21806 Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Rules and Regulations 

1 17 CFR 230.251 through 230.263. 

2 15 U.S.C. 77a et seq. 

3 17 CFR 239.90. 

4 17 CFR 239.91. 

5 17 CFR 260.4a–1. 

6 15 U.S.C. 77aaa et seq. 

7 17 CFR 240.12g5–1. 

8 15 U.S.C. 78a et seq. 

9 17 CFR 240.15c2–11. 

10 17 CFR 200.30–1. 

11 17 CFR 230.157(a). 

12 17 CFR 230.505(b)(2)(iii). 

13 17 CFR 232.101(a). 

14 17 CFR 232.10 et seq. 

15 17 CFR 232.101(c)(6). 

16 17 CFR 232.101(b)(8). 

SECURITIES AND EXCHANGE 

COMMISSION 

17 CFR Parts 200, 230, 232, 239, 240, 

249, and 260 

[Release Nos. 33–9741; 34–74578; 39–2501; 

File No. S7–11–13] 

RIN 3235–AL39 

Amendments for Small and Additional 

Issues Exemptions Under the 

Securities Act (Regulation A) 

AGENCY: Securities and Exchange 

Commission. 

ACTION: Final rules. 

SUMMARY: We are adopting amendments 

to Regulation A and other rules and 

forms to implement Section 401 of the 

Jumpstart Our Business Startups (JOBS) 

Act. Section 401 of the JOBS Act added 

Section 3(b)(2) to the Securities Act of 

1933, which directs the Commission to 

adopt rules exempting from the 

registration requirements of the 

Securities Act offerings of up to $50 

million of securities annually. The final 

rules include issuer eligibility 

requirements, content and filing 

requirements for offering statements, 

and ongoing reporting requirements for 

issuers in Regulation A offerings. 

DATES: The final rules and form 

amendments are effective on June 19, 

2015. 

FOR FURTHER INFORMATION CONTACT: 

Zachary O. Fallon, Special Counsel; 

Office of Small Business Policy, 

Division of Corporation Finance, at 

(202) 551–3460; or Shehzad K. Niazi, 

Special Counsel; Office of Rulemaking, 

Division of Corporation Finance, at 

(202) 551–3430, U.S. Securities and 

Exchange Commission, 100 F Street NE., 

Washington, DC 20549–3628. 

SUPPLEMENTARY INFORMATION: We are 

amending Rules 251 through 263 1 of 

Regulation A under the Securities Act of 

1933 (the ‘‘Securities Act’’).2

We are revising Form 1–A,3

rescinding Form 2–A,4 and adopting 

four new forms, Form 1–K (annual 

report), Form 1–SA (semiannual report), 

Form 1–U (current report), and Form 

1–Z (exit report). 

Further, we are revising Rule 4a–1 5

under the Trust Indenture Act of 1939 

(the ‘‘Trust Indenture Act’’) 6 to increase 

the dollar ceiling of the exemption from 

the requirement to issue securities 

pursuant to an indenture. We are also 

amending Rule 12g5–1 7 of the 

Securities Exchange Act of 1934 (the 

‘‘Exchange Act’’) 8 to permit issuers to 

rely on a conditional exemption from 

mandatory registration of a class of 

securities under Section 12(g) of the 

Exchange Act, Rule 15c2–11 9 of the 

Exchange Act to permit an issuer’s 

ongoing reports filed under Regulation 

A to satisfy a broker-dealer’s obligations 

to review and maintain certain 

information about an issuer’s quoted 

securities, and Rule 30–1 10 of the 

Commission’s organizational rules and 

provisions for delegated authority to 

permit the Division of Corporation 

Finance to issue notices of qualification 

and deny Form 1–Z filings. In addition, 

we are adopting a technical amendment 

to Exchange Act Rule 15c2–11 to update 

the outdated reference to ‘‘Schedule H 

of the By-Laws of the National 

Association of Securities Dealers, Inc.,’’ 

which is now known as the ‘‘Financial 

Industry Regulatory Authority, Inc.’’ 

and to reflect the correct rule reference. 

As a result of the revisions to 

Regulation A, we are adopting 

conforming and technical amendments 

to Securities Act Rules 157(a),11

505(b)(2)(iii),12 and Form 8–A. 

Additionally, we are revising Item 

101(a) 13 of Regulation S–T14 to reflect 

the mandatory electronic filing of all 

issuer initial filing and ongoing 

reporting requirements under 

Regulation A. We are also revising Item 

101(c)(6) 15 of Regulation S–T to remove 

the reference to paper filings in a 

Regulation A offering, and removing 

and reserving Item 101(b)(8) 16 of 

Regulation S–T dealing with the 

optional electronic filing of Form F–X 

by Canadian issuers. 

Table of Contents 

I. Introduction 

II. Final Rules and Amendments to 

Regulation A 

A. Overview 

B. Scope of Exemption 

1. Eligible Issuers 

2. Eligible Securities 

3. Offering Limitations and Secondary 

Sales 

4. Investment Limitation 

5. Integration 

6. Treatment Under Section 12(g) 

C. Offering Statement 

1. Electronic Filing; Delivery Requirements 

2. Non-Public Submission of Draft Offering 

Statements 

3. Form and Content 

4. Continuous or Delayed Offerings and 

Offering Circular Supplements 

5. Qualification 

D. Solicitation of Interest (Testing the 

Waters) 

1. Proposed Rules 

2. Comments on Proposed Rules 

3. Final Rules 

E. Ongoing Reporting 

1. Continuing Disclosure Obligations 

2. Exchange Act Rule 15c2–11 and Other 

Implications of Ongoing Reporting 

Under Regulation A 

3. Exchange Act Registration of Regulation 

A Securities 

4. Exit Report on Form 1–Z 

F. Insignificant Deviations From a Term, 

Condition or Requirement 

G. Bad Actor Disqualification 

1. Proposed Rules 

2. Comments on Proposed Rules 

3. Final Rules 

H. Relationship With State Securities Law 

1. Proposed Rules 

2. Comments on Proposed Rules 

3. Final Rules 

I. Additional Considerations Related to 

Smaller Offerings 

J. Transitional Guidance for Issuers 

Currently Conducting Regulation A 

Offerings 

K. Technical and Conforming Amendments 

III. Economic Analysis 

A. Broad Economic Considerations 

B. Baseline 

1. Current Methods of Raising Up to $50 

Million of Capital 

2. Investors 

3. Financial Intermediaries 

C. Scope of Exemption 

1. Eligible Issuers 

2. Eligible Securities 

3. Offering Limitations and Secondary 

Sales 

4. Investment Limitation 

5. Integration 

6. Treatment Under Section 12(g) 

D. Offering Statement 

1. Electronic Filing and Delivery 

2. Disclosure Format and Content 

3. Audited Financial Statements 

4. Other Accounting Requirements 

5. Continuous and Delayed Offerings 

6. Nonpublic Review of Draft Offering 

Statements 

E. Solicitation of Interest (‘‘Testing the 

Waters’’) 

F. Ongoing Reporting 

1. Periodic and Current Event Reporting 

Requirements 

2. Termination and Suspension of 

Reporting and Exit Reports 

3. Exchange Act Registration 

G. Insignificant Deviations 

H. Bad Actor Disqualification 

I. Relationship With State Securities Law 

IV. Paperwork Reduction Act 

A. Background 

B. Estimated Number of Regulation A 

Offerings 

C. PRA Reporting and Cost Burden 

Estimates 

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Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Rules and Regulations 21807 

17See Rel. No. 33–9497 [79 FR 3925] (Dec. 18, 

2013) (the ‘‘Proposing Release’’), available at: 

http://www.sec.gov/rules/proposed/2013/33- 

9497.pdf. 

18Public Law 112–106, 126 Stat. 306. 

19We are adopting a number of terms and 

conditions for Regulation A offerings pursuant to 

our discretionary authority under Sections 3(b)(2)– 

(5). Where we have done so, as discussed in detail 

in Section II. below, it is because we find such 

terms and conditions to be necessary in the public 

interest and for the protection of investors. 

20An issuer of $20 million or less of securities 

could elect to proceed under either Tier 1 or 

Tier 2. 

21Recommendations of the Commission’s 

Government-Business Forum on Small Business 

Capital Formation are available at: http://

www.sec.gov/info/smallbus/sbforum.shtml. 

22Recommendations of the Advisory Committee 

on Small and Emerging Companies are available at: 

http://www.sec.gov/info/smallbus/acsec.shtml. 

23Equity 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/. 

24To 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 

Web site at http://www.sec.gov/spotlight/jobsact

comments.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-titleiv.shtml. 

25The comment letters received to date in 

response to the Proposing Release are available at: 

http://www.sec.gov/comments/s7-11-13/

s71113.shtml. 

1. Regulation A (Form 1–A and Form 2–A) 

2. Form 1–K: Annual Report 

3. Form 1–SA: Semiannual Report 

4. Form 1–U: Current Reporting 

5. Form 1–Z: Exit Report 

6. Form 8–A: Short Form Registration 

Under the Exchange Act 

7. Form ID Filings 

8. Form F–X 

D. Collections of Information Are 

Mandatory 

V. Final Regulatory Flexibility Act Analysis 

A. Need for the Rules 

B. Significant Issues Raised by Public 

Comments 

C. Small Entities Subject to the Rules 

D. Reporting, Recordkeeping, and Other 

Compliance Requirements 

E. Agency Action To Minimize Effect on 

Small Entities 

VI. Statutory Basis and Text of Amendments 

I. Introduction 

On December 18, 2013, we proposed 

rule and form amendments 17 to 

implement Section 401 of the Jumpstart 

Our Business Startups Act (the ‘‘JOBS 

Act’’).18 Section 401 of the JOBS Act 

amended Section 3(b) of the Securities 

Act by designating existing Section 3(b) 

as Section 3(b)(1), and creating new 

Sections 3(b)(2)–(5). Section 3(b)(2) 

directs the Commission to adopt rules 

adding a class of securities exempt from 

the registration requirements of the 

Securities Act for offerings of up to $50 

million of securities within a 12-month 

period. Sections 3(b)(2)–(5) specify 

mandatory terms and conditions for 

such exempt offerings and also 

authorize the Commission to adopt 

other terms, conditions, or requirements 

as necessary in the public interest and 

for the protection of investors.19 In 

addition, Section 3(b)(5) directs the 

Commission to review the $50 million 

offering limit specified in Section 

3(b)(2) not later than two years after the 

enactment of the JOBS Act and every 

two years thereafter, and authorizes the 

Commission to increase the annual 

offering limit if it determines that it 

would be appropriate to do so. 

Accordingly, we are revising Regulation 

A under the Securities Act to require 

issuers conducting offerings in reliance 

on Section 3(b)(2) to comply with terms 

and conditions established by the 

Commission’s rules, and, where 

applicable, to make ongoing disclosure. 

II. Final Rules and Amendments to 

Regulation A 

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 

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. 

• 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 

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21808 Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Rules and Regulations 

26See, e.g., Securities Offering Reform, Rel. No. 

33–8591 (July 19, 2005) [70 FR 44722]. 

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. 

Qualification, communications, and 

offering process: 

• Require issuers and intermediaries in 

the prequalification period to deliver 

a preliminary offering circular to 

prospective purchasers at least 48 

hours in advance of sale unless the 

issuer is subject to, and current in, 

Tier 2 ongoing reporting obligations. 

Where the issuer is subject to, and 

current in, a Tier 2 ongoing reporting 

obligation, issuers and intermediaries 

will only be required to comply with 

the general delivery requirements for 

offers. 

