President Obama Signs the FAST Act, Codifying a New Resale Exemption and Creating Additional Accommodations for EGCs | Practical Law

President Obama Signs the FAST Act, Codifying a New Resale Exemption and Creating Additional Accommodations for EGCs | Practical Law

President Obama signed the Fixing America's Surface Transportation Act (FAST Act), which introduces a new exemption under the Securities Act for resales similar to Section "4(1½)" and adds new accommodations for emerging growth companies conducting registered offerings, among other changes.

President Obama Signs the FAST Act, Codifying a New Resale Exemption and Creating Additional Accommodations for EGCs

by Practical Law Corporate & Securities
Published on 04 Dec 2015 • USA (National/Federal)
President Obama signed the Fixing America's Surface Transportation Act (FAST Act), which introduces a new exemption under the Securities Act for resales similar to Section "4(1½)" and adds new accommodations for emerging growth companies conducting registered offerings, among other changes.
On December 4, 2015, President Obama signed into law the Fixing America's Surface Transportation Act (FAST Act). Congress had previously passed the FAST Act on December 3, 2015. The FAST Act is a continuation of the Jumpstart Our Business Startups Act of 2012 (JOBS Act) in that it adopts additional changes to the federal securities laws that are designed to facilitate the ability of smaller companies to raise capital.
The FAST Act includes the following reforms and other provisions:
Each of these is discussed below.

Change to Timing Requirement for Initial Public Filing of EGC IPO Registration Statements

The JOBS Act eliminated the requirement for EGCs to publicly file an IPO registration statement. Instead, an EGC may confidentially submit its registration statement and any amendments to the Securities and Exchange Commission (SEC) as long as the EGC publicly files the initial confidential submission and all related amendments with the SEC at least 21 days before any road show.
The FAST Act reduces this 21-day requirement to 15 days. For more information on the confidential submission process, see Practice Note, JOBS Act: On-ramp to the Capital Markets for Emerging Growth Companies Summary.

Grace Period for Change of Status of EGCs

After the adoption of the JOBS Act, the SEC issued guidance stating that, if an issuer is an EGC at the time it files its IPO registration statement but ceases to be an EGC during the SEC review process, the issuer may continue to rely on the EGC rules through the effective date of the registration statement.
The FAST Act introduces a grace period for a change of EGC status by permitting an issuer that is an EGC at the time it confidentially submits or publicly files a registration statement with the SEC but ceases to be an EGC to continue to be treated as an EGC until the earlier of:
  • The date on which it consummates its IPO.
  • The end of the one-year period beginning on the date it ceases to be an EGC.

Simplified Disclosure Requirements for EGCs

The FAST Act requires the SEC, within 30 days of its enactment, to revise Forms S-1 and F-1 to indicate that a registration statement filed (or confidentially submitted) by an EGC prior to an IPO may omit financial information for historical periods that are otherwise required by Regulation S-X as long as both:
  • The omitted financial information relates to a historical period that the issuer reasonably believes will not be required to be included in the Form S-1 or F-1 at the time of the contemplated offering.
  • Prior to the issuer distributing a preliminary prospectus to investors, the registration statement is amended to include all financial information required by Regulation S-X at the date of that amendment.
This provision states that issuers may rely on this new accommodation, effective 30 days after the enactment of the FAST Act, without reference to whether the SEC has made the mandated revisions to Forms S-1 and F-1.
This change to Forms S-1 and F-1 effectively permits EGCs to exclude historical financial statements that will be superseded by more recent financial statements during the SEC review process. For example, an issuer that files a registration statement near the end of its fiscal year may omit the oldest year of required financial statements if it reasonably believes that during the SEC review process those financial statements will be replaced in the registration statement by financial statements for its most recent fiscal year.
For more information on Regulation S-X and the financial statements required to be included in Forms S-1 and F-1, see:

Amendments to Form 10-K and Regulation S-K

The FAST Act requires the SEC:
  • Within 180 days of its enactment to:
    • issue regulations permitting issuers to include a summary page within Form 10-K as long as each item on the summary page includes a cross-reference to the related material in Form 10-K;
    • revise Regulation S-K to reduce the burden on EGCs, accelerated filers, smaller reporting companies and other smaller issuers; and
    • eliminate provisions of Regulation S-K that are duplicative, overlapping, outdated or unnecessary.
  • To carry out a study on Regulation S-K to:
    • determine how to modernize and simplify Regulation S-K in a manner that reduces all costs and burdens on issuers;
    • emphasize a company-by-company approach that eliminates boilerplate language and static requirements; and
    • evaluate methods of information delivery and presentation that discourage repetition and the disclosure of immaterial information.
The SEC is also required to:
  • Submit a report to Congress on:
    • the findings of its Regulation S-K study;
    • recommendations on modernizing and simplifying Regulation S-K; and
    • recommendations on ways to improve the readability and navigability of disclosure documents and to discourage repetition and the disclosure of immaterial information.
  • Issue proposed rules to implement the recommendations included in the report.
For more information on Form 10-K, see Practice Note, Form 10-K.

