The recently enacted Fixing America’s Surface Transportation Act (the “Fast Act”), creates a new exemption from registration requirements of the Securities Act of 1933, for resales of restricted securities, charges the Securities and Exchange Commission (the “SEC”) to study and simplify specified securities laws and amends certain regulations to facilitate capital-raising by emerging growth companies. Provisions of the FAST ACT modify or supplement the Jumpstart Our Business Startups Act of 2012, to further ease certain regulatory securities requirements. Some of the new provisions are effective immediately, while others require further rulemaking or action by the SEC.
Below is a summary of the key securities laws provisions included in the Fast Act:
New Resale Exemption
The Fast Act adds a new Section 4(a)(7) to the Securities Act, effective upon enactment, for secondary sales of restricted securities, subject, among other requirements, to the following conditions:
- each purchaser is required to be an “accredited investor”, as defined in Rule 501(a) under the Securities Act;
- the seller, or any person acting on the seller’s behalf, may not engage in any form of general solicitation or general advertising;
- unless the issuer is a reporting company under the Securities Exchange Act of 1934, the seller must make available to a prospective purchaser information concerning the issuer, its officers and directors, names of persons receiving commissions for the sale of securities in the offering, recent and prior financial statements, and information on any control persons who are sellers.
Section 4(a)(7) is similar to the exemption developed through case law, and known as a “Section 4(a)(11/2)”. Securities acquired in accordance with the Section 4(a)(7) exemption will continue to be “restricted securities” under the Securities Act and “covered securities”, subject to preemption for State Blue Sky purposes. The new Section 4(a)(7) exemption is not exclusive of other available exemptions (including resales under Rule 144).
Easing Smaller Company Registration
The Fast Act mandates the SEC to amend Form S-1 to allow smaller reporting companies to incorporate by reference in a registration statement filings after the effective date of the registration statement.
Simplification of Disclosure Requirements
The Fast Act requires the SEC to study and/or issue rules to:
- to modernize and simplify disclosure requirements;
- revise Regulation S-K to eliminate provisions that are “duplicative, overlapped, outdated, or unnecessary”; and
- permit issuers to include a summary page in their annual reports filed on Form 10-K so long as each item in the summary include a cross-reference to material contained in the Form 10-K.
Some Lenience for Emerging Growth Companies
The Fast Act includes provisions related to emerging growth companies (generally companies with annual revenues of less than $1 billion (“EGCs”)), to:
- permit EGCs to file a registration statement with the SEC within 15 days (in lieu of 21 days) before the date on which the issuer commences a road show in connection with a public offering;
- allow an EGC that qualified as an EGC when it commenced the registration process, which subsequently ceases to be EGC, to continue to be treated as an EGC as an EGC until the earlier of the date on which the issuer consummates its initial public offering or the end of the 1-year period beginning on the date the company ceases to be an EGC, regardless of whether it is no longer an EGC during the registration process; and
- allow EGCs to omit certain financial information in a registration statement for historical periods otherwise required by Regulation S-X so long as at the time of the filing, the issuer does not believe such information will be required at the time of the offering; provided, that, at the time of distribution, the preliminary prospectus includes all required financial information.
These provisions are either effective immediately or the SEC has advised that it will not object if EGCs apply these provisions immediately.
The Fast Act is available at: https://www.govtrack.us/congress/bills/114/hr22/text.
The SEC’s announcement is available at : http://www.sec.gov/corpfin/announcement/cf-announcement—fast-act.htm and its Compliance and Disclosure Interpretation is available at: http://www.sec.gov/divisions/corpfin/guidance/fast-act-interps.htm.