Resource Guide: SEC Regulation A + Plus

94 Letter from A. Heath Abshure, President, NASAA, April 10, 2013 (“NASAA (pre-proposal) Letter”).
95 See, e.g., Milken Institute Letter.
96 Rule 251(a)(3) (Additional limitation on secondary sales in first year).
Further, we are providing different requirements for secondary sales by affiliates and by non-affiliates. The final rules limit secondary sales by affiliates that occur following the expiration of the first year after an issuer’s initial qualification of an offering statement to no more than $6 million, in the case of Tier 1 offerings, or no more than $15 million, in the case of Tier 2 offerings, over a 12-month period. Secondary sales by non-affiliates that are made pursuant to a qualified offering statement following the expiration of the first year after an issuer’s initial qualification of an offering
statement will not be limited except by the maximum offering amount permitted by either Tier 1 or Tier 2.97 Although the secondary sales offering amount limitation will only apply to affiliates during this period, consistent with the proposal, non-affiliate secondary sales will be aggregated with sales by the issuer and sales by affiliates for purposes of calculating compliance with the maximum offering amount permissible under the respective tiers.98
We do not believe that the concerns expressed by one commenter about informational disadvantages that may exist with affiliate sales are present with respect to resales by non-affiliates.99 On the contrary, in comparison to requirements for
non-affiliate resales of restricted securities after the expiration of Securities Act Rule 144 holding periods,100 we believe that Regulation A provides purchasers of such securities

97 Rule 251(a).
98 Secondary sales of shares acquired in a Regulation A offering—which are freely tradable—are not subject to limitations on secondary sales, but must be resold under an exemption from Securities Act registration (e.g., Section 4(a)(1), 15 U.S.C. 77d(a)(1)).
99 NASAA (pre-proposal) Letter.
100 Under Rule 144, non-affiliates of an issuer are, among other things, permitted to resell restricted securities after the expiration of a one-year holding period without limitations or requirements as to: (i) the availability of current public information about the issuer or its securities, (ii) the volume of resales, (iii) the manner of sale, or (iv) disclosure. See 17 CFR 230.144.
with the benefit of, among other things, narrative and financial disclosure that is reviewed and qualified by the Commission in transactions that are subject to Section 12(a)(2) liability and the antifraud provisions of Section 17 of the Securities Act.101
We also disagree with the commenters who suggested limitations on secondary sales are contrary to the legislative intent behind the enactment of Title IV of the JOBS Act. We note that Section 3(b)(2) expressly provides that the Commission may impose additional terms, conditions, or requirements as it deems necessary in the public interest and for the protection of investors.102 For the reasons discussed above, we believe that limiting secondary sales by affiliates is not only consistent with the language and purpose of the statute but also necessary in the public interest and for the protection of investors.
Offering Limit Calculation

Under the proposal, if the offering included securities that are convertible into, or exercisable or exchangeable for, other securities (rights to acquire), the offer and sale of the underlying securities also would generally be required to be qualified,103 and the aggregate offering price would include the aggregate conversion, exercise, or exchange price of such securities, regardless of when they become convertible, exercisable, or exchangeable.104 Consistent with the views of at least one commenter,105 we are concerned that the proposed requirement could have a greater impact on smaller issuers

101 15 U.S.C. 77l(a)(2), 77q.
102 See Section 3(b)(2)(G), 15 U.S.C. 77c(b)(2)(G).
103 Qualification would not be required for securities transactions exempt from registration pursuant to Securities Act Section 3(a)(9), 15 U.S.C. 77c(a)(9). Section 3(a)(9) exempts from registration any security exchanged by the issuer with its existing security holders exclusively where no commission or other remuneration is paid or given directly or indirectly for soliciting such exchange.
104 See note to proposed Rule 251(a).
105 Andreessen/Cowen Letter.
than larger issuers because smaller issuers frequently issue rights to acquire other securities in capital raising events. The proposed method of calculating the offering limit would presume the exercise price of underlying securities that, by their terms, may occur at a date in the distant future or only upon the occurrence of key events. By including all securities underlying any rights to acquire other securities in the offering limit calculation, the proposed rules could effectively limit the proceeds of an offering available to an issuer by requiring such issuers to include in the aggregate offering price at the time of qualification the securities underlying rights to acquire that may or may not become exercisable or exchangeable in the future. We are adopting final rules that will require issuers to aggregate the price of all securities for which qualification is currently being sought, including the securities underlying any rights to acquire that are convertible, exercisable, or exchangeable within the first year after qualification or at the discretion of the issuer. As such, and consistent with the treatment of rights to acquire in the context of registered offerings, if an offering includes rights to acquire other securities at a time more than one year after qualification and the issuer does not otherwise seek to
qualify such underlying securities, the aggregate offering price would not include the aggregate conversion, exercise, or exchange price of the underlying securities.106 For purposes of calculating the price of underlying securities that use a pricing formula, as opposed to a known conversion price, the issuer will be required to use the maximum estimated price for which such securities may be converted, exercised, or exchanged.107

106 See note to Rule 251(a). In these circumstances, the securities underlying the rights to acquire would need to be separately qualified under Regulation A or, depending on the circumstances, registered, exempt from registration, or otherwise offered in an appropriate manner at the time of issuance.
107 Id.