EMERGING GROWTH COMPANIES The JOBS Act amended the Securities Act and the Exchange Act to include a type of issuer called an EGC. An issuer qualifies as an EGC if it has a total gross revenue of less than $1.235 billion during its most recently completed fiscal year, subject to inflationary adjustment by the SEC every five years. An issuer will not be able to qualify as an EGC if it first sold its common stock in an SEC-registered offering before December 8, 2011. A company that elects to file as an EGC can benefit from the following reduced disclosure obligations: ■ Disclosure of only two years of audited financials (instead of three); ■ No requirement to include financial information in Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) disclosure for periods before those required to be presented in the IPO prospectus; ■ Option to rely on certain scaled disclosures available to smaller reporting companies (such as for executive compensation); and ■ Exemptions from: ■ Advisory stockholder votes on executive compensation (“say-on-pay”) and golden parachute payments; ■ Disclosing the relationship between executive compensation and financial performance; ■ Disclosing CEO pay-ratio; ■ Auditor attestation of internal controls under Section 404 of Sarbanes-Oxley; and ■ Compliance with new or revised accounting standards until the date the standard becomes broadly applicable to private companies. An issuer will remain an EGC until the earliest of: ■ The last day of the first fiscal year in which the issuer’s total annual gross revenues are $1.235 billion or more; ■ The last day of the fiscal year following the fifth anniversary of the issuer’s IPO; ■ The date on which the issuer has issued more than $1.0 billion in nonconvertible debt during the previous three years; or ■ The date on which the issuer is deemed to be a “large accelerated filer,” as defined in Rule 12b-2 under the Exchange Act. Communications Matters From the first all-hands organizational meeting forward, all statements concerning the company should be reviewed by the company’s legal counsel to ensure compliance with applicable rules. Communications by an issuer more than 30 days prior to the date on which the registration statement is publicly filed are permitted as long as they do not reference the securities offering and certain other conditions are satisfied. In contrast, public statements made within 30 days of filing a registration statement that could be considered an attempt to condition the market or pre sell the IPO shares may be considered an illegal “offer” outside of the prospectus, creating a “gun jumping” violation, which may result in the SEC delaying the IPO or requiring disclosure in the prospectus regarding these potential securities law violations and the existence of potential rescission rights. Press interviews, participation in investment banker-sponsored conferences and new advertising campaigns are generally discouraged during this period. In 2012, the JOBS Act softened gun-jumping fears by permitting EGCs to engage in test-the-waters communications with certain sophisticated investors (referred to as qualified institutional buyers, or “QIBs”) and institutional accredited investors to gauge interest in the IPO during both the pre-filing period and after filing without being required to file written communications with the SEC. And, in 2019, the SEC expanded this exception to all issuers, not just EGCs. However, the SEC will ask to review copies of any written materials used for this purpose. An issuer should consult with its counsel and the underwriters before engaging in any testing-thewaters communications. Current market practice has been to use testing-the-waters communications, which usually take place at some point after the first confidential submission of the registration statement and prior to the first public filing of the registration. The testing-the-waters meetings should happen early enough in the process to allow the working group to respond to investor feedback but not too early such that the feedback is stale by the time of launching the IPO road show. Testing-the-waters 2024 Guide to REIT IPOs and Listing Transactions | 12
RkJQdWJsaXNoZXIy NTU5OTQ5