“Accredited Investor” Definition Changed by the SEC

Dec. 21, 2011, the Securities and Exchange Commission (the "SEC") adopted a final rule amending the definition and calculation for individuals eligible to participate in certain unregistered securities offerings as an "accredited investor" as per Rules 215 and Rule 501 of Regulation D under the Securities Act of 1933, as amended (the "Securities Act").

The final rule also addresses certain interpretive issues and becomes effective 60 days after it is published in the Federal Register, on February 27, 2012, and implements the requirements set forth in Section 413(a) of the Dodd-Frank Act that an individual exclude the value of his or her primary residence when calculating whether his or her net worth exceeds the $1 million minimum requirement for qualification as an accredited investor. This Rule primarily affects companies and funds that rely on one of the "private placement" exemptions, found in Regulation D (e.g. Rules 504, 505 and 506) under the Securities Act, from the registration requirements of the Securities Act when raising private capital from individual investors. The Rule impacts all companies, both public and private, raising capital through private placements with accredited investors under Regulation D. The amendments change the methodology for calculating the $1 million net worth threshold when calculating an individual’s net worth. Pursuant to the final amended Rule, an individual’s net worth should:

• exclude as an asset the person’s primary residence;
• exclude as a liability the indebtedness secured by a person’s primary residence, up to the estimated fair market value of the property at the time of the sale of securities, unless the person incurred the debt within 60 days prior to the purchase of securities in the exempt offering for the purpose of buying the securities and not for buying the primary residence; and
• Include as a liability any indebtedness secured by the person’s primary residence that exceeds the estimated fair market value of the property.

The SEC noted that this provision is intended to reduce incentives for an individual investor to increase the debt secured against his or her residence only for the purpose of making investments and/or qualifying as an accredited investor. Moreover, the SEC interprets "net worth’ as something commonly understood to mean the difference between the value of an individual’s assets and the value of his or her liabilities and "primary residence", which the SEC notes is commonly understood to mean the home where a person lives most of the time..

Grandfathering provisions are also included in the final Rule for investment decisions taken prior to the enactment of the Dodd-Frank Act. Specifically, the revised net worth calculation will not apply to a purchase of securities in accordance with a right to purchase such securities, provided that: (i) the right was held by the individual on or before July 20, 2010; (ii) the individual already qualified as an accredited investor on the basis of net worth at the time the individual acquired such right; and (iii) the individual held securities of the same issuer, on July 20, 2010.

The grandfathering provision also applies to the exercise of statutory rights in connection with an investor’s pre-existing rights to acquire securities (such as pre-emptive rights arising under state law), rights arising under an entity’s constituent documents and contractual rights (such as rights to acquire securities upon exercise of an option or warrant or upon conversion of a convertible instrument, rights of first offer or first refusal‚ and contractual pre-emptive rights).

Beware: Funds and companies should immediately correct their offering documents, subscription documents and investor questionnaires and:

• update their subscription and other investment agreements to incorporate the new definition of accredited investor;
• review the terms of any outstanding rights to acquire securities, such as warrants, stock options and convertible securities, that permit exercise by accredited investors, to determine whether any amendments are required; and
• make sure when necessary that the bring down representations comply with, the new definition.

For additional information please feel free to contact one of our securities attorneys at 

INFO@JSBarkats.COM

http://www.jsbarkats.com/

or by Telephone at 646 502-7001

OTCQX Criteria

M E M O R A N D U M

From: Huan (Wendy) Zheng

Date: April, 21,2011

Re: OTCQX Criteria

The OTCQX marketplace is the premier tier of the U.S. Over-the-Counter (OTC) market, providing investors with an objective measure to distinguish the best OTC-traded companies. OTCQX is comprised of two distinct tiers, OTCQX U.S. Premier and OTCQX U.S., each of which has different eligibility requirements.  OTCQX U.S. Premier is designed to identify Companies that are of the size and quality to list on a National Stock Exchange.  OTCQX U.S. is designed to identify Companies that are operating Companies with audited financials, but not of sufficient size to be OTCQX U.S. Premier.

