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Acronym for Right of First Refusal.
- ROFR Agreement
An agreement that a corporation typically enters into when it issues Preferred Stock to Investors in a VC Financing, which sets out, among other things, the ROFR held by the corporation and the Investors.
Acronym for Restricted Stock Purchase Agreement.
Approval by the Board of an action that has already occurred.
An adjustment or reshuffling of a company’s Capitalization, which may be treated as tax free under certain circumstances. Sometimes called a Recap.
- Redeemable Preferred
Preferred Stock that has Redemption Rights (either optional or mandatory) as set forth in a corporation’s Charter.
The repurchase of Shares upon the occurrence of certain specified events at a predetermined price or formula set forth in a corporation’s Charter.
- Redemption Price
The price paid for Shares in the event of a Redemption as set forth in a corporation’s Charter.
- Redemption Rights
The right to Redemption held by certain Stockholders as set forth in a corporation’s Charter. This right is often negotiated for in connection with a Preferred Stock Financing, but is becoming less common of late (and is rarely seen in West Coast VC Financing).
- Registered Public Offering
A Distribution of Securities that is not exempt from registration with the SEC.
- Registration A+
Recent amendments to Regulation A under the Securities Act, which took effect on June 19, 2015. The purpose of Regulation A was to lessen the burden of registration under the Securities Act for small offerings. These amendments, among other things, increased the amount of capital that can be raised in Regulation A offerings from US$5 million to US$50 million over a 12 month period and created a two-tiered structure for eligible Issuers. See Latham & Watkins Client Alert – SEC Adopts Regulation A+ Rules (4/7/15) for more information about Regulation A+.
- Registration Rights or Reg Rights
Rights of a Stockholder to force an Issuer to register its Securities with the SEC. These rights enhance the Liquidity of the Securities because registered Securities are freely tradable. Registration Rights (or Reg Rights) can take several forms. Holders of Equity Securities obtained in a VC Financing often have rights to demand that the Issuer register its Securities or to piggyback onto an offering in which the Issuer is already engaging. See Piggyback Registration Rights and Demand Registration Rights.
- Registration Statement
The document filed with the SEC in connection with a Registered Public Offering of Securities. The Registration Statement contains the Prospectus.
- Regulation Crowdfunding
Final rules adopted by the SEC on October 30, 2015, permitting companies to offer and sell Securities through Crowdfunding. Regulation Crowdfunding enables Investors to purchase Securities in Crowdfunding offerings, subject to certain limitations, and require Issuers relying on Regulation Crowdfunding to disclose certain information about their business and offering, as mandated by the JOBS Act. Specifically, Regulation Crowdfunding permits an Issuer to raise a maximum aggregate amount of US$1 million through Crowdfunding offerings in a 12-month period and allow Investors to invest up to US$100,000 across all Crowdfunding offerings in the course of a 12-month period, depending on their annual income and net worth. As a result of Regulation Crowdfunding, Issuers can now conduct Securities offerings that are exempt from the registration requirements of the Securities Act, yet that are open to all types of Investors, including ordinary retail, Non-Accredited Investors. However, it is not clear to what degree Startups will utilize Regulation Crowdfunding given the relatively low investment limits, the complexity of the rules and the associated compliance costs. Issuers may instead opt to rely on other available exemptions which Issuers may use to raise capital through Crowdfunding, including SEC Registration A+ and Regulation D, Rule 506(c). See Latham & Watkins Client Alert No. 1893, “SEC Adopts Final Crowdfunding Rules” (November 10, 2015).
- Regulation D Offering
An offering of Securities made pursuant to Reg D.
- Regulation D or Reg D
Spells out the rules for a valid Private Placement. Under the Securities Act, any offer to sell Securities must either be registered with the SEC or made pursuant to an exemption. Regulation D provides a safe harbor for sales of Securities in transactions “not involving any public offering” within the meaning of Section 4(a)(2) of the Securities Act (i.e., the most common exemption relied upon for Private Placements). Since Regulation D was originally adopted, the availability of the safe harbor has been subject to the condition that neither the Issuer nor anyone on its behalf will engage in any form of solicitation. The JOBS Act changed all this, and as of September 23, 2013, Rule 506(c) permits general solicitation in Regulation D Private Placements where certain conditions are met, including that the Issuer take “reasonable steps to verify” that Purchasers are Accredited Investors. See Latham & Watkins Client Alert No. 1569, “You Talkin’ to Me?” (July 25, 2013). See No General Solicitation.
- Regulation S or Reg S
Provides an exemption from the registration requirements of the Securities Act for certain offshore transactions. Most Rule 144A Financings also have a Reg S component to allow for offshore sales. Rule 144A/Regulation S Financings do not have to be registered with the SEC because the Purchasers are either QIBs buying pursuant to Rule 144A or they are outside the US and buying pursuant to Reg S (yes, US securities laws apply to a sale anywhere in the world).
Moving a corporation’s state of Incorporation to another jurisdiction.
A generic term for some fundamental change in a company’s Capitalization and/or in its financial and legal obligations.
- Reporting Company
A company that files Periodic Reports with the SEC.
- Representations and Warranties
An assertion of fact in a contract (such as an Acquisition Agreement, Merger Agreement, Note Purchase Agreement or Stock Purchase Agreement). Representations and Warranties are the means by which one party to a contract tells the other party that something is true as of a particular date and if that something is not, then the company will provide appropriate disclosures in the corresponding Disclosure Schedule (or be liable for failure to disclose). Representations and Warranties can also be used to allocate a risk of unknown facts and/or future events if appropriately drafted to do so.
