February 19, 2010

FINRA: Implementing a Same-Day Clearance Option for Shelf Filings

Here is news from Suzanne Rothwell of Skadden Arps:

FINRA’s Corporate Financing Department is responsible for the pre-offering review of public offerings of securities for compliance with FINRA’s regulations governing underwriting terms and arrangements. In most cases, in order for a shelf takedown to be completed in compliance with FINRA Rule 5110, participating broker/dealers must rely on FINRA’s prior issuance of a “conditional no objections” opinion with respect to the base shelf prospectus and also obtain FINRA’s opinion of “no objections” with respect to the takedown prospectus.

In an effort to address the timing issues related to shelf offerings, FINRA has announced that on March 1st, it will implement a new “Same-Day Clearance Option” for the issuer’s base shelf prospectus and the takedown prospectus for those offerings where counsel can make a number of representations. The FINRA “conditional no objections” opinion on the base shelf prospectus and the “no objections” opinion on the takedown prospectus will be issued automatically once a filing that relies on the Same-Day Clearance Option is accepted by the FINRA’s electronic COBRADesk filing system. The base shelf prospectus and the takedown prospectus can be filed separately or simultaneously under the new procedure.

FINRA has not yet issued explanatory materials related to the new procedure. These materials should be available some time next week and will be distributed. However, based on information made available at a FINRA Roundtable on Shelf Offering Review, it is my understanding that, in order to qualify for Same-Day Clearance Option in the case of a shelf takedown, counsel will be required to represent on behalf of participating members that underwriting compensation will not exceed 8% of the gross offering proceeds, the offering does not include any arrangements specifically prohibited by FINRA Rule 5110(f), all items of underwriting compensation are disclosed in the prospectus supplement, and participating broker/dealers have not received securities that are treated as underwriting compensation (except for fair priced derivatives).

More limited representations are required from issuer’s counsel with respect to FINRA filing of the base prospectus. This process will be available for shelf offerings subject to FINRA’s conflict of interest rule (NASD Rule 2720) in most circumstances. In such case, an additional representation regarding compliance with Rule 2720 will be required. FINRA staff initially discussed that they will conduct a post-clearance review as to the accuracy of the representations submitted. FINRA materials may further clarify the scope of this review.

More on “New York Law: ‘Abstentions’ as ‘Votes Cast'”

Some members were confused by the member statement that I included in this blog regarding the NYSE’s view of “abstentions.” Here is my attempt to clarify the NYSE’s position:

Rule 312.07 contains two requirements with respect to the shareholder approval of transactions or compensation plans under Sections 312.03 and 303A.08 of the NYSE Listed Company Manual: (a) a majority of votes cast must approve the proposal and (b) total votes cast must represent over 50% in interest of all securities entitled to vote.

The NYSE counts votes “for”, “against” and “abstain” as votes cast in determining the numerator used in the calculation to determine (b). Broker non-votes are not treated as votes cast, but are included as “securities entitled to vote” for purposes of determining the denominator in the calculation to determine (b), as are all voting securities whether or not they are represented at the meeting. Then, (a) is a majority of the shares counted as present at the meeting for purposes of (b).

Put another way, (b) is “for”+”against”+”abstain” divided by outstanding shares (whether or not represented at the meeting), while (a) is 50% plus one of or”+”against”+”abstain”. Using an example, if there are 100 shares outstanding, at least 51 shares must be cast in total as “for”, “against” or “abstain” votes. This satisfies (b). To satisfy (a), at least 26 shares must be voted “for” the proposal (assuming, for purposes of our example, that exactly 26 shares are represented at the meeting).

So in the NYSE’s view, an “abstain” has the same effect as an “against” vote. It’s a totally different standard from the “majority of votes cast” requirements of state law (at least in Delaware, New York and Pennsylvania as far as I know).

Some Thoughts on Pre-IPO Acquisitions

In this podcast, David Westenberg of WilmerHale discusses pre-IPO acquisitions, including:

– What “business” issues arise for a private company when making an acquisition, especially if the acquisition is concurrent with its IPO?
– Can you provide an overview of the unique legal issues that arise when a private company pursues an acquisition?
– What advice do you have for private companies that are contemplating an acquisition?

– Broc Romanek