• Modernize the qualification, 

communications, and offering 

processes in Regulation A to reflect 

analogous provisions of the Securities 

Act registration process: 26

• Permit issuers and intermediaries to 

satisfy their delivery requirements 

as to the final offering circular 

under an ‘‘access equals delivery’’ 

model when sales are made on the 

basis of offers conducted during the 

prequalification period and the 

final offering circular is filed and 

available on the Commission’s 

Electronic Data Gathering, Analysis 

and Retrieval system (EDGAR); 

• Require issuers and intermediaries, 

not later than two business days 

after completion of a sale, to 

provide purchasers with a copy of 

the final offering circular or a notice 

with the uniform resource locator 

(URL) where the final offering 

circular may be obtained on EDGAR 

and contact information sufficient 

to notify a purchaser where a 

request for a final offering circular 

can be sent and received in 

response; and 

• Permit issuers to file offering 

circular updates and supplements 

after qualification of the offering 

statement in lieu of postqualification amendments in certain 

circumstances, including to provide 

the types of information that may be 

excluded from a prospectus under 

Rule 430A. 

• Permit continuous or delayed 

offerings, but require issuers in 

continuous or delayed Tier 2 offerings 

to be current in their annual and 

semiannual reporting obligations in 

order to do so. 

• Permit issuers to qualify additional 

securities in reliance on Regulation A 

by filing a post-qualification 

amendment to a qualified offering 

statement. 

Offering statement: 

• Require issuers to file offering 

statements with the Commission 

electronically on EDGAR. 

• Permit the non-public submission of 

offering statements and amendments 

for review by Commission staff before 

filing such documents with the 

Commission, so long as all such 

documents are publicly filed not later 

than 21 calendar days before 

qualification. 

• Eliminate the Model A (Question-andAnswer) disclosure format under Part 

II of Form 1–A. 

• Update and clarify Model B 

(Narrative) disclosure format under 

Part II of Form 1–A (renamed, 

‘‘Offering Circular’’), while continuing 

to permit Part I of Form S–1 narrative 

disclosure as an alternative. 

• Permit real estate investment trusts 

(REITs) and similarly eligible 

companies to provide the narrative 

disclosure required by Part I of Form 

S–11 in Part II of Form 1–A. 

• Require that offering statements be 

qualified by the Commission before 

sales may be made pursuant to 

Regulation A. 

• Require Tier 1 and Tier 2 issuers to 

file balance sheets and related 

financial statements for the two 

previous fiscal year ends (or for such 

shorter time that they have been in 

existence). 

• Require Tier 2 issuers to include 

financial statements in their offering 

circulars that are audited in 

accordance with either the auditing 

standards of the American Institute of 

Certified Public Accountants (AICPA) 

(referred to as U.S. Generally 

Accepted Auditing Standards or 

GAAS) or the standards of the Public 

Company Accounting Oversight 

Board (PCAOB). 

• Require Tier 1 and Tier 2 issuers to 

include financial statements in Form 

1–A that are dated not more than nine 

months before the date of non-public 

submission, filing, or qualification, 

with the most recent annual or 

interim balance sheet not older than 

nine months. If interim financial 

statements are required, they must 

cover a period of at least six months. 

Ongoing reporting: 

• Require Tier 1 issuers to provide 

information about sales in such 

offerings and to update certain issuer 

information by electronically filing a 

Form 1–Z exit report with the 

Commission not later than 30 

calendar days after termination or 

completion of an offering. 

• Require Tier 2 issuers to file 

electronically with the Commission 

on EDGAR annual and semiannual 

reports, as well as current event 

reports. 

• Require Tier 2 issuers to file 

electronically a special financial 

report to cover financial periods 

between the most recent period 

included in a qualified offering 

statement and the issuer’s first 

required periodic report. 

• Permit the ongoing reports filed by an 

issuer conducting a Tier 2 offering to 

satisfy a broker-dealer’s obligations 

under Exchange Act Rule 15c2–11. 

• Provide that Tier 2 issuers’ reporting 

obligations under Regulation A would 

suspend when they are subject to the 

ongoing reporting requirements of 

Section 13 of the Exchange Act, and 

may also be suspended under 

Regulation A at any time by filing a 

Form 1–Z exit report after completing 

reporting for the fiscal year in which 

an offering statement was qualified, so 

long as the securities of each class to 

which the offering statement relates 

are held of record by fewer than 300 

persons, or fewer than 1,200 persons 

for banks or bank holding companies, 

and offers or sales made in reliance on 

a qualified Tier 2 Regulation A 

offering statement are not ongoing. In 

certain circumstances, Tier 2 

Regulation A reporting obligations 

may terminate when issuers are no 

longer subject to the ongoing 

reporting requirements of Section 13 

of the Exchange Act. 

• Require Tier 2 issuers to include in 

their first annual report after 

termination or completion of a 

qualified Regulation A offering, or in 

their Form 1–Z exit report, 

information about sales in the 

terminated or completed offering and 

to update certain issuer information. 

• Eliminate the requirement that issuers 

file a Form 2–A with the Commission 

mstockstill on DSK4VPTVN1PROD with RULES2

Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Rules and Regulations 21809 

27Existing Regulation A limits issuer eligibility to 

issuers organized, and with a principal place of 

business, in the United States or Canada, while 

excluding Exchange Act reporting companies, 

investment companies, including business 

development companies, development stage 

companies that have no specific business plan or 

purpose or have indicated that their business plan 

is to engage in a merger or acquisition with an 

unidentified company or companies, issuers of 

fractional undivided interests in oil or gas rights or 

a similar interest in other mineral rights, and 

issuers disqualified because of Rule 262, 17 CFR 

230.262 (2014). See 17 CFR 230.251(a) (2014). 

28 15 U.S.C. 80a–2(a)(48). 

29 ‘‘Blank check companies’’ are development 

stage companies that have no specific business plan 

or purpose or have indicated that their business 

plan is to engage in a merger or acquisition with 

an unidentified company or companies. See 

Securities Act Rule 419(a)(2)(i), 17 CFR 

230.419(a)(2)(i); see also SEC Rel. No. 33–6949 [57 

FR 36442] (July 30, 1992), at fn. 50 (clarifying that 

blank check companies regardless of whether they 

are issuing penny stock are precluded from relying 

on Regulation A). 

30Letter from Catherine T. Dixon, Chair, Federal 

Regulation of Securities Committee, Business Law 

Section, American Bar Association, April 3, 2014 

(‘‘ABA BLS Letter’’); Letter from Gabrielle Buckley, 

Chair, Section of International Law, American Bar 

Association, May 14, 2014 (‘‘ABA SIL Letter’’); 

Letter from Andrew F. Viles, Canaccord Letter 

Genuity Inc., March 27, 2014 (‘‘Canaccord Letter’’); 

Letter from Pw Carey, March 24, 2014 (‘‘Carey 

Letter’’); Letter from Kurt N. Schacht, CFA, 

Managing Director, Standards and Financial Market 

Integrity, and Linda L. Rittenhouse, Director, 

Capital Markets, CFA Institute, March 24, 2014 

(‘‘CFA Institute Letter’’); Letter from Kim Wales, 

Executive Board Member, Crowdfund Intermediary 

Regulatory Advocates (CFIRA), May 14, 2014 

(‘‘CFIRA Letter 1’’); Letter from Christopher Tyrrell, 

Chair, Crowdfunding Intermediary Regulatory 

Advocates, February 23, 2015 (‘‘CFIRA Letter 2’’); 

Robert R. Kaplan, Jr. and T. Rhys James, Kaplan 

Voekler Cunningham & Frank PLC, March 23, 2014 

(‘‘KVCF Letter’’); Letter from William F. Galvin, 

Secretary, Commonwealth of Massachusetts, March 

24, 2014 (‘‘Massachusetts Letter 2’’); Letter from 

Morrison & Foerster LLP, March 26, 2014 (‘‘MoFo 

Letter’’); Letter from Andrea Seidt, President, North 

American Securities Administrators Association 

(NASAA) and Ohio Securities Commissioner, 

March 24, 2014 (‘‘NASAA Letter 2’’); Letter from 

William M. Beatty, Securities Administrator, 

Washington Department of Financial Institutions, 

March 24, 2014 (‘‘WDFI Letter’’); Letter from 

William R. Hambrecht, Chairman, WR Hambrecht+ 

Co, March 4, 2014 (‘‘WR Hambrecht + Co Letter’’). 

31ABA BLS Letter; CFA Institute Letter; 

Massachusetts Letter 2; NASAA Letter 2; WDFI 

Letter. 

32CFA Institute Letter. 

33CFIRA Letter 1; WR Hambrecht + Co Letter 

(suggesting that limiting the availability of the 

Continued 

to report sales and the termination of 

sales made under Regulation A every 

six months after qualification and 

within 30 calendar days after the 

termination, completion, or final sale 

of securities in the offering. 

Exchange Act registration: 

• Conditionally exempt securities 

issued in a Tier 2 offering from the 

mandatory registration requirements 

of Section 12(g) of the Exchange Act, 

for so long as the issuer engages the 

services of a transfer agent that is 

registered with the Commission under 

Section 17A of the Exchange Act, 

remains subject to a Tier 2 reporting 

obligation, is current in its annual and 

semiannual reporting at fiscal year 

end, and had a public float of less 

than $75 million as of the last 

business day of its most recently 

completed semiannual period, or, in 

the absence of a public float, had 

annual revenues of less than $50 

million as of its most recently 

completed fiscal year. 

• Permit Tier 2 issuers to use a Form 8– 

A short form registration statement 

concurrently with the qualification of 

a Regulation A offering statement that 

includes Part I of Form S–1 or Form 

S–11 narrative disclosure in Form 1– 

A in order to register a class of 

securities under Sections 12(g) or 

12(b) of the Exchange Act. 

‘‘Bad actor’’ disqualification 

provisions: 

• Substantially conform the ‘‘bad actor’’ 

disqualification provisions of Rule 

262 to Rule 506(d) and add a 

disclosure requirement similar to Rule 

506(e). 

Application of state securities laws: 

• Provide for the preemption of state 

securities law registration and 

qualification requirements for 

securities offered or sold to ‘‘qualified 

purchasers,’’ in light of the total 

package of investor protections 

included in the final rules. A 

qualified purchaser will be defined to 

be any person to whom securities are 

offered or sold in a Tier 2 offering. 

The Commission is required by 

Section 3(b)(5) of the Securities Act to 

review the Tier 2 offering limitation 

every two years. In addition to revisiting 

the Tier 2 offering limitation, the staff 

will also undertake to review the Tier 1 

offering limitation at the same time. The 

staff also will undertake to study and 

submit a report to the Commission no 

later than 5 years following the adoption 

of the amendments to Regulation A, on 

the impact of both the Tier 1 and Tier 

2 offerings on capital formation and 

investor protection. The report will 

include, but not be limited to, a review 

of: (1) The amount of capital raised 

under the amendments; (2) the number 

of issuances and amount raised by both 

Tier 1 and Tier 2 offerings; (3) the 

number of placement agents and brokers 

facilitating the Regulation A offerings; 

(4) the number of Federal, State, or any 

other actions taken against issuers, 

placement agents, or brokers with 

respect to both Tier 1 and Tier 2 

offerings; and (5) whether any 

additional investor protections are 

necessary for either Tier 1 or Tier 2. 

Based on the information contained in 

the report, the Commission may propose 

to either decrease or increase the 

offering limit for Tier 1, as appropriate. 

B. Scope of Exemption 

1. Eligible Issuers 

a. Proposed Rules 

Section 401 of the JOBS Act does not 

include any express issuer eligibility 

requirements. The proposed rules 

would have maintained Regulation A’s 

existing issuer eligibility requirements 

and added two new categories of 

ineligible issuers.27 The two new 

categories would 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. 

