Starting July 10, 2017, all companies filing certain registration statements may take advantage of a popular benefit currently allowed only to Emerging Growth Companies (EGCs) under the Jumpstart Our Business Startups (JOBS) Act.
The JOBS Act, enacted in April 2012, required the U.S. Securities and Exchange Commission (SEC) to draft rules to facilitate fundraising, disclosure, and registration while also protecting investors. The Act established EGCs as a new category of securities issuer—one with less than $1 billion of total gross revenues during their most recently completed fiscal year (adjusted for inflation on March 31, 2017 to less than $1,070,000,000)—and gave those companies certain advantages designed to help them go public.
Title I of the JOBS Act provided EGCs with easier access to capital markets for an Initial Public Offering (IPO) and relaxed certain disclosure requirements by allowing EGCs to submit a draft IPO registration statement to the SEC for nonpublic review. On June 29, 2017, the SEC's Division of Corporation Finance expanded that provision to permit all companies—not just EGCs— to file registration statements relating to IPOs as well as registration statements filed in the first year after a company has entered the public reporting system, for nonpublic review.
The SEC said the expansion "will provide companies with more flexibility to plan their offering" and will reduce "the potential for lengthy exposure to market fluctuations that can adversely affect the offering process and harm existing public shareholders" after the IPO. By requiring a public filing period prior to the launch of marketing, the process incorporates a feature of the EGC review process that provides an opportunity for the public to evaluate those offerings.
Non-EGC issuers who wish to receive nonpublic review of their draft initial registration statements must attach a cover letter to their registration statements in accordance with the following:
• Standard Requirements. The Division of Corporation Finance will review draft initial registration statements and related revisions on a nonpublic basis provided that the issuer confirms in a cover letter with its draft nonpublic submission that it will file the registration statement and nonpublic draft submissions publicly at least 15 days before a road show. In the absence of a road show, the issuer must confirm in the cover letter that it will file its registration statement and nonpublic draft submissions publicly at least 15 days before the requested effective date of the registration statement.
• Initial Registrations of Securities Under Section 12(b). An issuer filing an initial registration under Section 12(b) of the Exchange Act of 1934—as amended (the Exchange Act)—must confirm in a cover letter with its nonpublic submission that it will file its registration statement and nonpublic draft submissions publicly at least 15 days before the anticipated effective date of the registration statement for its listing on a national securities exchange.
• Registrations Within One Year of an IPO or Under Section 12(b). The Division of Corporation Finance will review nonpublic draft registration statements submissions "submitted prior to the end of the twelfth month" following the effective date of an IPO registration statement or a Section 12(b) registration statement. In such cases, the issuer must confirm in the cover letter with its draft, nonpublic submission that it will file its registration statement and nonpublic draft submissions so that it is publicly available on the EDGAR system at least 48 hours before the issuer's requested effective time and date. The SEC's announcement clarified one difference to this category of registration statements—that nonpublic review applies to the initial submission only.
When issuers respond to the SEC's comments to a nonpublic draft registration statement, the response must occur by means of a public filing rather than a revised draft registration statement. Any further review by the SEC will occur in accordance with the SEC's standard procedures. For review, the issuer should file the draft registration statement it submitted for nonpublic review when it publicly files its registration statement. Any additional review or a request for acceleration would be processed by the SEC's standard procedures in accordance with Rule 461 of the Securities Act of 1933, as amended.
The SEC announcement addressed the issue of missing information and has continued to encourage issuers to file draft registration statements that are "substantially complete." However, the Division of Corporate Finance will not delay processing "if an issuer reasonably believes omitted financial information will not be required at the time the registration statement is publicly filed." The SEC will consider an issuer's specific facts and circumstances in connection with any request made under Rule 3-13 of Regulation S-X. That regulation states, in relevant part, that the SEC may—upon the informal written request of the issuer and where consistent with the protection of investors—permit the omission of one or more of the financial statements required.
The participation by non-EGCs in the nonpublic review process will not affect the confidential process for EGCs. The Division of Corporation Finance staff is encouraging issuers to discuss the timing of their deals with their SEC reviewers, who will consider reasonable requests to expedite processing.
The SEC has not updated the Form ID to accommodate the new process. Issuers that do not have EDGAR codes and need to file the Form ID to preserve confidentiality should indicate on the Form ID that they intend to use the codes to submit a draft registration statement under JOBS Act §106, even though they are not EGCs.
Please click here to read the full announcement by the Division of Corporation Finance.
