The SEC recently adopted amendments pursuant to the Fixing America’s Surface Transportation Act (commonly referred to as the FAST Act) to modernize and simplify disclosure requirements in Regulation S-K, and related rules and forms, for public companies, investment advisers and investment companies. Such amendments include changes to, among others, Item 102 (Description of Property), Item 303 (Management’s Discussion and Analysis of Financial Condition and Results of Operations), Item 503 (Prospectus Summary and Risk Factors), Item 601 (Exhibits) and various rules related to incorporation by reference.

Among the most impactful changes are:

1. Allowing companies to generally exclude discussion of the earliest of three years required by Item 303 (Management’s Discussion and Analysis of Financial Condition and Results of Operations) if such discussion has already been included in a prior filing. 

2. Limiting the disclosure required by Item 102 (Description of Property) to only those physical properties that are material.

3. With respect to exhibits to SEC filings (Item 601):

(a) Allowing companies to omit attachments such as schedules and exhibits to their material contracts filed as exhibits to SEC filings if such attachments don't contain material information or were not otherwise disclosed.

(b) Eliminating the requirement (other than for newly reporting companies) to file as exhibits material contracts that were entered into less than two years before that filing.

(c) Permitting companies to omit from material contracts and certain other exhibits to SEC filings confidential information that is not material and would likely cause such companies competitive harm if made public, without requiring companies to first file confidential treatment requests.

(d) Eliminating the requirement to file as an exhibit to SEC filings any document that is incorporated by reference in such filing, but instead requiring companies to provide hyperlinks to documents incorporated by reference.

4. Permitting companies to omit disclosure about Section 16 reports if all reports have been timely filed (and eliminating the box on the cover of Form 10-Ks regarding Section 16 disclosure).

The rules also add a few requirements regarding Inline XBRL tagging of cover pages, among others.

Registrants will be required to disclose on the cover page of Forms 8-K, 10-Q, 10-K, 20-F and 40-F the national exchange or principal U.S. market for their securities, their trading symbol and the title of each class of securities.

The final rules, which can be found here, are effective 30 days after publication in the federal register, except for the amendments to the rules governing the redaction of confidential information in material contracts referenced in Item 3(c) above, which are effective as of the date of publication in the federal register.

Yesterday, the SEC proposed amendments to eliminate redundant, overlapping, outdated, or superseded provisions, in light of subsequent changes to SEC disclosure requirements, U.S. GAAP, IFRS and technology. The SEC also solicited comment on certain disclosure requirements that overlap with U.S. GAAP to determine whether to retain, modify, eliminate or refer them to the FASB for potential incorporation into U.S. GAAP. The proposing release is part of the SEC’s disclosure effectiveness review (criticized of late by Senator Warren), which is a broad-based staff review of the requirements, and the presentation and delivery of disclosures that companies make to investors. The proposals are also part the implementation of the Fixing America’s Surface Transportation (FAST) Act, which, among other things, requires the SEC to eliminate provisions of Regulation S-K that are duplicative, overlapping, outdated, or unnecessary. The proposals are subject to public comment and may or may not be enacted in the near-term, but many of them appear to be “low hanging fruit” that are common-sense, non-controversial changes that would help public companies to at least start to chip away at their bulging disclosure documents. While not radical changes, it’s a step in the right direction to see some of the simplification concepts the SEC has discussed for months start to move to the proposal stage.

Find more SEC resources on our Capital Markets page.

The SEC has approved an interim final rule that allows Form 10-K filers to provide a summary of business and financial information contained in the annual report. The rule implements a provision of the Fixing America’s Surface Transportation (FAST) Act. Note that this will be optional for companies – they do not have to provide a summary but the idea behind this is that a summary may help investors better digest the lengthier and lengthier annual reports they have been receiving lately. Importantly, however, companies opting to provide the summary must include hyperlinks to the related, more detailed disclosure in the Form 10-K. 

On December 4, 2015, the Fixing America’s Surface Transportation Act (the FAST Act) was signed into law. While the FAST Act primarily dealt with transportation and infrastructure improvements, it included a new subsection to Section 4 of the Securities Act of 1933. Specifically, it added Section 4(a)(7), which provides a new registration exemption for the private resale of securities. Previously, private holders of securities wishing to resell without registration had two options: (i) comply with a holding period before selling securities on a public market pursuant to Rule 144, or (ii) fall within the so-called “Section 4(a)(1½)”.

