The Securities and Exchange Commission has published 11 Compliance and Disclosure Interpretations (“C&DIs”) related to the new rules implementing “Regulation A+,” which became effective June 19, 2015. The C&DIs are numbered 182.01 through 182.11 and can be found here.
Regulation A+ was mandated by Title IV of the Jumpstart Our Business Startup (“JOBS”) Act to provide smaller issuers with increased access to capital markets through public offerings of up to $50 million in a 12-month period which are exempt from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”). More information on Regulation A+ is available in our eUpdate here.
The C&DIs contain the following SEC interpretations:
- Blue Sky Regulation of Secondary Trading: Although offerings conducted under Tier 2 of Regulation A+ are exempt from state securities law registration, resales of securities purchased in a Tier 2 offering must be registered with state securities regulators, or offered or sold pursuant to an exemption from such registration. This interpretation highlights an important point that Regulation A+ issuers may need to coordinate their offerings with a listing on a national securities exchange and registration under the Securities Exchange Act of 1934 (the “Exchange Act”) using the streamlined procedures under Regulation A+ in order for investors to receive truly freely tradable securities.
- Public Filing of Confidential Submissions: Regulation A+ permits issuers to non-publicly submit draft offering statements on Form 1-A to the SEC for review. Any non-public draft offering statements and related non-public correspondence by or on behalf of the issuer are required to be filed as exhibits to the publicly-filed offering statement on Form 1-A. The SEC interpretations offered guidance on two aspects of these rules.
- The issuer may elect to publish all prior non-public draft offering statements publicly on the EDGARlink submissions page in lieu of including the drafts as exhibits to the publicly filed offering statement on Form 1-A. All related non-public correspondence would still need to be filed as exhibits.
- An issuer may request confidential treatment of any information in non-public correspondence using the same method as confidential treatment may be requested for other SEC filings and submissions under Rule 83.
- Issuer Eligibility: Regulation A+ eligibility is limited to companies with a “principal place of business” in the United States or Canada and which are not subject to the reporting obligations under Section 13 or Section 15(d) under the Exchange Act. The SEC interpretations offered several clarifications of these eligibility requirements.
- An issuer has a “principal place of business” in the United States or Canada if its officers, partners, or managers primarily direct, control and coordinate the issuer’s activities from the United States or Canada.
- An issuer that has suspended its Exchange Act reporting obligations under Section 13 or Section 15(d) is eligible to use Regulation A+.
- An issuer that voluntarily files reports under the Exchange Act (i.e., not required to file under Section 12(g), 12(b) or 15(d)) is eligible to use Regulation A+.
- A private wholly-owned subsidiary of an Exchange Act reporting company is eligible to use Regulation A+. The Exchange Act reporting parent could not be a guarantor or co-issuer of the subsidiary’s securities.
- M&A Transactions: Regulation A+ may be used by an eligible issuer in connection with merger and acquisition transactions; except Regulation A+ may not be used for acquisition shelf transactions which are typically conducted on a delayed basis.
- Balance Sheets for New Entities: A recently created entity may provide a balance sheet as of its inception date as long as the inception date is within nine months before the date of the filing or qualification. 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.
- Test the Waters: Regulation A+ permits issuers to “test-the-waters” with the general public either before or after the filing of the offering statement, in order to determine interest in a proposed offering. Twitter and similar platforms (with limited character formats) may be used to “test-the-waters” if an active hyperlink is included to provide the required “test-the-waters” legends.
- Transfer Agents: Regulation A+ provides a conditional exemption from mandatory registration under Section 12(g) of the Exchange Act upon satisfaction of certain requirements, including engaging the services of a registered transfer agent. The transfer agent must be engaged prior to conducting a Regulation A+ offering.
Regulation A+ has the potential to enhance the ability of U.S. companies to access capital markets. The C&DIs provide useful guidance for small issuers considering an offering under Regulation A+.