Fast Act Anomaly

As we previously advised in our client alert dated January 22, 2016, the SEC adopted a rule on January 13, 2016 pursuant to the Fixing America’s Surface Transportation Act (the FAST Act) that permits a smaller reporting company (SRC) to incorporate by reference into its registration statement on Form S-1 documents filed by the issuer subsequent to the effective date of the registration statement in compliance with certain provisions of the Securities Exchange Act of 1934 (the Exchange Act). For further information relating to this ability to forward incorporate by reference, see our January 22, 2016 alert

Interestingly, Congress limited this provision of the FAST Act to SRCs, and the SEC did not expand the new rule to accelerated filers (issuers with a public float held by non-affiliates between $75 million and $700 million).

Instead, accelerated filers will need to continue to utilize Form S-3 if they want to file a registration statement that permits forward incorporation by reference. However, by not being able to forward incorporate by reference, an accelerated filer could be disadvantaged in a couple of ways. First, Form S-3, unlike Form S-1, requires issuers to have timely filed all of their reports under the Exchange Act in the 12-month period immediately prior to filing the Form S-3. Hence, if an accelerated filer is late by one day with respect to a Form 10-Q, 10-K or 8-K filing, it will not be eligible to file a Form S-3 and will not be able to file a Form S-1 and forward incorporate by reference. In contrast, since the Form S-1 forward incorporation rules only require that all reports required under the Exchange Act during the 12 months immediately preceding the filing of the Form S-1 have been filed, an SRC will still be able to forward incorporate by reference under Form S-1, even if it files a Form 10-K, 10-Q or 8-K late. Second, if at the time of filing a Form S-3, an accelerated filer has a public float of less than $75 million, it will only be able to utilize the baby shelf rules of Form S-3 in order to undertake a primary offering. Under the baby shelf rules, an issuer may not sell securities in a public primary offering with a value exceeding more than one-third of its public float in any 12-month period so long as its public float remains below $75 million. In contrast, there is no dollar limitation with respect to the amount of securities that can be sold under a Form S-1.

There are still advantages to using a Form S-3 as opposed to a Form S-1 such as a Form S-3 allows issuers in a primary offering to offer securities on a delayed basis. However, we believe that to level the playing field, the SEC should also allow accelerated filers to forward incorporate by reference under Form S-1.

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