April 18, 2012
Earlier this month, President Barack Obama signed the bi-partisan “Jumpstart Our Business Startups Act” (the “JOBS Act”) legislation into law. On March 29, following Congress’ submission of the bill to the President for signature, Protiviti issued a Flash Report reviewing the key provisions of the JOBS Act and providing guidance to pre-IPO organizations that may be classified under the act as so-called “emerging growth companies.” Last week, the staff of the Securities and Exchange Commission (SEC) Division of Corporate Finance issued guidance in the form of frequently asked questions on the confidential submission process for emerging growth companies. While this guidance does not represent rules, regulations or statements of the Commission, it reflects the SEC staff’s thinking on matters germane to the confidential submission of registration statements for review pursuant to new Securities Act Section 6(e).
This Section 6(e) provides that an emerging growth company (EGC) may confidentially submit to the Commission a draft registration statement for confidential, non-public review by the staff prior to public filing, provided that the initial confidential submission and all amendments thereto shall be publicly filed not later than 21 days before the date on which the issuer conducts a road show.
This Flash reports summarizes some of the points included in the SEC staff’s guidance. It is presumed that readers of this Flash Report understand the basic provisions of the JOBS Act, as highlighted in our March 29 Flash Report.
Defining the “Initial Public Offering Date”
Any EGC, “prior to its initial public offering date,” may confidentially submit a draft registration statement for confidential, non-public review. The term “initial public offering date” is defined in Section 101(c) of the JOBS Act as the “date of the first sale of common equity securities of an issuer pursuant to an effective registration statement under the Securities Act of 1933.” As a result, a company that comes within the definition of an EGC may confidentially submit a registration statement so long as its initial public offering date has not occurred.
The phrase “date of the first sale” in the above definition of “initial public offering date” is not limited to the date of a company’s initial primary offering of common equity securities for cash. It could also include an offering of common equity pursuant to an employee benefit plan registered on a Form S-8 as well as a selling shareholder’s secondary offering registered on a resale registration statement.
Nature of the Confidential Submission Process
The SEC staff requests that EGCs submit drafts in a text-searchable PDF file on a CD or DVD or on paper without stapling or binding. A transmittal letter explaining that the company is an EGC should accompany the submission. While this remains the process for now, the SEC staff is developing an electronic system for accepting and reviewing confidential draft registration statements from domestic and foreign EGCs. In submitting its draft registration statement, an EGC need not make the submission under cover of a Rule 83 request to preserve confidentiality.
“Substantially Complete” Standard
Draft registration statements are expected to be substantially complete at the time of initial submission, including a signed audit report of the registered public accounting firm covering the fiscal years presented in the registration statement and exhibits, which is the same as what the SEC requires for non-public submissions by foreign private issuers. The SEC staff will defer review of any draft registration statement submitted under Section 6(e) that it determines is “materially deficient.” Because the draft registration statement is not considered to be a “filing” for purposes of Securities Act Sections 5(c) and 6(a), it is not required to be signed by the company nor must it include the consent of the auditors and other experts.
Coordinating the Confidential Submission Process with the Road Show
The confidential submissions have to be publicly filed at least 21 days before the issuer conducts a “road show” as defined in Rule 433(h)(4). That rule defines a “road show” as “an offer…that contains a presentation regarding an offering by one or more members of the issuer’s management…and includes discussion of one or more of the issuer, such management, and the securities being offered.” For example, a “road show” typically would be those meetings associated with the concentrated efforts of the EGC and its underwriters to actively market the offering. With the help of its advisors, company management should estimate when it expects to begin the road show and publicly file its confidential submissions at least 21 days before the targeted date.
It is recommended that the company keep the SEC staff that is reviewing the registration statement informed on a timely basis about the company’s expected schedule. While it is possible that there may be meetings with potential investors under the new “test-the-waters” communications provisions that could also be viewed as coming within the Rule 433(h)(4) definition of “road show” (theoretically triggering a requirement to file the registration statement 21 days before those meetings), the new Section 5(d) specifically contemplates that such “test- the-waters” communications may take place before filing a registration statement. Accordingly, the SEC staff will not object if an EGC does not treat “test-the-waters” communications conducted in reliance on new Section 5(d) as a “road show” for purposes of Section 6(e), so long as such communications are limited to communications with qualified institutional buyers (QIBs) and institutional accredited investors.
If the EGC does not conduct a “traditional” road show, as would normally be conducted with an underwriter, and does not engage in activities that would fall within the definition of a “road show,” other than “test-the-waters” communications that comply with Section 5(d), then its registration statement and confidential submissions should be filed publicly on EDGAR no later than 21 days before the anticipated date of effectiveness of the registration statement.
If the EGC does not conduct a “traditional” road show, but will have or is expected to have communications that would fall within the definition of a “road show” and do not meet the conditions for “test-the-waters” communications in Section 5(d), then the registration statement would need to be filed at least 21 days before those communications occur. For example, if the company holds an investor meeting to market the offering that is not limited to QIBs or institutional accredited investors, then the confidential submission must be made.
Taking the Confidential Submission Public
Section 6(e) provides that an EGC has to publicly file an initial confidential submission and all amendments thereto not later than 21 days before it conducts its road show. Under Section 6(e), the original draft submission and all amendments will have to be filed on EDGAR if the EGC proceeds with its offering. A draft initial public offering registration statement submitted through the SEC’s confidential process is not considered to be filed for purposes of Section 5 of the 1933 Act. It does not become public until it is filed on EDGAR.
Because the SEC’s rules and EDGAR do not currently provide for the filing of registration statements in draft form, these materials should be filed as exhibits to the first registration statement filed on EDGAR, with each confidential submission filed as a separate Exhibit 99. As is the case for all registration statements filed under the Securities Act, the first filed registration statement should be complete, including signatures, signed audit reports, consents, exhibits and filing fees.
Assume an issuer that qualifies as an EGC is in registration at the time the JOBS Act is enacted. A company in these circumstances is eligible to submit its registration statement on a confidential basis so long as its initial public offering has not occurred. If that is the case, the SEC staff will not object if a company that was in registration at the time of enactment of the JOBS Act switches to the confidential submission process for future amendments rather than withdrawing the registration statement and confidentially submitting a new draft registration statement for confidential, nonpublic review. To make this change happen, the company should contact its SEC review team to coordinate the process if it desires to make the switch.
Assume an EGC initially files its IPO registration statement on EDGAR, and then decides to switch to the confidential submission process for subsequent amendments. The initial public filing, which preceded the confidential submissions, will not satisfy the requirement to publicly file the registration statement not later than 21 days before the road show. All confidential submissions must be filed on EDGAR at least 21 days before the road show.
Availability of Rule 134 Safe Harbor
If an EGC submits its draft registration statement on a confidential basis, it may not subsequently make a public communication about its offering in reliance on the Securities Act Rule 134 safe harbor. The Rule 134 safe harbor is not available until the issuer files a registration statement that satisfies the requirements of Rule 134. The confidential submission of a draft registration statement does not constitute the filing of a registration statement.
Applicability of the Confidential Submission Process to Foreign Filers
While foreign private issuers that meet the EGC definition are eligible to use the confidential submission process in Section 6(e) to the same extent as a domestic company, an initial equity registration under the 1934 Act on Form 10 or Form 20-F does not qualify for confidential submission.
This summary of frequently asked questions is just the beginning as the SEC staff begins to clarify the application of the JOBS Act in accordance with the intent of Congress.