Additionally, we requested comment on 

other potential changes to the existing 

issuer eligibility requirements, 

including whether the exemption 

should be limited to ‘‘operating 

companies,’’ United States domestic 

issuers, or issuers that use a certain 

amount of the proceeds raised in a 

Regulation A offering in the United 

States. We also solicited comment on 

whether we should extend issuer 

eligibility to non-Canadian foreign 

issuers, business development 

companies as defined in Section 2(a)(48) 

of the Investment Company Act of 1940 

(BDCs),28 blank check companies,29 or 

Exchange Act reporting companies, or, 

alternatively, eliminate shell companies 

or REITs from the exemptive regime. 

b. Comments on the Proposed Rules 

Commenters expressed a wide range 

of views on the proposed issuer 

eligibility requirements. A number of 

commenters expressed general support 

for the proposed issuer eligibility 

requirements.30 Many commenters 

expressly supported the new proposed 

issuer eligibility criterion relating to the 

requirement to be current in Tier 2 

ongoing reporting obligations.31 One 

commenter also expressly supported the 

proposed exclusion of issuers subject to 

an order of the Commission entered 

pursuant to Section 12(j) of the 

Exchange Act from the list of eligible 

issuers.32 Other commenters suggested 

additional limitations on issuer 

eligibility, including: a requirement that 

issuers be ‘‘operating companies,’’ 33

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21810 Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Rules and Regulations 

exemption to, among other things, operating 

companies would provide investors with more 

confidence in the offerings conducted pursuant to 

Regulation A). But see KVCF Letter (suggesting that 

limiting availability of the exemption to operating 

companies would unnecessarily limit the utility of 

the exemption). 

34ABA BLS Letter; MoFo Letter. 

35Massachusetts 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. 

37Richardson 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). 

38Letter 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). 

39ABA 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’’). 

40Letter 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. 

41ABA 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’’). 

42Andreessen/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. 

43ABA SIL Letter; SVGS Letter (noting that highpaying jobs would be created by expanding global 

tech companies). 

44SVB Financial Letter. 

45Andreessen/Cowen Letter; SVB Financial 

Letter. 

46Andreessen/Cowen Letter; OTC Markets Letter. 

47ABA SIL Letter; Andreessen/Cowen Letter; 

McCarter & English Letter; SVB Financial Letter. 

48ABA SIL Letter. 

49McCarter & 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 (i) 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 Web site certain material 

items of information. See 17 CFR 240.12g3–2(b). 

50ABA 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. 

51ABA 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. 

52Milken Institute Letter; SBIA Letter. A SBIClicensed 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. 

53Milken Institute Letter. 

54Letter from E. Cartier Esham, Executive Vice 

President, Emerging Companies, Biotechnology 

Industry Organization (BIO), March 11, 2014 (‘‘BIO 

Letter’’); IPA Letter; Letter from Tom Quaadman, 

Vice President, Center for Capital Markets 

Competitiveness, U.S. Chamber of Commerce, 

March 24, 2014 (‘‘U.S. Chamber of Commerce 

Letter’’). 

excluding shell companies and issuers 

of penny stock,34 and excluding other 

types of investment vehicles, such as 

commodity pools and investment funds 

that invest in gold or virtual 

currencies.35

A few commenters recommended 

allowing blank check companies and 

special purpose acquisition companies 

(SPACs) to rely on Regulation A.36 One 

of these commenters recommended 

allowing blank check companies 

seeking to raise at least $10 million to 

use Regulation A in the same manner as 

any other eligible issuer, but suggested 

that, if a company is raising less than 

$10 million in a Tier 2 offering, the 

Commission should implement certain 

additional requirements.37 Another 

commenter recommended allowing 

issuers of fractional interests in oil and 

gas or other mineral rights to rely on 

Regulation A based on a ‘‘reasonable’’ 

eligibility test to be developed by the 

Commission.38 Several commenters 

opposed any change to the proposed 

issuer eligibility requirements that 

would exclude REITs from participating 

in Regulation A offerings.39 Other 

commenters advocated expanding the 

current categories of eligible issuers, 

and specifically supported the 

continued inclusion of Canadian 

companies and shell companies as 

eligible issuers, as proposed.40

(1) 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 

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

(2) 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 

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

(3) 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 

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55BIO Letter; U.S. Chamber of Commerce Letter. 

56 IPA Letter. 

57BIO Letter. 

58Andreessen/Cowen Letter; BIO Letter; OTC 

Markets Letter; Letter from U.S. Senator Pat Roberts, 

May 27, 2014 (‘‘Sen. Roberts Letter’’); Letter from 

Jack H. Brier, President and Founder, US Alliance 

Corporation, March 19, 2014 (‘‘US Alliance Corp. 

Letter’’). 

59Andreessen/Cowen Letter; BIO Letter; OTC 

Markets Letter. 

60BIO Letter. 

61Andreessen/Cowen Letter; CFIRA Letter 1; OTC 

Markets Letter. 

62CFIRA Letter 1. Before amendments to 

Regulation A were adopted in 1992, Exchange Act 

reporting companies were permitted to conduct 

offerings in reliance on Regulation A, provided they 

were current in their public reporting. See 17 CFR 

230.252(f) (1992). 

63See Rule 251(b). 

64See Rule 262. 

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

(4) Exchange Act Reporting Companies 

A number of commenters supported 

allowing Exchange Act reporting 

companies to conduct offerings under 

Regulation A.58 Several of these 

commenters recommended allowing 

Exchange Act reporting companies that 

are current in their reporting obligations 

to conduct Tier 2 offerings,59 with one 

commenter limiting its recommendation 

to companies with a non-affiliate float of 

less than $250 million.60 Three 

commenters further suggested that, if 

Exchange Act reporting companies are 

permitted to conduct offerings pursuant 

to Regulation A, Exchange Act reporting 

should satisfy any Regulation A 

reporting obligation.61 One such 

commenter further suggested that 

Exchange Act reporting companies 

should be required to be current in their 

Exchange Act reporting obligations in 

order to be eligible to rely on the 

exemption, in a manner that is 

consistent with Regulation A as it 

existed before 1992.62

c. Final Rules 

We are adopting the issuer eligibility 

criteria as proposed. Under the final 

rules, Regulation A will be limited to 

companies organized in and with their 

principal place of business in the 

United States or Canada. It will be 

unavailable to: 

• Companies subject to the ongoing 

reporting requirements of Section 13 or 

15(d) of the Exchange Act; 

• companies registered or required to 

be registered under the Investment 

Company Act of 1940 and BDCs; 

• blank check companies; 

• issuers of fractional undivided 

interests in oil or gas rights, or similar 

interests in other mineral rights; 

• issuers that are required to, but that 

have not, filed with the Commission the 

ongoing reports required by the rules 

under Regulation A during the two 

years immediately preceding the filing 

of a new offering statement (or for such 

shorter period that the issuer was 

required to file such reports); 

• issuers that are or have been subject 

to an order by the Commission denying, 

suspending, or revoking the registration 

of a class of securities pursuant to 

Section 12(j) of the Exchange Act that 

was entered within five years before the 

filing of the offering statement; 63 and 

• issuers subject to ‘‘bad actor’’ 

disqualification under Rule 262.64

We expect that the amendments we 

are adopting will significantly expand 

the utility of the Regulation A offering 

exemption. 

Our approach in the final rules is 

generally to maintain the issuer 

eligibility requirements of existing 

Regulation A with the limited addition 

of two new categories of ineligible 

issuers. We believe this approach will 

provide important continuity in the 

Regulation A regime as it expands in the 

way Congress mandated. For this 

reason, we do not believe it is necessary 

to adopt final rules to exclude issuers 

that are currently eligible to conduct 

Regulation A offerings. Additionally, we 

recognize that expanding the categories 

of eligible issuers, as suggested by a 

number of commenters, could provide 

certain benefits, including increased 

investment opportunities for investors 

and avenues for capital formation for 

certain issuers. We are concerned, 

however, about the implications of 

extending issuer eligibility before the 

Commission has the ability to assess the 

impact of the changes to Regulation A 

being adopted today. In light of these 

changes, we believe it prudent to defer 

expanding the categories of eligible 

issuers (for example, by including nonCanadian foreign issuers, BDCs, or 

Exchange Act reporting companies) 

until the Commission has had the 

opportunity to observe the use of the 

amended Regulation A exemption and 

assess any new market practices as they 

develop. 

Additionally, we are not adopting 

further restrictions on eligibility at this 

time. In light of the disclosure 

requirements contained in the final 

rules, we do not believe that it is 

necessary to exclude additional types of 

issuers, such as shell companies, issuers 

of penny stock, or other types of 

investment vehicles, from relying on the 

exemption in Regulation A. At the same 

time, we are concerned about 

potentially increased risks to investors 

that could result from extending issuer 

eligibility to other types of entities, such 

as blank check companies, before the 

Commission has the opportunity to 

observe developing market practices. 

We therefore believe the prudent 

approach with respect to any potential 

expansion of issuer eligibility is to give 

the Regulation A market time to develop 

under rules that we are adopting today. 

We also do not believe it is necessary to 

limit availability of the exemption to 

issuers of a certain size, as we agree 

with commenters that suggested that the 

annual offering limit will serve to limit 

the utility of the exemption for larger 

issuers in need of greater amounts of 

capital. We further do not believe that 

it is appropriate to limit the availability 

of the exemption to ‘‘operating 

companies,’’ as that term would restrict 

availability of the exemption to fewer 

issuers than are currently eligible under 

Regulation A, such as by excluding shell 

companies. 

As proposed, the final rules include 

two new issuer eligibility requirements 

that add important investor protections 

to Regulation A. First, potential issuers 

must have filed all required ongoing 

reports under Regulation A during the 

two years immediately preceding the 

filing of a new offering statement (or for 

such shorter period that the issuer was 

required to file such reports) to remain 

eligible to conduct offerings pursuant to 

the rules. This requirement will benefit 

investors by providing them with more 

information, with respect to issuers that 

have previously made a Regulation A 

offering, to consider when making an 

investment decision, facilitate the 

development of an efficient secondary 

market in such securities, and enhance 

our ability to analyze and observe the 

Regulation A market. Second, issuers 

subject to orders by the Commission 

entered pursuant to Section 12(j) of the 

Exchange Act within a five-year period 

immediately preceding the filing of the 

offering statement will not be eligible to 

conduct an offering pursuant to 

Regulation A. This requirement will 

increase investor protection and 

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21812 Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Rules and Regulations 

65 15 U.S.C. 77c(b)(3). 

66ABA BLS Letter; Carey Letter; Massachusetts 

Letter 2; NASAA Letter 2; WDFI Letter. 

67ABA BLS Letter. 

68See Rule 261(c); see also Rule 405 (defining 

‘‘equity security’’ to include, among other things, 

warrants and certain convertible securities). We 

have also revised the proposed definition in Rule 

261(c) to clarify that all securities, rather than just 

equity securities, that are convertible or 

exchangeable into equity interests are eligible, 

subject to the other terms of Regulation A. 

69Regulation AB, 17 CFR 229.1100 et seq., went 

into effect in 2005. See Rel. No. 33–8518 (Dec. 22, 

2004). Asset-backed securities are defined in Rule 

1101(c)(1) to generally mean a security that is 

primarily serviced by the cash flows of a discrete 

pool of receivables or other financial asset, either 

fixed or revolving, that by its terms converts into 

cash within a finite time period. 

70As proposed, if the offering included securities 

that were convertible, exercisable, or exchangeable 

for other securities, the offer and sale of the 

underlying securities would also be required to be 

qualified 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. 

71Letter from Salomon Kamalodine, Director, 

Investment Banking, B. Riley & Co., March 24, 2014 

(‘‘B. Riley Letter’’); Letter from William Klehm, 

Chairman and CEO, Fallbrook Technologies, March 

22, 2014 (‘‘Fallbrook Technologies Letter’’) 

(recommended raising the limit to $75 million); 

OTC Markets Letter (recommended raising the limit 

to $80 million); Jason Coombs, Co-Founder and 

CEO, Public Startup Company, Inc., March 24, 2014 

(‘‘Public Startup Co. Letter 1’’) (recommended 

raising the limit to $75 million); Richardson Patel 

Letter (recommended raising the limit to $100 

million). 

72Richardson Patel Letter. 

73Letter from Samuel S Guzik, Guzik and 

Associates, March 24, 2014 (‘‘Guzik Letter 1’’) 

(recommended raising the limit to ‘‘at least $10 

million’’); Letter from Christopher Cole, Senior Vice 

President and Senior Regulatory Counsel, 

Independent Community Bankers of America, 

March 25, 2014 (‘‘ICBA Letter’’) (encouraged 

increasing the limit ‘‘from $5 million to $10 

million’’). 

74Public Startup Co. Letter 1. 

75Andreessen/Cowen Letter; cf. Proposing 

Release, fn. 112. 

