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On May 3, 2012, the SEC issued additional FAQs (Questions 18-41) on Title I (IPO on
Ramp) of the JOBS Act clarifying various issues related to emerging
growth companies (EGCs). Highlights of the FAQs are presented
below.
EGC Status
Subject to certain conditions, a company may continue to be an
EGC until the last day of the fiscal year following the fifth
anniversary of its IPO. FAQs explain that this date is determined
by looking to the fiscal year during which the fifth anniversary
occurs. The last day of this fiscal year will be the first day that
the company is a non-emerging growth company, provided that none of
the other disqualifying conditions have been triggered. For
example, if an issuer with a December 31 fiscal year-end first sold
common equity securities in an IPO on May 2, 2012, it would cease
to be an EGC no later than December 31, 2017).
A company will cease to be an EGC on the date on which the
company has issued more than $1 billion in non-convertible debt
during the previous three-year period. FAQs clarify that the SEC
will not object if a company does not count debt securities issued
in an A/B exchange offer towards the foregoing $1 billion debt
limit because these debt securities are identical to (other than
the fact that they are not restricted securities) and replace those
issued in the non-public offering.
FAQs also provide that the company that conducted its IPO as an
EGC may not regain its status as an EGC after losing that
status.
EGC Qualifications
The following companies would not qualify as an
EGC:
asset-backed securities issuer;
investment company registered under the Investment Company Act;
and
a company that is a successor to the company's Exchange Act
reporting obligations where the predecessor was not eligible to be
an EGC because its first sale of common equity securities pursuant
to a registration statement occurred on or before December 8,
2011.
However, a business development company may qualify as an
EGC.
Confidential Treatment
Staff Comment Letters and Issuer Responses to Such
Letters. The SEC clarified that it will publicly
release its comment letters and issuer responses to staff comment
letters on EDGAR no earlier than 20 business days following the
effective date of a registration statement. However, to assist the
SEC in this process, an EGC will have to resubmit, on EDGAR, its
response letters to staff comment letters on confidential draft
registration statements, using the submission type
"CORRESP," when it first files its registration
statements on EDGAR.
Information for Which an EGC Intends to Seek
Confidential Treatment. An EGC should identify
information for which it intends to seek confidential treatment
when it submits its responses to staff comments on confidential
draft registration statements. When the company resubmits its
responses to staff comments on the confidential draft registration
statement on EDGAR, it should follow Rule 83 procedures.
Alternatively, the company could follow Rule 83 procedures at the
time it submits its response letters to the staff.
Confidential Submission of Form S-4 or
F-4. An EGC may use the confidential submission
process to submit a draft registration statement for an A/B debt
exchange offer on Form S-4 or on Form F-4, provided its initial
public offering date has not yet occurred. An EGC must publicly
file the Form S-4 or Form F-4 for its A/B debt exchange offer at
least 21 days before its anticipated date of effectiveness.
Disclosure Guidance
Ratio of Earnings to Fixed Charges.
An EGC will not be required to disclose the ratio of earnings to
fixed charges in a registration statement for periods prior to
those included in the selected financial data.
XBRL Requirements. An EGC is required
to comply with XBRL requirements.
Management's Discussion and
Analysis. An EGC that is not also a smaller reporting
company is not permitted to comply with the smaller reporting
company version of Item 303 of Regulation S-K. However, the JOBS
Act permits an EGC, in its MD&A, to discuss only those audited
periods presented in its audited financial statements. Therefore,
if in the IPO registration statement, an EGC's audited
financial statements cover only two years, then the EGC can limit
its MD&A discussion to those two years.
Form 10-K or 20-F. For an EGC that is
not a smaller reporting company, three years of audited financial
statements are required to be included in its Form 10-K or Form
20-F. As a practical matter, the SEC explains, an EGC will not have
to provide audited financials for periods earlier than those
presented in its IPO registration statement.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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