In December 2015, President Obama signed into law the Fixing America’s Surface Transportation Act (the “FAST Act”), which, among other legislation in its 1300+ pages, includes several bills designed to facilitate the offer and sale of securities. We believe that not only will these new provisions facilitate offerings by so-called emerging growth companies (“EGCs,” a category of issuer established by the JOBS Act in 2012), but that the SEC, using its rulemaking authority, may and should expand some of these accommodations to a much broader set of issuers, offerings and forms. The impact of this proposed expansion would, inter alia, make these changes significant for WKSI issuers and the use of the SEC’s M&A forms. We set forth the arguments for extension of the scope of these accommodations in the linked comment letter, which we authored last week on behalf of the Securities Industry and Financial Markets Association (“SIFMA”) in response to the SEC’s FAST Act-related interim final rules and request for comment dated January 19, 2016.
In the SIFMA comment letter, we propose that (1) the accommodation allowing emerging growth companies to omit from Form S-1 or F-1 filings financial statements that will not be required in the filing at the time of effectiveness should apply to all issuers and all forms, and (2) the accommodation allowing smaller reporting companies to forward incorporate into Form S-1 should be extended to all issuers. These changes would significantly reduce burdens on issuers without meaningful cost to investors. In particular, we believe the ability to omit older financial statements in the IPO context and in the M&A context (including on Form S-4) – where any issuer could file a registration statement, for example, in December 2016 without including 2013 financials (of itself or, in the M&A context, a target), assuming the financials for the year ended 2016 will be included by the time of effectiveness – will reduce costs and eliminate unnecessary speed bumps.
We also took the opportunity in the comment letter to suggest that the SEC consider making forms S-4 and F-4 automatically effective for WKSIs that are using these forms for “A/B” exchange offers.
Title LXXI of the FAST Act (“Improving Access to Capital for Emerging Growth Companies”) does three things to further facilitate capital raising by EGCs.
- First, it amends the Securities Act to reduce from 21 to 15 the number of days required between an EGC’s first public filing of its IPO registration statement and the commencement of a road show. We expect EGC issuers will welcome the ability to go to market sooner after the first public filing because they will have more flexibility to take advantage of favorable market conditions.
- Second, Title LXXI establishes a grace period for an EGC that loses EGC status after its initial filing or confidential submission but before completing its IPO, by allowing it to be treated as an EGC until the earlier of the consummation of its IPO and one year after it ceases to be an EGC. As written, this provision amends only Section 6(e)(1) of the Securities Act, which includes only the accommodation for EGCs to confidentially file IPO registration statements. We believe Congress could not have intended this reference to apply so narrowly (i.e., to allow EGCs that lose EGC status to use only the confidential filing accommodation and not the other accommodations for EGCs) and must have intended the grace period to apply to all EGC accommodations.
- Third, Title LXXI permits EGCs to omit historical financial information for certain periods otherwise required by Regulation S-X under the Securities Act (“S-X”) as of the time of filing or confidential submission, provided the issuer reasonably believes the information will not be required to be included at the time of the contemplated offering. SEC staff subsequently clarified the scope of this accommodation through two Compliance and Disclosure Interpretations:
- One clarifies that it applies to all historical financial information required by S-X, including financial statements of other entities (e.g., financial statements of an acquired company required under S-X Rule 3-05).
- The other establishes that issuers cannot use the accommodation to exclude the most recent interim period required by S-X, even if that period will be replaced with a longer interim or annual period in the final registration statement (e.g., for a January 2016 filing where an EGC expects to consummate the offering after its year-end 2015 audited financial statements are available, it can omit 2013 as noted above but cannot omit the nine-month periods ended September 30, 2015 and September 30, 2014).
Separately, Section 84001 of the FAST Act requires the SEC to revise Form S-1 to permit a smaller reporting company to incorporate by reference into its registration statement any documents filed by the issuer subsequent to the effective date of the registration statement.