Every so often a public company finds itself unable to file periodic reports for a protracted time. For example, a company may upgrade auditors and the new firm may advise of the need to re-audit prior years, which can take significant time. Until there is a reliable starting point for financial statements, new filings are in limbo. As time marches on, the older missed filings have less and less signficance to investors but would still entail the same amount of effort and expense to complete as any periodic report.
Over the years the SEC Corp Fin staff has developed ways of simplifying how a delinquent company may “catch up” in its filings. With a few calls to Corp Fin and the Office of the Chief Accountant, the staff would generally permit companies just to file the most recent Form 10-K and any subsequent Forms 10-Q. This approach facilitates getting to investors the most relevant, recent information. There remains some theoretical liability, as discussed below, but sometimes that is bearable for a company.
This week, the SEC staff has amended its Financial Reporting Manual to embody this approach. The manual now states that Corp Fin generally will not issue comments asking a delinquent registrant to file separately all of its delinquent filings if the registrant files a comprehensive annual report on Form 10-K that includes all material information that would have been included in those filings.
The manual also reminds delinquent companies that negative consequences, including legal liability, could arise from not filing all missed reports. The company may still have liability under the Exchange Act for failing to file all required reports, and Corp Fin’s general position does not foreclose the Enforcement staff from seeking enforcement action for the registrant’s filing delinquencies. In addition, until all missed reports have been filed, the company would not be “current” for purposes of Regulation S, Rule 144, or Form S-8 registration statements, and the registrant would not be eligible to use Form S-3 until it establishes a sufficient history of making timely filings.
Earlier today PitchBook released its M&A Report for Q3 2015 and the stats indicate continued strength in merger and acquisition activity.
While the overall deal count for Q2 2015 was down (4,250 deals with an aggregate value of $416 billion) as compared to the prior quarter (4,803 deals with an aggregate of $560 billion) and prior year (5,183 deal with an aggregate of $373 billion), the average transaction size spiked to $1.103 billion in Q2 2015 as compared to $795.3 million in Q1 2015 and $231.9 million in Q2 2014. Despite this spike in average transaction size, approximately 70% of the deals (by number) were valued at under $100 million, which is consistent with past quarters.
As illustrated in the below graph from PitchBook, valuation multiples for Q2 2015 deals remained also relatively consistent with the multiples from the prior quarter and prior year.Corporate / strategic M&A buyers continued to represent the overwhelming majority of the buyers in Q2 2015 (vs. private equity / sponsor backed buyers), a trend that has been consistent for a few years now.
PitchBook just released its analysis of 2Q 2015 venture capital activity by region, focusing on the six of the most active U.S. regions: the Bay Area; Boston; Los Angeles; the Midwest; New York; and the Pacific Northwest. Below is also a quick summary of the Q2 2015 highlights by region:
- The median pre-money valuation for Q2 2015 was $63.5m (up from $29m for Q4 2014).
- The most active sector (by both deal count and capital invested), by a wide margin, was software.
- The region accounted for 33.2% of total global venture capital invested and 18% of the total global venture capital deal count.
- The reported deals with the highest valuations, by series, were: Zenefits Series C pre-money at $4B; Credit Karma Series D pre-money at $3.33B; Slack Series E pre-money at $2.7B; and Pinterest Series G pre-money at $10.47B.
- The median pre-money valuation for Q2 2015 was $40m (up from $25.6m for Q4 2014).
- The two most active sectors (by both deal count and capital invested) were software and pharma & biotech.
- The region accounted for 6.6% of total global venture capital invested and 4.6% of the total global venture capital deal count.
- The reported deals with the highest valuations, by series, were: Layer3 TV Series B pre-money at $338m; DraftKings pre-money at $650m; Infinidat pre-money at $1.05B; and Intarcia Therapeutics pre-money at $5.28B.
- The region’s most active investors (by deal count) were Atlas Ventures, CommonAngels Ventures, Charles River Ventures, General Catalyst Partners, New Enterprise Associates and Polaris Partners.
- The median pre-money valuation for Q2 2015 was $13.3m (down from $16.8m for Q4 2014).
- The two most active sectors (by both deal count and capital invested) were software and healthcare devices & supplies.
- The region accounted for 3.6% of total global venture capital invested and 4.4% of the total global venture capital deal count.
- The reported deals with the highest valuations, by series, were: FreedomPop Series B pre-money at $122m; Acorns Series C pre-money at $60m; GumGum Series C pre-money at $141m; and Dollar Shave Club Series D pre-money $540m.
Midwest & Great Lakes:
- The median pre-money valuation for Q2 2015 was $9.7m (down from $10.4m for Q4 2014).
- The two most active sectors (by both deal count and capital invested) were software and healthcare devices & supplies.
