May 14, 2012

JOBS Act: EGC Status As a Risk Factor

As noted in this article, LegalZoom is one of the first companies to announce its upcoming IPO after first submitting its registration statement under Corp Fin’s confidential submission policy. Here’s the company’s Form S-1 that it filed on Thursday, presumably after responding to comments from the Staff.

The company’s prospectus has several disclosures related to its status as an “emerging growth company.” For example, notice this risk factor on page 20 (there are several other risk factors that also touch upon EGC status – or risks of losing that status):

We are an “emerging growth company,” and we cannot be certain if the reduced reporting requirements applicable to emerging growth companies will make our common stock less attractive to investors.

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act, or the JOBS Act. For as long as we continue to be an emerging growth company, we may take advantage of exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. We could be an emerging growth company for up to five years, although circumstances could cause us to lose that status earlier, including if the market value of our common stock held by non-affiliates exceeds $700 million as of any June 30 before that time, in which case we would no longer be an emerging growth company as of the following December 31. We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.

Under the JOBS Act, emerging growth companies can also delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have irrevocably elected not to avail ourself of this exemption from new or revised accounting standards and, therefore, will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

That matches the theme of this statement on the prospectus cover page:

We are an “emerging growth company” under the federal securities laws and will be subject to reduced public company reporting requirements. Investing in our common stock involves risks. See “Risk Factors” beginning on page 11.

In addition, there is this MD&A statement on page 50 under “Recent Accounting Pronouncements”:

As an emerging growth company under the JOBS Act, we have elected to opt out of the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the Act. This election is irrevocable.

Don’t forget that our just-published May-June issue of The Corporate Counsel contains in-depth and practical guidance on the JOBS Act. If you’re not yet a subscriber, try a no-risk trial now to get the issue rushed to you.

JOBS Act: Corp Fin Updates Its Confidential Submission Process

When Corp Fin initially announced its procedures for making confidential submissions under the JOBS Act last month, it stated that it would be implementing a system for electronic transmission. On Friday, Corp Fin provided an updated announcement that launches an electronic transmission process that replaces the procedures announced back in April – this is available for emerging growth companies and certain foreign private issuers. Someday, these submissions will be made via Edgar – but Edgar still needs to be reconfigured to allow for that.

Here’s an excerpt from the updated announcement:

All issuers submitting draft registration statements confidentially pursuant to the JOBS Act or for non-public review under the Division policy must follow these instructions on how to use the secure e-mail system. All draft submissions must be in text searchable PDF format and should include a transmittal letter identifying the issuer and the type of submission. Emerging Growth Companies should confirm their status as an EGC in their transmittal letters. We will confirm receipt of submissions via secure e-mail.

More on our “Proxy Season Blog”

We continue to post new items regularly on our “Proxy Season Blog” for members. Members can sign up to get that blog pushed out to them via email whenever there is a new entry by simply inputting their email address on the left side of that blog. Here are some of the latest entries:

– Even More on ” Adjournment and Circulation of Proxy Cards”
– SEC Staff Comments: Questioning Qualifications of Financial Reporting Staff
– Reminder: SEC Interpretation on Reconciliation for Use of Non-GAAP Measures in CD&As – OPERS: Auditor Ratification Dependent on % of Non-Audit Fees Paid
– A Final Look at E&S Proposal Results
– Shareholder Proposals: Questions of Proof of Ownership Continue

– Broc Romanek