Legal Alert: FAST Act Creates New Exemption for Private Resales of Securities; Also Requires Disclosure Modernization and Simplification
On December 4, 2015 President Obama signed into law the Fixing America’s Surface Transportation Act (the “FAST Act”) which, despite its name, includes a number of provisions designed to facilitate capital formation and modernize and simplify certain disclosure obligations under federal securities laws. The changes were effective immediately.
Section 4(a)(7) Resale Exemption
The FAST Act creates a new statutory exemption from registration under the Securities Act of 1933 (the “Securities Act”) for private resales to accredited investors which codifies the informal “Section 4(a)(1 ½)” exemption. Under the new Securities Act Section 4(a)(7) exemption, a resale will be exempt from registration if:
- the purchaser is an accredited investor, as defined in Rule 501 of Regulation D;
- the seller does not use general solicitation to offer or sell the securities;
- if the securities are those of an issuer not subject to the Securities Exchange Act of 1934, then the seller and the prospective purchaser obtain certain information from the issuer;
- the seller is not subject to an event that would trigger the “bad actor” disqualification provision of Securities Act Rule 506(d);
- the securities must have been outstanding for 90 days prior to the resale; and
- the securities are not part of an unsold allotment to an underwriter.
Consistent with its purpose of facilitating resales, the new exemption is not available for sales by the issuer, but is available for affiliates of the issuer. In addition, the securities must be those of an issuer “engaged in business” and cannot be those of shell or blank check companies.
Securities sold pursuant to the Section 4(a)(7) exemption will be “restricted securities” under Rule 144. Unlike Rule 144, the new exemption does not impose any holding period requirement for the securities to be resold, other than the requirement that the securities must have been outstanding for at least 90 days. The FAST Act also amends Section 18 of the Securities Act to pre-empt state blue sky requirements for resales conducted under the new exemption.
Disclosure Modernization and Simplification
The FAST Act also directs the Securities and Exchange Commission (“SEC”) to:
- permit issuers to include a summary page in Form 10-K filings if that page includes appropriate cross-references to other parts of the Form 10-K;
- revise Regulation S-K to further scale or eliminate requirements to reduce the burden on issuers while still providing all material information, and to eliminate provisions of Regulation S-K that are duplicative, overlapping, outdated or unnecessary; and
- undertake a study of Regulation S-K to determine how best to modernize and simplify its requirements, including with respect to methods of delivery and presentation, so as to make disclosure more relevant and less repetitious.
Emerging Growth Companies
Other amendments to the federal securities laws enacted by the FAST Act relate to Emerging Growth Companies (“EGCs”) and:
- shorten from 21 to 15 days the period between the date on which an EGC publicly files the draft registration statement previously submitted for confidential SEC staff review and the date it may commence a road show;
- provide that an issuer that was an EGC at the time it submitted a draft registration statement for confidential review, but thereafter ceases to be an EGC, will continue to qualify as an EGC until the earlier of the date it commences its initial public offering and one year after it ceases to be an EGC; and
- permit the exclusion from registration statements on Forms S-1 and F-1 filed prior to an initial public offering of historical financial information otherwise required by Regulation S-X if the issuer reasonably believes such information will not be required at the time of the contemplated offering.
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