SEC Adopts Rules Implementing FAST Act Provisions

Jan 22, 2016

Reading Time : 5 min

The interim final rules became effective on January 19, 2016. Because the rules were adopted as interim final rules, the SEC is soliciting public comments, including with respect to whether the amendments should be extended to other registrants or forms. The deadline for public comments is February 18, 2016.

Simplified Financial Statement Disclosure Requirements for EGCs

The FAST Act permits EGCs that file an IPO registration statement (or submit a confidential draft registration statement) on Form S-1 or Form F-1 to omit Regulation S-X financial information for historical periods otherwise required as of the time of filing (or confidential submission), provided that:

  • the omitted financial information relates to a historical period that the EGC reasonably believes will not be required to be included in the Form S-1 or Form F-1 at the time of the offering, and
  • prior to the distribution of a preliminary prospectus to investors, the registration statement is amended to include all financial information required by Regulation S-X at the date of such amendment.

Pursuant to a FAST Act mandate, the SEC has revised the instructions to Form S-1 and Form F-1 to implement the above-described change. 

The FAST Act accommodation and the amendments to Form S-1 and Form F-1 will permit EGCs to avoid the costs and burdens of including historical financial statements and related disclosures in their IPO registration statement that will not be part of the registration statement at the time the IPO is marketed and priced (i.e., such financial statements will be superseded by more recent financial statements).  

EGCs should be aware that the SEC staff recently issued two Compliance and Disclosure Interpretations that clarify the scope of the FAST Act accommodation.

  • Question 1 establishes that EGCs cannot use the accommodation to exclude the most recent interim period required by Regulation S-X, even if that period will be replaced with a longer interim or annual period in the final registration statement (e.g., for a January 2016 filing where an EGC expects to consummate the offering after its FY 2015 audited financial statements are available, it can omit FY 2013 but cannot omit the nine-month periods that ended on September 30, 2015 and September 30, 2014).
  • Question 2 confirms that the FAST Act accommodation applies to all historical financial information required by Regulation S-X, including the financial statements of other entities. Thus, the EGC could omit financial statements of, for example, an acquired business required by Rule 3-05 of Regulation S-X if the EGC reasonably believes those financial statements will not be required at the time of the offering. This situation could occur when an EGC updates its registration statement to include its FY 2015 annual financial statements prior to the offering and, after that update, the acquired business has been part of the EGC’s financial statements for a sufficient amount of time to obviate the need for separate financial statements.

Forward Incorporation by Reference in Form S-1 Registration Statements Filed by Smaller Reporting Companies

Pursuant to a FAST Act mandate, the SEC has revised Form S-1 to permit smaller reporting companies1 to automatically update information in a Form S-1 prospectus by forward incorporation of reports filed with the SEC after the registration statement is declared effective. The SEC, however, has imposed certain eligibility requirements and conditions on the ability of smaller reporting companies to forward incorporate by reference on Form S-1.

First, as is the case with any issuer that intends to use historical (i.e., backwards) incorporation by reference on Form S-1 for documents filed before the effective date of the registration statement, a smaller reporting company that elects to forward incorporate by reference must have filed:

  • an annual report for its most recently completed fiscal year, and
  • all required Exchange Act reports and materials during the 12 months immediately preceding filing of the Form S-1 (or such shorter period during which the smaller reporting company was required to file such reports and materials).

Second, a smaller reporting company making the election to forward incorporate by reference must state in the prospectus contained in the registration statement that all documents subsequently filed pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act, prior to the termination of the offering shall be deemed to be incorporated by reference into the prospectus.

Third, a smaller reporting company relying on the new forward incorporation by reference provision must make its incorporated Exchange Act reports and other materials readily available and accessible on a web site maintained by or for the company and disclose in the prospectus that such materials will be provided upon request.

Fourth, a smaller reporting company making the election to forward incorporate by reference must include the undertaking in Item 512(b) of Regulation S-K.2

Smaller reporting companies that are blank check companies, shell companies (other than business combination related shell companies) or issuers for offerings of penny stocks will not be permitted to forward incorporate by reference information into a Form S-1.

The ability to forward incorporate by reference enables an issuer’s prospectus under a registration statement to stay current after effectiveness through the automatic inclusion of the issuer’s current and future Exchange Act reports. An issuer that cannot avail itself of forward incorporation by reference must update its prospectus after effectiveness, either by means of prospectus supplements or post-effective amendments, the latter of which are potentially subject to SEC staff review before becoming effective. The new rules will permit smaller reporting companies to more efficiently maintain registration statements for resale transactions and continuous offerings on Form S-1 by avoiding the costs and delays associated with updates via prospectus supplements or post-effective amendments. These issuers, however, will not be able to use Form S-1 for delayed primary “shelf” offerings.3

 


1 A “smaller reporting company,” as defined by Securities Act Rule 405, is an issuer that:

  • had a public float of less than $75 million as of the last business day of its most recently completed second fiscal quarter;
  • in the case of an initial registration statement under the Securities Act or Exchange Act for shares of its common equity, had a public float of less than $75 million as of a date within 30 days of the date of the filing of the registration statement, or
  • in the case of an issuer whose public float was zero, had annual revenues of less than $50 million during the most recently completed fiscal year for which audited financial statements are available.

The issuer must not be an investment company, an asset-backed issuer or a majority-owned subsidiary of a parent company that is not a smaller reporting company.

2 Item 512(b) provides that for Securities Act liability purposes each annual report that is incorporated by reference in the registration statement is deemed to be a new registration statement related to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

3 Issuers intending to conduct a delayed offering must still satisfy the conditions to Rule 415(a)(1)(x), which requires the issuer to be eligible to use Form S-3 or Form F-3.