76Massachusetts Letter 2; NASAA Letter 2; 

Richardson Patel Letter; WDFI Letter. 

77Massachusetts Letter 2; NASAA Letter 2; WDFI 

Letter. 

78Massachusetts Letter 2; NASAA Letter 2. 

79NASAA Letter 2 (supporting the proposed 

limits coupled with a board approval requirement 

in lieu of prohibiting resales entirely); WDFI Letter 

(not expressing a preference for prohibiting resales 

entirely). 

compliment the exclusion of delinquent 

Regulation A filers discussed 

immediately above by excluding issuers 

with a demonstrated history of 

delinquent filings under the Exchange 

Act from the pool of eligible issuers 

under Regulation A. 

2. Eligible Securities 

a. Proposed Rules 

Section 3(b)(3) of the Securities Act 

limits the availability of any exemption 

enacted under Section 3(b)(2) to ‘‘equity 

securities, debt securities, and debt 

securities convertible or exchangeable 

into equity interests, including any 

guarantees of such securities.’’ 65 The 

proposed rules would have limited the 

types of securities eligible for sale under 

both Tier 1 and Tier 2 of Regulation A 

to the specifically enumerated list of 

securities in Section 3(b)(3) and also 

would have excluded asset-backed 

securities, as defined in Regulation AB, 

from the list of eligible securities. 

b. Comments on the Proposed Rules 

Several commenters supported the 

exclusion of asset-backed securities 

from the list of eligible securities.66 One 

commenter recommended clarifying 

that warrants exercisable for equity or 

debt securities are eligible securities.67

c. Final Rules 

We are adopting final rules that limit 

the types of securities eligible for sale 

under Regulation A to the specifically 

enumerated list in Section 3(b)(3), 

which includes warrants and 

convertible equity securities, among 

other equity and debt securities.68 The 

final rules exclude asset-backed 

securities from the list of eligible 

securities. Asset-backed securities are 

subject to the provisions of Regulation 

AB and other rules specifically tailored 

to the offering process, disclosure, and 

reporting requirements for such 

securities. These rules were not in effect 

when Regulation A was last updated in 

1992.69 We do not believe that Section 

401 of the JOBS Act was enacted to 

facilitate the issuance of asset-backed 

securities. 

3. Offering Limitations and Secondary 

Sales 

a. Proposed Rules 

We proposed to amend Regulation A 

to create two tiers of requirements: Tier 

1, for offerings of up to $5 million of 

securities in a 12-month period; and 

Tier 2, for offerings of up to $50 million 

of securities in a 12-month period.70 As 

proposed, issuers could conduct 

offerings of up to $5 million under 

either Tier 1 or Tier 2. Consistent with 

the existing provisions of Regulation A, 

we also proposed to permit sales by 

selling securityholders of up to 30% of 

the maximum offering amount 

permitted under the applicable tier ($1.5 

million in any 12-month period for Tier 

1 and $15 million in any 12-month 

period for Tier 2). Sales by selling 

securityholders under either tier would 

be aggregated with sales by the issuer 

for purposes of calculating the 

maximum permissible amount of 

securities that may be sold during any 

12-month period. In addition, we 

proposed to eliminate the last sentence 

of Rule 251(b), which prohibits affiliate 

resales unless the issuer has had net 

income from continuing operations in at 

least one of its last two fiscal years. 

b. Comments on the Proposed Rules 

Commenters were generally 

supportive of the proposed offering 

limitations on primary and secondary 

offerings. Many commenters, however, 

suggested changes to the proposed 

offering limits for both tiers, as well as 

to the proposed limits on secondary 

sales. 

(1) Offering Limitation 

Several commenters recommended 

that the Commission increase the $50 

million offering limitation for Tier 2.71

As an alternative, one commenter 

recommended applying the $50 million 

limit on a per offering basis rather than 

on a 12-month basis, and suggested that 

the Commission consider eliminating 

the offering limits for certain types of 

issuers, such as those that have yet to 

generate revenue.72 Additionally, two 

commenters recommended that the 

Commission do more to increase the 

utility of Tier 1 offerings by raising the 

Tier 1 offering limitation to $10 million 

or more in a 12-month period.73

Another commenter suggested that the 

Commission create a third tier in 

between Tier 1 and Tier 2 that would 

have a $15 million offering limitation.74

With respect to offering limit 

calculations, one commenter 

recommended that the aggregate offering 

price of the underlying security only be 

included in the $50 million offering 

limitation during the 12-month period 

in which such security is first 

convertible, exercisable, or 

exchangeable.75 This commenter 

suggested that its recommended 

approach would accommodate common 

small business offering structures that 

involve warrants exercisable at a 

premium over several years. 

(2) Secondary Sales Offering Limitation 

Several commenters specifically 

supported the proposed limitations on 

secondary sales.76 While some 

commenters indicated their support for 

resale limitations,77 they expressed a 

preference for either proscribing resales 

entirely 78 or requiring the approval of 

the resale offering by a majority of the 

issuer’s independent directors upon a 

finding that the offering is in the best 

interests of both the selling 

securityholders and the issuer.79 One 

commenter recommended prohibiting 

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80Carey Letter. 

81Letter from Andrew M. Hartnett, Missouri 

Commissioner of Securities, March 24, 2014 (‘‘MCS 

Letter’’). 

82ABA BLS Letter; B. Riley Letter; Canaccord 

Letter; CFIRA Letter 1; Milken Institute Letter; 

MoFo Letter; Richardson Patel Letter; WR 

Hambrecht + Co Letter. 

83Milken Institute Letter. 

84B. Riley Letter. 

85CFIRA Letter 1; WR Hambrecht + Co Letter 

(noting that the JOBS Act contemplated an increase 

in the offering threshold to $50 million, but did not 

limit the percentage that could be sold by selling 

securityholders). 

86ABA BLS Letter; B. Riley Letter; Canaccord 

Letter; CFIRA Letter 1; Milken Institute Letter; 

MoFo Letter; WR Hambrecht + Co Letter. 

87The proposed rules used the phrase ‘‘aggregate 

offering price for all securities sold’’ when 

discussing the gross proceeds resulting from prior 

or anticipated sales of securities under Regulation 

A. We have clarified Rule 257(a)(1) to define as 

‘‘aggregate sales’’ gross proceeds within the prior 12 

month time frame contemplated by Regulation A. 

We have also made conforming changes elsewhere 

in the final rules and forms. 

88See Section II.I. below. 

89See, e.g., Guzik Letter 1; ICBA Letter; Public 

Startup Co. Letter 1. 

90 Factors that May Affect Trends in Regulation 

A Offerings, GAO–12–839 (July 2012) (the ‘‘GAO 

Report’’) (available at: http://www.gao.gov/assets/

600/592113.pdf). The GAO Report concludes that it 

is unclear whether increasing the Regulation A 

offering ceiling from $5 million to $50 million will 

improve the utility of the exemption. 

91Rule 251(a)(1). We intend to revisit the Tier 1 

offering limitation at the same time that we are 

required by Section 3(b)(5) of the Securities Act to 

review the Tier 2 offering limitation and will 

consider whether additional investor protections 

would be necessary if the Tier 1 offering limitation 

is increased. 

92Rule 251(a)(2). 93See discussion in Section III.C.3. below. 

resales under Regulation A entirely.80

Another commenter recommended 

requiring selling securityholders to hold 

the issuer’s securities for 12 months 

before being eligible to sell pursuant to 

Regulation A, in order to distinguish 

between investors seeking to invest in a 

business and investors simply seeking 

to sell to the public for a gain.81

Many other commenters 

recommended raising the resale limits 

or eliminating them entirely.82 One such 

commenter recommended alternatively 

removing non-affiliate securityholders 

from the resale limitation since 

concerns over investor information 

asymmetries would be reduced when 

dealing with non-affiliate 

securityholders.83 This commenter also 

recommended that the Commission 

reevaluate the need for resale limits 

within a year of implementing the rules. 

Another commenter also recommended 

allowing for unlimited sales by nonaffiliate selling securityholders and 

further suggested that the rules not 

aggregate such sales with issuer sales.84

Two commenters suggested that 

limitations on resales are contrary to the 

Congressional intent behind the 

enactment of Title IV of the JOBS Act.85

(3) Rule 251(b) 

Many commenters specifically 

supported the proposed elimination of 

the requirement that issuers must have 

had net income from continuing 

operations in at least one of its last two 

fiscal years in order for affiliate resales 

to be permitted, generally noting that 

many companies have net losses for 

many years, including, for example, due 

to high research and development 

costs.86

c. Final Rules 

We are adopting the proposed 

amendments to Regulation A with 

modifications to the Tier 1 offering 

limitation and the secondary sales 

offering limitation. We discuss these 

amendments in detail below. We are 

also making a technical change to clarify 

the description of how compliance with 

the offering limitations is calculated in 

Rule 251(a).87

Tier 1 

As discussed more fully in the 

‘‘Additional Considerations for Smaller 

Offerings’’ section below, we are making 

changes to the proposed rules in 

response to comments and to increase 

the utility of Tier 1 of the Regulation A 

exemption.88 Several commenters 89 and 

a report on the impact of state securities 

law requirements on offerings 

conducted under Regulation A by the 

U.S Government Accountability Office 

(GAO), as required by Section 402 of the 

JOBS Act,90 highlighted the $5 million 

offering limitation in existing 

Regulation A as one of the main factors 

limiting the utility of the exemption. In 

certain circumstances, fixed costs 

associated with conducting Regulation 

A offerings, such as legal and 

accounting fees, may serve as a 

disincentive to use the exemption for 

lower offering amounts. We are 

therefore increasing the offering 

limitation in the final rules for Tier 1 

offerings in a 12-month period from the 

proposed $5 million limitation to $20 

million.91 We believe that raising the 

offering limitation for Tier 1 offerings, 

in addition to other changes discussed 

in Section II.I. below, will increase the 

utility of the exemption for smaller 

issuers by providing them with 

additional options for capital formation 

and potentially increasing the proceeds 

received by the issuer. Consistent with 

the proportionate limitation on 

secondary sales in the proposed rules, 

we are also increasing the limitation on 

secondary sales in Tier 1 offerings in a 

12-month period from the proposed $1.5 

million limitation to $6 million. 

Tier 2 

We are adopting the proposed $50 

million Tier 2 offering limitation.92

Some commenters suggested that we 

raise the offering limitation to an 

amount above the statutory limitation 

set forth in Section 3(b)(2), but we do 

not believe an increase is warranted at 

this time. While Regulation A has 

existed as an exemption from 

registration for some time, today’s 

changes are significant. We believe that 

the final rules for Regulation A will 

provide for a meaningful addition to the 

existing capital formation options of 

smaller companies while maintaining 

important investor protections. We are 

concerned, however, about expanding 

the offering limitation of the exemption 

beyond the level directly contemplated 

in Section 3(b)(2) at the outset of the 

adoption of final rules. As noted above 

in Section II.B.1., the final rules do not 

limit issuer eligibility on the basis of 

issuer size, as we believe that the $50 

million annual offering limitation will 

serve to limit the utility of the 

exemption for larger issuers in need of 

greater amounts of capital. Similarly, we 

believe that the more extensive 

disclosure requirements associated with 

Exchange Act reporting are more 

appropriate for larger and generally 

more complex issuers that raise money 

in the public capital markets.93 We are 

therefore concerned that an increase in 

the offering limitation at this time may 

increase risks to investors by 

encouraging larger issuers to conduct 

offerings pursuant to Regulation A in 

instances where disclosure pursuant to 

a registered offering under the Securities 

Act would be more appropriate. 

The Commission is required by 

Section 401 of the JOBS Act to review 

the Section 3(b)(2) offering limitation 

every two years, and we will consider 

the use of the final rules by market 

participants as part of that review. We 

will therefore revisit the offering 

limitation by April 2016, as required by 

the statute, with a view to considering 

whether to increase the $50 million 

offering limitation. We also are adopting 

the proposed $15 million limitation on 

secondary sales for Tier 2 as proposed, 

with a change in the application of the 

limitation for secondary sales under 

both Tier 1 and Tier 2 discussed in the 

following section. 

