FINAL RULES AND AMENDMENTS TO REGULATION A
Overview
We are adopting final rules to implement the JOBS Act mandate by expanding Regulation A into two tiers: Tier 1, for securities offerings of up to $20 million; and Tier 2, for offerings of up to $50 million.20 The final rules for offerings under Tier 1 and Tier 2 build on current Regulation A and preserve, with some modifications, existing provisions regarding issuer eligibility, offering circular contents, testing the waters, and “bad actor” disqualification. As proposed, and with the modifications described below, the final rules modernize the Regulation A filing process for all offerings, align practice in certain areas with prevailing practice for registered offerings, create additional flexibility for issuers in the offering process, and establish an ongoing reporting regime for Regulation A issuers. Under the final rules, Tier 2 issuers are required to include audited financial statements in their offering documents and to file annual, semiannual, and current reports with the Commission. With the exception of securities that will be listed on a national securities exchange upon qualification, purchasers in Tier 2 offerings must either be accredited investors, as that term is defined in Rule 501(a) of
Regulation D, or be subject to certain limitations on their investment. The differences between Tier 1 and Tier 2 offerings are described more fully below.
In developing the final rules, we considered the statutory language of JOBS Act Section 401, the JOBS Act legislative history, recent recommendations of the Commission’s Government-Business Forum on Small Business Capital Formation,21 the
20 An issuer of $20 million or less of securities could elect to proceed under either Tier 1 or Tier 2.
21 Recommendations of the Commission’s Government-Business Forum on Small Business Capital Formation are available at: http://www.sec.gov/info/smallbus/sbforum.shtml.
Advisory Committee on Small and Emerging Companies,22 the Equity Capital Formation Task Force,23 comment letters received on Title IV of the JOBS Act before the Commission’s proposed rules were issued in December of 2013,24 and comment letters received to date on the Commission’s proposed rules to implement Section 401 of the JOBS Act.25
The key provisions of the final rules and amendments to Regulation A follow:
Scope of the exemption – the final rules:
Establish two tiers of offerings:
Tier 1: annual offering limit of $20 million, including no more than
$6 million on behalf of selling securityholders that are affiliates of the issuer.
Tier 2: annual offering limit of $50 million, including no more than
$15 million on behalf of selling securityholders that are affiliates of the issuer.
Limit sales by selling securityholders in an issuer’s initial Regulation A offering and any subsequently qualified Regulation A offering within the first 12-month period following the date of qualification of the initial Regulation A offering to no more than 30% of the aggregate offering price.
22 Recommendations of the Advisory Committee on Small and Emerging Companies are available at: http://www.sec.gov/info/smallbus/acsec.shtml.
23 Equity Capital Task Force, From the On-Ramp to the Freeway: Refueling Job Creation and Growth by Reconnecting Investors with Small-Cap Companies, presentation to the U.S. Dep’t. of Treasury (November 11, 2013), available at: http://www.equitycapitalformationtaskforce.com/.
24 To facilitate public input on JOBS Act rulemaking before the issuance of rule proposals, the Commission invited members of the public to make their views known on various JOBS Act initiatives in advance of any rulemaking by submitting comment letters to the Commission’s website at http://www.sec.gov/spotlight/jobsactcomments.shtml. Comment letters received to date on Title IV of the JOBS Act are available at: http://www.sec.gov/comments/jobs-title-iv/jobs-
title-iv.shtml.
25 The comment letters received to date in response to the Proposing Release are available at: http://www.sec.gov/comments/s7-11-13/s71113.shtml.
Preserve the existing issuer eligibility requirements of Regulation A, and also exclude issuers that are, or have been, subject to any order of the Commission pursuant to Section 12(j) of the Exchange Act entered within five years before the filing of the offering statement and issuers that are required to, but that have not, filed with the Commission the ongoing reports required by the final rules during the two years immediately preceding the filing of an offering statement.
Limit the amount of securities that an investor who is not an accredited investor under Rule 501(a) of Regulation D can purchase in a Tier 2 offering to no more than: (a) 10% of the greater of annual income or net worth (for natural persons); or (b) 10% of the greater of annual revenue or net assets at fiscal year end (for non-natural persons). This limit will not apply to purchases of securities that will be listed on a national securities exchange upon qualification.
Exclude asset-backed securities, as defined in Regulation AB, from the list of eligible securities.
Update the safe harbor from integration and provide guidance on the potential integration of offerings conducted concurrently with, or close in time after, a Regulation A offering.
Solicitation materials:
Permit issuers to “test the waters” with, or solicit interest in a potential offering from, the general public either before or after the filing of the offering statement, so long as any solicitation materials used after publicly filing the offering statement are preceded or accompanied by a preliminary offering circular or contain a notice informing potential investors where and how the most current
preliminary offering circular can be obtained.