Requirements for OTCQX U.S.:

To be considered for admission to the OTCQX U.S. tier of OTCQX, the Company shall:

a) As of the most recent fiscal year end, have $2 million in total assets and one of the following: (i) $2 million in revenues; (ii) $1 million in net tangible assets; (iii) $500,000 in net income; or (iv) $5 million in market value of publicly traded securities;

b) Have ongoing operations and shall not be a Shell Company, Blank-Check Company, Special Purpose Acquisition Company or Development Stage Company;

c) Not be subject to any Bankruptcy or reorganization proceedings;

d) Be duly organized, validly existing and in good standing under the laws of each jurisdiction in which the Company is organized or does business;

e) Have at least 50 beneficial shareholders, each owning at least 100 shares of the Company’s common stock;

f) Have proprietary priced quotations published by a Market Maker in OTC Link;

g) Have a minimum bid price of $0.10 per share for its common stock as of the close of business on each of the 90 consecutive trading days immediately preceding the Company’s application for OTCQX, provided, however, that in the event that (i) there has been no prior public market for the Company’s securities in the U.S. and (ii) FINRA has approved a Form 211 relating to the Company’s securities, then the Company may apply in writing to OTC Markets Group for an exemption from the minimum bid price requirements, which exemption may be granted by OTC Markets Group in its sole and absolute discretion;

h) Have (i) audited balance sheets as of the end of each of the two most recent fiscal years, or as of a date within 135 days if the Company has been in existence for less than two fiscal years, and audited statements of income, cash flows and changes in stockholders’ equity for each of the fiscal years immediately preceding the date of each such audited balance sheet (or such shorter period as the Company has been in existence), with each such financial disclosure made in accordance with U.S. GAAP and including all matters of which the Company is aware that are relevant to the Company’s ability to continue as a going concern, including, without limitation, significant conditions and events and the Company’s plans to mitigate such conditions and events; and (ii) unaudited interim financial reports, prepared in conformance with U.S. GAAP, including a balance sheet as of the end of the Company’s most recent fiscal quarter, and income statements, statements of changes in stockholders’ equity and statements of cash flows for the interim period up to the date of such balance sheet and the comparable period of the preceding fiscal year; and

i) Be included in a securities manual published by Standard and Poor’s or Mergent.

Requirement of OTCQX U.S. premier:

To be considered for admission to OTCQX U.S. Premier, the Company must satisfy all of the eligibility requirements for the OTCQX U.S. tier above, plus must satisfy the following additional requirements.  To qualify for trading on OTCQX U.S. Premier, a Company must:

a) As of the most recent fiscal year end, have one of the following qualifications: (i) average revenues of at least $6 million over the prior three years; or (ii) (a) $2 million in net tangible assets if in operation for at least three years, or (b) $5 million in net tangible assets if in operation for less than three years;

b) Have at least 100 beneficial shareholders, each owning at least 100 shares of the Company’s common stock;

c) Have a minimum bid price of $1.00 per share for its common stock as of the close of business on each of the 90 consecutive trading days immediately preceding the Company’s application for OTCQX.  In the event that (1) there has been no prior public market for the Company’s securities in the U.S., (2) FINRA has approved a Form 211 regarding the Company securities, and (3) the bid price for the Company’s securities is equal to or greater than  $1.00, then this minimum bid price requirement shall not apply;

d) Meet the financial standards for continued listing on the NASDAQ Capital Market if its securities have not previously been traded on OTCQX U.S. Premier, except that the Company is not required to (i) have a class of securities with at least 300 shareholders, (ii) have proprietary priced quotations published by 2 Market Makers or (iii) comply with NASDAQ corporate governance provisions; and

e) Conduct annual shareholders’ meetings and submit annual financial reports to its shareholders at least 15 calendar days prior to such meetings.

Procedures to Retain a Designated Advisor for Disclosure (DAD)

Regardless of which tier a Company is eligible for a Company that is applying for admission to OTCQX must retain an Attorney DAD or an Investment Bank DAD.  As a condition of qualification for trading on OTCQX, the Company shall retain an Attorney DAD or Investment Bank DAD in accordance with the following procedures: 

a)  Approval by OTC Markets Group Required.  The Company may only appoint an Attorney DAD or Investment Bank DAD if:  (1) such Attorney DAD’s or Investment Bank DAD’s “Application to Serve as an Attorney DAD/PAL or Investment Bank DAD/PAL” has been approved by OTC Markets Group and such Attorney DAD or Investment Bank DAD has executed an “Agreement to Serve as an Attorney DAD/PAL or Investment Bank DAD/PAL,” or (2) such Attorney DAD or Investment Bank DAD is already included on OTC Markets Group’s DAD/PAL List.  

