Overview of Securities Law Provisions of the FAST Act

On December 4, 2015, President Obama signed into law the Fixing America’s Surface Transportation Act. The FAST Act, which is aimed principally at authorizing spending on highway and transit projects, includes several amendments to the Jumpstart Our Business Act () and other securities law provisions, some of which are effective immediately.

Amendments to for Emerging Growth Companies

Effective immediately upon enactment of the FAST Act:

Public filing prior to : Section 71001 of the FAST Act amends Section 6(e)(1) of the to require an to publicly file its IPO not later than 15 days prior to commencing its roadshow. Previously, the public filing had to be made no later than 21 days prior to commencement of the roadshow. This reduction may cause emerging growth companies (EGCs) to reevaluate the timing of activities that are commonly conducted in the period of time between the initial public filing of an IPO and the launch of the IPO’s roadshow, such as obtaining lock-up agreements and questionnaires from who had not been privy to the EGC’s IPO plans.

EGC grace period: Section 71002 of the FAST Act further amends Section 6(e)(1) of the Securities Act to provide a grace period for an that was an EGC at the time it submitted a confidential or publicly filed a for its IPO, but ceases to be an EGC prior to completion of its IPO. In this limited circumstance, the will continue to be treated as an EGC through the earlier of:

  • the date on which the consummates its IPO pursuant to such ; or
  • the end of the one-year period beginning on the date the company ceases to be an EGC.

Effective within 30 days of enactment of the FAST Act:

Omission of certain financial statements: Section 71003 of the FAST Act amends Section 102 of the to permit an EGC that files (or submits for confidential review) a or Form F-1 to omit financial information for historical periods otherwise required by as of the time of filing (or ) of such , provided that:

  • the omitted financial information relates to a historical period that the reasonably believes will not be required to be included in the or Form F-1 at the time of the contemplated offering; and
  • prior to the distributing a to investors, such is amended to include all financial information required by at the date of such amendment.

The SEC is required to revise the relevant instructions to and Form F-1 within 30 days of enactment of the FAST Act to reflect this amendment to the . As a result of this amendment, can avoid devoting time and resources to preparing financial statements and related disclosures solely to comply with or Form F-1 requirements at the time of filing (or ) but that would not otherwise be required at the time of their contemplated offering.

Small Company Simple Registration

Required within 45 days of enactment of the FAST Act:

Forward for : Section 84001 of the FAST Act requires the SEC to revise to permit a to incorporate by reference in a any documents that it files with the SEC after the of the . This will allow smaller reporting companies that are not eligible to register shares for resale using to avoid having to file post-effective amendments solely for the purpose of keeping a resale current.

Disclosure Modernization and Simplification

Required within 180 days of enactment of the FAST Act:

Summary page for : Section 72001 of the FAST Act requires the SEC to issue regulations to permit to submit a summary page in their , but only if each item on the summary page includes a cross-reference (by electronic link or otherwise) to the related information in the .

Improvement of : Section 72002 of the FAST Act requires the SEC to revise to:

  • further scale or eliminate requirements of in order to reduce the burden on EGCs, , smaller reporting companies and other smaller , while still providing all material information; and
  • eliminate provisions of required for all that are duplicative, overlapping, outdated or unnecessary.
Required within 360 days of enactment of the FAST Act:

Study on modernization and simplification of : Section 72003 of the FAST Act requires the SEC to conduct another study on , this time in consultation with two previously established by the SEC (the Investor Advisory and the Advisory on Small and Emerging Companies), to:

  • determine how best to modernize and simplify requirements in a manner that reduces the costs and burdens on , while still providing all material information to investors;
  • emphasize a company-by-company disclosure approach that allows relevant and material information to be disseminated to investors without boilerplate language or static requirements; and
  • evaluate alternative methods of information delivery and presentation and explore methods for discouraging repetition and the disclosure of immaterial information.

A report on this study is due to Congress within 360 days from the enactment of the FAST Act, and rules to implement the recommendation of the report are to be issued within 360 days from the issuance of the report.

In December 2013, the SEC staff completed the study of required under the . The SEC staff has since taken steps to begin to implement reforms through its ongoing “disclosure effectiveness” project.

Reforming Access for Investments in Enterprises

Effective immediately:

New resale exemption: Section 76001 of the FAST Act adds a new statutory exemption to the Securities Act for certain resales of . New Section 4(a)(7) provides a non-exclusive exemption from registration for any resale transaction that meets the following conditions:

  • each purchaser is an ;
  • neither the seller nor any person acting on the seller’s behalf engages in any form of general solicitation or general advertising; and
  • in the case of an that is not a , is not exempt from the reporting requirements pursuant to Rule 12g3-2(b) of the , or is not a foreign government eligible to register securities on Schedule B, the provides to the seller and the prospective purchaser, upon request of the seller, the following information: 
    • the ’s exact name (as well as the name of any predecessor);
    • the address of the ’s principal executive offices;
    • the exact title and class of the security, its par or stated value and the number of shares or total amount of the securities outstanding as of the end of the ’s most recent fiscal year;
    • the name and address of the , corporate secretary, or other person responsible for transfers;
    • a statement of the nature of the ’s business and the products and services it , which will be presumed reasonably current if the statement is as of 12 months before the transaction date;
    • the names of the ’s officers and directors;
    • the names of the , , or agent that will be paid any commission or remuneration in connection with the transaction;
    • the ’s most recent and profit and loss statement and similar financial statements for the two preceding fiscal years during which the has been in operation, prepared in accordance with GAAP, or in the case of a foreign private , IFRS. The will be presumed reasonably current if it is as of a date less than 16 months before the transaction and the profit and loss statement will be presumed reasonably current if it is for the 12 months preceding the date of the . If the is not as of a date less than six months before the transaction date, it must be accompanied by additional statements of profit and loss for the period from the date of such to a date less than six months before the transaction date;
    • if the seller is an of the , a brief statement is required regarding the nature of the affiliation, and a certification by such seller that it has no reasonable grounds to believe that the is in violation of the securities laws or regulations;
  • the seller is not the or a direct or indirect subsidiary of the ;
  • neither the seller, nor any person that has been or will be paid remuneration or a commission for their in connection with the transaction, would be disqualified as a under Rule 506(d)(1) of or is subject to a statutory disqualification described under Section 3(a)(39) of the ;
  • the is not in bankruptcy or receivership and is not a blank check, blind pool or shell company that has no specific business plan or purpose or has indicated that its primary business plan is to engage in an acquisition of an unidentified person;
  • the transaction does not relate to an unsold to, or a subscription or by, a or as an of the security a redistribution; and
  • the transaction involves securities of a class that has been authorized and outstanding for at least 90 days prior the transaction date.

The securities sold in an exempted transaction under Section 4(a)(7) will be deemed to be “” within the meaning of and “covered securities” under the Securities Act for purposes of preemption from state “blue sky” regulations.