On June 29, 2017, the Securities and Exchange Commission (SEC) announced that, beginning July 10, 2017, the SEC Division of Corporation Finance will permit all issuers to confidentially submit draft registration statements under the Securities Act of 1933, as amended (the Securities Act) and the Securities Exchange Act of 1934, as amended (the Exchange Act). The SEC will permit issuers to submit draft registration statements on a nonpublic basis for an initial public offering of securities (IPO), as well as for most securities offerings made within 12 months after the issuer first becomes a reporting company. This expands a popular JOBS Act provision that was previously only available to emerging growth companies (EGCs) and will permit all issuers to have greater flexibility in planning for the registration process, particularly in the case of an IPO. The SEC also confirmed that foreign private issuers may take advantage of this confidential review process, or may elect to proceed in accordance with the guidance in a May 30, 2012, SEC statement (which already allows for nonpublic submissions by foreign private issuers in certain circumstances). The change in SEC practice will “make it easier for more companies to enter and participate in [the] public company disclosure-based system,” according to the SEC’s new Director of the Division of Corporation Finance Bill Hinman, and is anticipated to facilitate capital formation, an area of focus for new SEC Chair Jay Clayton.
The SEC’s expanded confidential review process does not change the existing confidential submission process currently used by EGCs, nor does it extend to all issuers the other provisions available to EGCs undertaking the registration process. For example, the testing-the-waters provision of the Securities Act, which allows EGCs to communicate with certain institutional buyers and investors before or after the filing of a registration statement to gauge interest in the offering, remain unavailable to non-EGC issuers.
For registration statements filed by a non-ECG issuer under the Securities Act, the issuer must confirm to the SEC that it will publicly file its registration statement and nonpublic draft submissions at least 15 days prior to any road show or, if there is no road show, at least 15 days prior to the requested effective date of the registration statement. With respect to registration statements filed under the Exchange Act, the SEC will review a draft registration statement and related revisions on a nonpublic basis provided that the issuer confirms that it will publicly file its registration statement and nonpublic draft submissions at least 15 days prior to the anticipated effective date of the registration statement.
Additionally, the SEC stated that, although an issuer should take all steps to ensure that a draft registration statement is substantially complete when submitted, the SEC will not delay processing if an issuer reasonably believes that omitted financial information will not be required at the time the registration statement is publicly filed. An issuer that chooses to utilize this expanded nonpublic review process should follow the submission process for draft registration statements used by EGCs.
On June 29, 2017, the SEC’s Division of Corporation Finance also released 18 new frequently asked questions (FAQs) regarding the process and the scope of the expanded confidential submission of draft registration statements. Key takeaways from these FAQs are:
- In response letters to SEC comments, issuers should identify information for which they intend to seek confidential treatment upon public filing to ensure that the SEC staff does not include that information in its comment letters.
- Non-EGCs must conform to the applicable rules and forms in effect on the initial filing date. The relief provided by Section 71003 of the FAST Act, which allows an issuer to omit certain financial information that relates to historical periods that the issuer reasonably believes will not be required at the time of the offering, is not available to non-EGC issuers. The SEC staff will, however, process draft registration statements that are substantially complete except for financial information issuers reasonably believe will not be required at the time the registration statement is publicly filed.
- Securities Act filing fees are due when the registration statement is first filed publicly on EDGAR.
- The SEC will publicly release its comment letters and issuer responses to SEC comment letters on nonpublic draft submissions after the registration statement is effective no earlier than 20 business days following the effective date of a registration statement.
- Submissions of draft registration statements do not constitute a filing for purposes of the prohibition in Securities Act Section 5(c) against making offers of a security in advance of filing a registration statement.