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SEC Guidance on Regulation A+

Posted in Regulation A+, SEC News

The SEC has provided guidance to issuers on Regulation A+ offerings.  You can access the SEC’s Small Entity Compliance Guide here:  http://www.sec.gov/info/smallbus/secg/regulation-a-amendments-secg.shtml.

In addition, the SEC Staff has published a number of Compliance and Disclosure Interpretations, which may be accessed here: http://www.sec.gov/divisions/corpfin/guidance/securitiesactrules-interps.htm#182.01.

For convenience, we have reprinted below the C&DIs.

Section 182. Rules 251 to 263

Question 182.01

Question: Where an issuer elects to non-publicly submit a draft offering statement for staff review pursuant to Rule 252(d) of Regulation A before publicly filing its Form 1-A, Item 15 (Additional Exhibits) of Part III (Exhibits) to Form 1-A requires issuers to file as an exhibit to the publicly-filed offering statement: (1) any non-public, draft offering statement previously submitted pursuant to Rule 252(d), and (2) any related, non-public correspondence submitted by or on behalf of the issuers. Would an issuer that elects to make the non-public, draft offering statements public on the EDGARLink submissions page of EDGAR (see Chapter 7 (Preparing and Transmitting EDGARLink Online Submissions) of Volume II of the EDGAR Filer Manual, available at: http://www.sec.gov/info/edgar/edmanuals.htm) at the time it publicly files its Form 1-A also be required to refile such material as an exhibit pursuant to Item 15 of Part III?

Answer: No. If, at the time it first files the offering statement publicly, the issuer makes public on the EDGARLink submissions page all prior non-public, draft offering statements, the offering statements will no longer be non-public and the issuer will not be required to file them as exhibits. The issuer is still required to file as an exhibit any related, non-public correspondence submitted by or on behalf of the issuer regarding non-public draft offering statements submitted pursuant to Rule 252(d). [June 23, 2015]

Question 182.02

Question: If an issuer elects to submit a draft offering statement for non-public staff review before public filing pursuant to Rule 252(d), and, as part of that process, submits correspondence relating to its offering statement, what must it do if it wants to protect portions of that correspondence from public release?

Answer: During the review of the draft offering statement, the issuer would request confidential treatment of any information in the related correspondence pursuant to Rule 83, in the same manner it would during a typical review of a registered offering. It would submit a redacted copy of the correspondence via EDGAR, with the appropriate legend indicating that it was being submitted pursuant to a confidential treatment request under Rule 83. At the same time, it would submit an unredacted paper version to the SEC, in the manner required by that rule. When the issuer makes its public filing of the offering statement, it will be required to file as an exhibit to the electronically filed offering statement any previously submitted non-public correspondence related to the non-public review. Since that correspondence will be information required to be filed with the SEC, the issuer must redact the confidential information from the filed exhibit, include the required legends and redaction markings, and submit in paper format to the SEC’s Office of the Secretary an application for confidential treatment of the redacted information under Rule 406. The staff will consider and act on that application in the same manner it would with any other application under Rule 406 for other types of filed exhibits. As with registered offerings, the review staff will act on Rule 406 confidential treatment applications before the offering statement is qualified. For the requirements a registrant must satisfy when requesting confidential treatment, see Division of Corporation Finance Staff Legal Bulletin No. 1 (with Addendum). [June 23, 2015]

Question 182.03

Question: Would a company with headquarters that are located within the United States or Canada, but whose business primarily involves managing operations that are located outside those countries be considered to have its “principal place of business” within the United States or Canada for purposes of determining issuer eligibility under Regulation A?

Answer: Yes, an issuer will be considered to have its “principal place of business” in the United States or Canada for purposes of determining issuer eligibility under Rule 251(b) of Regulation A if its officers, partners, or managers primarily direct, control and coordinate the issuer’s activities from the United States or Canada. [June 23, 2015]

Question 182.04

Question: Is a company that was previously required to file reports with the Commission under Section 15(d) of the Exchange Act, but that has since suspended its Exchange Act reporting obligation, an eligible issuer under Rule 251(b)(2) of Regulation A?

Answer: Yes. A company that has suspended its Exchange Act reporting obligation by satisfying the statutory provisions for suspension in Section 15(d) of the Exchange Act or the requirements of Exchange Act Rule 12h-3 is not considered to be subject to Section 13 or 15(d) of the Exchange Act for purposes of Rule 251(b)(2) of Regulation A. [June 23, 2015]

Question 182.05

Question: Is a voluntary filer under the Exchange Act an eligible issuer for purposes of Rule 251(b)(2) of Regulation A?

Answer: Yes. A voluntary filer is not subject to Exchange Act Section 13 or 15(d) because it is not obligated to file Exchange Act reports pursuant to either of those provisions. [June 23, 2015]

Question 182.06

Question: Is a private wholly-owned subsidiary of an Exchange Act reporting company parent eligible to sell securities pursuant to Regulation A?