Application of the Limitation on 

Secondary Sales 

As noted in the Proposing Release, 

secondary sales are an important part of 

Regulation A. We believe that allowing 

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21814 Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Rules and Regulations 

94Letter from A. Heath Abshure, President, 

NASAA, April 10, 2013 (‘‘NASAA (pre-proposal) 

Letter’’). 95See, e.g., Milken Institute Letter. 96Rule 251(a)(3) (Additional limitation on 

secondary sales in first year). 

97Rule 251(a). 

98Secondary 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)). 

99NASAA (pre-proposal) Letter. 

100Under 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. 

101 15 U.S.C. 77l(a)(2), 77q. 

102See Section 3(b)(2)(G), 15 U.S.C. 77c(b)(2)(G). 

103Qualification 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. 104See note to proposed Rule 251(a). 105Andreessen/Cowen Letter. 106See 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. 

selling securityholders access to 

avenues for liquidity will encourage 

them to invest in companies, although 

we acknowledge that providing for 

secondary sales in any amount may give 

rise to certain concerns. As highlighted 

by at least one commenter at the preproposing stage, permitting some 

secondary sales pursuant to Regulation 

A could place investors at an 

informational disadvantage to selling 

securityholders who have potentially 

greater access to inside information 

about the issuer and does not 

necessarily provide capital to the 

issuer.94 Other commenters stated that 

such concerns are misplaced in the 

context of secondary sales by nonaffiliates, who generally do not have 

access to inside information.95

We do not believe that a wholesale 

prohibition on secondary sales, as 

suggested by some commenters, is 

appropriate or necessary for either Tier 

1 or Tier 2 of Regulation A. However, 

in order to strike an appropriate balance 

between allowing selling 

securityholders continued access to 

avenues for liquidity in Regulation A 

and the concern that secondary offerings 

do not directly provide new capital to 

companies and could pose the potential 

risks to investors discussed above, the 

final rules continue to permit secondary 

sales but provide additional limitations 

on secondary sales in the first year. The 

final rules limit the amount of securities 

that selling securityholders can sell at 

the time of an issuer’s first Regulation 

A offering and within the following 12 

months to no more than 30% of the 

aggregate offering price of a particular 

offering.96 While the final rules 

continue to provide selling 

securityholders with the flexibility to 

sell securities during this period, we 

believe that this approach to the final 

rules will help to ensure that secondary 

sales at the time of such offerings will 

be made in conjunction with capital 

raising events by the issuer. 

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 

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 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 

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Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Rules and Regulations 21815 

107 Id. 

108 17 CFR 230.251(b) (2014). 

109See Proposing Release, at Section II.B.3. 

110See discussions in Section II.G (Bad Actor 

Disqualification) below and Section II.B.1 (Eligible 

Issuers) above. 

111See Proposing Release, at Section II.B.4. 

112 17 CFR 230.501. 

113See paragraph (a)(5) to Part II of proposed 

Form 1–A. 

114CFA Institute Letter; IPA Letter; Letter from 

Robert Kisel, Small Business Owner, March 18, 

2014 (‘‘Kisel Letter’’) (erroneously referring to the 

10% limit as a 5% limit); MCS Letter; REISA Letter; 

Richardson Patel Letter; WDFI Letter. 

115CFIRA Letter 1; Kisel Letter; Milken Institute 

Letter. 

116CFA Institute Letter. 

117See Crowdfunding, Rel. No. 33–9470 [78 FR 

66427] (Nov. 5, 2013). 

118CFA Institute Letter; MCS Letter; WDFI Letter. 

119Letter from Barbara Roper, Director of Investor 

Protection, Consumer Federation of America, March 

24, 2014 (‘‘CFA Letter’’). 

120CFA Letter (not recommending this 

specifically, but noting this as one reason why the 

investment limit was not an adequate substitute for 

state review of Tier 2 offerings); William A. 

Jacobson, Clinical Professor of Law, Cornell Law 

School, and Director, Cornell Securities Law Clinic, 

March 24, 2014 (‘‘Cornell Clinic Letter’’). 

121 KVCF Letter. 

122ABA BLS Letter; Andreessen/Cowen Letter; B. 

Riley Letter; CFIRA Letter 1; CFIRA Letter 2; 

Fallbrook Technologies Letter; Letter from 

Groundfloor Finance, Inc., Nov. 18, 2014 

(‘‘Groundfloor Letter’’); Heritage Letter; ICBA Letter; 

IPA Letter; Letter from Ford C. Ladd, Esq., May 19, 

2014 (‘‘Ladd Letter 2’’); Letter from John Rodenrys, 

Executive Director R&D, Leading Biosciences, Inc., 

March 24, 2014 (‘‘Leading Biosciences Letter’’); 

Milken Institute Letter; MoFo Letter; NASAA Letter 

2; Letter from Michael L. Zuppone, Paul Hastings 

LLP, March 24, 2014 (‘‘Paul Hastings Letter’’); Letter 

from Jason Coombs, Co-Founder and CEO, Public 

Startup Company, Inc., April 2, 2014 (‘‘Public 

Startup Co. Letter 7’’); SVB Financial Letter. 

123Fallbrook Technologies Letter; Leading 

Biosciences Letter; ICBA Letter. 

124ABA BLS Letter; Andreessen/Cowen Letter; B. 

Riley Letter; MoFo Letter; Paul Hastings Letter; SVB 

Financial Letter. 

125ABA BLS Letter; Andreessen/Cowen Letter; 

CFIRA Letter 1; Heritage Letter; MoFo Letter; WR 

Hambrecht + Co Letter. 

126ABA BLS Letter; B. Riley Letter; Heritage 

Letter; Milken Institute Letter. 

127 Groundfloor Letter. 

128NASAA Letter 2. 

129Cornell Clinic Letter (recommending the tiered 

investment limits in our proposed rules for 

securities-based crowdfunding as an example). 

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

Rule 251(b) 

We are adopting as proposed final 

rules that eliminate the last sentence of 

Rule 251(b),108 which prohibited 

affiliate resales unless the issuer had net 

income from continuing operations in at 

least one of its last two fiscal years. We 

agree with the views expressed by 

commenters that the absence of net 

income, by itself, is not a sufficient 

indicator of an enhanced risk that 

existing shareholders will use 

informational advantages to transfer 

their holdings to the investing public 

that would necessitate the continued 

application of the prohibition in the 

final rules. Further, as noted in the 

Proposing Release, the Commission’s 

current disclosure review and 

qualification processes and enforcement 

programs are significantly more 

sophisticated and robust than they were 

when this provision was added to 

Regulation A in its original form.109 In 

addition, the final rules being adopted 

today include revised ‘‘bad actor’’ 

disqualification provisions and 

additional issuer eligibility 

requirements aimed at limiting access to 

the exemption for market participants 

with demonstrated track records of noncompliance or abuse.110

4. Investment Limitation 

a. Proposed Rules 

Regulation A does not currently limit 

the amount of securities an investor can 

purchase in a qualified Regulation A 

offering. As we noted in the Proposing 

Release, however, we recognize that 

with the increased annual offering 

limitation provided in Section 3(b)(2) 

comes a risk of commensurately greater 

investor losses.111 To address that risk 

we proposed, among other things, to 

limit the amount of securities investors 

can purchase in a Tier 2 offering to no 

more than 10% of the greater of their 

annual income or their net worth. For 

this purpose, annual income and net 

worth would be calculated as provided 

in the accredited investor definition 

under Rule 501 of Regulation D.112

Under the proposal, issuers would be 

required to make investors aware of the 

investment limitations,113 but would 

otherwise be able to rely on an 

investor’s representation of compliance 

with the proposed investment limitation 

unless the issuer knew, at the time of 

sale, that any such representation was 

untrue. 

b. Comments on Proposed Rules 

A number of commenters generally 

supported investment limitations for 

Tier 2 offerings.114 These commenters 

believed that an investment limitation 

would serve as an important investor 

protection. Several commenters 

recommended revisiting the necessity of 

the limitations after a one- to three- year 

trial period,115 and another 

commenter 116 recommended extending 

the investment limitation to Tier 1 

offerings to make them more consistent 

with our proposed rules for securitiesbased crowdfunding transactions 

conducted pursuant to Section 4(a)(6) of 

the Securities Act.117 Some 

commenters’ support for the proposed 

investment limitations was conditioned 

on suggested changes to the proposed 

rules that would require issuers to do 

more to ensure compliance with the 

limitations and that would impose 

adverse consequences on issuers for the 

failure to do so.118 One commenter 

believed that the 10% limitation is 

‘‘significantly higher’’ than is 

appropriate for ‘‘all but the wealthiest, 

least risk averse’’ investors.119 Two 

commenters suggested that the 10% 

limitation should be aggregated across 

all Regulation A offerings instead of 

being applied on a per offering basis,120

while one commenter specifically 

argued against such an aggregated 

limit.121

Numerous commenters recommended 

eliminating the investment limitation 

for Tier 2 offerings.122 Several of these 

commenters alternatively recommended 

at least doubling the limit if the 

provision is not eliminated entirely.123

Other commenters thought that the 

investment limitation is unnecessary in 

light of the other investor protections for 

Tier 2 offerings, such as the expanded 

disclosure requirements.124 Several 

commenters noted that the limit does 

not have a statutory basis and suggested 

that it may be contrary to Congressional 

intent,125 or contrary to the principles 

underlying federal securities law, which 

focus on fraud prevention and full 

disclosure.126 One commenter 

recommended eliminating the 

investment limitations only if the final 

rules do not preempt state law 

registration requirements for Tier 2 

offerings, arguing that the limitations 

may conflict with state investor 

suitability standards,127 while another 

commenter indicated that investment 

limitations would be unnecessary with 

appropriate state oversight, but 

supported limits for retail investors in 

startup companies and high-risk 

offerings.128 Another commenter 

recommended creating various 

categories of investor sophistication 

with corresponding requirements and 

limitations for each.129

Many commenters, including those 

both for and against the investment 

limit, recommended providing 

exceptions to the limit for certain types 

of investors, such as accredited 

investors, or altering the application of 

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21816 Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Rules and Regulations 

130ABA BLS Letter; Andreessen/Cowen Letter; 

Canaccord Letter; Cornell Clinic Letter; Fallbrook 

Technologies Letter; Heritage Letter; Ladd Letter 2; 

Leading Biosciences Letter; McCarter & English 

Letter; MCS Letter; Milken Institute Letter; MoFo 

Letter; Paul Hastings Letter; Richardson Patel Letter; 

SVB Financial Letter; WR Hambrecht + Co Letter. 

131ABA BLS Letter; Andreessen/Cowen Letter; 

Canaccord Letter; Fallbrook Technologies Letter; 

Heritage Letter; Ladd Letter 2; Leading Biosciences 

Letter; McCarter & English Letter; MCS Letter; MoFo 

Letter; Paul Hastings Letter; Richardson Patel Letter; 

SVB Financial Letter; cf. Cornell Clinic Letter 

(recommending an unspecified higher limit for 

accredited investors); Milken Institute Letter; WR 

Hambrecht + Co Letter (supporting eliminating the 

investment limit generally). 

132Milken Institute Letter. 

133ABA BLS Letter; Canaccord Letter; Milken 

Institute Letter; MoFo Letter; WR Hambrecht + Co 

Letter. Several of these commenters believed that, 

as proposed, the investment limitations would not 

apply to non-natural persons and asked the 

Commission to confirm or clarify this point. 

134Cornell Clinic Letter (creating a separate, 

higher limit for institutional investors and other 

types of non-retail investors included in the 

‘‘accredited investor’’ definition); Heritage Letter 

(eliminating the investment limit for ‘‘any current 

or former investor, employee or officer of the 

issuer’’); Ladd Letter 2 (eliminating the investment 

limit for any non-accredited affiliates, founders, 

employees, agents, independent contractors and 

owners); Milken Institute Letter (eliminating the 

investment limit for investors that purchase Tier 2 

securities on an exchange); Paul Hastings Letter 

(eliminating the investment limit for offerings 

conducted by registered broker-dealers); Richardson 

Patel Letter (eliminating the investment limit for 

any non-individual investor with at least $100,000 

in assets or $100,000 in revenue in the previous 

fiscal year). 

