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The IPO on-ramp under the JOBS Act<br />
4.1 The JOBS Act: Emerging growth<br />
company status<br />
Fenwick & West LLP<br />
(a) Background<br />
In April 2012, President Obama signed into<br />
law the JOBS Act. One of the aims of the<br />
JOBS Act was to increase the number of<br />
companies electing to complete an IPO and<br />
to provide those companies a transition<br />
period, or “on-ramp,” to the public markets,<br />
allowing them to focus resources on growth<br />
of their businesses before having to expend<br />
resources toward complying with many of<br />
the regulations often cited as costly and<br />
burdensome for newly public companies.<br />
The so-called IPO on-ramp provisions,<br />
which are contained in Title I of the JOBS<br />
Act, reduce a number of existing financial<br />
disclosure, corporate governance and other<br />
regulatory burdens on a new category of<br />
issuer, referred to as an “emerging growth<br />
company.”<br />
(b) Qualifying as an emerging growth<br />
company<br />
Subject to certain exceptions, an EGC<br />
is defined as an issuer of securities that<br />
had gross revenues of less than $1 billion<br />
during its most recently completed fiscal<br />
year. An issuer would qualify as an EGC<br />
even if its gross revenues exceeded $1<br />
billion in years prior to its most recent<br />
fiscal year.<br />
Gross revenues are measured with<br />
reference to total revenues as presented<br />
on the income statement presentation<br />
under U.S. GAAP (or IFRS as issued by the<br />
IASB, if used as the basis of reporting by<br />
a foreign private issuer). If the financial<br />
statements of a foreign private issuer are<br />
presented in a currency other than U.S.<br />
dollars, total annual gross revenues for<br />
purposes of this test should be calculated<br />
in U.S. dollars using the exchange rate<br />
as of the last day of the most recently<br />
completed fiscal year. When calculating<br />
gross revenues, financial institutions may<br />
exclude gains and losses on dispositions of<br />
investment portfolio securities.<br />
(c) Length of transition period<br />
An issuer that is an EGC as of the first day<br />
of that fiscal year will continue to maintain<br />
that status until the earliest of:<br />
• the last day of the fiscal year in which<br />
it achieves $1 billion of gross revenues;<br />
• the last day of the fiscal year that<br />
includes the fifth anniversary of its<br />
IPO;<br />
• the date on which it has issued more<br />
than $1 billion in nonconvertible debt<br />
during any previous rolling three-year<br />
period (excluding issuances in A/B debt<br />
exchange offers); or<br />
• the date on which it is deemed to<br />
be a “large accelerated filer” (which<br />
requires, among other things, having<br />
common equity held by nonaffiliates<br />
with a market value of $700 million<br />
or more).<br />
4.2 Advantages of emerging growth<br />
company status<br />
Fenwick & West LLP<br />
(a) Overview<br />
The IPO on-ramp provisions of the JOBS<br />
Act offer EGCs a number of advantages<br />
during the IPO process, including:<br />
• confidential submission and review of<br />
IPO registration statements;<br />
• reduced financial statement audit and<br />
disclosure requirements;<br />
• reduced executive compensation<br />
disclosure requirements;<br />
• the ability to engage in oral or written<br />
“test-the-waters” communications<br />
with certain types of potential<br />
investors to gauge interest before or<br />
after filing; and<br />
• liberalization of the use of research<br />
reports and easing of restrictions on<br />
analyst communications.<br />
The IPO on-ramp provisions of the<br />
JOBS Act also reduce the costs and burdens<br />
of being a public company for EGCs after<br />
completion of their IPOs by providing:<br />
• an exemption from the public<br />
accounting firm attestation to issuer<br />
internal controls required by Section<br />
404(b) of the Sarbanes-Oxley Act;<br />
• scaled-back financial and compensation<br />
disclosure requirements for future<br />
registration statements, periodic<br />
reports and other reports to be filed<br />
with the SEC;<br />
• exemptions from “say-on-pay”<br />
votes (and votes on the frequency<br />
of “say-on-pay” votes), certain other<br />
required shareholder actions and<br />
certain proxy statement disclosures;<br />
• exemptions from mandatory audit firm<br />
rotation and any auditor’s discussion<br />
and analysis requirements; and<br />
• relief from the requirement to comply<br />
with any update issued by the FASB to<br />
its Accounting Standards Codification<br />
until the date that a company that is a<br />
private company is required to comply<br />
with such new or revised accounting<br />
standard if such standard does not<br />
apply to private companies.<br />
In this regard, EGCs that are foreign<br />
private issuers and that reconcile their<br />
home country GAAP financial statements<br />
to U.S. GAAP may also take advantage<br />
of the extended transition period for<br />
complying with updates issued by the FASB<br />
to its Accounting Standards Codification<br />
in their U.S. GAAP reconciliation.<br />
(b) Confidential submissions<br />
EGCs have the option to confidentially<br />
submit to the SEC a draft registration<br />
statement for confidential, nonpublic<br />
review by the SEC prior to public filing.<br />
This allows an EGC to explore the<br />
possibility of an IPO without exposing any<br />
confidential information to its competitors<br />
or the market generally until 21 days<br />
before the date on which it begins to<br />
conduct its roadshow (see Section 3.4(b))<br />
and without risking the embarrassment<br />
associated with pulling the IPO should the<br />
EGC do so.<br />
The confidential submission process<br />
is only available for EGCs that have not<br />
already completed a public offering of<br />
common equity securities, including<br />
offerings under employee benefit plans<br />
or pursuant to a resale registration<br />
statement. EGCs that have completed<br />
public offerings of debt securities may<br />
use the confidential submission process.<br />
Foreign private issuers may also be<br />
eligible to submit their draft registration<br />
statements on a nonpublic basis under<br />
existing policies of the SEC’s Division of<br />
Corporation Finance; however, the benefits<br />
of this policy are not available to foreign<br />
private issuers that take advantage of any<br />
benefit available to EGCs.<br />
44 NYSE IPO Guide