We’ve now posted a bunch of memos on last week’s two major rule proposals in our “Filer Status” Practice Area (for the Enhancement of EGC Accommodations and Simplification of Filer Status proposal) and our “Securities Act Reform” Practice Area (for the Registered Offering Reform proposal). These memos are always good at helping you get up to speed quickly, but even if you already went ahead and read the two releases in full, they also have some immediate practical takeaways, thoughts on the potential impact of the rule proposals and useful examples.

Speaking of impact and examples, I think we all have a general sense of just how impactful both proposals will be if adopted. But when you start thinking about the ‘Specifics, Bob,’ I think the benefits to public companies are even more evident. For example, this Davis Polk alert identifies these examples:

IPO companies. Say you are a biotech that is an EGC and an SRC, and you just went public. Under the proposal you are already eligible to use Form S-3 to raise additional capital. And a year out, you have the ability to file a Form S-3 that is automatically effective. If there is an open market window at the beginning of March and you don’t have audited financials yet for the prior fiscal year – you can still go out and do an offering, subject to banks being comfortable with the comfort package, since those would no longer be required that early for a NAF.

Non-WKSIs. An existing public company that’s been reporting for 12 months but currently does not qualify as a WKSI because it does not meet the required thresholds under the current definition would be able to file an automatically effective shelf, immediately raise capital and pay the SEC registration fees at the time of a takedown as opposed to when it files the registration statement. If that same company also shifts from accelerated filer to NAF status under the filer status proposal, it would combine expanded capital-raising flexibility with scaled disclosure obligations, including executive compensation-related disclosures.

ICFR auditor attestation cost savings. For current accelerated filers that would transition to NAF status under the proposed filer status reform, the elimination of the ICFR auditor attestation requirement alone could yield meaningful compliance cost savings. A newly public company would not become subject to the section 404(b) ICFR auditor attestation requirement until at least 5 years after its IPO, regardless of the size of its public float.

deSPACed companies. A company that goes public through a deSPAC transaction would no longer be considered an “ineligible issuer” under Securities Act Rule 405, which means it would be eligible to use Form S-3 like a traditional IPO company provided it meets the other eligibility criteria under the form. It would also benefit from other flexibility, including the ability to use free writing prospectuses like traditional IPO companies and be eligible for SELI and ELI status just like traditional IPO companies, unlike the current framework where WKSI status is not available until at least three years after closing of the deSPAC transaction. Notably, the proposals do not seek to amend either Rule 144(i) or Rule 145. Rule 144(i) currently imposes a rolling 12-month current public information requirement for persons seeking to rely on Rule 144’s safe harbor in reselling securities issued by a deSPACed company, and that requirement never falls away no matter how long the company has been an SEC registrant. Rule 145 currently deems statutory underwriter status on certain parties involved in a deSPAC transaction. So, deSPACed companies would continue to be treated differently in these two respects.

Filer status determination. While companies would continue to assess their filer status annually, they would not be at risk of falling in or out of a particular category based on where their public float was on June 30 of a given year, given the requirement that the relevant threshold be met for two consecutive years. This would give a company visibility into any changed reporting obligations in advance and more time to prepare for any internal controls or other changes it would need to put in place. And it would effectively just need to determine whether it is a LAF or not, a binary choice which in itself brings welcome simplification.

That last one is huge! And on Form S-3 eligibility, no baby shelf! That alone is a game-changer for a lot of companies and their bankers and advisors.

– Meredith Ervine