We previously blogged about the Securities and Exchange Commission’s announcement that starting October 1, 2012, certain emerging growth companies and foreign private issuers would be able to voluntarily submit to the SEC draft registration statements for non-public and confidential review via a modified EDGAR system instead of via the current secure e-mail submission process. Filing such draft registration statements via EDGAR will become mandatory when the new EDGAR Filer Manual becomes effective next Monday, October 15, 2012. Therefore, beginning October 15, 2012, draft registration statements and amendments as well as related correspondence must be submitted or filed via the EDGAR system.
On September 26, 2012, the Securities and Exchange Commission announced that starting October 1, 2012, certain emerging growth companies and foreign private issuers would be able to submit to the SEC draft registration statements for non-public and confidential review via a modified EDGAR system instead of via the current secure e-mail submission process. Once the EDGAR Filer Manual for EDGAR Release 12.2 becomes effective, eligible issuers desiring to take advantage of the confidential review process will be required to use the new EDGAR system.
To assist issuers with the use of the new confidential filing procedures, the SEC posted a set of detailed instructions on how to prepare an electronic submission of a draft registration statement, or an amendment. In addition, issuers that file via the new EDGAR system will no longer need to file copies of previously submitted draft registration statements as exhibits to their publicly-filed registration statements to comply with the JOBS Act’s mandate that the drafts become publicly available at least 21 days prior to the start of the road show. The new EDGAR system will allow issuers to direct the EDGAR system to publicly file the drafts as individual documents on EDGAR.
The new EDGAR system is part of the SEC’s efforts to meet the requirements of Section 106(a) of the JOBS Act mandating that certain pre-IPO emerging growth companies be provided an opportunity to submit draft registration statements to the SEC for confidential review. In addition, the new EDGAR system will support the SEC’s policies and procedures allowing certain foreign private issuers that are not emerging growth companies to submit registration statements to the SEC for non-public review.
On August 29, 2012, the Securities and Exchange Commission issued its proposed rules to eliminate the prohibition against general solicitation and general advertising in certain securities offerings made pursuant to Securities Act Rules 506 and 144A. The rules were proposed pursuant to Section 201(a)(1) of the JOBS Act. The SEC will seek public comment for 30 days after the publication of the rules in the Federal Register.
Under the proposed rules, issuers would be permitted to offer securities using general solicitation and advertising if:
- The issuer takes reasonable steps to verify that the purchasers are accredited investors; and
- All purchasers are accredited investors because either:
- They come within one of the categories of persons who are accredited investors under Rule 501, or
- The issuer reasonably believes they come within one of the categories at the time the securities are sold.
The proposed rules do not require specific methods to verify accredited investor status. Instead, the proposed rules require issuers to consider the facts and circumstances of the transaction. In its release proposing the new rules, the SEC enumerated certain factors issuers should consider and noted that “whether the steps taken are “reasonable” would be an objective determination, based on the particular facts and circumstances of each transaction.”
For those issuers that do not want to engage in general solicitation and verification procedures, the proposed rules would preserve the existing portions of Rule 506 as a separate exemption so that companies conducting offerings without the use of general solicitation or advertising would not have to comply with the new verification provisions.
In addition, under the proposed rules, securities sold pursuant to Rule 144A could be offered to persons other than “qualified institutional buyers,” including by means of general solicitation, if the securities are sold only to persons whom the seller and any person acting on the seller’s behalf reasonably believes to be qualified institutional buyers.
On May 30th, the SEC updated its procedures for foreign private issuers wishing to make non-public submission to the SEC of draft registration statements for review by the SEC. Prior to the enactment of the JOBS Act, domestic issuers filing initial registration statements with the SEC were required to file publicly through the EDGAR system. Under certain limited circumstances, however, foreign private issuers had the option of submitting to the SEC registration statements and amendments on a non-public basis for SEC review in connection with their first-time registration of securities with the SEC.
Pursuant to Section 106(a) of the JOBS Act, any emerging growth company (EGC), in connection with its initial public offering, may submit to the SEC a draft registration statement for confidential, non-public review. Section 106(a) of the JOBS Act also requires that the EGC file publicly the initial confidential submission and all amendments at least 21 days prior to the date the company starts its road show. In addition, SEC policy requires EGCs to submit on EDGAR all company responses to SEC comment letters on confidential draft registration statements at the time the EGC first files its registration statement publicly on EDGAR. The SEC will then publicly release its comment letters and company responses no earlier than 20 business days following the effective date of the registration statement, which is the same time frame the SEC uses for non-confidential filings.
Pursuant to the updated procedures, the process for non-public submission of initial registration statements by foreign private issuers that are not EGCs now tracks the process applicable to EGCs. When a foreign private issuer utilizing the SEC’s non-public submission policy first publicly files its registration statement, it is also required to file publicly all previously submitted draft registration statements and to resubmit all previously submitted responses to SEC comment letters. Thereafter, the SEC will publicly release its comment letters and company responses in accordance with its policy described above. A foreign private issuer that both qualifies as an EGC and meets the SEC’s requirements for non-public submission of registration statements by foreign private issuers can elect to submit its initial draft registration statement confidentially to the SEC as an EGC or non-publicly as a foreign private issuer. The new filing and submission requirements set forth in the SEC’s May 30th update apply to foreign private issuers seeking non-public review (as opposed to confidential review as an EGC) only where the initial draft registration statement was submitted after May 30, 2012.
