On March 31, 2017, the US Securities and Exchange Commission (SEC) adjusted the threshold used in the definition of “emerging growth company” (EGC), as required by the Jumpstart Our Business Startups Act (JOBS Act), as well as the dollar amounts used in Regulation Crowdfunding.1 At the same time, the SEC adopted technical amendments to its rules and forms to conform to changes that the JOBS Act previously made to the Securities Act of 1933, as amended (Securities Act), and the Securities Exchange Act of 1934, as amended (Exchange Act). 2 Because the amendments revised cover pages on many SEC forms, these technical amendments also affect SEC reporting companies that are not EGCs and that do not participate in crowdfunding. The amendments became effective upon the publication of the adopting release in the Federal Register on April 12, 2017. Inflation Adjustment to EGC Definition The SEC adjusted the revenue threshold to qualify for EGC status to reflect changes in the consumer price index since the JOBS Act was enacted by increasing the revenue threshold from $1 billion to $1.07 billion in amendments to Securities Act Rule 405 and Exchange Act Rule 12b-2. The adjustment meets a JOBS Act mandate to index to inflation the annual gross revenue threshold used to determine EGC status every five years. The adjustment does not affect the disqualifying provision that provides that an EGC can lose its status on the date on which it has issued more than $1 billion in nonconvertible debt in a three-year period. Crowdfunding Adjustments and Interpretations Dollar Amount Adjustments. The SEC amended Rules 100 and 201(t) of Regulation Crowdfunding3 and Securities Act Form C to adjust the dollar amounts set forth in these rules to reflect changes in the consumer price index since the JOBS Act was enacted, as set forth in Exhibit A to this Legal Update. Compliance and Disclosure Interpretations (C&DIs). In a related development, on April 5, 2017, the SEC issued two C&DIs involving Regulation Crowdfunding. C&DI 201.02 explains how an issuer should determine the threshold for disclosure of related party transactions under Rule 201(r). C&DI 202.01 specifies how an issuer should calculate the number of its record holders for the purposes of determining eligibility to terminate its duty to file ongoing reports pursuant to Rule 202(b)(2).4 JOBS Act Technical Amendments The JOBS Act amended the Securities Act and the Exchange Act to exempt an EGC from specified disclosure, shareholder voting and other regulatory requirements. For example, the statutory exemptions created by the JOBS Act 2 Mayer Brown | SEC Approves Inflation Adjustments and Technical Amendments Relating to JOBS Act reduced the financial disclosures that an EGC is required to make in public offering registration statements. The JOBS Act also provided that EGCs do not have to conduct an advisory vote on executive compensation, generally known as “say-on-pay,” and relieved EGCs from a number of accounting and disclosure requirements. These JOBS Act provisions were self-executing. The SEC adopted technical amendments to several of its rules and forms to conform to the statutory changes that already were in effect as a result of the JOBS Act. Form Amendments. The SEC amended the cover pages of Securities Act Forms S-1, S-3, S-4, S-8, S-11, F-1, F-3 and F-4 and Exchange Act Forms 10, 8-K, 10-Q, 10-K, 20-F and 40-F to include two boxes for an issuer to check to indicate whether, at the time of the filing, the issuer is an EGC and whether it has elected not to use the extended transition period for complying with any new or revised financial accounting standards. Scaled Financial Disclosure. The SEC amended Rule 3-02 of Regulation S-X, Form 20-F, and Item 301 and Instruction 1 to Item 303(a) of Regulation S-K to reflect the scaled financial disclosure requirements for an EGC. Auditor Attestation of ICFR. The SEC amended Article 2-02 of Regulation S-X, Item 308 of Regulation S-K, and Forms 20-F and 40-F to specify that the auditor of an EGC does not need to attest to, and report on, management’s report on internal control over financial reporting (ICFR) and that management does not need to include the auditor’s attestation report on ICFR in an annual report. Executive Compensation Disclosure and Say-on-Pay. The SEC amended Item 402(l) of Regulation S-K to specify that EGCs, like smaller reporting companies, may provide the scaled executive compensation disclosure in Items 402(m)-(r) of Regulation S-K. In addition, the SEC also amended Exchange Act Rule 14a-21, Item 402(t), and Instruction 1 to Item 1011(b) of Regulation S-K to specify that an EGC is not required to conduct say-on-pay, say-on-frequency or golden parachute compensation shareholder advisory votes or to provide the related disclosures. The SEC also added a new instruction to Exchange Act Rule 14a-21 to reflect the JOBS Act’s transition period