Generally, Section 5 of the Securities Act requires registration for all offers and sales of securities unless an exemption applies. Two common exemptions to registration exist under Sections 4(a)(1) and 4(a)(2) of the Securities Act. Section 4(a)(1) offers an exemption for transactions by any person other an issuer, underwriter or dealer. Section 4(a)(2) offers an exemption for transactions by an issuer that are not a public offering. However, private resales of securities fell into unclear territory. That uncertainty gave rise to the so-called “Section 4(a)(1½)”.

Section 4(a)(1½) is an exemption derived from case law and certain elements and principles of Sections 4(a)(1) and 4(a)(2). Section 4(a)(1½) essentially applies the Section 4(a)(1) exemption to a transaction with private characteristics similar to a private issuance under Section 4(a)(2). However, unlike a codified exemption, the little guidance that existed with regards to Section 4(a)(1½) was conflicted and incomplete.

Section 4(a)(7) creates more certainty by specifying the circumstances where a private resale of securities is exempt from registration. A resale of securities is exempt under Section 4(a)(7) if:

1. The purchaser is an “accredited investor” as defined by Regulation D
2. The seller, or any person acting on the seller’s behalf, refrains from any form of general solicitation or advertising
3. The seller is not the issuer or a subsidiary of the issuer
4. The seller, or any person that has been or will be paid for participating in the sale of the securities, is not qualified as a “bad actor” under Regulation D
5. The issuer is engaged in business, is not in the organizational stage or in bankruptcy or receivership, and is not a blank check, blind pool, or shell company that has no specific business plan or purpose and has not indicated that the issuer’s primary business plan is to merge or acquire an unidentified person
6. The transaction does not relate to an unsold allotment to, or a subscription or participation by, a broker or dealer as an underwriter of the securities
7. The transaction is with respect to a class of securities that has been authorized and outstanding for at least 90 days prior to the transaction
8. For securities of issuers not subject to periodic reporting and eligible to register securities under Schedule B, certain information must be provided to prospective purchasers, including financial statements prepared in accordance with generally accepted accounting principles or, for foreign issuers, International Financial Reporting Standards

Securities sold under Section 4(a)(7) are “restricted securities” under Rule 144. They are also “covered securities” within the meaning of Section 18(b) of the Securities Act, and are therefore exempt from state securities registration requirements. Further, Section 4(a)(7) does not replace Section 4(a)(1½), meaning resellers can still rely on procedures that fell under Section 4(a)(1½) if they are unable to comply with the requirements of Section 4(a)(7).

As described in our client advisory, the recently enacted FAST Act required the SEC, within 45 days, to revise Form S-1 (and F-1) to permit any smaller reporting company to incorporate by reference in a Form S-1 any documents that the company files with the SEC after the effective date of its registration statement. The SEC today adopted “interim” rules to implement this FAST Act provision, as well as another provision permitting the omission by emerging growth companies of certain historical financial information in offering documents. The interim rules can be found here and also request public comments on whether they should be further expanded in coverage. 

Under current rules, for ongoing offerings or resale registrations, a company that is not eligible to use Form S-3 must continually amend or supplement its Form S-1 registration statement. The new interim rule gives smaller reporting companies the option of automatic updates through periodic reports filed by the company, thus eliminating the time and effort to prepare mostly duplicative separate filings that formerly were needed to update Form S-1. There are a few eligibility conditions, such as having filed an annual report for the most recently completed fiscal year and having filed all required periodic reports during the preceding 12 months. In addition, incorporated reports must also be included on the smaller reporting company’s website and be available upon request. 

In December 2015, President Obama signed into law the Fixing America’s Surface Transportation Act (FAST Act). Buried in the hundreds of unrelated pages of the FAST Act are several provisions that modify the previously adopted Jumpstart Our Business Startups Act (JOBS Act). The FAST Act impacts capital raising for emerging growth companies (EGCs), seeks to simplify disclosure requirements for reporting companies, codifies a previously informal exemption from registration for resales of securities and streamlines the registration process for smaller reporting companies. The key securities provisions of the FAST Act are summarized below.

Click below to read the complete Client Advisory, co-authored by Sullivan attorneys Howard Berkenblit, Rob Condon, Jeff Morlend and Avi Rao.