Answer: Yes, although the Exchange Act reporting company parent could not be a guarantor or co-issuer of the securities of the private wholly-owned subsidiary. [June 23, 2015]

Question 182.07

Question: Can Regulation A be relied upon by an issuer for business combination transactions, such as a merger or acquisition?

Answer: Yes. The final rules do not limit the availability of Regulation A for business combination transactions, but, as the Commission (SEC Rel. No. 33-9497) indicated, Regulation A would not be available for business acquisition shelf transactions, which are typically conducted on a delayed basis. [June 23, 2015]

Question 182.08

Question: May a recently created entity choose to provide a balance sheet as of its inception date?

Answer: Yes, as long as the inception date is within nine months before the date of filing or qualification and the date of filing or qualification is not more than three months after the entity reached its first annual balance sheet date. The date of the most recent balance sheet determines which fiscal years, or period since existence for recently created entities, the statements of comprehensive income, cash flows and changes in stockholders’ equity must cover. When the balance sheet is dated as of inception the statements of comprehensive income, cash flows and changes in stockholders’ equity will not be applicable. [June 23, 2015]

Question 182.09

Question: Can an issuer solicit interest (or “test the waters”) in a Regulation A offering on a platform that limits the number of characters or amount of text that can be included, thereby preventing the inclusion in such communication of the information required by Rule 255?

Answer: Yes. The staff will not object to the use of an active hyperlink to satisfy the requirements of Rule 255 in the following limited circumstances:

  • The electronic communication is distributed through a platform that has technological limitations on the number of characters or amount of text that may be included in the communication;
  • Including the required statements in their entirety, together with the other information, would cause the communication to exceed the limit on the number of characters or amount of text; and
  • The communication contains an active hyperlink to the required statements that otherwise satisfy Rule 255 and, where possible, prominently conveys, through introductory language or otherwise, that important or required information is provided through the hyperlink.

Where an electronic communication is capable of including the entirety of the required statements, along with the other information, without exceeding the applicable limit on number of characters or amount of text, the use of a hyperlink to the required statements would be inappropriate. [June 23, 2015]

Question 182.10

Question: Are state securities law registration and qualification requirements preempted with respect to resales of securities purchased in a Tier 2 offering?

Answer: No. State securities law registration and qualification requirements are only preempted with respect to primary offerings of securities by the issuer or secondary offerings by selling securityholders that are qualified pursuant to Regulation A and offered or sold to qualified purchasers pursuant to a Tier 2 offering. Resales of securities purchased in a Tier 2 offering must be registered, or offered or sold pursuant to an exemption from registration, with state securities regulators. [June 23, 2015]

Question 182.11

Question: When is an issuer required to engage the services of a registered transfer agent before being able to avail itself of the conditional exemption from mandatory registration under Section 12(g) of the Exchange Act described in Exchange Act Rule 12g5-1(a)(7)?

Answer: An issuer that seeks to rely on the conditional exemption from mandatory registration under Section 12(g) of the Exchange Act must at the time of reliance on the conditional exemption satisfy the requirements of Rule 12g5-1(a)(7). [June 23, 2015]


House Holds Hearings on Bill to Ease BDC Restrictions

Posted in BDCs

The Subcommittee on Capital Markets and Government Sponsored Enterprises of the House Financial Services Committee heard testimony on June 16, 2015 in support of proposed bills that would, among other things, increase the flexibility of business development companies (BDCs) to use leverage and expand the pool of accredited investors.

The hearings focused on a draft bill proposed by Rep. John M. Mulvaney (R-SC) called “The Small Business Credit Availability Act,” (the “Bill”). The Bill builds on H.R. 1800, which the House of Representatives passed in 2014, but was never enacted into law.

Read the rest of our client alert, here.

Complimentary Teleconference: Canadian Issuers and Regulation A+

Posted in Events, Regulation A+

On Thursday, June 25, 2015, Morrison & Foerster Partner Anna Pinedo will be joined by Blake, Cassels & Graydon Partner Pamela Hughes to present “Canadian Issues and Regulation A+”.  On June 19, 2015, the Regulation A+ rules adopted by the U.S. Securities and Exchange Commission became effective. Regulation A+ provides an important capital-raising alternative for private companies in the United States and Canada, as well as for Canadian companies with securities listed on a domestic exchange. A Regulation A+ offering may be used in connection with a primary offering of newly issued shares by a company or to resell securities held by existing stockholders. Whether you are contemplating a Regulation A+ offering as a precursor to an IPO, as a liquidity opportunity for existing holders or as an alternative to a traditional IPO, you will need to understand the requirements of the final rule. This session, which will take place from 1:00 p.m. to 2:00 p.m. EDT, will discuss:

  • Tier 1 and Tier 2 offerings;
  • Regulation A+ Basics;
  • Disclosure, financial statement and other filing requirements;
  • Use by Canadian issuers that are non-reporting issuers in Canada;
  • Use by Canadian issuers that are listed in Canada:
  • Ongoing reporting requirements for Tier 2 issuers; and
  • Concurrent Regulation A+ and securities exchange listings in the United States.

