provide comparable information. The underwriter may believe that institutional investors in that industry sector may demand three years of financial information. It may be the case that there are important trends in either the issuer’s business and results of operations or in the industry as a whole that make it important to present three years of information in order to ensure that an investor will be able to evaluate all of the information that may be deemed material to an investment decision, including, perhaps, trends in the issuer’s business or in the industry. According to certain published reports, only a small percentage of EGCs have availed themselves of the ability to provide information for a shorter period. EGCs also have the option of relying on the smaller
reporting company scaled disclosure requirements for executive compensation. This means, for example, that an EGC could omit a Compensation Discussion and Analysis section and present only a summary compensation table. An EGC may decide to include more substantial executive compensation disclosures in its future filings. An EGC should consult with its counsel, as well as with the underwriter, regarding these disclosures. An EGC also will have to decide whether it will opt out
of the extended transition period provided for an EGC to comply with new or revised accounting standards. An EGC’s decision in this regard is irrevocable, and will have to be disclosed in its registration statement. Here, again, the issuer will want to consider this decision carefully and discuss it with its counsel and its auditors. The underwriter may also have a view. To date, many EGCs have opted out of the extended transition period, although it is possible that market practice will evolve over time as participants become more accustomed to the JOBS Act provisions.
Underwriting agreements Underwriting agreements have been revised to address JOBS Act changes. An underwriting agreement for an EGC will contain representations and warranties by the EGC regarding its status as an EGC at each of the relevant times (when it made its confidential submission with the SEC, when it undertook any test-the-waters communications, on the date of execution of the underwriting agreement, and so on). The EGC will be asked to represent that it has not engaged in any test-the- waters communications other than with QIBs or institutional accredited investors, and except as agreed with the underwriters. To the extent that it has distributed written materials, the EGC will be asked to make certain representations regarding the accuracy of those materials. Similarly, the EGC will be asked to make certain covenants to the underwriters, which will include an agreement to
notify the underwriters if, at any time before the later of the time when a prospectus is required to be delivered in connection with the offering, and the completion of the lock-up period, the issuer no longer qualifies as an EGC. In addition, the lock-up language applicable to an EGC also will be revised to account for the quiet period changes included in the JOBS Act.
FOREIGN PRIVATE ISSUERS
Our discussions have focused on US domestic issuers; however, foreign issuers that are considering accessing the US. capital markets will have available to them almost all of the benefits of the JOBS Act. A foreign issuer must choose between undertaking a public offering in the United States, which would have the result of subjecting the issuer to ongoing securities reporting and disclosure requirements, and undertaking a limited offering that will not subject the issuer to US reporting obligations. A public offering in the United States offers distinct advantages for foreign issuers. The US public markets remain among the most active and deepest equity markets in the world. In recent years, however, many foreign issuers may have been discouraged by the regulatory burdens associated with being a US reporting company, including those imposed by the Sarbanes-Oxley and the Dodd-Frank Act. For foreign issuers that qualify as EGCs, the IPO on-ramp process may make the United States more hospitable. A foreign private issuer (FPI) is any issuer (other than a foreign government) incorporated or organised under the laws of a jurisdiction outside of the United States, unless more than 50% of the issuer’s outstanding voting securities are held directly or indirectly by residents of the United States, and any of the following applies: (i) the majority of the issuer’s executive offices or directors are United States citizens or residents; (ii) the majority of the issuer’s assets are located in the United States; or (iii) the issuer’s business is principally administered in the United States.5
An FPI
may become subject to US securities law reporting requirements either by conducting a public offering in the United States by registering the offering and sale of its securities pursuant to the Securities Act, or by listing a class of its securities on a US national securities exchange through registration pursuant to the Exchange Act or becoming subject to the Exchange Act requirements if a class of its equity securities is held of record by 2,000 or more persons or 500 non-accredited investors. Important benefits are available to FPIs. For example, an
FPI may exit or deregister its securities more easily than a domestic US issuer. An FPI must test its qualification only once a year, and should it fail to qualify as an FPI, it has
JOBS Act Quick Start 33
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