Series 82 section 2
Reg D Aggregation Rules
. If a Rule 504 offering ends 12 months before the start of another Rule 504 offering, there is no risk of aggregation. But if the first offering ends less than 12 months before the second offering starts, any sales from the first offering that took place within those 12 months will count toward the second offering's dollar cap. Additionally, if two Rule 504 offerings are concurrent (i.e., they occur at the same time) then funds raised by one will count toward the other's dollar cap.
PIPE transactions
A PIPE is typically carried out under Regulation D, Rule 506(b), meaning that it cannot be publicly advertised and all but 35 of the investors must be accredited.
Rule 903 issuer safe harbor
A Regulation S offering can be combined with a Rule 144A offering and sold inside the U.S. to QIBs. An issuer can sell Regulation S securities immediately on a foreign exchange, but there are restrictions on when they can be sold to U.S. residents
Marketing of Reg S offering
A Regulation S offering may be structured either as a public or private offering in non-U.S. jurisdictions. No offers of these securities can be made to people living in the United States. This is true even if the people are citizens of another country but living in the U.S. The law states that there can be no "directed selling efforts" in the U.S.
How does a Rule 144A resale work?
A foreign or U.S. issuer sells securities to a group of initial purchasers, who are usually broker-dealers. The broker-dealers then resell them to QIBs under Rule 144A. Under this safe harbor, the resellers are not considered to be underwriters and the offer is not considered a distribution. Issuers are not allowed to sell securities under Rule 144A, only non-issuers may take part in the resales.
PIPE SEC filing requirements
After the PIPE transaction occurs, a company typically files Form 8-K to alert its shareholders, the public, and the SEC of the transaction. Because a PIPE transaction can have a dilutive effect on the earnings per share, NASDAQ requires issuers to file a notification form within 10 days of the closing if the transaction has increased the number of shares outstanding by 5% or more
How do PIPE shares become tradeable?
Because of this, the issuer files a registration statement with the SEC shortly after closing the issue to provide for the resale of the shares. While the SEC is reviewing the resale registration statement, investors will hold restricted shares. Once the registration statement is declared effective, the securities can be sold freely, but the legend must be removed by a transfer agent before the sale. If the registration does not become effective before a certain time elapses, the issuer typically pays damages to the holder, usually 1% to 1.5% per month.
What are Blue Sky Laws
Blue sky laws are the state regulatory requirements for securities offerings. These requirements may pertain to registration, qualification, and filing requirements. Because these requirements vary from state to state, issuers may have to comply with a crazy-quilt of inconsistent state regulations in addition to federal requirements.
903 Safe harbor for foreign issuers
Category 2 (Certain Foreign Issuers) - Mid-risk offering: The second category of securities includes equity securities of reporting foreign issuers and debt securities of both reporting and non-reporting foreign issuers. These securities are subject to conditions beyond the general Regulation S conditions, including notification and legending requirements and a prohibition on offers or sales to U.S. persons (i.e., U.S. residents or U.S.-organized entities) during a 40-day "distribution compliance period." The distribution compliance period applies to sales on both the primary and secondary markets.
Rule 144 control securities sales
Control securities are securities held by an affiliate of the issuer. An affiliate is someone who is controlled by the issuer or who controls the issuer. A person "controls" an issuer if the person has power to direct corporate decisions. This includes officers, directors, and major shareholders who own more than 10% of the stock of the company. Affiliates are also called insiders. If a person purchases shares from an affiliate, the shares are considered restricted, even if they were not restricted in the affiliate's hands, and therefore are subject to holding limits.
Reg A Aggregation rule
If a Reg A offering ends 12 months before the start of another Reg A offering, there is no risk of aggregation. But if the first offering ends less than 12 months before the second offering starts, any sales from the first offering that took place within those 12 months will count toward the second offering's dollar cap. Additionally, if two Reg A offerings are concurrent (i.e., they occur at the same time) then funds raised by one will count toward the other's dollar cap.
