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Securities and Exchange Commission Approves New Rules for Reporting and Capital-Raising for Smaller Public Companies
On May 23, 2007, the U.S. Securities and Exchange Commission ("SEC") proposed a series of measures to modernize and improve its capital raising and reporting requirements for smaller public companies. The SEC's proposals address recommendations made by its Advisory Committee on Smaller Public Companies in its final report (http://www.sec.gov/info/smallbus/acspc/acspc-finalreport.pdf). The proposed measure confirms the SEC's commitment to minimizing the regulatory burden imposed upon smaller public companies. The text of the proposed regulations and interpretive guidance are not yet available.
In summary, the proposals are as follows:
Implementation of a new system of securities regulation for smaller public companies that will allow a larger number of smaller public companies to benefit from the current scaled reporting system.
Reduce eligibility requirements of certain securities offering registration forms (S-3, F-3) to allow companies with a public float of less than $75M to benefit from the use of the shelf registration.
Add a new exemption from 1933 Securities Act ("Securities Act") registration requirements for sales of securities to a newly defined "qualified purchaser" and allow limited advertising.
Reduce the holding period for Securities Act Rules 144 and 145 for restricted securities.
Add new exemptions for compensatory employee stock options from 1934 Exchange Act ("Exchange Act") registration requirements.
Provide for the electronic filing of Form D by companies undertaking private offerings.
SCALED DISCLOSURE AND REPORTING REQUIREMENTS
Facilitate reporting by eliminating the current "small business" regulatory system and moving small business issuers into the regular public company system. Scale that system to facilitate reporting by all smaller companies. The proposed changes include:
Designating a new group of issuers, called "smaller reporting companies." This group would include all issuers (i.e., small business issuers and other non-accelerated filers) with less than $75 million of public equity float;
Moving the rules in Regulation S-B to Regulation S-K. (Presumably, the financial statement requirements of Regulation S-B would be moved to Regulation S-X.) All smaller reporting companies would be allowed to comply with the smaller company versions of the rules; and
Eliminating the small business issuer (S-B) forms. Instead, smaller reporting companies would use the regular forms, and would identify themselves by a checkbox on the facing page.
SHELF REGISTRATION ELIGIBILITY
The SEC will adopt amendments to change the instructions to Form S-3 and Form F-3, allowing companies with less than $75 million in pubic float to register primary offerings of their securities on those forms, providing that such companies:
1) Meet the other eligibility conditions for the use of Form S-3 or Form F-3;
2) Are not "shell companies" and have not been shell companies for at least one year before filing the registration statement; and
3) Do not sell more than the equivalent of 20% of their public float in primary offerings registered on Form S-3 or Form F-3, over any one-year period.
NEW OFFERING EXEMPTIONS
The SEC also plans to refine Regulation D in an attempt to conform to the realities of modern marketing practices and technologies without compromising investor protection. Specifically, the SEC will adopt a new exemption from the registration provisions of the Securities Act in creating new Rule 507 of Regulation D. The new exemption would allow most issuers to sell their securities without registration and engage in limited, tombstone-like advertising so long as they sell only to a new category of investors called "Rule 507 qualified purchasers" or "super accredited investors." This new category of investors would include:
1) Individuals with a minimum of $2.5 million in investments; or
2) Individuals with individual annual income of at least $400,000 ($600,000 in the aggregate with a spouse).
Further, institutional investors generally will qualify if they own $10 million in investments. Institutional investors not subject to a monetary threshold to qualify as accredited investors similarly could qualify as Rule 507 qualified purchasers without regard to a monetary threshold. Likewise, any director, executive officer, or general partner of the issuer could qualify as a Rule 507 qualified purchaser without regard to a monetary threshold.
The SEC will also revise the existing requirements for "accredited investors" by creating an alternative way to qualify as an accredited investor. In addition to the current total assets, net worth, and income standards, there will be a new "investments owned" standard of $750,000 for individuals and $5 million for institutions. These revisions will increase the number of investors qualified as accredited investors and increase the pool of capital available to companies that engage in exempt offerings relying on Regulation D. It was also proposed that beginning September 1, 2012, the monetary thresholds for qualifying as an "accredited investor" would be periodically adjusted to reflect inflation.