b)  Selection of a DAD. Generally, the Company must retain an Investment Bank as its DAD.  The only exception to this rule is that the Company may choose to retain an Attorney as its DAD if (1) the Company is a Seasoned Public Issuer, meaning a company that has engaged in its current business operations and has had a class of its securities publicly traded on OTC Link, the OTCBB or a national securities exchange for not less than two years. (2) a majority (greater than 50%) of the Company’s assets, revenues, shareholders and management are in the United States, and (3) the Attorney serves as the Company’s Principal Disclosure Counsel[1].  

c)  Appointment of Designated Advisor for Disclosure.  To appoint the selected Attorney or Investment Bank as the Company’s Designated Advisor for Disclosure, the Company, such Attorney or Investment Bank, as applicable, and OTC Markets Group shall together execute an “Issuer Appointment of an Attorney Designated Advisor for Disclosure” or an “Issuer Appointment of an Investment Bank Designated Advisor for Disclosure,” as applicable.  

d)  Appointment of a new DAD.  The Company may appoint a new DAD at any time, provided that the Company retains an approved DAD at all times.  The new DAD must be approved by OTC Markets Group pursuant to requirement (a) and comply with the initial and ongoing obligations of a DAD pursuant to these OTCQX Rules for U.S. Companies.  To appoint a new DAD, (1) the Company must provide OTC Markets Group with a copy of the notification sent to its previous DAD terminating the DAD relationship, (2) the Company, the new DAD and OTC Markets Group must execute an “Issuer Appointment of an Attorney Designated Advisor for Disclosure” or an “Issuer Appointment of an Investment Bank Designated Advisor for Disclosure”, as applicable and (3) the new DAD must provide the Company, and the Company must provide OTC Markets Group, with a Letter of Introduction.

Additional requirements

a)  The Attorney DAD or Investment Bank DAD will provide the Company with a Letter of Introduction in connection with the Company’s application for OTCQX, which the Company shall submit to OTC Markets Group.  Thereafter, on a quarterly basis and an annual basis, the Attorney DAD or Investment Bank DAD shall provide the Company with Quarterly DAD Letters and Annual DAD Letters, which the Company shall also submit to OTC Markets Group, confirming that the issuer has made adequate current information publicly available and meets the tier inclusion requirements. 

b)  Within 75 days of the end of each fiscal quarter, the Company will provide OTC Markets Group with a letter it has received from its Attorney DAD or Investment Bank DAD; provided, however, that such letter is not required for the fourth quarter of the Company’s fiscal year since the DAD will instead be

OTCQX companies don’t have to report to SEC

OTCQX is a type of over-the-counter securities markets whereby securities are traded in some context other than a formal exchange, therefore companies trading on it are not required with registered with SEC and has no obligation to report to SEC. However, because companies that join OTCQX demonstrate their commitment to providing superior information to investors and maintaining the highest quality standards, they need to provide audited financials and some disclosures as required by OTCQX rules.

For further information contact us at info@JSBarkats.com  or visit our web site at: www.JSBarkats.com

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[1] “Principal Disclosure Counsel” shall mean an attorney or law firm retained by the Company to provide advice with respect to the Company’s disclosure obligations and to assist the Company in the preparation of the Information, except for the Company’s financial statements.

Immigration News: H-1B Cap, New AP/EAD Card, Worksite Enforcement

H-1B Cap Count for Fiscal Year (FY) 2012:

As of 4/15/11, the U.S. Citizenship & Immigration Services (USCIS) received approximately 7,100 H-1B petitions counting toward the 65,000 cap and 5,100 H-1B petitions toward the 20,000 cap exemption for individuals with advanced degrees.

New Advance Parole (Travel Document)/Employment Authorization Document (EAD) For Adjustment of Status Applicants

On February 11, 2011, USCIS began issuing a card that demonstrates both employment and travel authorization.  This card is issued to individuals who file applications for permanent residence and is an acceptable List A document for Form I-9. An applicant may receive the new card when he or she files an Application for Employment Authorization, Form I-765, and an Application for Travel Document, Form I-131, concurrently with or after filing Form I-485.

Sample card:

USCIS Issues Revised Handbook for Employers

USCIS recently released a revised version of the Handbook for Employers – Instructions for Completing Form I-9 (Form M-274). Employers should go to http://www.uscis.gov/files/form/m-274.pdf  to download the revised Handbook, dated 01/05/11.

The revised Handbook includes:

·  Expanded guidance on how employers should reverify employment eligibility for workers who provide I-9 documentation that establishes temporary work authorization.

·  The types of I-9 documentation available to lawful permanent residents(LPRs), refugees and asylees, Temporary Protected Status (TPS) recipients, H-1B and H-2A visa holders, exchange visitors and foreign students.

·  Guidance on workers with temporary employment authorization for whom extensions of stay have been filed (i.e., STEM OPT extensions).

·  Guidance on how to handle name changes for current employees and accepting a new hire’s documents when the name on the document is different than the name on the Form I-9.

·  Guidance for employers in the Commonwealth of the Northern Mariana Islands (CNMI) who must use the Form I-9 CNMI, including lists of acceptable documents.

·  Expanded guidance on using an electronic Form I-9.

·  New sample images of certain List A documents.

More on Worksite Enforcement

The Department of Homeland Security (DHS), through the USCIS, and in partnership with federal, state, and local government agencies, has developed interagency programs in order to maximize the government’s ability to verify and share information pertaining to a worker’s employment eligibility or a foreign national’s immigration status. The development of technology and web based programs are at the core of the government’s anti-fraud and worksite enforcement efforts. While we praise the ongoing initiatives, we understand that many individuals and businesses find themselves overwhelmed by the amount of information available on some programs and confused by the lack of details in others. The chart below provides basic and important information about five programs that can be easily accessed by businesses, individual users, or other federal, state, and local agencies in order to verify a worker’s employment eligibility or a foreign national’s immigration status.  Please note that the government relies on other interagency resources and procedures not described in this chart to conduct security and background checks on all foreign nationals seeking immigration related benefits or seeking to enter the U.S.

	PROGRAMS
	E-Verify	E-Verify Self Check (Self-Check)	Validation Instrument for Business Enterprises (VIBE)	Systematic Alien Verification for Entitlements (SAVE)	Petition Information Management Service (PIMS)
Administering Agency	USCIS in partnership with the Social Security Administration (SSA)	USCIS in partnership with the SSA	USCIS in partnership with an independent information provider (IIP) – currently the Dun & Bradstreet (D&B) database	USCIS	U.S. Department of State’s (DOS) Kentucky Consular Center (KCC).
Purpose	Free Internet-based system that allows businesses to determine the eligibility of their employees to work in the U.S.	Free Internet-based  system that allows individual users over the age of 16 to check their employment eligibility status in the U.S.	Free web-based program which uses commercially available data to validate basic information about companies or organizations petitioning to employ FNs	Online interagency system designed to aid benefit-granting agencies in determining an applicant’s immigration status so that only entitled applicants receive federal, state, or local public benefits and licenses	Created by DOS to provide consular posts with official, inter-agency, notification of H, L, O, P, and Q visa classification approvals Consular post must confirm a petition approval in PIMS before issuing a visa
Accessible By	U.S. businesses and employers Participation is optional for U.S. businesses but mandatory for most federal contractors	Pilot program is available to users who maintain an address and are physically located in Arizona, Colorado, Idaho, Mississippi, or Virginia It is unlawful for a current or potential employer to request an employee’s Self-Check result Participation is optional	USCIS pilot program	Federal, state, or local benefit-issuing government agencies and licensing bureaus in the U.S. Participation is optional	U.S. consular posts Participation is mandatory
Method to Address System Error	Tentative non- confirmation letter (TNC) refers the employee to the appropriate government agency to review and resolve the mismatch	User is given instructions to contact DHS or SSA. In the alternative, user can wait for the employer to initiate an E-Verify check	USCIS will issue a request for evidence (RFE) or a Notice of Intent to Deny (NOID) if it is necessary to resolve relevant inconsistencies and make a determination based on the totality of the circumstances The petitioner may also contact D&B to update their record and prevent future RFEs/NOIDs	Agency or foreign national (FN) can contact USCIS, Customs and Border Protection (CBP), or Immigration and Customs Enforcement (ICE) depending on the nature and origination of the error The FN can also submit a FOIA request	Consular posts must notify the KCC by e-mail and request verification. Petitioner or attorney is not allowed to contact KCC directly

