February 6, 2007

More on the SEC Speaks on Problematic PIPEs

According to this Forbes article, the Mob is doing PIPE deals! Anways, following up on last week’s blog on the SEC Staff’s guidance on resales of securities underlying convertible notes, Andy Thorpe of Morrison & Foerster fleshes out what Marty Dunn and Shelley Parratt said at the Northwestern conference:

Corp Fin’s goal is to elicit clear disclosure in the registration statement so that purchasers in the secondary sale understand the background of the convertible note transaction and its effect on the company and on the shareholders. Regarding the 10-12 items it seeks, the Staff may request the following types of disclosure:

– The determination of the number of shares to register
– The dollar value of the securities registered for resale
– Amount of all fees and all payments made to the selling securityholder, its affiliates, or any other party such as a placement agent in connection with the transaction
– Amount of all proceeds to the issuer and amounts deducted from the proceeds
– Possible profits from the conversion of the notes (including profits as a result of a market discount built into the conversion formula)
– Prior transactions among the issuer and the selling securityholders
– Relationships between the selling securityholders and relationships between the selling securityholders and the issuer
– Issuer’s intention or ability to make payments under the terms of the notes
– The dilutive effect of the conversion
– The identities of natural persons with voting or investment power over the securities registered on behalf of the selling securityholders
– Short positions of the selling securityholders known to the issuer

Marty and Shelley also stated that transactions are more likely to withstand scrutiny as a valid secondary transaction if there are a large number of selling securityholders that are not affiliated with each other or the issuer – and where no single securityholder is selling a large number of securities.

Regarding the 60-day/six-month guidance, Marty indicated that the test is to be determined on a per selling shareholder (and its affiliates) basis. This means that a company can file a resale registration statement for a subsequent PIPE transaction before 60-day or six-month period if it contains new selling securityholders that are unaffiliated with those on the previous registration statement.

By the way,we just announced a new webcast – “The Latest on PIPEs II” – during which the panel will discuss the lay of the land for PIPEs now.

Analysis: Congress’ Proposed Legislation on Deferred Compensation

On February 1st, the Senate overwhelmingly approved the “The Small Business and Work Opportunity Act of 2007,” which would amend the Internal Revenue Code that would significantly curtail any employee’s ability to defer compensation in excess of $1 million per year under Section 409A. In addition, the Act would broaden the definition of “covered employee” under Section 162(m) so as to apply the $1 million deduction limitation to payments made to a “covered employee” even after such individual ceases to serve in that capacity. In this podcast, Art Meyers of Seyfarth Shaw provides some insight into this proposed legislation, including:

– What’s in the Senate’s bill regarding deferred compensation?
– What would be the implications if the bill became law with no changes?
– What might happen in the Senate-House conferencing to change the bill?

Implementing Scrutiny-Proof Grant Procedures

For NASPP members, catch the webcast tomorrow – “Implementing Scrutiny-Proof Grant Procedures” – to hear Howard Dicker of Weil Gotshal, Sharon Hendricks of Heller Ehrman, Bill Dunn of PricewaterhouseCoopers and JD Higginbotham of Monolithic Power Systems discuss grant practices that all companies should consider implementing, as well as important control to prevent errors or even fraud.