United States: President Signs The FAST Act: Transportation Legislation Contains Several Securities Law Provisions, Including Modifications To The JOBS Act

On December 4, 2015, President Obama signed into law the Fixing America's Surface Transportation (FAST) Act. The transportation measure includes several securities law-related provisions that (1) facilitate capital-raising transactions for emerging growth companies (EGCs), (2) modernize disclosure requirements for public companies, (3) codify the so-called "Section 4(a)(1˝) exemption" for private resales of restricted securities, and (4) simplify the registration process for smaller reporting companies. Below are brief summaries of the key securities law-related provisions included in the FAST Act.

Modifications to the JOBS Act

Title LXXI – Improving Access to Capital for Emerging Growth Companies of the FAST Act:

  • reduces the 21-day period to a 15-day period during which an EGC must have publicly filed its confidential registration statement with the Securities and Exchange Commission (SEC) prior to commencing its road show;
  • provides a grace period for an issuer that was an EGC at the time it submitted its confidential registration statement to the SEC but ceases to be an EGC prior to the completion of the offering to continue to be treated as an EGC through the earlier of the date on which the issuer consummates its initial public offering (IPO) or the expiration of a one-year period beginning on the date that the issuer ceased to qualify as an EGC; and
  • permits EGCs that file a Form S-1 or Form F-1 registration statement (or submit the statement for confidential review) to omit financial information for historical periods otherwise required by Regulation S-X as of the time of filing (or confidential submission) provided that (i) the omitted financial information relates to a historical period the EGC reasonably believes will not be required in the Form S-1 or F-1 at the time of the contemplated offering and (ii) prior to the distribution of a preliminary prospectus to investors, the registration statement is amended to include all financial information required by Regulation S-X at the date of such amendment.

The first two modifications are effective immediately. While the third set of changes relating to the omission of certain historical financial information will become effective on January 4, 2016, the Division of Corporation Finance will not object if EGCs apply this provision immediately. Thus, an EGC that is currently planning an IPO in 2016 and intends to market its IPO using 2015 audited financial statements (e.g., audited financials for its most recently completed fiscal year) could omit its 2013 audited financial statements from its registration statement (or confidential submission) if it reasonably believes that those older financial statements will be replaced by the time of its proposed IPO and so long as the registration statement is amended to include the 2015 audited financials before a preliminary prospectus is distributed to investors. While this provision should help to reduce the costs borne by an EGC by eliminating the need for it to prepare financial information that will ultimately be replaced and updated at the time of the IPO, an EGC should evaluate whether including this financial information at the time of its initial filing (or confidential submission) is still merited in order to preview any potential issues with the staff and reduce the amount (or likelihood) of comments later in the process.

Disclosure Modernization

Title LXXII – Disclosure Modernization and Simplification of the FAST Act:

  • requires the SEC, by June 1, 2016, to:

    • issue rules to permit issuers to include a summary page in their annual reports on Form 10-K, but only if each item on such summary page includes a cross-reference (by electronic link or otherwise) to the relevant material contained in the Form 10-K; and
    • take action to revise Regulation S-K to scale or eliminate the disclosure requirements in order to reduce the burden on EGCs, accelerated filers, smaller reporting companies, and other smaller issuers and eliminate duplicative, overlapping, outdated, or unnecessary provisions, while still providing all material information to investors, and subject to any necessary studies (including the study described in the next paragraph) to assess the efficacy of such provisions.
  • instructs the SEC to conduct a study of Regulation S-K requirements, in consultation with the Investor Advisory Committee and the Advisory Committee on Small and Emerging Companies, to determine how best to modernize and simplify its requirements in order to reduce the costs and burden on issuers. The SEC shall issue its report to Congress by November 28, 2016, containing its finding and including specific and detailed recommendations, which the SEC shall implement in a rulemaking to be proposed within 360 days of the date of issuance of the report.

In December 2013, the SEC issued a report, mandated by the JOBS Act, to Congress on its disclosure rules for U.S. public companies and provided the staff's preliminary conclusions and recommendations about disclosure reform. The SEC Division of Corporation Finance is currently reviewing the disclosure requirements in Regulation S-K and Regulation S-X, and is considering ways to improve the disclosure regime (the "Disclosure Effectiveness project"). It is not clear how or whether these FAST Act provisions will impact or modify the SEC's current Disclosure Effectiveness project.

Codifying the Section 4(a)(1˝ ) Exemption

Title LXXVI – Reforming Access for Investments in Startup Enterprises of the FAST Act amends, effective immediately, the Securities Act of 1933 by adding a new Section 4(a)(7), which would exempt from the registration requirements of Section 5 of the Securities Act transactions that satisfy the following requirements:

  • each purchaser is an accredited investor;
  • neither the seller, nor any person acting on the seller's behalf, offers or sells the securities by means of any general solicitation or general advertising;
  • the seller is not the issuer or a direct or indirect subsidiary of the issuer;
  • neither the seller, nor any person that has been or will be paid a commission, is a "bad actor" under Rule 506(d) or is subject to statutory disqualification under Section 3(a)(39) of the Securities Exchange Act of 1934;
  • the issuer is engaged in business, is not in the organizational stage or in bankruptcy or receivership, and is not a blank check, blind pool, shell company, or special purpose acquisition company;
  • if the issuer is neither subject to the reporting requirements of the Exchange Act nor exempt from such reporting requirements pursuant to Rule 12g3-2(b) (or a foreign government), the seller and a prospective purchaser designated by the seller must obtain from the issuer and the seller must make available to a prospective purchaser certain reasonably current (as defined in Section 4(a)(7)) information regarding the issuer, including:

    • general information regarding the issuer (e.g., the name and address of the issuer, its transfer agent, and corporate secretary, the names of its officers and directors, the names of any persons registered as a broker, dealer, or agent that shall be paid any commission in the offer or sale of the securities, and a reasonably current statement of the nature of the issuer's business, products, and services);
    • information regarding the securities (e.g., the title, class, and par value of the security, the number of securities outstanding);
    • reasonably current financial information (e.g., most recent balance sheet and income statements for the two preceding fiscal years (or such lesser period as the issuer has been in operation) that is prepared in accordance with GAAP or, in the case of a foreign private issuer, IFRS; and
    • if the seller is a "control person" with respect to the issuer, a brief statement regarding the nature of the affiliation and a statement certified by the seller that it has no reasonable grounds to believe the issuer is in violation of the securities laws or regulations.
  • the transaction does not involve a security that constitutes an unsold allotment to a broker or dealer as an underwriter of the security or a redistribution; and
  • the transaction is with respect to a security of a class that has been authorized and outstanding for at least 90 days prior to the date of the transaction.

The securities issued in such transaction will be deemed to have been acquired in a transaction not involving any public offering and the transaction will not be deemed to constitute a distribution. The securities will be "restricted securities" for purposes of Rule 144 and "covered securities" that are exempt from registration or qualification under state "blue sky" laws. Note that while the legislative intent of these provisions is to facilitate the creation of a secondary market in securities of private companies, the exemption would apply to resales of securities of all issuers, public and private. The new Section 4(a)(7) exemption should provide affiliates of an issuer with an alternative means of liquidity to the traditional use of Rule 144.

Easing Registration for Smaller Reporting Companies

Title LXXXIV – Small Company Simple Registration of the FAST Act directs the SEC to revise Form S-1, not later than January 18, 2016, to allow smaller reporting companies (as defined in Rule 405) to "forward incorporate" by reference in its registration statement any documents that it files with the SEC after the effective date of such registration statement. This change will make it easier for smaller reporting companies to use Form S-1 to facilitate "shelf takedown" transactions.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.