- The region accounted for 2.8% of total global venture capital invested and 6.2% of the total global venture capital deal count.
- The reported deals with the highest valuations, by series, were: Livongo Series B pre-money at $67m; Juventas Therapeutics Series B2 pre-money at $62.5m; LeadPages Series B pre-money at $176m; and Centro Series B pre-money $203m.
New York metro:
- The median pre-money valuation for Q2 2015 was $31.2m (up from $15.6m for Q4 2014).
- The two most active sectors (by both deal count and capital invested) were software and commercial services.
- The region accounted for 7.3% of total global venture capital invested and 7% of the total global venture capital deal count.
- The reported deals with the highest valuations, by series, were: Oscar Health Series B pre-money at $1.36B; Blue Apron Series D pre-money at $1.87B; AppNexus pre-money at $1.5B; and WeWork pre-money $9.8B.
- The region’s most active investors (by deal count) were Lerer Hippeau Ventures, RRE Ventures, General Catalyst Partners, Great Oaks Venture Capital and Greycroft Partners.
- The median pre-money valuation for Q2 2015 was $21.3m (down from $21.5m for Q4 2014).
- The two most active sectors (by both deal count and capital invested) were pharma & biotech and software.
- The region accounted for 3.3% of total global venture capital invested and 3.8% of the total global venture capital deal count.
- The reported deals with the highest valuations, by series, were: iSpot.tv Series B pre-money at $108m; nLight Series B pre-money at $123m; Stratos Genomics Series B pre-money at $191m; and Privateer Holdings Series B pre-money $415m.
The SEC has proposed rules requiring listed issuers to adopt and comply with written “clawback” policies. These policies would need to provide that, if a listed issuer is required to prepare an accounting restatement due to the material noncompliance of the issuer with any financial reporting requirement under the securities laws, then the issuer will recover the amount of any incentive-based compensation erroneously awarded to an executive officer. The listed issuer would also be required to disclose its clawback policy, disclose information about actions taken pursuant to its policy, and file its policy as an exhibit to its annual report.
Exclusive Forum Provisions
We have previously blogged about Delaware corporations considering, and Delaware courts upholding, “exclusive forum” provisions in their charter documents. These provisions require stockholder derivative and other intra-corporate lawsuits to be filed in the Delaware Court of Chancery.
Last week, following overwhelming support in the Delaware Legislature, the Delaware Governor signed into law an amendment to the Delaware General Corporation Law that expressly authorizes provisions in the corporation’s certificate of incorporation or bylaws establishing Delaware as the exclusive forum for “internal corporate claims.” Internal corporate claims are claims, including derivative stockholder claims in the right of the corporation, based upon a violation of a duty by a current or former director or officer or stockholder, or as to which the DGCL confers jurisdiction upon the Delaware Court of Chancery. These claims include, for example, breach of fiduciary duty claims against current or former directors or officers or controlling stockholders, or persons who aid and abet those breaches, but do not include, for example, federal securities class actions.
The amendment also invalidates provisions that prohibit bringing these claims in the courts of Delaware, such as provisions requiring litigation in the courts of a different state or in an arbitral forum to the exclusion of litigating before Delaware courts. It remains possible to designate exclusive fora other than Delaware in stockholders’ agreements or other contracts.
The amendment requires a Delaware exclusive forum provision to be “consistent with applicable jurisdictional requirements.” The provision may not be enforceable in situations where Delaware lacks jurisdiction over indispensable parties or core elements of the subject matter of the litigation.
In addition, the amendment to the DGCL invalidates, in either a Delaware corporation’s certificate of incorporation or its bylaws, any provision that imposes liability on a stockholder for the attorneys’ fees or expenses of the corporation or any other party in connection with the stockholder’s internal corporate claims. (These so-called “fee-shifting” or “loser pays” provisions attracted interest in stock corporations following the Delaware Supreme Court’s 2014 decision in ATP Tours that fee-shifting provisions in a non-stock corporation’s bylaws can be valid and enforceable under Delaware law.) While it may still be possible to adopt fee-shifting provisions as to non-internal corporate claims, such as federal securities class actions, or to include such provisions in stockholders’ agreements or other contracts, it remains to be seen whether corporations will pursue these avenues with meaningful frequency.
The amendments take effect on August 1, 2015.
From our colleagues Lucas V. Muñoz, Margaret Keane, Ben Gipson and Daniel Lac
Beginning July 1, 2015, employers in the State of California are required to provide employees with paid sick leave (PSL) under the California Healthy Workplace Healthy Family Act of 2014. In short, every employee who works at least 30 days in a year is entitled to accrue PSL at a rate of at least one hour of PSL per 30 hours worked, up to 24 hours per year.