What is integration risk for offerigs
If the SEC decides that multiple offerings are really a single offering, then the combined offering must meet all of the conditions of a single exemption, or the offering will lose its exempt status. In addition, there may be consequences for the registered persons involved.
Rule 144 holding limit
If the issuer is a company that files reports to the SEC, the holding period is six months. If the issuer is a non-reporting company, the holding period is 12 months. Before selling restricted securities, the investor will need to get the restricted legend removed from the securities. This can only be done by a transfer agent, and it requires permission from the issuer.
903 Safe harbor for Reg S
Low-risk offering: This category includes securities issued by foreign issuers with "no substantial U.S. market interest" in their securities, securities sold in an overseas directed offering, securities backed by the full faith and credit of a foreign government, and securities issued under a foreign employee benefit plan. There are no significant additional conditions for this category of securities.
What are the covered securities under NSMIA
NSMIA exempts certain "covered securities" from state registration requirements and from most state regulatory hurdles. These "covered securities" specifically include: •Securities listed on a national exchange, such as the NYSE, American Stock Exchange, or NASDAQ. •Registered investment companies, such as mutual funds •Sales to "qualified purchasers," a term that is left to the SEC to define •Government securities •Municipal securities •Bank securities •Commercial paper •Regulation D 506 private placements •Rule 144A distributions •Crowdfunding offerings •Tier 2 Regulation A offerings
Who is a QIB
Qualified institutional buyers (QIBs) are institutional investors, such as insurance companies, investment companies, pension plans, or banks, that manage at least $100 million in assets. QIBs must always be entities; they can never be individuals. The $100 million threshold for assets under management does not include securities issued by the QIB or an affiliate of the QIB. For registered broker-dealers, the minimum amount under management is only $10 million. To qualify as a QIB, a bank must also have a net worth of at least $25 million. Before selling, resellers must establish a reasonable belief that the buyer is a QIB. T
Reg A integration safe harbor
Regulation A. A Regulation A offering will not be integrated with another offering if: • The other offering ends before the Reg A offering starts. or • The other offering starts after the Reg A offering ends and the other offering is a registered offering, Reg S offering, or crowdfunding offering. or • The other offering starts more than six months after the Reg A offering ends. These safe harbors are the same for Tier 1 and Tier 2 offerings.
Reg A integration will not be a problem if
Regulation A. A Regulation A offering will not be integrated with another offering if: • The other offering ends before the Reg A offering starts. or • The other offering starts after the Reg A offering ends and the other offering is a registered offering, Reg S offering, or crowdfunding offering. or • The other offering starts more than six months after the Reg A offering ends. These safe harbors are the same for Tier 1 and Tier 2 offerings.
Reg D will not be an integration risk if
Regulation D. The Regulation D integration safe harbor is the same for Rule 504, 506(b), and 506(c) offerings. A Reg D offering will not be integrated with another offering if there is an uninterrupted period of more than 180 days between the offerings. It doesn't matter if the Reg D offering comes before or after the other offering, as long as the two are separated by more than 180 days. This 180-day period is interrupted and must start over if the issuer offers or sells securities similar to those in the Reg D offering.
Can Reg S offerings be integrated and what are the filing requirements
Regulation S allows transactions to occur contemporaneously with other domestic offerings. As long as the offshore transaction complies with Regulation S, there is no threat of integrating with another private or public offering. Disclosures of Regulation S offerings. Reporting companies are required to disclose their offshore offering on Form 8-K within 15 days of the offering.
Exemption to resell private placement securities
Rule 144 and 144a
Restrictions to 144A sale
Rule 144A eligible securities include both equity and debt securities issued by either U.S. or foreign companies. The following are not permitted: •Equity securities listed on a national exchange •Preferred stock that can be converted to exchange-listed common stock •Open-end funds (mutual funds), unit investment trusts, or exchange-traded funds
Rule 144 reporting requirements
Rule 144A transactions must be reported to the over-the-counter reporting facility (ORF) by 8 pm on the same day as the transaction. Or by 8 pm on the following business day for transactions that occur on a non-business day or after 8 pm on a business day.