New Section 4(a)(7) Exemption

Title LXXVI of the FAST Act (also known as the Reforming Access for Investments in Startup Enterprises Act (RAISE Act)) adds new Section 4(a)(7) to the Securities Act, which is similar to the so-called Section "4(1½)" procedures for certain unregistered resales. Section 4(a)(7) exempts transactions in which:
  • Each purchaser is an accredited investor.
  • Neither the seller nor any person acting on the seller's behalf uses general solicitation or general advertising.
  • If the issuer is a non-reporting issuer, not exempt from reporting pursuant to Rule 12g3-2(b) under the Exchange Act or not a foreign government eligible to register securities on Schedule B, at the request of the seller, the seller and a prospective purchaser designated by the seller are able to obtain from the issuer the following information (which must be reasonably current):
    • the exact name of the issuer and any predecessor;
    • the address of the issuer's principal executive offices;
    • the exact title and class of the security;
    • the par or stated value of the security;
    • the number of shares or total amount of the securities outstanding as of the end of the issuer's most recent fiscal year;
    • the name and address of the transfer agent, corporate secretary, or other person responsible for transferring shares and stock certificates;
    • a statement of the nature of the business of the issuer and the products and services it offers, which will be presumed reasonably current if the statement is as of 12 months before the transaction date;
    • the names of the officers and directors of the issuer;
    • the names of any persons registered as a broker, dealer or agent that will receive, directly or indirectly, any commission;
    • the issuer's most recent balance sheet (which must be as of a date within 16 months of the transaction date);
    • the issuer's profit and loss statements for the two preceding fiscal years, with the most recent profit and loss statement covering the 12 months preceding the date of the issuer's balance sheet;
    • if the issuer's balance sheet is not as of a date less than six months before the transaction date, an interim profit and loss statement covering the period between the date of the balance sheet to a date less than six months before the transaction date; and
    • if the seller is a control person of the issuer, a statement regarding the nature of the affiliation and a certification by the seller that it has no reasonable grounds to believe that the issuer is in violation of the securities laws.
  • The seller is not a direct or indirect subsidiary of the issuer.
  • Neither the seller nor any person that will directly or indirectly receive remuneration or a commission for their participation in the offering is subject to:
  • The issuer is:
    • engaged in business;
    • not in the organizational stage or in bankruptcy or receivership; and
    • not a blank check, blind pool or shell company that has no specific business plan or purpose or has indicated that the issuer's primary business plan is to engage in a merger or combination of the business with, or an acquisition of, an unidentified person.
  • The securities are not part of an unsold allotment to, or a subscription or participation by, a broker or dealer acting as an underwriter or a redistribution.
  • The class of securities has been authorized and outstanding for at least 90 days prior to the transaction.
Any financial statements required to be delivered in a transaction relying on Section 4(a)(7) must be prepared in accordance with US generally accepted accounting principles (GAAP). However, if the issuer is a foreign private issuer, these financial statements may be prepared in accordance with GAAP or International Financial Reporting Standards issued by the International Accounting Standards Board.
Securities acquired in reliance on Section 4(a)(7) will be:
For more information on Section "4(1½)", see Practice Note, Resales Under Rule 144A and Section "4(1½)".

Forward Incorporation by Reference in Form S-1s Filed by Smaller Reporting Companies

The FAST Act requires the SEC, within 45 days of its enactment, to revise Form S-1 to permit smaller reporting companies to incorporate by reference any documents filed after the effective date of the registration statement.
For more information on smaller reporting companies, see Practice Note, Determining Smaller Reporting Company Status and Understanding Key Differences in Its Disclosure and Reporting Requirements.

Exchange Act Registration Thresholds for Savings and Loan Holding Companies

Section 12(g)(1)(B) of the Exchange Act requires any bank or bank holding company that has total assets exceeding $12 million and a class of equity securities (other than an exempted security) held of record by at least 2,000 persons to register that class of security under the Exchange Act. The FAST Act expands Section 12(g)(1)(B) to include "savings and loan holding companies" (as defined in Section 10 of the Home Owners' Loan Act).
Savings and loan holding companies had previously been subject to the Exchange Act registration thresholds included in Section 12(g)(1)(A) of the Exchange Act, which apply generally to any entity that is not a bank or bank holding company.
For more information on registering under the Exchange Act, see Practice Note, Exchange Act Registration: Overview.