Simple enough? Not really. As employers implement new PSL plans, or modify existing paid time off (PTO) plans to comply with the law, new questions are raised.
To help you understand the ways the Paid Sick Leave Law may affect your company, our colleagues in the Employment Group at DLA Piper have put together a list of 10 points to consider as you strive to comply.
See them here.
Yesterday the SEC issued its long-awaited “pay-versus-performance” rule proposal. The rules would add a new paragraph (v) to Item 402 of Regulation S-K. In short, the proposed rules would require a new table comparing “executive compensation actually paid” to the “total shareholder return” (TSR) of the company and its peers, as well as a discussion of the relationship between these amounts.
Here is a quick summary of the main requirements of the proposal:
In light of the SEC’s first enforcement action against a company for impeding whistleblower activity in violation of Rule 21F-17, employers may wish to consider clarifying in their agreements, policies and practices that involve confidentiality obligations that employees may provide truthful information to the SEC or other governmental agencies concerning potential violations of law.
Rule 21F-17, adopted pursuant to the Dodd-Frank Act, provides in relevant part:
(a) No person may take any action to impede an individual from communicating directly with the Commission staff about a possible securities law violation, including enforcing, or threatening to enforce, a confidentiality agreement … with respect to such communications.
KBR, a Houston-based global technology and engineering firm, had a practice of conducting internal investigations in response to complaints regarding potential illegal or unethical conduct, which included interviewing employees (including those who had lodged a complaint). KBR required witnesses in these internal investigations to sign a confidentiality statement that included the following language:
I understand that in order to protect the integrity of this review, I am prohibited from discussing any particulars regarding this interview and the subject matter discussed during the interview, without the prior authorization of the Law Department. I understand that the unauthorized disclosure of information may be grounds for disciplinary action up to and including termination of employment.
The SEC acknowledged that it was not aware of any employee in fact being prevented from communicating directly with SEC staff, or of KBR taking any action to enforce these confidentiality statements. Nevertheless, the SEC concluded that that the language in the confidentiality statement impeded communications with the SEC staff about potential securities violations by requiring permission from KBR’s legal department or face the prospect of discipline. Continue Reading
We have previously blogged about the SEC’s July 2013 rule change that disqualifies certain “bad actors” from using Rule 506. Thankfully, Rule 506 permits the SEC to determine, upon a showing of good cause, that it is not necessary under the circumstances to deny availability of Rule 506. The SEC has recently issued a policy statement explaining how it will evaluate whether a party seeking a waiver has shown good cause that it is not necessary under the circumstances that the exemptions be denied.
Other securities offering exemptions, including Rule 505 and Regulation A, have had bad actor disqualifications for many years, and the SEC has also had the authority to grant waivers under these exemptions using a similar “good cause” standard. In fact, based on this interesting article from Urska Velikonja, the SEC granted waivers nearly 200 times between July 2003 and December 2014. However, because Rule 506 is so much more widely used in mainstream private securities offerings, significant attention to waivers of bad actor disqualifications emerged as the first waivers were granted under Rule 506 (such as those granted to Oppenheimer and H.D. Vest). The attention to the issue culminated in several SEC commissioners publicly expressing diverging views about the proper use of waivers, including in speeches by SEC Commissioners Daniel Gallagher, Kara Stein and Michael Piwowar and SEC Chair Mary Jo White. This ultimately led to the SEC issuing its recent policy statement to bring consistency to how such waivers are granted, whether under Regulation A, Rule 505 or Rule 506. Continue Reading
Today, the U.S. Supreme Court issued its anticipated Omnicare decision, which addresses the standard of liability applied to expressions of opinion in a registration statement for a public offering. While there will be clamoring about Omnicare (it is somewhat rare for the Supreme Court to issue securities law decisions), in my opinion the case does not involve a fundamental shift in how disclosure is drafted, although it does invite a few drafting and diligence strategies.
Section 11 of the Securities Act of 1933 permits purchasers of securities to sue for damages if a registration statement, at the time it became effective:
- contained an untrue statement of a material fact; or
- omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading.
In contrast with other types of securities liability, neither the untrue statements prong nor the omissions prong of Section 11 requires showing that a defendant acted with any intent to deceive or defraud.
Omnicare, the nation’s largest provider of pharmacy services for residents of nursing homes, filed a registration statement for a public offering of its common stock. In discussing the effects of various laws on its business model, including its acceptance of rebates from pharmaceutical manufacturers, the registration statement contained the following statements of opinion:
- “We believe our contract arrangements with other healthcare providers, our pharmaceutical suppliers and our pharmacy practices are in compliance with applicable federal and state laws.”
- “We believe that our contracts with pharmaceutical manufacturers are legally and economically valid arrangements that bring value to the healthcare system and the patients that we serve.”