Threshold requirements and exemptions for direct sale by issuer
Rule 3a4-1 establishes three threshold requirements and three alternative exemptions. If an associated person meets all three threshold requirements and one of the three alternative exemptions, the associated person will not be deemed to be a broker Threshold requirements: •The associated person must not be subject to statutory disqualification. •The associated person must not be compensated in connection with her participation in transactions in securities. •The associated person must not be associated with a broker or dealer at the time of his participation in the sale of the issuer's securities. Alternative exemptions: •A "limited transaction" exemption that limits the associated person to participating in certain types of securities transactions •A "conventional employee" exemption, where the associated person must not have been an employee of a broker or dealer within the preceding 12 months, must not participate in selling an offering of securities for an issuer more than once every 12 months, and after the offering is complete, performs substantial job duties unconnected to securities transactions. •A "limited activities" exemption that restricts the associated person to preparing and delivering written communications that do not involve verbal solicitation of a potential investor. Written communications must be approved by a partner, officer, or director of the issuer. The associated person may respond to inquiries from a potential investor if initiated by the potential investor and the response is limited to information contained in the issuer's prospectus, and he may perform ministerial and clerical work related to the securities offering.
Rule 144A - private resale
SEC Rule 144A provides a safe harbor for brokers and investors to resell their restricted securities without being subject to these holding limits by selling to qualified institutional buyers (QIBs).
Reg S requirements
Securities fall under Regulation S if an offer is not made to a person in the United States and at least one of the following is true: •At the time the buy order is originated, the buyer is outside the U.S., or the seller and any agent of the seller reasonably believe the buyer to be outside the U.S. •In an issuer sale (defined in Rule 903), the transaction is executed in an established foreign securities exchange located outside the U.S. •In a resale (defined in Rule 904), the sale is executed in a "designated offshore securities market," which is defined to include a host of recognized foreign stock exchanges.
Restricted Securities
Securities purchased in a private placement are "restricted" securities. This means that once bought, they cannot be resold until they are registered with the SEC or sold under a special exemption. Issuers must make sure that all investors purchase the securities for their own accounts and do not have plans to act as underwriters and resell the securities in the near future. They also must make sure to disclose that the securities are restricted and that each security has a legend stating its restricted status.
FAST Act issuances
Securities sold under Section 4(a)(7) are "covered securities" and not subject to state blue sky laws. Unlike the Rule 144 safe harbor, the FAST Act exemption sellers don't have to wait six months to sell their unregistered securities. Also, unlike Rule 144, for affiliates there are no volume restrictions, as well as no requirement to notify the SEC. In addition, the FAST Act exemption allows the seller access to a wider pool of investors than Rule 144A since Section 4(a)(7) is limited to accredited investors rather than the mega-money QIBs.
When do State securities regs/ laws still come into effect?
States may still require registration for small or intrastate offerings of securities that do not fall under the definition of "covered securities." Thus, issuers of non-covered securities will probably need to adhere to the blue sky laws for the states in which they are selling securities. Some relevant types of offerings that may be subject to blue sky laws are Regulation A Tier 1 offerings, Regulation D 504 offerings, and Rule 147 offerings.
What is the FAST Act exemption
The FAST Act also created a new registration exemption from the Securities Act of 1933 for the private resale of unregistered securities. This exemption made it easier for early stakeholders and investors to sell their unregistered shares in a new company.
What exemption does the FAST Act offer for resale of exempt securities
The FAST Act amended the Securities Act with the introduction of Section 4(a)(7) which exempts the resale of unregistered securities as long as the following conditions hold: •Purchasers must be accredited investors (or the seller has a reasonable belief they are) •Securities have been authorized and outstanding for at least 90 days •No general solicitation or advertising can be used when offering or selling the securities •Seller is not the issuer, a subsidiary of the issuer or an underwriter •Seller or any person receiving a commission for the sale is not a "bad actor," defined under Regulation D •Issuer is not a blank check, blind pool, or shell company •Is not part of an unsold allotment to an underwriter
Requirement for crowdfunding capital raise
The crowdfunding must be conducted entirely through a single online funding portal, which must be operated by a FINRA member firm. This may be a broker-dealer, or a company that has registered specifically for the purpose of acting as a funding portal for crowdfunding offerings. Provisions excluding bad actors cover the portal, the issuer, and the issuer's affiliates.