135McCarter & English Letter; Richardson Patel 

Letter. 

136Richardson Patel Letter. 

137Fallbrook Technologies Letter; Heritage Letter; 

IPA Letter; KVCF Letter; Leading Biosciences Letter; 

REISA Letter. 

138REISA Letter. 

139 KVCF Letter. 

140Letter from Paul Sigelman, President & CEO, 

Accredited Assurance, March 24, 2014 (‘‘Accredited 

Assurance Letter’’); CFA Letter; CFA Institute 

Letter; Cornell Clinic Letter; MCS Letter; WDFI 

Letter. 

141Accredited Assurance Letter; WDFI Letter. 

142CFA Institute Letter; MCS Letter. 

143MCS Letter. 

144Cornell Clinic Letter. 

145See Rule 501(a) of Regulation D, 17 CFR 

230.501(a); see also SEC v. Ralston Purina Co., 346 

U.S. 119 (1953). 

146See Rule 252(c)(2). Under Rule 501, natural 

persons are accredited investors if: (i) Their income 

exceeds $200,000 in each of the two most recent 

years (or $300,000 in joint income with a person’s 

spouse), and they reasonably expect to reach the 

same income level in the current year; (ii) they 

serve as executives or directors of the issuer; or (iii) 

their net worth exceeds $1,000,000 (individual or 

jointly with a spouse), excluding the value of their 

primary residence. Certain enumerated entities that 

satisfy an asset-based test also qualify as accredited 

investors, while others, including regulated entities 

such as banks and registered investment companies, 

are not subject to the asset test. See 17 CFR 230.501. 

The accredited investor definition is intended to 

encompass those individuals and entities ‘‘whose 

financial sophistication and ability to sustain the 

risk of loss of investment or ability to fend for 

themselves render the protections of the Securities 

Act’s registration process unnecessary.’’ See, e.g., 

Rel. No. 33–6683 (Jan. 16, 1987) [52 FR 3015] 

(Regulation D Revisions; Exemption for Certain 

Employee Benefit Plans). 

the limit to such types of investors.130

These commenters believed that the 

investor protections afforded by the 

investment limit would not be necessary 

for all types of investors or in all types 

of Regulation A offerings. Some 

commenters recommended eliminating 

the investment limit for accredited 

investors.131 One such commenter 

recommended eliminating the 

investment limit generally and, if not, at 

least for institutional investors and 

offerings of securities listed on 

securities exchanges.132 Several 

commenters recommended eliminating 

the investment limit for non-natural 

persons or institutional investors.133

Other commenters recommended 

eliminating the investment limits for 

other types of investors or offerings.134

Two commenters noted that it would be 

difficult to apply the investment limits 

to non-natural persons (such as small 

businesses and IRAs) if the rules use an 

income or net worth test.135 One of 

these commenters recommended that, if 

the test applies to such investors, it 

should be based on assets or revenue.136

Many commenters explicitly 

supported allowing issuers to rely on an 

investor’s representation of compliance 

with the 10% investment limit.137 Most 

of these commenters stated that any 

more rigorous verification process 

would cause the compliance costs to be 

too high. One commenter recommended 

eliminating any obligation for the issuer 

to monitor the 10% investment limit 

and allowing the issuer to rely on a 

representation by the investor that he or 

she will notify the issuer upon 

exceeding the 10% limit.138 Another 

commenter recommended permitting an 

issuer to rely on representations from its 

underwriters or broker-dealers as to the 

10% investment limit, rather than 

having to seek this directly from 

investors.139 This commenter believed 

that the issuers in most Tier 2 offerings 

would have little direct contact with the 

investors and that the intermediaries 

would be better positioned to assess 

compliance (possibly already having 

information about the investor’s 

finances). 

Several commenters disagreed with 

allowing investors to represent 

compliance with the investment 

limitation and recommended a standard 

that would require an issuer to do more 

to ensure compliance.140 Two 

commenters recommended adopting a 

standard requiring issuers to take 

reasonable steps to verify that the 

purchasers are in compliance with the 

10% investment limit.141 Two 

commenters recommended requiring an 

issuer to have a ‘‘reasonable belief’’ or 

‘‘reasonable basis’’ that it can rely on an 

investor’s representation of compliance 

with the 10% investment limit.142 One 

such commenter also suggested 

allowing accredited investors to exceed 

the 10% investment limit, but requiring 

that the issuer take reasonable steps to 

verify accredited investor status.143 One 

commenter recommended requiring a 

‘‘duty of inquiry’’ so that the issuer 

would have to follow-up on any ‘‘red 

flags.’’ 144 Additionally, this commenter 

recommended that the Commission 

create an independent and secure means 

of verifying investor income or to 

require a mandatory questionnaire for 

individual investors to complete before 

buying a security issued under 

Regulation A. 

c. Final Rules 

We are adopting an investment 

limitation for Tier 2 offerings in the 

final rules, with minor modifications 

from the proposed rules. We believe that 

the investment limitation serves as an 

important investor protection and may 

help to mitigate the risk that with the 

increased annual offering limitation 

provided in Section 3(b)(2) comes a risk 

of commensurately greater investor 

losses. We do not believe that the 

limitation is needed for accredited 

investors because investors that qualify 

as accredited under our rules satisfy 

certain criteria that suggest they are 

capable of protecting themselves in 

transactions that are exempt from 

registration under the Securities Act.145

We also do not believe that the 

limitation is necessary for investments 

in securities that will be listed on a 

national securities exchange upon 

qualification because of the issuer 

listing requirements and the potential 

liquidity that exchanges provide to 

investors that seek to reduce their 

holdings. These both are important 

investor protections that help to 

mitigate concerns about the magnitude 

of loss that could potentially result from 

an investor purchasing a large amount 

of securities in a single offering. 

Under the final rules, the investment 

limitations for purchasers in Tier 2 

offerings will not apply to purchasers 

who qualify as accredited investors 

under Rule 501 of Regulation D.146

Further, investment limitations in a Tier 

2 offering will not apply to the sale of 

securities that will be listed on a 

national securities exchange upon 

qualification since such issuers will be 

required to meet the listing standards of 

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147National securities exchanges impose certain 

requirements on issuers, in addition to those 

generally required by the Commission, in order for 

an issuer’s securities to be approved for listing. See 

discussion of listing requirements for, and 

additional investor protections associated with, 

national securities exchanges in Section II.E.3.c. 

below; see also fns. 721, 722 below. 

148Rule 251(d)(2)(i)(C)(1). 

149Rule 251(d)(2)(i)(C)(2). See Securities Act Rule 

501(a)(5) [17 CFR 230.501(a)(5)] (net worth). 

Consistent with this rule, the calculation of a 

natural person’s net worth for purposes of the 

investment limit excludes the value of the primary 

residence of such person. 

150See note to Rule 251(d)(2)(i). 

151See discussion in Section II.B.3.c. above. 

152See paragraph (a)(5) to Part II of Form 1–A. 

153Rule 251(d)(2)(i)(D). Similarly, issuers may 

also rely on representations of investor compliance 

with the investment limitations from participating 

broker-dealers, unless the issuer knew at the time 

of sale that any such representation was untrue. 

154See Proposing Release, at Section II.B.4. 

155See fn. 140–144 above. 

156See fn. 137 above. 

157For example, the final rules include 

limitations on issuer eligibility, bad actor 

disqualification provisions, a requirement that 

offering statements must be qualified by the 

Commission, narrative and financial disclosure 

requirements, which for Tier 2 offerings must 

include audited financial statements on an initial 

and annual basis, as well as annual, semiannual, 

and current event reporting. 

158See fn. 122 above. 

159See Section 3(b)(2)(D) (expressly providing for 

Section 12(a)(2) liability for any person offering or 

selling Section 3(b)(2) securities); Section 3(b)(2)(F) 

(requiring issuers to file audited financial 

statements with the Commission annually). 160See Section 3(b)(2)(G) (inviting the 

Commission to consider, among other things, 

requiring audited financial statements in the 

offering statement and implementing bad actor 

disqualification provisions); Section 3(b)(4) 

(inviting the Commission to consider implementing 

ongoing reporting requirements). 161As proposed and adopted, an underwriter in 

a firm commitment underwritten Regulation A 

offering, or participating broker-dealer that is 

involved in stabilization activities with respect to 

an offering of Regulation A securities will not be 

considered an investor that is subject to the 

investment limitations. 

162Section 301 of the JOBS Act; see also 

Securities Act Section 4(a)(6), 15 U.S.C. 77d(a)(6). 

163See fn. 134 above. 

a national securities exchange 147 and 

become subject to ongoing Exchange Act 

reporting, resulting in additional 

investor protections. 

In response to questions raised by 

commenters, we are clarifying that nonaccredited, non-natural persons are 

subject to the investment limitation and 

should calculate the limitation based on 

no more than 10% of the greater of the 

purchaser’s revenue or net assets (as of 

the purchaser’s most recent fiscal year 

end).148 Non-accredited, natural persons 

must calculate the investment 

limitations on the basis of 10% of the 

greater of the purchaser’s annual income 

or net worth (determined as provided in 

Rule 501 of Regulation D).149

If the investor is purchasing securities 

that are convertible into, or exercisable 

or exchangeable for, other securities, if 

such securities are exercisable within a 

year or otherwise are being qualified, 

the investment limitation will include 

the aggregate conversion, exercise, or 

exchange price of such securities, in 

addition to the purchase price.150 We 

believe this is an appropriate 

calculation because it is consistent with 

the offering limit calculation for the 

respective tiers 151 and because it 

applies investment limitations to 

reasonably foreseeable investment 

decisions (i.e., those involving securities 

exercisable within a year or otherwise 

qualified by the issuer) while reducing 

the risk that issuers may seek to sell 

large amounts of securities that are 

convertible, exercisable or exchangeable 

into other securities in the near term at 

a low cost in an effort to avoid the 10% 

limitation. 

As proposed, we are adopting final 

rules that require issuers to notify 

investors of the investment 

limitations.152 Issuers may rely on a 

representation of compliance with the 

investment limitation from the investor, 

unless the issuer knew at the time of 

sale that any such representation was 

untrue.153 As we noted in the Proposing 

Release, we are cognizant of the privacy 

issues and practical difficulties 

associated with verifying individual 

income and net worth and, therefore, 

are not requiring investors to disclose 

personal information to issuers in order 

to verify compliance.154

Some commenters suggested requiring 

an issuer to have a reasonable belief that 

it can rely on an investor’s 

representation of compliance with the 

investment limitations or to take 

reasonable steps to verify compliance, 

while other commenters suggested we 

establish consequences for issuers (and 

intermediaries, when applicable) if an 

investor failed to comply with the 

limitations.155 At the same time, many 

commenters supported the proposed 

approach, noting the low compliance 

costs and the certainty it would provide 

issuers and their intermediaries.156 We 

believe that the rules, as adopted, will 

limit potential losses for non-accredited 

investors with respect to individual 

offerings, while providing certainty to, 

and lower compliance costs for, issuers 

and intermediaries. 

We do not believe that additional 

requirements for issuers and their 

intermediaries, such as requiring issuers 

to take reasonable steps to verify an 

investors’ compliance with the 

investment limitations, are necessary to 

protect investors in light of the total 

package of investor protections included 

in the final rules for Tier 2 offerings.157

We believe that additional 

requirements, like the ones suggested by 

some commenters, may have an 

unintended consequence of dissuading 

issuers from selling to non-accredited 

investors in Tier 2 offerings by 

increasing compliance uncertainties and 

obligations. We are therefore not 

adopting any additional compliance 

requirements with respect to investment 

limitations in the final rules. 