after exiting EGC status before a former EGC has to conduct a say-on-pay vote. Foreign Private Issuers. The SEC amended Forms 20-F and 40-F to reflect that scaled disclosure provisions of the JOBS Act apply to a foreign private issuer that qualifies as an EGC. Practical Considerations Any EGC that had been coming close to exceeding the EGC revenue threshold, and any company that potentially might be an EGC, should look to the new thresholds to determine if it qualifies as an EGC and when it would be required to exit EGC status. In addition, companies interested in using crowdfunding to raise capital should be aware that the amount of money that can be so raised has been increased to reflect inflation. While most of the technical amendments impact EGCs, the amendments to the cover pages of SEC forms affect all issuers who use those forms. The revised cover pages add text and check boxes that reference EGC status and an extended transition period election for an EGC’s compliance with financial accounting standards. However, even companies that are not EGCs should include the new language on cover pages when preparing any form amended by the SEC, including upcoming quarterly reports on Form 10-Q and current reports on Form 8-K as well as registration statements such as shelf registration statements on Form S-3 and registration statements on Form S-8 in connection with employee benefit plans. As an example, the amended language for a Form 10-Q cover page is set forth in Exhibit B to this Legal Update. 3 Mayer Brown | SEC Approves Inflation Adjustments and Technical Amendments Relating to JOBS Act Exhibit A REGULATION CROWDFUNDING ADJUSTMENTS The SEC adjusted the offering maximum and investment limits in Rule 100 of Regulation Crowdfunding for inflation as follows: REGULATION CROWDFUNDING RULE ORIGINAL AMOUNT ROUNDED INFLATION-ADJUSTED AMOUNT Maximum aggregate amount an issuer can sell under Regulation Crowdfunding in a 12-month period (Rule 100(a)(1)) $1,000,000 $1,070,000 Threshold for assessing investor’s annual income or net worth to determine investment limits (Rule 100(a)(2)(i) and (ii)) $100,000 $107,000 Lower threshold of Regulation Crowdfunding securities permitted to be sold to an investor if annual income or net worth is less than $107,000 (Rule 100(a)(2)(i)) $2,000 $2,200 Maximum amount that can be sold to an investor under Regulation Crowdfunding in a 12-month period (Rule 100(a)(2)(ii)) $100,000 $107,000 The SEC adjusted the dollar amounts in Rule 201(t) of Regulation Crowdfunding relating to financial statement requirements for inflation as follows: REGULATION CROWDFUNDING RULE ORIGINAL OFFERING THRESHOLD AMOUNT ROUNDED INFLATION-ADJUSTED AMOUNT Rule 201(t)(1) $100,000 $107,000 Rule 201(t)(2) $500,000 $535,000 Rule 201(t)(3) $1,000,000 $1,070,000 4 Mayer Brown | SEC Approves Inflation Adjustments and Technical Amendments Relating to JOBS Act Exhibit B AMENDED LANGUAGE FOR FORM 10-Q COVER PAGE The following revised text and check boxes should appear on the cover page of a quarterly report on Form 10-Q, immediately before the text “Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):” Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a nonaccelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer Accelerated filer Non-accelerated filer (Do not check if a smaller reporting company) Smaller reporting company Emerging growth company If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 5 Mayer Brown | SEC Approves Inflation Adjustments and Technical Amendments Relating to JOBS Act For more information about the topics raised in this Legal Update, please contact the author, Laura D. Richman, at +1 312 701 7304, any of the following lawyers or any member of our Corporate & Securities practice. Laura D. Richman +1 312 701 7304 firstname.lastname@example.org David S. Bakst +1 212 506 2551 email@example.com Robert F. Gray, Jr. +1 713 238 2600 firstname.lastname@example.org Michael L. Hermsen +1 312 701 7960 email@example.com Thomas Kollar +852 2843 4260 firstname.lastname@example.org Endnotes 1 The adopting release is available at https://www.sec.gov/rules/final/2017/33-10332.pdf. 2 For more information about the JOBS Act, which established special rules for EGCs and an exemption for crowdfunding, see our Legal Update “Jumpstart Our Business Startups Act Makes Significant Changes to Capital Formation, Disclosure and Registration Requirements,” dated April 5, 2012, available at https://www.mayerbrown.com/files/Publication/c72db46 8-d73a-4e6f-b1ae- 758e92cce3b0/Presentation/PublicationAttachment/979f 9e89-2e0c-475c-a7a7- bb04bda59acc/LegalUpdate_452012.pdf. 3 Available at https://www.ecfr.gov/cgibin/retrieveECFR?gp=&SID=7f0011da1b61cc93f357e54511 65f049&mc=true&n=pt17.3.227&r=PART&ty=HTML. 4 Available at https://www.sec.gov/divisions/corpfin/guidance/regcrowdfunding-interps.htm. 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