The JOBS Act continues to be a hot topic. Yesterday, the Practicing Law Institute presented its continuing legal education seminar on the JOBS Act. Some discussion highlights from the seminar include:
- Under Section 105(c) of the JOBS Act, an issuer that qualifies as an emerging growth company can engage in oral or written communications, prior to or after filing the registration statement with the SEC, with qualified institutional buyers and institutional accredited investors to determine whether they might have an interest in a contemplated securities offering, also known as “testing the waters.” The panel discussed the SEC’s recent requests, in connection with reviews of issuers’ registration statements, that the issuers provided on a supplemental basis any written materials used by issuers in connection with such testing the waters. It appears that the SEC is requesting these materials to determine if the materials are consistent with the issuer’s registration statement. The fact that the SEC is requesting copies of such materials, combined with the general reluctance on the part of issuers and investment bankers to engage in testing the waters process due to liability concerns, probably means that most issuers and investment bankers will not be using written materials to test the waters, at least in the near term.
- The SEC is asking emerging growth companies to indicate on the cover of their registration statements that they are an emerging growth company and to include in the registration statement disclosure regarding how and when emerging growth company status may be lost, the various exemptions available to the issuer as an emerging growth company, such as exemptions from Section 404(b) of the Sarbanes-Oxley Act, and the issuer’s election under Section 107(b) of the JOBS Act. Unless an issuer that is an emerging growth company opts out, under Section 107(b) of the JOBS Act, the issuer will be subject to any new or revised financial accounting standards on the effective dates applicable to private companies, rather than the effective dates applicable to public companies. Historically, the effective dates for private companies have been later than the effective dates for public companies. If the emerging growth company elects to opt out of the extended transition period, the SEC requests the issuer to state that such election is irrevocable. If the emerging growth company chooses to be subject to the later effective dates for new or revised financial accounting standards, the SEC is requesting issuers to include a risk factor (as well as disclosure in the critical accounting policies section of the MD&A) explaining that the issuer’s financial statements may not be comparable to companies that comply with the public company effective dates. There are at least a few SEC comments letters publicly available requesting this information.
- Under the JOBS Act, once SEC rules are in place, general solicitation or advertising will be permitted in connection with Rule 506 offerings so long as the issuer sells securities only to accredited investors. Interestingly, the definition of the term “accredited investor” provides that an accredited investor is not only someone that is actually an accredited investor, but also someone the issuer “reasonably believes” is an accredited investor. The general consensus was that the SEC will likely not seek to change the definition of “accredited investor,” but will seek to provide for fairly stringent steps issuers will have to take in order to satisfy the JOBS Act requirement that an issuer take “reasonable steps to verify” accredited investor status in connection with Rule 506 offerings that use general solicitation or advertising.
The SEC published new instructions for the submission of draft registration statements by emerging growth companies (as permitted under the JOBS Act) and by foreign private issuers (under the SEC’s policy) for confidential, non-public review by the SEC. Such registration statements, exhibits and correspondence must be submitted to the SEC via a secure e-mail system. Users will be required to create an e-mail account. All draft submissions must be in text searchable PDF format and should include a transmittal letter identifying the issuer and the type of submission. Emerging growth companies should confirm their status as an EGC in their transmittal letters. The registration statement, correspondence and exhibits should each be in a separate file, using simple names to identify them, such as DRAFTS.pdf for the registration statements, LETTER.pdf for the transmittal letter and EXHIBIT10.1.pdf for each exhibit (numbered to correspond to the exhibit number). All SEC comment letters and other correspondence also will be sent via the secure email system. These procedures are effective May 14, 2012 and replace the SEC‘s prior announcement of April 5, 2012.
The SEC today issued additional Jumpstart Our Business Startups Act (JOBS Act) frequently asked questions (FAQs 18-41). These FAQs address questions relating to emerging growth company status, treatment of comment letters on confidential submissions of draft registration statements and issuer responses to such comment letters, financial accounting standards and restatement of financial statements, foreign private issuers’ compliance with the JOBS Act, and disclosures required in registration statements and periodic reports filed by emerging growth companies. The new FAQs represent helpful additional guidance for emerging growth companies considering whether to take advantage of “IPO on Ramp” provisions of the JOBS Act.
Today, the SEC will begin to republish through the EDGAR system its orders revoking a company’s Exchange Act registration pursuant to Exchange Act Section 12(j) and SEC stop orders pursuant to Securities Act Section 8. Currently, these orders are posted on the SEC web site, but they are not part of the EDGAR database. The SEC will begin republishing most recently issued orders first going back to orders issued in 2004, and it will be publishing new orders as they are issued. The order revoking Exchange Act registration will appear as the document type “REVOKED,” and stop orders will appear as the document type “STOP ORDER,” in the company’s filing history. In addition, when the SEC republishes its order revoking Exchange Act registration on EDGAR, it will modify the company information at the top of a company’s EDGAR search results to include the phrase “This company’s Exchange Act registration has been revoked.” As a result of this change, information about the status of the company’s Exchange Act registration or existence of stop orders suspending the effectiveness of a registration statement will be much more transparent and easier to search.