While many commenters urged the 

Commission to eliminate or provide less 

restrictive investment limitations in the 

final rules,158 we believe that these 

requirements, as proposed and adopted, 

usefully augment other requirements 

for, and investor protections applicable 

to, Tier 2 offerings. As we noted in the 

Proposing Release, Title IV of the JOBS 

Act mandates certain investor 

protections 159 and suggests that the 

Commission consider others as part of 

its Section 3(b)(2) rulemaking.160

Congress recognized in Section 3(b)(2) 

that investor protections beyond those 

expressly provided in Title IV of the 

JOBS Act may be necessary in the 

revised regulation. To that end, Section 

3(b)(2)(G) indicates that the Commission 

may include in the expanded exemption 

‘‘such other terms, conditions, or 

requirements. . . necessary in the 

public interest and for the protection of 

investors. . . .’’ Limiting the amount of 

securities that a non-accredited investor 

can purchase in a particular Tier 2 

offering (other than a Tier 2 offering of 

securities listed on a national securities 

exchange) should help to mitigate 

concerns that such investors may not be 

able to absorb the potential loss of the 

investment and is consistent with the 

authority granted to the Commission in 

Section 3(b)(2).161 We further believe 

that setting the investment limitation at 

10% of the greater of such investor’s net 

worth/net assets and annual income/

revenue, as opposed to some other 

percentage (e.g., 5% or 20%), is 

generally consistent with similar 

maximum investment limitations placed 

on investors in Title III of the JOBS Act 

and will help to set a loss limitation 

standard in such offerings.162

Despite the suggestions of some 

commenters,163 we do not believe that 

further distinctions as to the 

applicability of investment limitations 

are appropriate among investors that do 

not qualify as accredited investors. On 

the contrary, we believe that the 

regulatory distinctions among 

accredited and non-accredited investors 

and the familiarity many market 

participants have with such terms will 

help to ease compliance with, and 

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21818 Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Rules and Regulations 

164The integration doctrine seeks to prevent an 

issuer from improperly avoiding registration by 

artificially dividing a single offering into multiple 

offerings such that Securities Act exemptions 

would apply to multiple offerings that would not 

be available for the combined offering. 

165See proposed Rule 251(c), which included in 

the safe harbor subsequent offers or sales that are 

registered under the Securities Act, or made 

pursuant to Securities Act Rule 701, an employee 

benefit plan, Regulation S, proposed Regulation 

Crowdfunding (see Rel. No. 33–9470), or more than 

six months after completion of the Regulation A 

offering. 

166Section 4(a)(6) was added to the Securities Act 

by Section 302 of the JOBS Act. 

167QIBs are large institutions meeting specific 

requirements outlined in Rule 144A, or entities the 

seller (or a person acting on its behalf) reasonably 

believes to be QIBs. See Rule 144A, 17 CFR 

230.144A. 

168 15 U.S.C. 77e(d); see also fn. 537 below. 

169Proposed Rule 255(e). 

170 Id. 

171See Proposing Release, Section II.B.5. 

172ABA BLS Letter. 

173CFA Letter. 

174Rule 251(c). 

175See 15 U.S.C.77d(a)(6); see also Rel. No. 33– 

9470. 

176See Ralston Purina Co., 346 U.S. 119. 

177CFA Letter. 

178See Note to Rule 251(c) and Rule 255(e); see 

also Section II.D. below for a discussion on 

solicitation materials. 

179See Revision of Limited Offering Exemptions 

in Regulation D, Release No. 33–8828 (Aug. 3, 2007) 

(expressing the view that the determination as to 

whether the filing of the registration statement 

should be considered to be a general solicitation or 

general advertising that would affect the availability 

of an exemption under Securities Act Section 

4(a)(2) for such a concurrent unregistered offering 

should be based on a consideration of whether the 

investors in the private placement were solicited by 

the registration statement or through some other 

means that would otherwise not foreclose the 

availability of the Section 4(a)(2) exemption). 

determinations about the applicability 

of, the investment limitations and will 

avoid unnecessary complexity 

associated with other, additional 

distinctions. 

5. Integration 

a. Proposed Rules 

We proposed amending Rule 251(c) of 

Regulation A, which governs the 

integration of Regulation A offerings 

with other offerings, to provide that 

offerings under Regulation A would not 

to be integrated with any of the 

following: 164

• Prior offers or sales of securities; or 

• certain specified subsequent offers 

and sales of securities.165

The proposed safe harbor was 

substantially the same as the existing 

integration safe harbor in Rule 251(c), 

with the addition of a separate provision 

for securities-based crowdfunding 

transactions conducted pursuant to 

Section 4(a)(6) of the Securities Act.166

We further proposed to amend Rule 

254(d) to provide that, where an issuer 

decides to register an offering after 

soliciting interest in a contemplated, but 

abandoned, Regulation A offering, any 

offers made pursuant to Regulation A 

would not be subject to integration with 

the registered offering, unless the issuer 

engaged in solicitations of interest in 

reliance on Regulation A to persons 

other than qualified institutional buyers 

(QIBs) 167 and institutional accredited 

investors permitted by Section 5(d) 168

of the Securities Act.169 As proposed, an 

issuer (and any underwriter, broker, 

dealer, or agent that is acting on behalf 

of the issuer in connection with the 

proposed offering) soliciting interest in 

a Regulation A offering to persons other 

than QIBs and institutional accredited 

investors would need to wait at least 30 

calendar days between the last such 

solicitation of interest in the Regulation 

A offering and the filing of the 

registration statement with the 

Commission.170 The Proposing Release 

also provided guidance on the 

applicability of the integration doctrine 

for offerings conducted outside the 

scope of the safe harbor.171

b. Comments on the Proposed Rules 

One commenter specifically 

supported the proposed changes to the 

integration provisions of Regulation 

A.172 Another commenter objected to 

the proposed changes to the integration 

provisions and related guidance.173 This 

commenter cautioned that it would be 

very difficult to police compliance with 

these provisions and suggested that they 

would be used to evade regulatory 

requirements. 

c. Final Rules 

We are adopting, as proposed, an 

integration safe harbor, with one 

clarifying change. Under the final rules, 

offerings pursuant to Regulation A will 

not be integrated with: 

• Prior offers or sales of securities; or 

• subsequent offers and sales of 

securities that are: 

• Registered under the Securities Act, 

except as provided in Rule 255(c); 

• made pursuant to Rule 701 under 

the Securities Act; 

• made pursuant to an employee 

benefit plan; 

• made pursuant to Regulation S; 

• made pursuant to Section 4(a)(6) of 

the Securities Act; or 

• made more than six months after 

completion of the Regulation A 

offering.174

We believe that the integration safe 

harbor has historically provided and, as 

amended, will continue to provide, 

issuers, particularly smaller issuers 

whose capital needs often change, with 

valuable certainty as to the contours of 

a given offering and their eligibility for 

an exemption from Securities Act 

registration. The addition of subsequent 

offers or sales made pursuant to Section 

4(a)(6), which is the only substantive 

change to the existing safe harbor being 

adopted today, should not significantly 

alter the application of the doctrine in 

practice. Given the unique capital 

formation method available to issuers 

and investors through Section 4(a)(6) of 

the Securities Act and the small dollar 

amounts involved, we believe that the 

addition to the safe harbor list of 

subsequent crowdfunding offers and 

sales conducted pursuant to such 

section is appropriate and will not 

unduly increase risks to investors.175 As 

with any exemption from registration, 

the burden of proof of compliance with 

a claimed exemption rests with the 

party claiming it.176 In our view, the 

benefits of providing issuers with 

certainty as to the scope of the 

integration doctrine, particularly for 

Regulation A, outweighs the concern 

expressed by one commenter that 

compliance with the doctrine may be 

difficult to enforce.177 In light of the 

broad permissible target audience of 

Regulation A solicitations, the potential 

for expanded use of solicitation 

materials in Regulation A discussed 

more fully in Section II.D. below, and 

the addition of similar provisions for 

registered offerings under Section 5(d), 

we believe the integration provisions in 

the final rule are necessary to ensure 

that amended Regulation A functions as 

a viable capital raising option for 

issuers. 

We are also clarifying in the final 

rules the scope of the proposed safe 

harbor from integration in instances 

where an issuer abandons a 

contemplated Regulation A offering 

before qualification, but after soliciting 

interest in such offering to persons other 

than QIBs and institutional accredited 

investors. The proposed language could 

be read to imply that issuers must wait 

at least 30 calendar days to avoid 

integration with a subsequent registered 

offering or else be subject to integration. 

The final rules clarify that waiting less 

than 30 calendar days before a 

subsequent registered offering would 

not necessarily result in integration and 

would instead depend on the particular 

facts and circumstances.178

We are also reaffirming the integration 

guidance provided in the Proposing 

Release, which is consistent with 

guidance provided by the Commission 

in a 2007 rule proposal on Regulation 

D.179 As noted in the Proposing Release, 

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Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Rules and Regulations 21819 

180For a concurrent offering under Rule 506(b), 

an issuer will have to conclude that purchasers in 

the Rule 506(b) offering were not solicited by means 

of a Regulation A general solicitation. For example, 

the issuer may have had a preexisting substantive 

relationship with such purchasers. Otherwise, the 

solicitation conducted in connection with the 

Regulation A offering may preclude reliance on 

Rule 506(b). See also Rel. No. 33–8828 (Aug. 3, 

2007) [72 FR 45116]. 

181See discussion in Section II.D. below. 

182 15 U.S.C. 78l(g). 

183B. Riley Letter; CFIRA Letter 1; CFIRA Letter 

2; Fallbrook Technologies Letter; Letter from 

Jonathan Frutkin, Principal, The Frutkin Law Firm, 

PLC, March 24, 2014 (‘‘Frutkin Law Letter’’); Guzik 

Letter 1; Letter from Samuel S Guzik, October 25, 

2014 (‘‘Guzik Letter 2’’); Heritage Letter; IPA Letter; 

Ladd Letter 2; Milken Institute Letter; MoFo Letter; 

SBIA Letter (recommending that the trigger be 

‘‘raised or remedied,’’ but not explicitly calling for 

elimination); US Alliance Corp. Letter; U.S. 

Chamber of Commerce Letter; WR Hambrecht + Co 

Letter. 

184CFIRA Letter 1; Fallbrook Technologies Letter; 

Frutkin Law Letter; Heritage Letter; IPA Letter; 

Milken Institute Letter; MoFo Letter; SBIA Letter; 

U.S. Chamber of Commerce Letter. 

185 Id. 

186 Guzik Letter 1 (noting the statements of other 

commenters); Heritage Letter; Ladd Letter 2 (citing 

discussions with various brokers); MoFo Letter; 

SBIA Letter; WR Hambrecht + Co Letter; see also 

OTC Markets Letter (highlighting difficulties 

associated with issuer securities becoming eligible 

for Depository Trust Company (DTC) services, 

which services typically limit the number of an 

issuer’s record holders thereby minimizing the 

impact of the Section 12(g) mandatory registration 

provisions; further suggesting that companies 

issuing Regulation A securities be required to use 

registered transfer agents). 

187B. Riley Letter; Fallbrook Technologies Letter; 

Milken Institute Letter; MoFo Letter. 

188Ladd Letter 2; WR Hambrecht + Co Letter. 

189Heritage Letter; KVCF Letter; McCarter & 

English Letter; Milken Institute Letter; MoFo Letter; 

Paul Hastings Letter; SBIA Letter. 

190Paul Hastings Letter. 

191McCarter & English Letter (suggesting the 

earliest of: (1) The last day of any fiscal year of the 

issuer during which it had annual gross revenues 

of $250 million; (2) the last day of any fiscal year 

following the fifth anniversary of the date of the 

first sale of equity securities under Regulation A; 

and (3) the date on which the issuer has an 

aggregate worldwide market value of voting and 

non-voting equity held by its non-affiliates of at 

least $75 million computed as of the last business 

day of the issuer’s most recently completed second 

quarter). 

192Milken Institute Letter. 

193ABA BLS Letter (a 24 month phase-in period 

that could expire earlier if the company triggered 

Exchange Act reporting in some other manner); 

MoFo Letter. 

194Heritage Letter. 

195 KVCF Letter; SBIA Letter. 

196MoFo Letter. 

