35 Massachusetts Letter 2.
36 Gilman Law Letter; Letter from Mark Goldberg, Chairman, Investment Program Association, March 24, 2014 (“IPA Letter”); Letter from David N. Feldman, Partner, Richardson Patel LLP, January 15, 2014 (“Richardson Patel Letter”). A SPAC is a type of blank check company created specifically to pool funds in order to finance a merger or acquisition opportunity within a set timeframe.
37 Richardson Patel Letter (recommending that for offerings of less than $10 million under Tier 2, the rules should require that: (a) monies raised be placed into escrow, minus underwriters compensation and 10% for offering expenses, until a reverse merger is completed; (b) a combination with an operating business be completed within three years; (c) full Form 10 information be disclosed regarding a pending reverse merger to investors who will have 15-20 days to reconfirm their investment or receive their money back; (d) there be no requirement that a certain percentage of investors reconfirm; and (e) accredited investors have no limit on the investment they make in the offering).
38 Letter from Mark Kosanke, President, Real Estate Investment Securities Association, March 24, 2014 (“REISA Letter”) (suggesting that the Commission base the eligibility test on the issuer having an “established track record” or some minimum amount of assets).
39 ABA BLS Letter; Letter from Gilman Law LLC, March 24, 2014 (“Gilman Law Letter”); MoFo Letter; Letter from Serenity Storage, January 5, 2014 (“Serenity Storage Letter”).
issuers, and specifically supported the continued inclusion of Canadian companies and shell companies as eligible issuers, as proposed.40
Non-Canadian Foreign Issuers
Many commenters recommended making non-Canadian foreign companies eligible issuers under Regulation A.41 Several commenters suggested that the proposed approach to non-Canadian foreign companies is inconsistent with the treatment of foreign private issuers in registered offerings.42 Additionally, commenters noted a variety of benefits arising from allowing foreign companies to access the U.S. capital markets through Regulation A offerings, including job creation,43 increasing the amount of disclosure available for investors in foreign companies,44 encouraging domestic exchange listings,45 expanding investment opportunities for U.S. investors,46 and general economic
40 Letter from Jonathan C. Guest, McCarter & English, LLP, February 19, 2014 (“McCarter & English Letter”) (also opposing any limitation on issuer eligibility on the basis of whether most of the offering proceeds were being used in connection with the issuer’s operations in the United States, noting that many Canadian issuers would be excluded as a result); OTC Markets Letter.
41 ABA SIL Letter; Letter from Scott Kupor, Managing Partner, Andreessen Horowitz, and Jeffrey
M. Solomon, Chief Executive Officer, Cowen and Company, February 26, 2014 (“Andreessen/Cowen Letter”); Letter from BDO USA, LLP, March 20, 2104 (“BDO Letter”); Canaccord Letter (suggesting expanding issuer eligibility to companies organized in jurisdictions with “robust securities regulation systems” such as the United Kingdom and other countries in the European Union, Australia, and Asian markets such as Singapore and Hong Kong); McCarter & English Letter; OTC Markets Letter; Richardson Patel Letter; Letter from Michael T. Lempres, Assistant General Counsel, SVB Financial Group, March 21, 2014 (“SVB Financial Letter”); Letter from Bill Soby, Managing Director, Silicon Valley Global Shares, March 24, 2014 (“SVGS Letter”).
42 Andreessen/Cowen Letter; BDO Letter; Richardson Patel Letter. In the context of registered offerings, foreign private issuers may provide scaled disclosure if it qualifies as a “smaller reporting company,” which is defined in Item 10(f)(1) of Regulation S-K, 17 CFR 229.10(f)(1), Securities Act Rule 405, 17 CFR 230.405, and Exchange Act Rule 12b-2, 17 CFR 240.12b-2, and rely on other disclosure accommodations.
43 ABA SIL Letter; SVGS Letter (noting that high-paying jobs would be created by expanding global tech companies).
44 SVB Financial Letter.
45 Andreessen/Cowen Letter; SVB Financial Letter.
46 Andreessen/Cowen Letter; OTC Markets Letter.
benefits.47 One commenter recommended making all foreign private issuers eligible if they maintained a principal place of business in the United States.48 Two commenters also recommended permitting companies relying on Exchange Act Rule 12g3-2(b) to make offerings under Regulation A.49
BDCs
A number of commenters supported making BDCs eligible issuers under Regulation A.50 Most of these commenters noted that BDCs serve an important function in facilitating small or emerging business capital formation or in providing a bridge from the private to public markets.51 Several of these commenters recommended at least allowing small business investment company (SBIC) licensed BDCs to use the exemption given the review process such entities are required to undergo with the U.S. Small Business Administration.52 One of these commenters noted that if BDCs become
47 ABA SIL Letter; Andreessen/Cowen Letter; McCarter & English Letter; SVB Financial Letter.
48 ABA SIL Letter.
49 McCarter & English Letter; OTC Markets Letter. Rule 12g3-2(b) generally provides foreign private issuers with an automatic exemption from registration under Section 12(g) if the issuer
is not required to file reports under Exchange Act Sections 13(a) or 15(d); (ii) maintains a listing of the subject class of securities on one or two exchanges in non-U.S. jurisdictions that comprise more than 55% of its worldwide trading volume; and (iii) publishes in English on its website certain material items of information. See 17 CFR 240.12g3-2(b).
50 ABA BLS Letter; CFIRA Letter 1; Letter from Michael Sauvante, Executive Director, Commonwealth Fund LLC, March 21, 2014 (“Commonwealth Fund Letter 1”); Letter from Michael Sauvante, Executive Director, Commonwealth Fund LLC, March 22, 2014 (“Commonwealth Fund Letter 2”); KVCF Letter; Letter from Daniel Gorfine, Director, Financial Markets Policy, and Staci Warden, Executive Director, Center for Financial Markets, Milken Institute, March 19, 2014 (“Milken Institute Letter”); MoFo Letter; REISA Letter; SBIA Letter; WR Hambrecht + Co Letter.
51 ABA BLS Letter; CFIRA Letter 1; Commonwealth Fund Letter 1; Commonwealth Fund Letter 2; KVCF Letter; Milken Institute Letter; MoFo Letter; REISA Letter; SBIA Letter; WR Hambrecht
+ Co Letter.
52 Milken Institute Letter; SBIA Letter. A SBIC-licensed BDC is a company that is licensed by the Small Business Administration (SBA) to operate as such under the Small Business Investment Act of 1958.
eligible to use Regulation A, the Commission should consider requiring them to provide quarterly financial disclosure so as to enhance transparency and provide the market with critical investment information.53
Potential Limits on Issuer Size
Several commenters opposed using the issuer’s size to limit eligibility.54 Two of these commenters thought that the $50 million offering limit for Tier 2 would already limit the utility of the exemption for issuers on the basis of issuer size—with smaller issuers likely benefitting most from the exemption—and recommended against size- based eligibility criteria that may be difficult to define.55 One commenter suggested that most issuers with a large public float would likely be subject to Exchange Act reporting requirements and therefore would be ineligible to use Regulation A.56 Another commenter noted that a size restriction based on public float would be particularly harmful to biotechnology companies, because they often have a public float that is disproportionately high in relation to their corporate structure, number of employees, or revenues.57