CLE credit is pending.

To register for this session, or for more information, please email hlawrence@mofo.com.

SEC Denies Motion to Stay Regulation A+

Posted in Regulation A+

On June 5, 2015, Monica J. Lindeen, Montana State Auditor, ex officio Commissioner of Securities and Insurance, filed a motion with the SEC for a stay of the Regulation A+ rules, which are scheduled to become effective this Friday.  In an order issued on July 16, 2015, the Commission denied the Montana motion.  The Commission found that Lindeen did not demonstrate a strong likelihood of success on the merits of her claim that the Commission’s definition of “qualified purchaser” is “contrary to the plain meaning” of the JOBS Act and NSMIA, or on the merits of her claim that “the Commission insufficiently analyzed the costs and benefits of the Final Rule as it relates to the protection of investors.”

The Guide to Social Media and the Securities Laws

Posted in Resources

The growing use of social media has created challenges for federal securities regulators, who must enforce antifraud rules that were written at a time when the prevailing technology was the newspaper.

This Guide summarizes how federal regulation of securities has evolved in the face of the growing use of social media by investors, securities issuers, broker-dealers, investment advisers and investment companies. Given the fast pace of changes, this Guide is a work in progress.

Read our Guide to Social Media and the Securities Laws.

PLI Conference: Understanding the Securities Laws Summer 2015

Posted in Events, Private Placements

On July 23-24, 2015, Practising Law Institute will be hosting their 2015 conference titled “Understanding Securities Laws”. This program will provide an overview and discussion of the basic aspects of the U.S. federal securities laws by leading in-house and law firm practitioners and key SEC representatives. Emphasis will be placed on the interplay among the Securities Act of 1933, the Securities Exchange Act of 1934, the Sarbanes-Oxley Act, the Dodd-Frank Act, and related SEC regulations, and on how securities lawyers can solve practical problems that arise under them in the context of public and private offerings, SEC reporting, mergers and acquisitions and other common corporate transactions.

Morrison & Foerster Partner Anna Pinedo and Stuart Fishman of JPMorgan Chase & Co. will lead a session on the first day entitled “Securities Act Exemptions/Private Placements”. Topics of discussion will include:

  • Exempt securities versus exempt transactions;
  • Regulation D and Regulation A offerings and changes resulting from the JOBS Act;
  • “Crowd funding”;
  • Stock option grants and related issues;
  • Rule 144A high yield and other offerings; and
  • Regulation S offerings to “non-U.S. persons”.

PLI will provide CLE credit.

To register for this conference, or for more information, please click here.

Kauffman Foundation Study on Funding for Start-Ups

Posted in Crowdfunding, Start-Ups

In a recent edition of its Entrepreneurship Policy Digest, the Kauffman Foundation provides interesting data on the types of funding relied upon by emerging companies.  The report notes that approximately 40% of startup capital is in the form of bank debt.  The report also notes the increased reliance by entrepreneurs on online lending platforms.  For example, according to the report, in the first half of 2014, over 20% of startups applied for loans through these platforms.  The findings may be found here:

OTC Markets Adopts Rule Changes

Posted in Regulation A+

The OTC Markets has adopted rule changes for OTCQX and OTCQB to accommodate for Reg A + and require quarterly disclosure for the OTCQX marketplace.  See below.

OTCQB: http://www.otcmarkets.com/services/companies/otcqb/apply
OTCQX for U.S. Companies: http://www.otcmarkets.com/services/companies/otcqx-us/pricing
OTCQX for Banks: http://www.otcmarkets.com/services/companies/otcqx-banks/apply
OTCQX for International Companies: http://www.otcmarkets.com/services/companies/otcqx-international/pricing

The Section “4(a)(1-1/2)” Exemption

Posted in Advisory Committee on Smaller and Emerging Companies, SEC News

At last week’s SEC Advisory Committee on Small and Emerging Companies meeting, the Committee recommended that the SEC formalize the exemption in order to promote capital formation.    Currently, there also is a pending bill, the RAISE Act, which would provide a statutory exemption that mimics the informal exemption as it has developed over time.  Given that oftentimes affiliates of issuers are not able to rely on Rule 144, the informal exemption that has evolved over time facilitates private resales from institutional or accredited investors in a transaction that does not involve any general solicitation.  Formalizing the exemption would provide greater legal certainty for these transactions.

See here the Advisory Committee’s recommendation:  http://www.sec.gov/info/smallbus/acsec/recommendation-section-4-a-1.5-exemption.pdf