The Division of Corporation Finance of the Securities and Exchange Commission (SEC) recently announced further changes to its policy relating to non-public review of registration statements of foreign issuers.1 This latest revision follows amendments made in December 2011 to the SEC Staff’s historical policy in this area, which we describe in our memorandum dated December 9, 2011.2 Under those amendments, most non-U.S. companies proposing to register with the SEC (unless they are already listed, or will concurrently be listing, in their home country) lost their eligibility for the non-public review process and would therefore be required to go through a public review process for their registration statements, in the same manner as domestic companies.  

While the December 2011 amendments focused on the eligibility criteria for the non-public review process, the current amendments make adjustments to the process itself, as it applies to those companies that remain eligible for non-public review. In particular, the revised policy requires those companies to file publicly, at the time of the public filing of the registration statement, the initial draft registration statement and all amendments that were originally submitted on a confidential basis. In addition, the company’s responses to any SEC comments to those earlier draft disclosure documents will also be made public. Prior to the current amendments, those non-public submissions would have remained confidential and the public would only have had access to the final version of the registration statement, already reflecting any changes made as part of the non-public review process.  

Background

The recent Jumpstart Our Business Startups Act (JOBS Act) provides for a simplified IPO process for “emerging growth companies” (EGCs) (companies with less than $1 billion in revenue).3 Among other things, the JOBS Act allows EGCs to submit drafts of certain registration statements and related documents to the SEC and have those documents reviewed on a confidential basis. This option to make draft submissions on a confidential basis is available for an EGC’s IPO registration statement, as well as other registration statements filed by an EGC prior to its IPO, such as a Form F-4 filed in connection with an exchange offer for debt securities. However, it is not available for any filings under the U.S. Securities Exchange Act of 1934 (“Exchange Act”), such as Form 20-F, or for any filings made after the EGC’s IPO.4 In contrast, the foreign issuer non-public review policy is available for any registration statement, including a registration statement filed under the Exchange Act, but only for an issuer’s first-time registration with the SEC.  

As a result of the JOBS Act, the SEC Staff has been required to establish new procedures for confidential submission and review of draft EGC filings. The current amendments to the foreign issuer non-public review policy serve to align the two sets of procedures by conforming some of the procedures under the earlier foreign issuer policy to the new procedures established for EGCs.  

Revised Policy

In order to initiate a non-public review process, a company must submit its draft registration statement in accordance with procedures described in detail on the SEC website.5 These procedures apply equally to companies relying on the foreign issuer non-public review policy and companies relying on the EGC rules. Because the relevant JOBS Act provisions are available to any company that qualifies as an EGC, a non-U.S. company may be eligible for confidential submission and review pursuant to either or both of the new EGC rules and the foreign issuer review policy. However, a company that is eligible for confidential review under both sets of rules may not rely simultaneously on both, and will need to make an election between the two, identifying itself accordingly in the transmittal letter submitted with the initial draft of its registration statement. In particular, a non-U.S. company that qualifies as an EGC and intends to also take advantage of other benefits available to EGCs under the JOBS Act, such as the ability to present only two years (instead of three years) of audited financial information in the registration statement, delaying compliance with the auditor attestation requirements under the Sarbanes-Oxley Act, and relief from certain offering restrictions, should take care to identify itself as an EGC, rather than as a foreign issuer relying on the non-public review policy.  

As noted above, a company relying on the foreign issuer non-public review policy will now be required to file publicly, at the time of the public filing of the registration statement, its initial draft registration statement and all amendments that were originally submitted on a confidential basis. Accordingly, unless a company abandons the proposed offering prior to triggering the public filing requirement, all drafts submitted to the SEC during the confidential portion of the process will become publicly available, allowing market participants to review and analyze any changes that were made to the registration statement throughout the review process. For companies that rely on the foreign issuer non-public review policy and not on the EGC rules, this requirement only applies to registration statements where the initial draft submission is made after May 30, 2012. Companies that rely on the EGC rules are subject to a similar requirement to make all earlier drafts publicly available, which applies regardless of when the initial draft submission was made.  

The draft registration statement and any amendments submitted on a non-public basis must be filed on EDGAR concurrently with the first public filing of the registration statement, and will become publicly available immediately upon filing. While the EGC rules require the public filing of the registration statement to be made at least 21 days before the issuer conducts a road show, there is currently no corresponding timing requirement under the foreign issuer non-public review policy. However, issuers should take into consideration that until the registration statement has been publicly filed through EDGAR, the issuer will not be permitted under Section 5(c) of the Securities Act to make offers in the United States of the securities being registered. Moreover, as noted above, an issuer will not be allowed to rely on both the EGC rules and the foreign issuer review policy. Accordingly, a non-U.S. company that chooses to take advantage of the EGC exemptions must comply with the 21-day rule applicable to EGCs, even if it would otherwise be eligible for the foreign issuer review policy.  

The revised foreign issuer review policy also requires companies to resubmit as correspondence on EDGAR all responses to SEC comments originally submitted as part of the non-public review process. However, unlike the draft registration statement and amendments, the response letters will not become publicly available immediately upon the EDGAR filing. Instead, in accordance with the Staff’s general policy applicable to all SEC filings, any comment and response letters will be made publicly available no earlier than 20 business days after the completion of the Staff’s review of the filing.  

Consistent with its prior policy, the Staff notes that, under certain circumstances, it may request a foreign issuer to publicly file its registration statement, even though it would generally be eligible for non-public review under the revised policy. As examples of such circumstances, the Staff mentions a competing bid in an acquisition transaction or in the event of publicity about a proposed offering or listing.  

Conclusion

A foreign issuer relying on the non-public review policy should take into consideration that its draft registration statement and amendments, as well as its responses to any SEC comments, will eventually become publicly available. Experience from recent high-profile IPOs shows that changes to disclosure during an offering process sometimes receive public attention. For example, market participants may take note if a company subsequently abandons or revises unusual financial measures included in the initial draft of the registration statement, or if “positive” disclosure is deleted or “negative” disclosure, such as risk factors, is added during the review process.  

Accordingly, while the non-public review process still affords an eligible issuer the benefit of delaying the announcement of its intention to conduct an offering (including the option to abandon the process without ever having made its intention public), the issuer should otherwise approach the confidential submission process in the same way as it would approach a public filing and review process. Among other things, an issuer should consider with its legal and other advisors whether it could be beneficial to engage in informal oral discussions with the SEC Staff, where available, about specific disclosure issues, rather than relying solely on the formal submission of draft registration statements and written response letters. Likewise, the issuer and its advisors should be mindful of any need to request confidential treatment of specific information submitted in response to Staff comments. The Staff has advised that an issuer is not required to follow the formal procedures for requesting confidential treatment at the time of the non-public submission. However, the issuer should still identify the information for which it intends to seek confidential treatment in order to ensure that the Staff does not include that information in any follow-up comments. When the issuer subsequently resubmits its response letters on EDGAR, it should follow the regular formal procedures for requesting confidential treatment of specific information.  

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The Staff has declared that it will continue to assess the foreign issuer non-public review process and may make further changes in the future. In addition, the Staff has recently raised questions concerning the overall disclosure regime applicable to foreign private issuers, in particular those that are only listed in the United States without any home country listing. Specifically, the Staff has questioned whether the current model for foreign private issuers’ periodic and current reporting remains adequate or if some or all foreign private issuers should be subject to quarterly financial reporting requirements and/or current disclosure more similar to the Form 8-K reporting model that applies to domestic issuers. Accordingly, foreign companies that have, or contemplate, a U.S. listing or other SEC registration should keep abreast of developments in this area and should be prepared for future changes to the applicable rules.