2019

NASDAQ And NYSE American Shareholder Approval Requirement – Equity Based Compensation

Nasdaq and the NYSE American both have rules requiring listed companies to receive shareholder approval prior to issuing securities when a stock option or purchase plan is to be established or materially amended or other equity compensation arrangement made or materially amended, pursuant to which stock may be acquired by officers, directors, employees, or consultants. Nasdaq Rule 5635 sets forth the circumstances under which shareholder approval is required prior to an issuance of securities in connection with: (i) the acquisition of the stock or assets of another company (see HERE); (ii) equity-based compensation of officers, directors, employees or consultants; (iii) a change of control (see HERE); and (iv) transactions other than public offerings (see HERE). NYSE American Company Guide Sections 711, 712 and 713 have substantially similar provisions.

In this blog I am detailing the shareholder approval requirements related to equity-based compensation of officers, directors, employees or consultants. Other Exchange Rules interplay with the rules requiring shareholder

May 7, 2019

Mergers And Acquisitions; Board Of Directors Responsibilities – Delaware

Recently the Delaware Chancery Court rejected an interested executive’s defense of a breach of fiduciary duty claim, reminding us of the importance of making full and accurate disclosures when seeking shareholder approval for a merger or acquisition transaction. In particular, in the case of In re Xura, Inc. Stockholder Litigation the Delaware Chancery Court denied a motion to dismiss brought against a merger target company’s CEO, alleging that he had orchestrated the company’s sale to a particular bidder based on his self-interest in the outcome of the transaction.

The CEO argued that his actions should have been judged by the deferential business judgement rule and not a higher entire fairness standard because the transaction was approved by a majority of the disinterested shareholders. The CEO relied on the 2015 Delaware Supreme Court case of Corwin v. KKR Financing Holdings which held that a transaction that would be subject to enhanced scrutiny would instead be reviewed under the deferential business judgment

April 30, 2019

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Laura Anthony

SEC Concept Release On Private Offerings

Nasdaq Proposed Changes In Listing Qualifications

Structuring The Private Placement Or Venture Deal – Part 2

Structuring The Private Placement Or Venture Deal – Part 1

Nasdaq Direct Listing Rule Change

SEC Proposes Amendments to Accelerated and Large Accelerated Filer Definitions

The 20% Rule – Private Placements

NASDAQ And NYSE American Shareholder Approval Requirement – Equity Based Compensation

Mergers And Acquisitions; Board Of Directors Responsibilities – Delaware

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SEC Concept Release On Private Offerings

Nasdaq Proposed Changes In Listing Qualifications

Structuring The Private Placement Or Venture Deal – Part 2

Structuring The Private Placement Or Venture Deal – Part 1

Nasdaq Direct Listing Rule Change

SEC Proposes Amendments to Accelerated and Large Accelerated Filer Definitions

The 20% Rule – Private Placements

NASDAQ And NYSE American Shareholder Approval Requirement – Equity Based Compensation

Mergers And Acquisitions; Board Of Directors Responsibilities – Delaware

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