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Partner Gavin Grover of San Francisco’s Morrison & Foerster has not slowed down just because the stock market has. Initial public offerings — the tool of choice for dot-coms looking to raise capital — have been reduced to a trickle in the wake of a recent market downturn. And it’s too soon to tell whether this week’s turnaround in the Nasdaq will improve matters. Grover is wrapping up a $5.5 billion cash acquisition of client Verio Inc. by a Japanese telecommunications conglomerate. And with companies looking for other ways to access cash, he’s also wrestling with securities regulations to help clients with busted IPOs close a round of private investment. “After an IPO is pulled, there’s private placement questions and general solicitation concerns,” Grover said. “They’ve got to raise money elsewhere or they’ve got to get merged or they have to shut down.” With most initial and secondary public offerings on ice, many corporate lawyers like Grover are frantically structuring alternative deals for their clients. That includes mergers and acquisitions and private investments, or “placements.” Others, however, are using the slowdown as an opportunity to take a much-needed breather. Since the beginning of the year, San Francisco Bay Area technology firms have seen clients set a longer time line for their offerings. And 22 clients have withdrawn their IPOs altogether, according to Hoover’s Inc., a corporate data service. Through mid-June, Hoover’s reveals Wilson Sonsini Goodrich & Rosati had nine clients pull their IPOs this year. Five of Cooley Godward’s clients yanked their deals, and three Brobeck, Phleger & Harrison clients canned their IPOs. MoFo, meanwhile, had one client put on the brakes. Lawyers say the number of panned secondary offerings is even greater. The clients who still need money, but can’t get it from the markets, face greater hurdles than simply finding investors. The Securities and Exchange Commission strictly limits how private companies may solicit investors. Under SEC rules, companies preparing to sell shares to the public can’t use the process to woo investors into a round of financing that isn’t open to everyone. So lawyers are looking for ways to stay within SEC rules while still enabling clients to secure financing. “The SEC looks at the universe of information when it determines whether the private offering you’re making meets the criteria of a private placement,” said James Fulton Jr., a Cooley Godward associate in Menlo Park, Calif. “If you have a registration on file, the SEC will ask how is it not a public solicitation,” Fulton said. The new head of the SEC’s Division of Corporate Finance, David Martin, took some heat on the issue earlier this month during a speech at Stanford University. The SEC hasn’t come up with set rules for companies to follow when caught between private investors and a hostile market. But Martin assured lawyers the agency is sympathetic. Currently, lawyers rely on a series of so-called “no-action” letters issued by the SEC on a case-by-case basis. The SEC issues these letters to clear the way for some deals. “We’re not going to tell clients they can’t raise money, they just can’t market to a host of new investors,” Cooley partner Eric Jensen said. One of Jensen’s clients, a semiconductor company, was getting a tepid reception for its IPO and turned to a private placement instead. By tapping customers and suppliers the client already knew, Jensen structured a $30 million investment that most likely won’t run afoul of SEC rules. Had the investors learned of his client through the IPO process, the deal would have been out of the question, Jensen said. Lawyers are also managing a number of mergers and acquisitions — but with a new cast of characters. Until recently, publicly traded technology companies were on buying sprees, using their own high-flying stock as currency. With the market turmoil, “newly public companies who have had their stocks hammered aren’t doing acquisitions,” said Ralph “Buddy” Arnheim III, a Perkins Coie partner in Menlo Park. The activity he is seeing is among smaller, pre-public companies that need to grow quickly but cannot raise money in the public markets. “There have been a lot of companies that have been started or funded, and the access to [more] funding has slowed down,” Arnheim said. Though some are still being deluged with work, a number of tech lawyers claim they are happy to see the slowdown. “The pace is fine — not the completely crazy, to-the-wall pace,” said Venture Law Group partner Joshua Green in Menlo Park. “I’ve been through a number of these cycles, and what many call a down cycle some consider a healthy environment.”

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