On 4 December 2015, the Fixing America's Surface Transportation Act, or FAST Act, was signed into law. The FAST Act includes a number of provisions affecting US securities law, including changes to the Jumpstart Our Business Startups Act ("JOBS Act"), changes to US Securities and Exchange Commission ("SEC") disclosure requirements and a new statutory exemption for private resales of securities.

The FAST Act relaxes certain provisions of the JOBS Act to facilitate initial public offerings by emerging growth companies ("EGCs"). EGCs can now commence roadshows within 15 calendar days of publicly filing the registration statement with the SEC, as opposed to the previous 21-calendar day waiting period, and can rely on continued treatment as an EGC for certain purposes during a grace period if they lose EGC status during the SEC review process. Further, EGCs can start the SEC review process without having to include financial information for periods that will not be required to be included at the time the IPO is expected to go on the road.

  • For example, an issuer that expects to market its IPO during 2016 on the basis of audited financial statements for 2015 could commence the SEC review process in 2015 or early 2016 without ever having to prepare audited financial statements for 2013. However, the SEC will still require interim financial information, even if the issuer reasonably expects such interim financial information to be superseded by annual or interim financial information that will be included in the registration statement at the time of the contemplated offering.
  • In addition, the statutory change permitting the omission of financial information relating to periods that are not expected to be included at the time of the offering also applies to Regulation S-X Rule 3-05 financial statements of an acquired business. An EGC may omit such acquired business financial statements if the EGC reasonably believes those financial statements will not be required at the time of the contemplated offering. Specifically, such separate financial statements would not be required at the time of the offering if sufficient time has elapsed since the acquisition and such acquired business has been part of the issuer's financial statements for a sufficient amount of time.

The legislation further directs the SEC to simplify, for all filers, Regulation S-K and eliminate duplicative, overlapping or otherwise unnecessary disclosure requirements.

The FAST Act also amends the US Securities Act of 1933 (the "Securities Act") to add a new Section 4(a)(7) based on the so-called 4(a)(1½) exemption for resales of restricted securities by persons other than the issuer. The Section 4(a)(1½) exemption, which is based on case law and has been recognized by the SEC in no-action letters and interpretative releases, but which has not previously been formally adopted in statute, has been interpreted to permit, in certain circumstances, the resale of restricted securities in a private placement by persons other than the issuer.

  • The exemption created by new Section 4(a)(7) requires that purchasers of the restricted securities must be "accredited investors" as defined in Rule 501(a) under the Securities Act. In addition, Section 4(a)(7) prohibits general solicitation and general advertising by the seller and any person acting on the seller's behalf. If the issuer is not subject to reporting requirements under the US Securities Exchange Act of 1934, as amended (the "Exchange Act"), nor exempt from reporting pursuant to Rule 12g3-2(b) under the Exchange Act, Section 4(a)(7) requires the seller to make available reasonably current information about the issuer, including the issuer's most recent balance sheet and income statement.
  • The legislation expressly provides that Section 4(a)(7) is not the exclusive means for establishing an exemption from SEC registration. This should give market participants some comfort that the traditional Section 4(a)(1½) exemption continues to be available, and that it is not necessary to comply with all of the requirements of Section 4(a)(7) in every resale that relies on a private placement exemption

Our related client publications are available at: http://www.shearman.com/en/newsinsights/publications/2015/12/jobs-act-and-sec-disclosure-requirements ; and http://www.shearman.com/en/newsinsights/publications/2015/12/sec-staff-issues-guidance-on-jobs-act

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