Limits on size of PIPE
There is no limit on how many shares can be sold in a PIPE transaction. However, NASDAQ and the exchanges require that if a company sells more than 20% of its outstanding common stock in a PIPE transaction, the shares must be sold at or above the fair market price unless the company obtains shareholder approval. If a company is not selling more than 20% of its outstanding common stock, the shares can be sold either above or below the market price.
What are the exempt securities
U.S. Treasuries •Municipal securities •Securities issued or guaranteed by a federal agency (Fannie Mae, Ginnie Mae, Freddie Mac) •Securities issued by a nonprofit (including church bonds) •Commercial paper matures in under nine months •Banker's acceptances mature in under nine months •Bank securities (not including bank holding companies) •Eurobonds
Crowdfunding exemptions
Under the JOBS Act, Section 4(a)(6) also exempts companies that would like to raise up to $1 million of financing. This is often referred to as the crowdfunding exception. To be eligible, a company must be a domestic, non-reporting company that is not an investment company. This maximum amount has recently been raised to $1,070,000 to adjust for inflation. There is no limit on the number of investors permitted in a crowdfunding offering, though there is a limit on the maximum investment an individual can make.
How is aggregation different from integration
Unlike integration, aggregation does not cause the offerings to be combined into a single offering. It simply means that the issuer will not be able to raise as much money as it would have if it had spread the offerings out over a longer period of time. Also unlike integration, aggregation only occurs between two offerings using the same exemption. Registered offerings involve no risk of aggregation. Likewise, offerings conducted under an exemption with no dollar cap, such as Rule 147 intrastate offerings and Regulation S offerings, are never at risk of aggregation.
Volume limits
When an affiliate wants to sell control securities that were purchased on the open market and therefore are not restricted securities, they are subject to trading volume limits. Over a 90-day period, the affiliate may sell no more than the greater of: •1% of the issuer's outstanding shares or •The company's average weekly trading volume of the securities during the four weeks preceding the sale If the sale is more than 5,000 shares or $50,000, the affiliate must file a notice of proposed sale with the SEC on Form 144. This will become public information. If an affiliate is selling control securities that are also restricted securities, the affiliate is subject to both holding period restrictions and volume trading limits.
Foreign issuance by US company
companies wish to issue securities outside of the U.S. and have no intention of distributing them within the U.S. These issuers do not need to register their securities with the SEC, because they are eligible for a Regulation S exemption. Regulation S can be used by either U.S. or foreign companies to issue securities that will only be bought and sold in offshore transactions
What information must 144A sellers provide?
current financial information about the issuer to investors upon request. This information includes: •A brief description of the issuer's business, products and services •The issuer's most recent balance sheet, income statement and retained earnings statement •Similar financial statements for the last two years (audited if reasonably available)
Ordinary course exemption of 33 act
offers an exemption to this law for most transactions conducted in the ordinary course of business in the secondary market. This exemption typically does not apply to issuers or underwriters. It does, however, apply to dealers who have acted as underwriters if the transaction was part of an unsold allotment and occurred at least 40 days after the security was first offered to the public
What is Aggregation risk
risk of conducting multiple offerings is aggregation. Aggregation occurs when funds raised in one exempt offering count toward the dollar cap of another exempt offering. Aggregation can occur when one exempt offering comes too soon after another.
Private Placements sold directly by issuer
the SEC created a "safe harbor" allowing employees and other representatives of the issuer to sell the issuer's securities without having to register as a broker. Rule 3a4-1 applies to "associated persons" of the issuer, which includes officers, directors, or employees of either the issuer or a company under common control with the issuer.
