On December 4, 2015, President Obama signed into law the Fixing America’s Surface Transportation Act, known as the “FAST Act.” This five-year transportation bill also includes a number of provisions related to securities laws and capital-raising measures. The key securities law provisions of the FAST Act are summarized as follows: Reforming Access for Investments in Startup Enterprises:
- Codifies as new Section 4(a)(7) of the Securities Act the so-called “Section 4(a)(1½) exemption.”
- Effective immediately, Section 4(a)(7) exempts from registration any resale transaction that meets certain conditions, including, among others, no general solicitation, participation only by accredited investors, no offering by the issuer, provision of certain basic financial and other information (for issuers that are neither subject to nor exempt from Exchange Act reporting requirements) and the securities must be of a class of securities that have been outstanding for more than 90 days.
- Facilitates the creation of a secondary market in securities of private companies, by clarifying the rules of the road for market participants.
- Securities sold under Section 4(a)(7) will be “covered securities” under the Securities Act and thus will be exempt from certain aspects of state “blue sky” regulation.
- Securities acquired in transactions exempt from Registration under the new Section 4(a)(7) will be deemed “restricted securities” within the meaning of Rule 144.
- Use of 4(a)(7) is subject to “bad actor” disqualifications, similar to those under the current Regulation D regime.
Improving Access to Capital for Emerging Growth Companies:
- Effective immediately, emerging growth companies under the JOBS Act (“EGCs”) may publicly file confidential submissions with the SEC only 15 days before a roadshow (reduced from 21).
- An issuer that was an EGC when it confidentially submitted a draft registration statement to the SEC or publicly filed for its IPO, but subsequently falls out of EGC status, will continue to be treated as an EGC for one year or until consummation of its IPO, whichever is earlier. This grace period, applicable to former EGCs, is effective immediately.
- EGC Form S-1 or Form F-1 registration statements may omit Regulation S-X financial information for historical periods otherwise required as of the time of filing or confidential submission if all required information is provided to investors at the time a preliminary prospectus is distributed and the registrant reasonably believes that the omitted historical information will not be required at the time of offering. In other words, issuers will be able to avoid preparing and filing or submitting historical financial statements for periods that would not be required in the registration statement at the time the issuer believes its offering will ultimately take place. These changes go into effect 30 days from enactment.
Disclosure Modernization and Simplification:
- Requires the SEC, within 180 days of enactment, to issue regulations so that issuers may present a summary page in their annual reports on Form 10– K so long as they include cross-references to more fulsome disclosure elsewhere in the Form 10-K.
- Requires the SEC, within 180 days of enactment, to issue regulations that will “further scale or eliminate requirements of Regulation S-K” to reduce the burden on EGCs, accelerated filers, smaller reporting companies and other smaller issuers, and eliminate “duplicative, overlapping, outdated, or unnecessary” requirements for all issuers.
- Requires the SEC to conduct a study on Regulation S-K, and eventually to enact related rules, to “(1) determine how best to modernize and simplify such requirements in a manner that reduces the costs and burdens on issuers while still providing all material information; (2) emphasize a company-by-company approach that allows relevant and material information to be disseminated to investors without boilerplate language or static requirements…; [and] (3) evaluate 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 enactment and rules related to the study are to be issued within 360 days from the issuance of the report.
Small Company Simple Registration:
Smaller Reporting Companies will be permitted to utilize forward incorporation by reference in their Form S-1, something previously not available to smaller reporting companies, making the use of Form S-1 for secondary resales under a “shelf” registration statement much easier for these issuers. The SEC must make the necessary changes to Form S-1 within 45 days. Special thanks to Elise Corey and Nicolas Dumont for this timely summary.