United States: FAST Act Legislation Eases Capital Raising Restrictions And Seeks To Simplify Disclosure Requirements

In December 2015, President Obama signed into law the Fixing America's Surface Transportation Act (FAST Act). Buried in the hundreds of unrelated pages of the FAST Act are several provisions that modify the previously adopted Jumpstart Our Business Startups Act (JOBS Act). The FAST Act impacts capital raising for emerging growth companies (EGCs), seeks to simplify disclosure requirements for reporting companies, codifies a previously informal exemption from registration for resales of securities and streamlines the registration process for smaller reporting companies. The key securities provisions of the FAST Act are summarized below.

NEW RULES BENEFITTING EGCS

  • Under the JOBS Act, an EGC is permitted to confidentially submit a draft registration statement for SEC review, provided that the draft registration statement is publicly filed with the SEC no later than 21 calendar days before the EGC commences its "roadshow." The FAST Act reduces this period from 21 days to 15 days, allowing EGCs to potentially price their public securities offerings more quickly.
  • The FAST Act amends the JOBS Act by requiring that, within 30 days of the enactment of the FAST Act, the SEC revise the instructions to Form S-1 and Form F-1 in order to permit a company that is filing a registration statement or submitting a registration statement for confidential review to omit financial information for historical periods that otherwise would be required by Regulation S-X at the time of filing or submission, provided that such omitted financial information will not be required to be included in the Form S-1 or Form F-1 at the time of the consummation of the offering, and that prior to distribution of a preliminary prospectus to investors, the registration statement includes all required financial statements. This amendment can save companies significant time and money by eliminating the need to prepare financial statements that they know will become stale and will have no use to investors.
  • The FAST Act amends the Securities Act to allow a company that was an EGC at the time it submitted or filed its registration statement for SEC review but ceased to be an EGC thereafter to continue to be treated as an EGC for limited purposes until the earlier of completing its IPO under that registration statement or one year after it ceased to be an EGC. This gives companies more time to make the necessary adjustments to their internal controls and disclosure practices.

SMALLER REPORTING COMPANY INCORPORATION BY REFERENCE

The FAST Act requires the SEC, within 45 days after the enactment of the FAST Act, to revise Form S-1 to permit any 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 its registration statement. Under current rules, for ongoing offerings or resale registrations, a company that is not eligible to use Form S-3 must continually amend or supplement its Form S-1 registration statement. This amendment will provide for automatic updates through periodic reports filed by the company, thus eliminating the time and effort to prepare mostly duplicative separate filings that formerly were needed to update Form S-1.

NEW RESALE EXEMPTION

The FAST Act adds a new Section 4(a)(7) to the Securities Act, which is an exemption for resales of securities to accredited investors. Section 4(a)(7) provides a statutory exemption from registration for certain resales that had previously been exempt under the less formal but well-established so-called "Section 4(a)(1½)" exemption. Section 4(a)(1½) attempts to combine an exemption for companies issuing securities in private placements with an exemption for resales of restricted securities by persons other than companies, underwriters or dealers. While widely used for resales by affiliates of companies or resales by accredited investors that have not held the securities for a long enough period to qualify for other exemptions, the Section 4(a)(1½) exemption is not technically part of the Securities Act. The new Section 4(a)(7) codifies Section 4(a)(1½) exemption, albeit with several conditions, giving those who rely on it greater comfort as to the validity of the exemption.

This provision exempts from registration secondary transactions that meet the following requirements:

  • Each purchaser is an accredited investor;
  • Neither the seller, nor any person acting on seller's behalf, engages in any form of general solicitation; and
  • In the case of a company that is not a reporting company, the seller and a prospective purchaser designated by the seller obtain from the company certain information, including the company's name, principal place of business, title and class of the security being offered and the current capitalization of the company, transfer agent details, a statement of the company's current business and products, the company's directors and officers, information regarding brokers and dealers, the company's most recent balance sheet and profit and loss statement and similar financial statements for the two prior fiscal years prepared in accordance with GAAP, and if the seller is an affiliate of the company, a statement regarding the nature of the affiliation accompanied by a certification from the seller that it has no reasonable grounds to believe that the company is in violation of the securities law.

The new Section 4(a)(7) is not available if:

  • The seller is a direct or indirect subsidiary of the company;
  • The company or anyone paid a commission for participation is subject to the "bad actor" provisions included in Rule 506 of the Securities Act;
  • The company is at an organizational stage, in bankruptcy, or is a blank check, blind pool or shell company;
  • The transaction relates to a broker-dealer's or underwriter's unsold overallotment; or
  • The class of securities has not been authorized and outstanding for at least 90 days.

Securities sold pursuant to a Section 4(a)(7) resale transaction will be considered "restricted securities" under Rule 144 and "covered securities" for blue sky purposes. A sale made pursuant to this exemption will not be deemed to be a "distribution" under the Securities Act.

SIMPLIFIED DISCLOSURE REQUIREMENTS UNDER FORM 10-K AND REGULATION S-K

The FAST Act also seeks to simplify disclosure requirements under Regulation S-K and Form 10-K, including:

  • Requiring the SEC, within 180 days after enactment of the FAST Act, to revise Regulation S-K to scale or eliminate requirements to reduce the burden on EGCs, accelerated filers and smaller reporting companies and to eliminate duplicative, overlapping, outdated or unnecessary requirements for all companies, while still providing all material information to investors. The FAST Act also requires the SEC to conduct a study on Regulation S-K and eventually to enact related rules to (1) determine how best to modernize and simplify Regulation S-K to reduce costs and burdens while still providing all material information, (2) emphasize a company-by-company approach that avoids boilerplate or static requirements while preserving completeness and comparability of information access across companies, and (3) evaluate methods of information delivery and presentation and explore methods for discouraging repetition and the disclosure of immaterial information. The SEC staff was already undertaking a review of Regulations S-K and S-X with the goal of this type of simplification, so these changes essentially accelerate that process.
  • Requiring the SEC, within 180 days after the enactment of the FAST Act, to issue regulations permitting companies to submit a Form 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 Form 10-K. Companies may already currently go beyond the letter of the disclosure rules to provide additional information, and this change does not appear on its face to mandate any new disclosure, merely to permit it.

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
Howard E. Berkenblit
Similar Articles
Relevancy Powered by MondaqAI
Hunton & Williams LLP
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Hunton & Williams LLP
Related Articles
 
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
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

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 or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq 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 of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions