FAST Act Legislation and Impact on Securities Law
On December 4, President Obama signed into law the Fixing America’s Surface Transportation Act (FAST Act). This transportation bill includes several provisions related to securities laws and capital-raising measures, as summarized below.
Improving Access to Capital for Emerging Growth Companies
- The FAST Act amends Section 6(e)(1) of the Securities Act of 1933 (Securities Act) to require that an emerging growth company (EGC) file its confidential submission of its initial public offering (IPO) registration statement with the Securities Exchange Commission only 15 days, rather than 21 days, prior to the commencement of the IPO roadshow. The amended section also provides that any issuer that was an EGC at the time it submitted a registration statement to the SEC, but lost its EGC status thereafter, will continue to be treated as an EGC for one year after it ceased to be an EGC or until it completes its IPO, whichever is earlier.
- The FAST Act requires that the SEC revise Form S-1 and F-1 registration statements to permit EGCs to omit Regulation S-X financial information for historical periods otherwise required at the time of filing (or confidential submission), provided that the issuer reasonably believes the omitted financial information will not be required in the Form S-1 or F-1 at the time of the contemplated offering and that, prior to the issuer distributing a preliminary prospectus, such registration statement is amended to include all required Regulation S-X financial information at the date of such amendment. EGCs may rely on these provisions 30 days after enactment of the FAST Act.
Disclosure Modernization and Simplification
The FAST Act requires that the SEC issue regulations within 180 days after enactment to:
- permit issuers to include a summary page in an annual report on Form 10-K, but only if each item on the summary page provides a cross-reference to the applicable material in the Form 10-K; and
- revise Regulation S-K to (i) further scale or eliminate certain requirements of Regulation S-K to reduce the burden on EGCs, accelerated filers, smaller reporting companies and other smaller issuers, while still providing all material information to investors, and (ii) eliminate provisions of Regulation S-K for all issuers that are duplicative, overlapping, outdated or unnecessary.
The FAST Act also requires that the SEC conduct a study of Regulation S-K, in consultation with the Investor Advisory Committee and the Advisory Committee on Small and Emerging Companies, to:
- determine how best to modernize and simplify Regulation S-K in a manner that reduces the costs and burdens on issuers while still providing all material information;
- emphasize a company-by-company approach that allows relevant and material information to be disseminated to investors without boilerplate language or static requirements, while preserving the completeness and comparability of information across registrants; and
- evaluate methods of information delivery and presentation, and explore methods to discourage repetition and the disclosure of immaterial information.
- Within 360 days after enactment of the FAST Act, the SEC is required to issue a report to Congress containing its findings and recommendations relating to its study and, within 360 days thereafter, issue a proposed rule to implement its recommendations.
Reforming Access for Investments in Startup Enterprises
The FAST Act amends Section 4 of the Securities Act to exempt from registration certain resales of securities in a manner similar to the so-called “4(a)(1½)” private resale exemption. The new exemption, codified as Section 4(a)(7) of the Securities Act, is available for transactions that meet the following requirements:
- each purchaser is an accredited investor;
- neither the seller, nor any person acting on seller’s behalf, offers or sells securities through general solicitation or advertising;
- in the case of an issuer that is not a reporting company, a company exempt from reporting requirements pursuant to Rule 12g3-2(b), or a foreign government eligible to register securities on Schedule B, at the request of the seller, the seller and a prospective purchaser designated by the seller obtain from the issuer reasonably current information concerning the issuer, including the issuer’s identity and its business and products, the securities, the transfer agent, the issuer’s officers and directors, any compensated brokers or dealers, the issuer financial statements for the two preceding fiscal years, and if the seller is a control person with respect to the issuer, a brief statement regarding the nature of the affiliation and a statement certified by the seller that it has no reasonable grounds to believe that the issuer is in violation of the securities laws or regulations;
- the seller is not the issuer or a direct or indirect subsidiary of the issuer;
- neither the seller nor any person that has been or will be paid a commission is a “bad actor” pursuant to Rule 506 under the Securities Act or is subject to a disqualification described under Section 3(a)(39) of the Securities Exchange Act of 1934;
- the issuer is engaged in business, is not in the organizational stage or in bankruptcy, and is not a blank check, blind pool or shell company;
- the transaction does not involve an unsold allotment to, or a subscription or participation by, an underwriter or a redistribution; and
- the transaction is with respect to a security of a class that has been authorized and outstanding for at least 90 days.
The securities sold in a Section 4(a)(7) resale transaction are deemed restricted securities under Rule 144 and “covered securities” for blue sky preemption purposes.
Small Company Simple Registration
The FAST Act requires that the SEC revise Form S-1 to permit a smaller reporting company to incorporate by reference in its registration statement documents that the company files with the SEC after the effective date of the registration statement (i.e., “forward incorporation by reference”).
Click here to view the complete text of the Fast Act.