- Repurchase Provisions
Provisions typically found in Restricted Stock Purchase Agreement issued to Founders that provide the corporation with the right to buy back any Shares that have not yet Vested when the Founder leaves the corporation.
- Restricted Securities
Securities that have been issued on a private (unregistered) basis and are not yet eligible for public resale pursuant to Rule 144.
- Restricted Stock
Stock not registered for sale under the Securities Act. As a result, the manner in which the Stock may lawfully be sold is restricted to Private Placement and other non-regulated transactions. With respect to equity compensation, Restricted Stock refers to Stock granted or purchased by a Founder or other early Employee who is subject to Vesting and either Forfeiture Provisions or Repurchase Provisions, usually tied to continued service. Employees who join a Startup later on in its life cycle typically receive Options instead of Restricted Stock as the Per Share Price has usually become higher than most Employees would be willing (or able) to pay upfront.
- Restricted Stock Purchase Agreement (RSPA)
The equity grant documentation typically used to issue Restricted Stock. This agreement typically includes the number of Shares being purchased, the Per Share Price, the Vesting Schedule, either Repurchase Provisions or Forfeiture Provisions, a ROFR and any other restrictions. Founders normally receive their initial Shares of Stock under an RSPA.
- Return on Investment (ROI)
A calculation used to evaluate the efficiency of an investment. ROI is the amount of proceeds received from the sale of an investment less the cost of the investment, divided by the cost of the investment. An ROI that a venture Investor might seek could range from 2x–10x depending on the stage of investment and level of execution and market risk that lies ahead at the time.
- Reverse Subsidiary Merger
A Triangular Merger in which a Subsidiary of the Buyer (usually a wholly owned Subsidiary created for this purpose) is merged with and into the Target Company, and the Target Company is the surviving company in the Merger. A Reverse Subsidiary Merger is the preferred form of Triangular Merger because a Reverse Subsidiary Merger avoids issues concerning the assignability of Target Company contracts and similar rights to the Buyer or one of the Buyer’s Subsidiaries. Also referred to as a Reverse Merger, Reverse Sub Merger and Reverse Triangular Merger.
- Right of First Refusal (ROFR)
The right held by a company to receive notice if a Stockholder subject to this right wants to sell its shares to a third party and to have the ability to purchase the offered Shares first on the same terms and conditions as proposed to the third party. Startups typically have ROFR provisions applicable to all grants of Common Stock (either found in a company’s Bylaws or equity grant documentation), as a way to maintain control over who holds Stock in the company. In VC Financing, VCs often require a ROFR Agreement that extends a secondary ROFR to VCs (giving them the right to purchase the offered Shares only after the company has first passed on its ROFR). By contrast, VCs typically do not agree to have their Shares subject to a ROFR.
- Rights Offering
Offering of Equity made to Stockholders who have Preemptive Rights or Participation Rights with respect to a particular Financing and sometimes to other Stockholders who do not have such rights, as well.
- Road Show
The trip around the country (or around the world), often on private jets, that Issuers and bankers (but not lawyers) go on in order to meet with potential Purchasers of the Securities being offered. A Road Show is the heart of the marketing process in a Registered Public Offering.
- Rule 10b-5
The SEC rule regarding employment of manipulative and deceptive practices. Rule 10b-5 is one of the most important SEC rules. This rule seeks to prohibit fraud or deceit in connection with the purchase or sale of any Security, including insider trading.
- Rule 144
A rule under the Securities Act creating a safe harbor from Underwriter status for public sales of Restricted Securities.
- Rule 144A
Provides a resale exemption from the registration requirements of the Securities Act. The rule permits persons who purchase Securities in Private Placements to resell them freely in the Secondary Market if (i) the subject Security is not listed on a national securities exchange and (ii) the sales are to Qualified Institutional Buyers. See Rule 144A Financings for why this rule is so important.
- Rule 144A Financings
A transaction where an investment bank buys Securities from an Issuer pursuant to a Private Placement and immediately resells the Securities to QIBs in reliance on Rule 144A. Rule 144A Financings are attractive to Issuers because these transactions can be consummated without SEC registration, allowing greater speed to market.
- Rule 405
Contains the definitions of many terms used in other Securities Act rules. Sort of like the SEC’s Book of Jargon.
- Rule 501
Contains the definitions and terms used in Reg D. Sort of like the SEC's Book of Jargon.
- Rule 504
Exemption for limited offerings and sales of Securities not exceeding US$1 million. Given the limitations of this exemption, Rule 504 is far less used than Rule 506.
- Rule 505
Exemption for limited offers and sales of Securities not exceeding US$5 million. Given the limitations of this exemption, Rule 505 is far less used than Rule 506.
- Rule 506
One of the Section 4(a)(2) safe harbors within Regulation D that permits a Private Placement of an unlimited amount of Securities. Rule 506(b) requirements include that (i) the Issuer cannot engage in any form of general solicitation and (ii) the Issuer may only sell to Accredited Investors and up to 35 Non-Accredited Investors who have sufficient knowledge and experience in financial and business matters to make them capable of evaluating the merits and risks of the prospective investment (but if there are any Non-Accredited Investors then there are certain disclosure requirements, which Issuers tend to prefer to avoid due to the cost and time associated with drafting such disclosure). However, Rule 506(c) permits general solicitation provided all actual Investors are Accredited Investors and the Issuer has taken reasonable steps to verify that the Investors are Accredited Investors. Rule 506 exemptions are not available if the Issuer or certain associated persons are Bad Actors. See Reg D.
How much time a company can function (usually measured in months) until they run out of money (and thus need to raise additional funding). Calculated by dividing the current cash by the monthly Burn Rate.