Share This Insight

Previous Entries

Deal Diary

June 27, 2024

On June 24, 2024, the U.S. Securities and Exchange Commission (SEC) published five new Form 8-K Compliance and Disclosure Interpretations (C&DIs) expanding the agency’s interpretations of cybersecurity incident disclosures pursuant to Item 1.05 of Form 8-K. In July 2023, the SEC adopted final rules with respect to cybersecurity incidents that generally require public companies to disclose (i) material cybersecurity incidents within four business days after determining the incident was material and (ii) material information regarding their cybersecurity risk management, strategy and governance on an annual basis. We wrote about the final cybersecurity disclosure rules here.

...

Read More

Deal Diary

February 12, 2024

The Securities and Exchange Commission (SEC) recently adopted final rules (available here; also see the fact sheet and press release) representing significant changes to  special purpose acquisition companies (SPACs), shell companies and the disclosure of projections. These rules aim to enhance disclosures, protect investors and align the regulatory framework for SPACs with traditional IPOs. The following summarizes the key aspects of these rules.

...

Read More

Deal Diary

October 4, 2023

On September 20, 2023, the U.S. Securities and Exchange Commission (SEC) issued a final rule amending the so-called “Names Rule” (found here) that is “designed to modernize and enhance” protections under Rule 35d-1 of the Investment Company Act of 1940. The final rule is part of the SEC’s holistic efforts to regulate environmental, social and governance (ESG) matters, and is the SEC’s latest attempt to curb greenwashing in U.S. capital markets. The amendments require registered investment funds that include ESG factors in their names to place 80% of their assets in investments corresponding to those factors, thereby extending to ESG funds the SEC’s long-standing approach of regulating the names of registered funds to ensure they are marketed to investors truthfully. Fund complexes with more than $1 billion in assets will have two years from the final rule’s effective date (60 days after publication in the Federal Register) to comply, while fund complexes with less than $1 billion in assets will be given a compliance period of 30 months.

Chair Gary Gensler said “[t]he Names Rule reflects a basic idea: A fund’s investment portfolio should match a fund’s advertised investment focus. In essence, if a fund’s name suggests an investment focus, the fund in turn needs to invest shareholders’ dollars in a manner consistent with that investment focus. Otherwise, a fund’s portfolio might be inconsistent with what fund investors desired when selecting a fund based upon its name.” The sole dissenting vote against the rule modification, Commissioner Mark Uyeda, said “[w]ith these amendments, the Commission overemphasizes the importance of a fund’s name, as if to suggest that investors and their financial professionals need not look at the prospectus disclosures.” Commissioner Uyeda also expressed concern that fund investors will bear the increased compliance costs associated with the rule change.

...

Read More

Deal Diary

May 31, 2023

As discussed in our prior publication (found here), the Securities and Exchange Commission (SEC) adopted amendments on December 14, 2022, regarding Rule 10b5-1 insider trading plans and related disclosures. On May 25, 2023, the SEC issued three new compliance and disclosure interpretations (C&DIs) relating to the Rule 10b5-1 amendments.

...

Read More

Deal Diary

May 24, 2023

On May 15, 2023, the Eastern District of California ruled that California Assembly Bill No. 979 (“AB 979”) violates the Equal Protection Clause of the U.S. Constitution’s Fourteenth Amendment and 42 U.S.C. § 1981. As enacted, California’s Board Diversity Statute, required public companies with headquarters in the state to include a minimum number of directors from “underrepresented communities” or be subject to fines for violating the statute. AB 979 defines a “director from an underrepresented community” as “an individual who self-identifies as Black, African American, Hispanic, Latino, Asian, Pacific Islander, Native American, Native Hawaiian, or Alaska Native, or who self-identifies as gay, lesbian, bisexual, or transgender.”

...

Read More

Deal Diary

May 9, 2023

Update: On October 31, 2023, the Fifth Circuit granted the US Chamber of Commerce's petition for review of the SEC's share repurchase disclosure rules, holding that the SEC acted arbitrarily and capriciously in violation of the Administrative Procedure Act. The court directed the SEC to correct the defects within 30 days of the opinion. On December 1, 2023, the SEC informed the Fifth Circuit that it was unable to correct the rule's defects within 30 days of the opinion. On December 19, 2023, the Fifth Circuit vacated the SEC’s share repurchase disclosure rules.

...

Read More

Deal Diary

April 12, 2023

We have released our 2023 ESG Survey which includes a collection of reports reflecting on significant ESG themes and trends from 2022, as well as what we believe to be key developments for 2023.

...

Read More

Deal Diary

February 6, 2023

As companies begin preparing for the 2023 proxy season, we note that Institutional Shareholder Services Inc. (ISS) and Glass Lewis, the leading providers of corporate governance solutions and proxy advisory services, issued updated benchmark policies (proxy voting guidelines), which can be found here and here, respectively. The updated proxy voting guidelines generally focus on board accountability and oversight considerations and address topics such as climate accountability, board diversity, shareholder rights, corporate governance standards, executive compensation and social issues. What follows is a summary of the proxy voting guidelines published by ISS and Glass Lewis for the 2023 proxy season.

...

Read More

© 2024 Akin Gump Strauss Hauer & Feld LLP. All rights reserved. Attorney advertising. This document is distributed for informational use only; it does not constitute legal advice and should not be used as such. Prior results do not guarantee a similar outcome. Akin is the practicing name of Akin Gump LLP, a New York limited liability partnership authorized and regulated by the Solicitors Regulation Authority under number 267321. A list of the partners is available for inspection at Eighth Floor, Ten Bishops Square, London E1 6EG. For more information about Akin Gump LLP, Akin Gump Strauss Hauer & Feld LLP and other associated entities under which the Akin Gump network operates worldwide, please see our Legal Notices page.