On December 4, 2015, President Barack Obama signed into law the “Fixing America’s Surface Transportation Act,” or the “FAST Act.” While the FAST Act relates primarily to United States transportation infrastructure, it includes several provisions relating to U.S. securities laws and the U.S. capital markets that are relevant to our clients, as discussed below.

Improving Access to Capital for “Emerging Growth Companies”

The Jumpstart Our Business Startups Act, or JOBS Act, was enacted in 2012 and created a new category of issuers called “emerging growth companies”, or EGCs. Under the JOBS Act, EGCs generally include companies with less than $1 billion in revenue during their most recent fiscal year, and that are not obligated to file reports under the U.S. Securities Exchange Act of 1934, or the Exchange Act (such as annual reports on Form 10-K or Form 20-F), with the U.S. Securities and Exchange Commission, or the SEC.

Public Offering Filing Requirements: Previously, EGCs could elect to have the registration statement relating to its initial public offering, or IPO, reviewed by the SEC on a confidential basis, provided that registration statement, together with all other communications between the EGC and the SEC during the confidential review process, were filed publicly at least 21 days before the commencement of the IPO road show. Under the FAST Act, this 21 calendar day period has been reduced to 15 calendar days.

Simplified Financial Statement Disclosures: EGCs are required by the SEC’s Regulation S-X to include, in any registration statement on Form S-1 or Form F-1 that is submitted on a confidential basis to, or filed with, the SEC, audited financial statements for its two most recently completed fiscal years. As a result of the FAST Act, EGCs may now omit financial information for these historical periods that would otherwise be required to be included in the registration statement if (i) the registrant reasonably believes that such periods would not need to be included in the registration statement at the time of the contemplated offering, and (ii) all financial information required by Regulation S-X is included in the registration statement filed with the SEC by the time the preliminary prospectus is first distributed to investors (i.e., the commencement of the IPO road show).

This provision may offer significant cost savings to an issuer in the IPO process by alleviating the need to prepare audited financial statements that necessarily would be required to be superceded or replaced by more recent financial statements prior to the commencement of the IPO. The simplified financial statement disclosure provisions of the FAST Act will become effective no later than January 3, 2016.

Grace Period for EGC Status: Under the JOBS Act, a registrant ceased to be an EGC at the end of any fiscal year for which its gross revenue exceeded $1 billion. The FAST Act establishes a grace period that will allow a registrant that ceases to meet the requirements of an EGC, but that was an EGC at the time that it submitted a registration statement on a confidential basis to, or filed the registration statement with, the SEC, to continue to be treated as an EGC until the earlier of (i) the consummation of its IPO and (ii) the end of the one-year period beginning when its ceased to qualify as an EGC.

Reforming Access for Investment in Startup Enterprises; Private Resales of Restricted Securities

The FAST Act adds a new exemption (Section 4(a)(7)) from the registration requirements of Section 5 of the U.S. Securities Act of 1933, as amended, or the Securities Act, for certain private resales of an issuer’s securities by a security holder. The new Section 4(a)(7) exemption codifies by statute the so-called “Section 4(a)(1½)” exemption that was created by courts and generally accepted as a means by which a security holder could resell restricted securities without SEC registration. Section 4(a)(7) exempts private resales of securities from SEC registration where the following conditions are satisfied:

• each purchaser is an “accredited investor;”
• neither the seller, nor any person acting on the seller’s behalf, engages in any general solicitation or general advertising in connection with the resale;
• where the issuer is not an Exchange Act reporting company, the issuer has made available to the seller and the purchaser certain financial and other current information relating to, among other things, the issuer, its business and the securities;
• the seller is not the issuer, or a direct or indirect subsidiary of the issuer;
• neither the seller nor any person receiving remuneration or a commission in connection with the resale is a “bad actor” within the meaning of Rule 506(d)(1) of Regulation D of the Securities Act;
• The issuer is not in the organizational stage or in bankruptcy or receivership, and is not a blank check, blind pool, or shell company;
• The resale is not for a security that constitutes, in whole or in part, an unsold allotment to, or a subscription or participation by, a broker or dealer acting as an underwriter; and
• the resale is for a class of security that has been outstanding for not less than 90 days.

Securities resold in reliance on the new Section 4(a)(7) exemption will be deemed restricted securities within the meaning of Rule 144 of the Securities Act of 1933 and will not be freely tradable in the hands of the acquirer.

Smaller Reporting Company Registrations of Form S-1

Current SEC rules permit a “smaller reporting company”, or SRC, to take advantage of certain less onerous reporting requirements in registration statements and periodic reports. SRC’s generally include domestic companies that have an unaffiliated market capitalization of less than $75 million. Foreign private issuers are not eligible to be deemed “smaller reporting companies” or to take advantage of the less onerous reporting requirements, unless they voluntarily choose to file registration statements and Exchange Act reports as a domestic issuer (for example, annual reports on Form 10-K and registration statements on Forms S-1 or S-3). The FAST Act now permits SRCs to “forward incorporate” into a Form S-1 registration statement any documents filed with the SEC after the effective date of the Form S-1. Previously, forward incorporation was only available for Form S-3 filers. This change will be particularly useful for SRC’s seeking to use a resale registration statement on Form F-1 during the first year following its IPO, when it would be generally ineligible to file a shelf registration statement on Form S-3 for primary offerings.

If you have any questions concerning this bulletin, please contact your Seward & Kissel LLP Capital Markets Group attorney.