Overview
On June 29, 2017, the Division of Corporation Finance of the Securities and Exchange Commission (the “SEC Staff”) issued an announcement (the “Announcement”) expanding its confidential review process in several areas, effective as of July 10, 2017. [1] First, the Announcement provides that all issuers in initial public offerings (“IPOs”) are permitted to submit draft registration statements under the Securities Act of 1933, as amended (the “Securities Act”) on a confidential basis; accordingly, the SEC Staff will confidentially review draft registration statements for all IPO issuers, regardless of whether they qualify as an emerging growth company (“EGC”).[2] In addition, the SEC Staff will now permit companies to confidentially file registration statements under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), in connection with the first time that they register a class of securities under Section 12(b) of the Exchange Act. Registration statements under the Exchange Act were not previously eligible for confidential submission. Finally, an issuer that has completed an IPO or has registered under Section 12(b) of the Exchange Act is permitted to confidentially submit initial drafts of registration statements prior to the end of the twelfth month following the effective date of the issuer’s registration statement for its IPO or the Section 12(b) Exchange Act registration statement.
The Announcement, which is the latest step in an effort by the SEC Staff to facilitate capital formation, does not come as a surprise in light of the recent appointments of Jay Clayton as chair of the SEC, Bill Hinman as director of the SEC’s Division of Corporation Finance and Rob Evans as deputy director of the SEC’s Division of Corporation Finance, all of whom bring significant private sector capital markets experience to the SEC.
Expansion of Confidential Draft Registration Statement Procedures
IPO Registration Statements. Under the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), companies that qualify as EGCs have been permitted to submit confidential draft registration statements pursuant to Section 6(e) of the Securities Act. While a significant percentage of issuers in IPOs qualify as EGCs, the expansion of the confidential review process to all issuers in IPOs is a welcome change, particularly since many of the reasons for allowing EGCs to use the confidential review process apply equally to non-EGC issuers.
Exchange Act Registration Statements. Up until now, even EGCs have not been able to seek confidential review of registration statements filed under the Exchange Act, including those relating to spin-off transactions. [3] Pursuant to the Announcement, issuers are now permitted to have confidential review of registration statements filed under Section 12(b) of the Exchange Act in connection with the first time that they register a class of securities under Section 12(b).
Securities Act Registration Statements Following IPOs. Another significant expansion of the confidential review procedures relates to Securities Act registration statements filed after the IPO; specifically, the new procedures permit an issuer to submit draft registration statements prior to the end of the twelfth month following the effective date of the issuer’s registration statement for its IPO or the Section 12(b) Exchange Act registration statement. Notably, the SEC Staff will only review on a confidential basis the initial submission, and any further amendments, including those responding to SEC Staff comments, will need to be publicly filed. The draft registration statement must be publicly filed at the time the issuer publicly files the registration statement.
Foreign Private Issuers. Issuers that qualify as foreign private issuers are permitted to use the confidential review procedures in accordance with the Announcement, use the procedures available to EGCs or use the nonpublic submission procedures for foreign private issuers. [4]
Issuer Confirmation Regarding Public Filing. In order to qualify for the confidential review process, an issuer must confirm in a cover letter to the nonpublic draft submission that it will (1) for IPO registration statements filed under the Securities Act, publicly file the registration statement and nonpublic draft submissions at least 15 days prior to any roadshow or, if there is no roadshow, at least 15 days prior to the requested effectiveness date of the registration statement, and (2) for registration statements filed under the Exchange Act, publicly file the registration statement and nonpublic draft submissions at least 15 days prior to the anticipated effective date of the registration statement for listing on a national securities exchange. In the case of Securities Act registration statements following the IPO or registration under Section 12(b), issuers are required to confirm that they will publicly file the registration statement and nonpublic draft submissions at least 48 hours prior to the requested effective time and date.
Contents of Draft Registration Statements. Draft registration statements submitted for confidential review should be substantially complete when they are submitted. With respect to financial information, the SEC Staff will process draft registration statements if the issuer reasonably believes that omitted financial information will not be required at the time the registration statement is publicly filed. The SEC Staff will consider an issuer’s facts and circumstances in considering waiver requests under Rule 3-13 of Regulation S-X.
Frequently Asked Questions. The SEC Staff has issued frequently asked questions regarding the Announcement, which, among other things, provide the following guidance: [5]
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Non-EGC issuers should submit draft registration statements using EDGAR submission type DRS (which is the EDGAR submission type that is used by EGCs).
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Submissions pursuant to the Announcement by non-EGCs should include a request for confidential treatment under Rule 83 in order to keep the draft registration statement confidential (which includes providing a legend at the top of each page of the draft registration statement indicating that the issuer has requested confidential treatment for the draft registration statement pursuant to Rule 83). In contrast, the submission of a draft registration statement by an EGC under Section 6(e)(2) of the Securities Act does not require the submission of a Rule 83 confidential treatment request.
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Similar to the confidential review process for EGCs under the JOBS Act, issuers and their directors are not required to sign the draft registration statement; the registration statement also does not need to include the consent of auditors or other experts.
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The Securities Act registration filing fee is due when the registration statement is first publicly filed on EDGAR.
Notes:
[1] The Announcement is available here: https://www.sec.gov/corpfin/announcement/draft-registration-statement-processing-procedures-expanded.
[2] EGCs are issuers that have total annual gross revenues of less than $1,070,000,000 (the most recent inflation-adjusted dollar threshold that is contained in the definition of “emerging growth company”) during its most recently completed fiscal year. Under Section 6(e) of the Securities Act, an EGC may confidentially submit a draft registration statement prior to its IPO date, which is defined as the date of the first sale of common equity securities pursuant to an effective registration statement under the Securities Act.
