On December 4, 2015, President Obama signed into law the Fixing America’s Surface Transportation Act, known as the FAST Act. Although aimed principally at authorizing spending on highway and transit projects, the FAST Act includes several amendments to the Jumpstart Our Business Startups Act (“JOBS Act”) and other securities law provisions. The aspects of the FAST Act applicable to IPOs are already in effect, while other provisions were subject to future SEC rule making. Shortly after enactment of the Fast Act, the SEC staff issued several interpretations of this amendment.
On January 13th of this year the SEC issued two interim final rules implementing portions of the Fast Act. The proposed interim final rules do the following:
- Allow an Emerging Growth Company (“ECG”) to omit certain required financial statements from the registration statement for its initial public offering, if it reasonably believes the omitted information will not be required to be included in the registration statement at the time of the offering, so long as the registration statement is amended prior to distributing a preliminary prospectus to include all financial information required by Regulation S-X at the time of the amendment; and
- Allows a smaller reporting company to forward incorporate by reference in Form S-1.
The FAST Act’s broad language gave a lot of hope to prospective ECG and Smaller Reporting Company issuers.
At least one commentator has stated the following:
"As always, the devil is in the details. With respect to the ability to use forward incorporation, the rules deliver far less than the promise contained in the broad language of the FAST Act. Currently, Form S-1 limits the ability to use historical incorporation by reference. The SEC has made the ability to forward incorporate subject to the same limitations. Accordingly, forward incorporation is not permitted for smaller reporting companies that are, or within the preceding three years have been, blank check companies, shell companies (other than business combination related shell companies) or issuers for offerings of penny stocks, or that are not current in their SEC reporting or have not yet filed an annual report for their most recently completed fiscal year. In addition, the issuer must make the incorporated Exchange Act reports available on its website. Based on the interim rules, forward incorporation is still unavailable for significant numbers of smaller reporting companies."
Here is the full text of the SEC staff interpretations of the FAST Act:
Fixing America’s Surface Transportation (FAST) Act
Updated: December 21, 2015
These Compliance and Disclosure Interpretations relate to the FAST Act, which affected various provisions of the federal securities laws. The bracketed date following each C&DI is the latest date of publication or revision. See also Division Announcement: Recently Enacted Transportation Law Includes a Number of Changes to the Federal Securities Laws (Dec. 10, 2015).
The Frequently Asked Questions of General Applicability on Title I of the JOBS Act and Frequently Asked Questions on Confidential Submission Process for Emerging Growth Companies have been updated to reflect enactment of the FAST Act.
Question: May an EGC issuer omit interim financial statements from its filing or submission for a period that has financial information that will be included within required financial statements covering a longer interim or annual period at the time of the offering, even though the shorter period will not be presented separately at that time?
Section 71003 of the FAST Act allows an issuer to omit financial information that “relates to a historical period that the issuer reasonably believes will not be required to be included…at the time of the contemplated offering.” Interim financial information “relates” to both the interim period and to any longer period (either interim or annual) into which it has been or will be included.
For example, consider a calendar year-end EGC that submits or files a registration statement in December 2015 and reasonably expects to commence its offering in April 2016 when annual financial statements for 2015 and 2014 will be required. This issuer may omit its 2013 annual financial statements from the December filing. However, the issuer may not omit its nine-month 2014 and 2015 interim financial statements because those statements include financial information that relates to annual financial statements that will be required at the time of the offering in April 2016. [Dec. 10, 2015]
Question: May an EGC issuer omit financial statements of other entities from its filing or submission if it reasonably believes that those financial statements will not be required at the time of the offering?
Section 71003 of the FAST Act is not by its terms limited to financial statements of the issuer. Thus, the issuer could omit financial statements of, for example, an acquired business required by Rule 3-05 of Regulation S-X if the issuer reasonably believes those financial statements will not be required at the time of the offering. This situation could occur when an issuer updates its registration statement to include its 2015 annual financial statements prior to the offering and, after that update, the acquired business has been part of the issuer’s financial statements for a sufficient amount of time to obviate the need for separate financial statements. SeeSection 2030.4 of the Division of Corporation Finance’s Financial Reporting Manual. [Dec. 10, 2015]
Question: How did the FAST Act affect Section 12(g) and Section 15(d) of the Exchange Act?