The proposals would change regulation D further by shortening the integration safe harbor from six months to ninety days and applying uniform "bad boy" disqualification provisions to all Regulation D offerings.
RULES 144 AND 145
The SEC will also shorten the Rule 144 holding period from one year to six months where the issuer of the securities is subject to Exchange Act reporting obligations (reporting companies). Along with this change, the SEC will introduce a tolling provision that suspends the holding period while the security holder has a short position or has entered into a put equivalent position with respect to the securities in connection with the proposed six-month holding period for restricted securities of reporting companies. The tolling provision would not apply if the security holder has held the securities for one year or more, regardless of any hedging activity.
The SEC will permit the resale of restricted securities by non-affiliates of Exchange Act companies (reporting companies) after they satisfy a 6 month holding period (or 12 months if hedging occurs). Non-affiliates could sell restricted securities of non-reporting companies after satisfying a 12 month holding period.
The SEC will also eliminate the manner of sale limitations with respect to debt securities, raise the thresholds triggering a Form 144 filing requirement, and codify several staff positions relating to Rule 144.
Under the new revisions to Rule 144, only affiliates are required to file the notice of a proposed sale of securities on Form 144, and many of these affiliates are also required to file a Form 4 under Section 16 of the Exchange Act to report changes in beneficial ownership of their securities. In order to reduce duplicative paperwork requirements on individuals who are required to file both Form 144 and Form 4, the SEC will revise the filing deadline for Form 144 to coincide with the filing deadline for Form 4 and to permit affiliates subject to Section 16 requirements to, at their option, satisfy their Form 144 filing requirement by timely filing a Form 4 reporting the sale of securities. The SEC is presently seeking public comment on this proposal.
Finally, the SEC will eliminate the presumptive underwriter provision in Rule 145 except with regard to transactions involving blank check or shell companies. The SEC has made revisions to harmonize the resale restrictions in Rule 145(d) with the resale restrictions for securities of shell companies as proposed in Rule 144.
REGISTRATION EXEMPTION FOR COMPENSATORY EMPLOYEE STOCK OPTIONS
The SEC approved a proposal for two new exemptions from the registration provisions of Section 12(g) of the Exchange Act for compensatory employee stock options.
The first exemption will apply to compensatory employee stock options issued under written compensatory stock options plans of a non-reporting issuer if:
1) Eligible option holders are limited to employees, directors, consultants, and advisors;
2) Transferability of shares received on exercise of the options and shares of the same class as those underlying the options is restricted; and
3) Risk and financial information is provided to option holders and holders of shares received on exercise of the options that is of the type that would be required under Rule 701 if securities sold in reliance on Rule 701 exceeded $5 million in a 12-month period.
The SEC will also adopt a second exemption for compensatory employee stock options of issuers that are subject to Exchange Act reporting. Option holders would have access to the issuer's publicly filed Exchange Act reports and Exchange Act Sections 14 and 16 would apply to the options and the securities issuable on exercise of those options.
FORM D FILINGS
The SEC proposals would mandate electronic filing of Form D as well as to refine and simplify the form. Currently, Form D filings may be made only on paper. The interactive, online filing system that the SEC intends to develop for Form D filings would be accessible from any computer with internet access.
The comment period on the proposed rules will be 60 days from the date of publication in the Federal Register.
The SEC's press release covering this action is available here:
http://www.sec.gov/news/press/2007/2007-102.htm
When it becomes available, the SEC's proposing release will be available here:
http://www.sec.gov/rules/proposed.shtml
"Black Ink worked closely with us to incorporate Check 21 technology into our existing technology platform. Not only did the new system improve processing speed and accuracy, it resulted in increased cash flow and reduced issues surrounding returned checks."
George Karfunkel
President
American Stock Transfer & Trust Company
Black Ink: Revolutionizing the Speed at which Businesses Access their Cash
As we look ahead and continue to grow within the financial services industry, we have identified a company that has tremendous potential for success and wanted to share it with you first hand. We would like to tell you about a service that you should consider for your business that will expedite your cash flow.
Businesses today do not realize that there were laws implemented two years ago by the Check Clearing for the 21st Century Act. A company called Black Ink is revolutionizing the speed at which businesses can access their cash with its DirectFed Deposit program. Black Ink has developed a secure software application to convert paper checks into electronic images and forward them directly to the Federal Reserve for clearing, bypassing traditional banks and putting the cash in your account next day.
FACT: Bank of America made $8 billion last year in float! Shouldn't that money stay with you, the business owner? Black Ink delivers right to your account!
Once you have decided quicker access to your cash is good for your bottom line, Black Ink can set you up in as little as a week, using the following two steps:
1.) Since your checks will go directly to the Federal Reserve Bank, a pass through "Window to the Fed" account will be activated by Black Ink with a partner bank in order to allow your checks to securely travel on the Virtual Private Network of the Federal Reserve Bank for subsequent deposit into your existing bank.
2.) Black Ink will send you the compact scanner system and related software for your PC. They will also work with you directly to ensure proper installation and train your personnel on all aspects of the user-friendly software.
We welcome the opportunity to introduce you to Black Ink to improve your company's financial performance. If interested in more information, please email or call us at the contact information below.
(Disclosure: Shai Stern and Seth Farbman are shareholders of Black Ink)
Exciting News from Vintage
Ronit Koren brings more than 12 years of expertise as a marketing strategist. Her marketing experience began as an entrepreneur and eventually led to a lucrative and challenging marketing career in the entertainment industry. Her diverse marketing experience has enabled her to build and execute strategic marketing initiatives, identifying and fully developing business opportunities, generating revenue through selling-in content to various distribution channels, branding strategies and promotional campaigns.
Her strengths in marketing include branding, integrated marketing strategies, building solid business-to-business and business-to-consumer marketing and revenue generating relationships, account management, creating and developing collateral literature, producing promotional reels and materials, design direction, event planning, acquiring sponsorships and launching multi-platform promotional campaigns.
Before becoming an independent consultant, she was the Director of Marketing and business development for Fox Television Studios (Fox). There, she generated more than $15 million dollars in ancillary revenue for FY 2001 - 2005 through various marketing initiatives. She was also responsible for business to business marketing of Fox productions that maximized and exploited revenue streams within the major divisions of Fox by selling-in content to International Television, Twentieth Century Fox Home Entertainment, L & M, Syndication, HarperCollins, and NewsCorp One.
Also while at Fox, Ronit spearheaded the creation of direct collateral literature for more than 20 projects annually including company catalogue, trade ads, press kits and promotional reels. She was able to strengthen studio identity through strategic marketing plans and positioning proposals and managed production of merchandising, home entertainment, multi-platform projects, and photography for television movies as well as series.
Prior to Fox, she was the marketing director for a $50 million innovative athletic educational company, Mad Dogg Athletics and Spinning® that invented and launched the Spinning® program globally. A Spinning enthusiast, she took her passion for the sport to another level by originating and developing a corporate-to-consumer benefit program increasing marketing efforts and establishing corporate support and outreach to existing accounts.
She earned a Bachelor of Arts in Political Science, Psychology from The George Washington University and earned a Master of Arts in Liberal Arts from St. John's College.
Upcoming Events
Be sure to check out Vintage Filings at this year's Roth Conference in New York City, presented by ROTH Capital Partners, September 5-6, 2007 at The Westin New York at Times Square, New York City.
The event will feature two focused days of presentations and one on one meetings with small cap growth companies.
Location:
The Westin New York at Times Square
270 West 43rd Street
New York, New York, United States
Phone (212) 201-2700
Fax (212) 201-2701
Come visit Vintage Filings at Maxim Group's Growth Conference
This year the 1st Annual Growth Conference, will be held on Thursday, September 20, 2007, at the Grand Hyatt Hotel, New York, New York. Vintage Filings will be showcasing great new services and exciting visuals, be sure to stop by our booth.
The Conference will feature interactive presentations from over 70 companies, as well as one-on-one meetings with executives from Healthcare, Technology, select Special Situations and International companies. In attendance will be investors, venture capitalists, company executives, and other industry leaders.
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Vintage Filings, LLC
5670 Wilshire Blvd., Suite 1530
Los Angeles, CA 90036
Phone: 310.417.1047
Fax: 310.694.9047
Web: www.vfilings.com