The
SEC staff has begun to issue comment letters to issuers who may claim emerging growth
company (EGC) status. The EGC is a new
type of entity created by the Jumpstart Our Business Startups (JOBS) Act, which
became law April 5, 2012. JOBS Act Title I contains scaled disclosure
obligations for EGCs.
In
comments to Ares Commercial Real Estate Corporation and Fiesta Restaurant Group,
the staff noted that each firm appeared to qualify for EGC status. As a result,
the staff requested that these companies note their EGC status on their prospectus
or information statement cover pages and provide the following disclosures:
·
How
and when the company may lose EGC status;
·
A
brief description of available JOBS Act exemptions (including the exemption
from the internal controls auditor attestation requirement under Sarbanes-Oxley
Act Section 404(b) and the exemption from certain executive compensation
requirements under Exchange Act Section 14A(a) and (b)); and
·
With
respect to the JOBS Act Section 107(b) election: (1) a statement that the firm’s
election to opt out of the extended transition period to comply with new or
revised accounting standards is irrevocable, or (2) upon electing to use the
extended transition period to comply with new or revised accounting standards,
include a risk factor stating this election permits the company to delay
adoption of certain accounting standards with different effective dates for
public and private companies until the standards apply to private companies; The
risk factor also must state that due to the election, the firm’s financial
statements may not be comparable to those of firms that comply with public
company effective dates; Similar disclosure must be made in the company’s
MD&A critical accounting policies section.
The
SEC staff, in comments to Proofpoint, Inc., observed that the company’s JOBS
Act disclosures may inadequately describe when the firm must provide an annual
assessment and auditor attestation on internal controls over financial
reporting. Specifically, the company must clarify whether it is an EGC and
disclose that EGC status excuses the company from the requirements of Sarbanes-Oxley
Act Section 404(b) for up to five years. Proofpoint must further disclose the
circumstances that may end its EGC status and thus require compliance with Sarbanes-Oxley
Act Section 404(b). The staff also asked the firm to consider whether
disclosure to investors of the modified disclosure and reporting requirements
for EGCs is necessary or appropriate. In particular, the company should
consider the effect of EGC status on its investors and the firm’s access to
capital.
At the time of
publication, the companys' replies to these staff comments were not publicly available
on EDGAR. Additionally, the SEC staff has issued numerous documents providing
guidance to EGCs under the JOBS Act.