Answer: Section 85001 of the FAST Act amended Section 12(g) and Section 15(d) of the Exchange Act so that savings and loan holding companies are treated in a similar manner to bank holding companies for the purposes of registration, termination of registration or suspension of their Exchange Act reporting obligation. In particular, the FAST Act amends Section 12(g) and Section 15(d) of the Exchange Act as follows:
- Savings and loan holding companies, as such term is defined in Section 10 of the Home Owners’ Loan Act, will have a Section 12(g) registration obligation as of any fiscal year-end after December 4, 2015 with respect to a class of equity security held of record by 2,000 or more persons.
- The holders of record threshold for Section 12(g) deregistration for savings and loan holding companies has been increased from 300 to 1,200 persons.
- The holders of record threshold for the suspension of reporting under Section 15(d) for savings and loan holding companies has been increased from 300 to 1,200 persons. [Dec. 21, 2015]
Question: How do the amendments to Section 12(g)(1)(B) affect the obligations of savings and loan holding companies to register a class of equity security under Section 12(g) where such obligations were triggered as of a fiscal year-end on or before December 4, 2015?
Answer: Under Section 12(g)(1)(B), a savings and loan holding company will have a Section 12(g) registration obligation if, as of any fiscal year-end after December 4, 2015, it has total assets of more than $10 million and a class of equity security held of record by 2,000 or more persons. We consider that the effect of this provision is to eliminate, for savings and loan holding companies, any Section 12(g) registration obligation with respect to a class of equity security as of a fiscal year-end on or before December 4, 2015. Therefore, if a savings and loan holding company has filed an Exchange Act registration statement and the registration statement is not yet effective, then it may withdraw the registration statement. If a savings and loan holding company has registered a class of equity security under Section 12(g), it would need to continue that registration unless it is eligible to deregister under Section 12(g) or current rules. [Dec. 21, 2015]
Question: On or after December 4, 2015, how can a savings and loan holding company terminate the registration of a class of equity security under Section 12(g)?
Answer: If the class of equity security is held of record by less than 1,200 persons, the savings and loan holding company may file a Form 15 to terminate the Section 12(g) registration of that class. Until rule amendments are made to reflect the change to Section 12(g)(4), the savings and loan holding company should include an explanatory note in its Form 15 indicating that it is relying on Exchange Act Section 12(g)(4) to terminate its duty to file reports with respect to that class of equity security.
Pursuant to Section 12(g)(4), the Section 12(g) registration will be terminated 90 days after the savings and loan holding company files a Form 15. Until that date of termination, the savings and loan holding company is required to file all reports required by Exchange Act Sections 13(a), 14 and 16.
Alternatively, a savings and loan holding company could rely on Exchange Act Rule 12g-4, which permits the immediate suspension of Section 13(a) reporting obligations upon filing a Form 15, if it meets the requirements of that rule. Note that Rule 12g-4 has not yet been amended to incorporate the new 1,200 holder deregistration threshold. [Dec. 21, 2015]
Question: On or after December 4, 2015, how can a savings and loan holding company suspend its reporting obligations under Section 15(d)?
Answer: In general, the Section 15(d) reporting obligation is suspended if, and for so long as, the issuer has a class of security registered under Section 12. When an issuer terminates Section 12 registration, it must address any Section 15(d) obligation that would apply once the Section 15(d) suspension is lifted.
For the current fiscal year, a savings and loan holding company can suspend its obligation to file reports under Section 15(d) with respect to a class of security that was sold pursuant to a Securities Act registration statement and that was held of record by less than 1,200 persons as of the first day of the current fiscal year. Such suspension would be deemed to have occurred as of the beginning of the fiscal year in accordance with Section 15(d) (as amended by the FAST Act). If, during the current fiscal year, a savings and loan holding company has a registration statement that becomes effective or is updated pursuant to Securities Act Section 10(a)(3), then it will have a Section 15(d) reporting obligation for the current fiscal year.
If a savings and loan holding company with a class of security held of record by less than 1,200 persons as of the first day of the current fiscal year has a registration statement that was updated during the current fiscal year pursuant to Securities Act Section 10(a)(3), but under which no sales have been made during the current fiscal year, the savings and loan holding company may suspend its Section 15(d) reporting obligation consistent with the guidance in Staff Legal Bulletin No. 18 (March 20, 2010)and GlenRose Instruments Inc. (July 16, 2012). [Dec. 21, 2015]