The government is continuously working and engaging the public in order to enhance the programs described above. In the interim, users may experience delays when trying to resolve a problem. Navigating the maze of agencies that are connected to these programs requires patience and a practical understanding of the role of each agency. JSBarkats PLLC lawyers have extensive experience dealing with employment eligibility verification and visa issues and are able to assist you. Please contact Eva Frecker at 646.502.7001 or by email at efrecker@jsbarkats.com.

Immigration News: H-1B Cap, EB2 Visa Availability and Worksite Enforcement

H-1B Cap Count for Fiscal Year (FY) 2012:

USCIS has received approximately 5,900 H-1B petitions counting toward the 65,000 cap, and approximately 4,500 petitions toward the 20,000 cap exemption for individuals with advanced degrees.

H-1B “Cap-Gap” for Students Changing Status from F1 to H-1B:

As in previous years, USCIS will grant the cap-gap extension to certain F-1 students in the U.S. with pending or approved H-1B petitions for an employment start date of October 1, 2011, under the FY2012 H-1B cap.  The cap-gap extension functionality should only be used in cases where a student’s status or Optional Practice Training (OPT) may end before October 1, 2011.

Update on EB-2 Visa Availability
Charlie Oppenheim, Chief, Immigrant Visa Control and Reporting Division, U.S. Department of State, informed the American Immigration Lawyers Association (AILA) of a dramatic reduction in the use of EB-1 numbers. He stated:

“[US]CIS says they have seen a decline in filings, and does not expect a change in the number use pattern. Therefore, this decline in EB-1 number use will allow me to begin having those ‘otherwise unused’ numbers drop down and be available for use in the EB-2 category. Based on current indications, that would mean that at least 12,000 additional numbers will be available to the EB-2 category. This situation will allow me to advance the India EB-2 cut-off date for May. The reason being that all ‘otherwise unused’ numbers are provided strictly in priority date order, and the India demand has the largest concentration of early dates.”

Pursuant to the DOS Visa Bulletin for May 2011 (Visa Bulletin), the cut-off date for Indian Foreign Nationals in the EB-2 category is July 1, 2006.  The cut-off date for Chinese Foreign Nationals in the EB-2 category is August 1, 2006.

Further, the Visa Bulletin provides the following update regarding visa availability during the following months:

Family-sponsored: The extremely high level of demand during the first few months of FY-2011 resulted in the retrogression of most worldwide cut-off dates in January or February. While most of these cut-offs have begun to advance slowly, heavy demand in the Family First preference has caused a further retrogression for May. At this time it is not possible to predict the rate of forward movement, but some movement is anticipated in most categories for the remainder of the fiscal year.

Employment-based: At this time the amount of demand being received in the Employment First preference is extremely low compared with that of recent years. Absent an immediate and dramatic increase in demand, this category will remain “Current” for all countries. It also appears unlikely that a Second preference cut-off date will be imposed for any countries other than China and India, where demand is extremely high.

Department of Homeland Security and Department of Labor Worksite Enforcement:

The Department of Homeland Security (DHS) and the Department of Labor (DOL) released a March 31, 2011, Memorandum of Understanding (MOU), which specifies that Immigration and Customs Enforcement (ICE) will not investigate worksites where DOL is conducting an investigation or where there is an ongoing labor dispute, unless there is an independent, supervening cause.  The DHS and its component agencies, including ICE, enforce the U.S. immigration laws.  The DOL and its component agencies, enforce the U.S. labor laws. While the DHS and the DOL agreed that they will not conduct joint or coordinated civil enforcement activities at a worksite, the two agencies have agreed to “create a means to exchange information to foster enforcement against abusive employment practices directed against workers regardless of status.” 

JSBarkats PLLC lawyers  have extensive experience dealing with these issues and are available to assist you.  Please contact Eva Frecker at 646.502.7001 or by email at efrecker@jsbarkats.com.