by Cydney Posner
The President has signed the FAST Act into law. As previously discussed, this transportation bill contains several measures that modify the JOBS Act or otherwise relate to capital raising for emerging growth companies, disclosure modernization, the development of secondary markets and the registration process for smaller companies. On December 10, 2015, Corp Fin issued an announcement describing those measures and providing additional guidance. This post has been updated (in italics) to reflect Corp Fin guidance set forth in that announcement.
Below are short summaries of the some of the key relevant provisions of the Act:
IMPROVING ACCESS TO CAPITAL FOR EMERGING GROWTH COMPANIES
- Amends Section 6(e)(1) of the Securities Act to reduce from 21 to 15 the number of days prior to the roadshow that the confidential submission of an IPO registration statement for an EGC must be made public. (Effective upon enactment.) Corp Fin has indicated that EGCs with IPOs pending before the FAST Act became law (or at any time thereafter) may take advantage of the provision. Consistent with the prior interpretation, if an EGC does not conduct a roadshow, the non-public drafts must be filed at least 15 days before the effectiveness of the registration statement.
- Amends Section 6(e)(1) to allow an issuer that was an EGC at the time it submitted or filed its registration statement for review but ceased to be an EGC thereafter to continue to be treated as an EGC under that subsection until it either completes its IPO under that registration statement or one year after it ceased to be an EGC, whichever is earlier. (Effective upon enactment.) According to Corp Fin, EGCs with registration statements pending at the time of enactment may rely on the provision.
- Amends Section 102 of the JOBS Act to require the SEC, within 30 days of enactment, to revise Forms S-1 and F-1 to indicate that EGCs may omit from their pre-IPO registration statements financial information for historical periods otherwise required by Reg S-X so long as the omitted financial information relates to a historical period that the issuer reasonably believes will not be required to be included at the time of the contemplated offering and, prior to distribution of the prelim, the registration statement is amended to include all financial information required by Reg S-X at the date of the amendment. EGCs would be entitled to rely on the provision and omit the same financial information from their S-1 (or F-1) registration statements 30 days after enactment. Corp Fin has indicated that it will not object if EGCs apply this provision immediately.
Sidebar: So, for example, a company won’t have to audit a fiscal year that would otherwise have been required at the time it submitted its confidential filing if it reasonably believes that those financial statements won’t be required to be included at the time of the offering.
DISCLOSURE MODERNIZATION AND SIMPLIFICATION
- Requires the SEC, within 180 after enactment, to issue regs permitting issuers to submit a 10-K summary page, but only if each item on the summary page includes a cross-reference (by electronic link or otherwise) to the related material in the 10-K. Corp Fin observes that there is no current prohibition on including a summary in a Form 10-K so long as the summary fairly represents the material information in the report. Implementation of the requirement for cross-references will require rulemaking.
- Requires the SEC, within 180 days after enactment, to revise Reg S-K:
- to further scale or eliminate requirements of Reg S-K to reduce the burden on EGCs, accelerated filers, smaller reporting companies and other smaller issuers, while still providing all material information to investors;
- to eliminate provisions of Reg S-K, for all issuers, that are duplicative, overlapping, outdated or unnecessary and that the SEC determines no further study (below) to be necessary to determine their efficacy.
- Requires the SEC to conduct a study of Reg S-K, in consultation with the SEC’s Investor Advisory Committee and the Advisory Committee on Small and Emerging Companies, report to Congress on the study in 360 days and issue proposed rules in another 360 days:
- to determine how best to modernize and simplify Reg S-K to reduce costs and burdens while still providing all material information;
- to emphasize a company-by-company approach that avoids boilerplate or static requirements while preserving completeness and comparability of information across registrants; and
- to evaluate methods of information delivery and presentation and explore methods for discouraging repetition and the disclosure of immaterial information.
REFORMING ACCESS FOR INVESTMENTS IN STARTUP ENTERPRISES
Amends (effective upon enactment) Section 4 of the Securities Act to exempt from the registration requirements certain secondary (non-issuer) transactions with accredited investors that meet the following requirements:
- Each purchaser is an accredited investor;
- Neither the seller, nor any person acting on the seller’s behalf, offers or sells securities by a general solicitation;
- If the issuer is not publicly held, the seller and a prospective purchaser designated by the seller obtain from the issuer reasonably current information identifying the issuer and its business and products, the securities, the issuer’s officers and directors, the transfer agent, any paid broker or dealer, GAAP financial statements for the two prior fiscal years, and, if the seller is a control person, a brief statement regarding the nature of the affiliation, and a statement certified by the seller that it has no reasonable grounds to believe that the issuer is in violation of the securities laws;
- Neither the issuer nor anyone paid a commission for participation may be “bad actors”;
- The issuer is engaged in business, is not in the organizational stage or in bankruptcy, and is not a blank check, blind pool or shell company;
- The transaction does not involve an unsold allotment to, or a subscription or participation by an underwriter or a redistribution;
- The class of securities has been authorized and outstanding for at least 90 days.
The securities issued are deemed to be “restricted” securities under Rule 144 and “covered securities” for purposes of NSMIA (i.e., exempt from state blue sky laws).
SMALL COMPANY SIMPLE REGISTRATION
Requires the SEC, within 45 days after enactment, to revise Form S-1 to permit a smaller reporting company to incorporate by reference in a Form S-1 any documents that the company files with the SEC after the effective date of the registration statement.