197The determination as to ‘‘current’’ reporting 

status is determined at the time of fiscal year end 

in reference to the filing of all periodic reports, 

including special financial reports, required to be 

filed during such fiscal year. For these purposes, a 

newly qualified issuer that at fiscal year end has not 

yet been obligated to file a periodic report, 

including, if applicable, a special financial report, 

would be considered ‘‘current’’ for these purposes. 

we believe that an offering made in 

reliance on Regulation A should not be 

integrated with another exempt offering 

made by the issuer, provided that each 

offering complies with the requirements 

of the exemption that is being relied 

upon for the particular offering. For 

example, an issuer conducting a 

concurrent exempt offering for which 

general solicitation is not permitted will 

need to be satisfied that purchasers in 

that offering were not solicited by 

means of the offering made in reliance 

on Regulation A, including without 

limitation any ‘‘testing the waters’’ 

communications.180 Alternatively, an 

issuer conducting a concurrent exempt 

offering for which general solicitation is 

permitted, for example, under Rule 

506(c), could not include in any such 

general solicitation an advertisement of 

the terms of a Regulation A offering, 

unless that advertisement also included 

the necessary legends for, and otherwise 

complied with, Regulation A.181

6. Treatment Under Section 12(g) 

a. Proposed Rules 

Exchange Act Section 12(g) requires, 

among other things, that an issuer with 

total assets exceeding $10,000,000 and a 

class of equity securities held of record 

by either 2,000 persons, or 500 persons 

who are not accredited investors, 

register such class of securities with the 

Commission.182 We did not propose to 

exempt Regulation A securities from 

mandatory registration under Section 

12(g), but we solicited comment on 

whether Regulation A securities should 

be granted such an exemption, either 

conditionally or otherwise. 

b. Comments on Proposed Rules 

Commenters generally expressed 

support for some form of exemption 

from the registration requirements 

under Section 12(g). Numerous 

commenters recommended exempting 

Regulation A securities from Section 

12(g).183 Several of these commenters 

expressed concern that the Section 12(g) 

record holder count would decrease the 

utility of the Regulation A exemption by 

incentivizing issuers to sell to 

accredited investors over non-accredited 

investors, likely resulting in issuers 

electing to rely on a potentially less 

costly exemption, such as Rule 506 of 

Regulation D.184 These commenters also 

expressed concern that Section 12(g) 

would decrease the utility of the 

exemption because secondary trading in 

otherwise unrestricted Regulation A 

securities might result in issuers 

inadvertently crossing the Section 12(g) 

registration threshold.185 Other 

commenters questioned the extent to 

which Regulation A securities would be 

held in street name through brokers, 

which the proposal mentions as a factor 

that could potentially limit the impact 

of not proposing an exemption from 

Section 12(g).186 Some commenters 

suggested that the reporting regime 

under Tier 2 would be a sufficient 

means by which issuers could provide 

investors with current information and 

that therefore Exchange Act reporting 

would be unnecessary.187 Two 

commenters believed that the legislative 

history of the JOBS Act supported an 

exemption from Section 12(g).188

Several commenters recommended 

changing, delaying, or conditioning the 

application of Section 12(g)’s 

registration requirements, especially the 

corresponding Section 13 reporting 

obligations that come with 

registration.189 One of these commenters 

recommended delaying the application 

of Exchange Act reporting requirements 

for Tier 2 issuers until the issuer’s nonaffiliate market capitalization reached 

$250 million, so long as the issuer filed 

reports under Regulation A.190 This 

commenter believed that non-affiliate 

market capitalization was a superior 

proxy for market interest than the 

thresholds under Section 12(g) and 

noted that the Commission uses the 

measure in establishing primary S–3 

eligibility. Another commenter 

recommended exempting initial Tier 2 

issuers from all or part of Exchange Act 

reporting obligations until the earliest of 

the occurrence of several events.191 Yet 

another commenter suggested 

exempting Tier 2 issuers from Exchange 

Act reporting until they reach a certain 

unspecified level of revenue or market 

capitalization.192 Two commenters 

recommended deeming Tier 2 issuers’ 

ongoing reports under Regulation A to 

satisfy the issuer’s Exchange Act 

reporting obligations for a phase-in 

period.193 One commenter 

recommended at least allowing for 2,000 

holders of record (whether accredited or 

not) without being subject to Exchange 

Act registration requirements,194 while 

two other commenters suggested 

eliminating the cap of 500 nonaccredited investors.195 One commenter 

conditioned its support for a conditional 

exemption from Section 12(g) on the 

Commission requiring Tier 2 issuers to 

remain current in their ongoing 

Regulation A reporting requirements.196

c. Final Rules 

We are adopting today final rules that 

exempt securities issued in a Tier 2 

offering from the provisions of Section 

12(g) for so long as the issuer remains 

subject to, and is current in (as of its 

fiscal year end),197 its Regulation A 

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21820 Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Rules and Regulations 

198Rule 12g5–1(a)(7). 199 ‘‘Smaller reporting company’’ is defined in 

Securities Act Rule 405, 17 CFR 230.405, Exchange 

Act Rule 12b–2, 17 CFR 240.12b–2, and Item 

10(f)(1) of Regulation S–K, 17 CFR 229.10(f)(1). The 

provision of the smaller reporting company 

definition relating to initial registration statements 

under the Securities Act is not applicable to exempt 

offering pursuant to Regulation A. See Item 

10(f)(1)(a)(ii) of Regulation S–K, 17 CFR 

229.10(f)(a)(ii). The final rules do not therefore 

incorporate this concept for purposes of Rule 12g5– 

1(a)(7). See Rule 12g5–1(a)(7). 

200Consistent with the smaller reporting 

company definition, an issuer will calculate ‘‘public 

float’’ by multiplying the aggregate worldwide 

number of shares of its common equity securities 

held by non-affiliates by the price at which such 

securities were last sold (or the average bid and 

asked prices of such securities) in the principal 

market for such securities. Rule 12g5–1(a)(7). See 

also, e.g., Item 10(f)(1)(i) of Regulation S–K. 

201Rule 12g5–1(a)(7). The Commission adopted 

the smaller reporting company regime in 2007. See 

SEC Rel. No. 33–8876 (Dec. 19, 2007) [73 FR 934]. 

Some commentators, such as the Commission’s 

Advisory Committee on Small and Emerging 

Companies, have suggested that the Commission 

revisit the smaller reporting company regime, 

including the definitional thresholds. 

Recommendations Regarding Disclosure and Other 

Requirements for Smaller Public Companies, 

Securities and Exchange Commission, Advisory 

Committee on Small and Emerging Companies 

(February 1, 2013), at 2–3, available at: http://

www.sec.gov/info/smallbus/acsec/acsecrecommendation-032113-smaller-public-co-ltr.pdf. 

Although the Commission has not yet responded to 

this recommendation, in considering any potential 

changes to the smaller reporting company regime, 

we would expect to consider whether 

corresponding changes to the thresholds included 

in Rule 12g5–1(a)(7) should also be made, taking 

into account how the Regulation A regime is 

working. 

202 Id. 

203 15 U.S.C. 78l(g). 

204 Id. See Section II.E.4.b(2). below for a 

discussion on suspension or termination of the duty 

to file ongoing reports pursuant to Rule 257. 

205See fn. 726 below and accompanying text. 

206Section 12(g) was originally enacted by 

Congress as a way to ensure that investors in overthe-counter securities about which there was little 

or no information, but which had a significant 

shareholder base, were provided with ongoing 

information about their investment. See, generally, 

Report of the Special Study of Securities Markets 

of the Securities and Exchange Commission, House 

Document No. 95, House Committee on Interstate 

and Foreign Commerce, 88th Cong., 1st Sess. 

(1963), at 60–62. 

207See, e.g., H.R. Rep. No. 112–206 (2011), at 4 

(‘‘Small companies are critical to economic growth 

in the United States. Amending Regulation A to 

make it viable for small companies to access capital 

will permit greater investment in these companies, 

resulting in economic growth and jobs.’’). 

208See Rule 257. 

209 15 U.S.C. 77c(b)(2)(G)(i). 

periodic reporting obligations.198

Additionally, in order for the 

conditional exemption to apply, issuers 

are required to engage the services of a 

transfer agent registered with the 

Commission pursuant to Section 17A of 

the Exchange Act. The final rules also 

provide that the exemption from Section 

12(g) is only available to companies that 

meet requirements similar to those in 

the ‘‘smaller reporting company’’ 

definition under Securities Act and 

Exchange Act rules.199 As such, the 

conditional exemption in the final rules 

is limited to issuers that have a public 

float of less than $75 million, 

determined as of the last business day 

of its most recently completed 

semiannual period,200 or, in the absence 

of a public float, annual revenues of less 

than $50 million, as of the most recently 

completed fiscal year.201 An issuer that 

exceeds either of the thresholds, in 

addition to exceeding the threshold in 

Section 12(g) of the Exchange Act, 

would be granted a two-year transition 

period before it would be required to 

register its class of securities pursuant to 

Section 12(g), provided it timely files all 

ongoing reports due pursuant to Rule 

257 during such period.202 Section 12(g) 

registration will only be required if, on 

the last day of the fiscal year in which 

the company exceeded the public float 

or annual revenue threshold, the 

company has total assets of more than 

$10 million and the class of equity 

securities is held by more than 2,000 

persons or 500 persons who are not 

accredited investors.203 In such 

circumstances, an issuer that exceeds 

the thresholds in Section 12(g) and Rule 

12g5–1(a)(7) would be required to begin 

reporting under the Exchange Act the 

fiscal year immediately following the 

end of the two-year transition period.204

An issuer entering Exchange Act 

reporting will be considered an 

‘‘emerging growth company’’ to the 

extent the issuer otherwise qualifies for 

such status.205

In determining to provide a 

conditional exemption from the 

provisions of Section 12(g), we have 

considered a number of factors. First, 

we believe the conditional exemption 

we are adopting today is consistent with 

the intent behind the original enactment 

of Section 12(g) to the extent it ensures 

that relevant information about issuers 

will be made routinely available to 

investors and the marketplace.206

Second, we believe the additional 

requirement that Regulation A issuers 

use a registered transfer agent will 

provide an important investor 

protection in this context. The use of a 

transfer agent registered under the 

Exchange Act, which, in the absence of 

a conditional exemption from the 

provisions of Section 12(g), would be 

required of issuers when they register 

under the Exchange Act, will provide 

added comfort that securityholder 

records and secondary trades will be 

handled accurately. Third, we believe 

that phasing out the exemption once 

companies grow and expand their 

shareholder base is consistent with the 

intent behind Title IV of the JOBS Act, 

which was enacted to facilitate smaller 

company capital formation.207 Finally, 

we are concerned that, as commenters 

suggested, the lack of an exemption 

from mandatory registration under the 

Exchange Act may undermine the utility 

of amended Regulation A either by 

discouraging use of the exemption 

altogether or by dissuading issuers from 

making sales to non-accredited investors 

in Regulation A offerings in an effort to 

avoid the application of Section 12(g). 

While we believe, as we noted in the 

Proposing Release, that the Section 12(g) 

record holder threshold continues to 

provide an important baseline above 

which issuers should generally be 

subject to the disclosure obligations of 

the Exchange Act, we are persuaded that 

this need not be the case where an 

issuer is a smaller company that is 

subject to, and current in, its periodic 

reporting obligations under Tier 2 of 

Regulation A and engages the services of 

a transfer agent that is registered with 

the Commission under the Exchange 

Act. Regulation A, as amended in the 

final rules, requires issuers that conduct 

Tier 2 offerings to provide periodic 

disclosure to their investors and updates 

for certain important corporate 

events.208 While such reports provide 

less information than is required of an 

Exchange Act reporting company, we 

believe a conditional exemption from 

registration under Section 12(g) is 

warranted for smaller Tier 2 issuers 

since such companies are required to 

provide investors with ongoing 

information about themselves and the 

securities offered, and the ongoing 

reporting regime we are adopting today 

is more appropriately tailored for such 

companies. Additionally, in order to 

address situations where an issuer that 

conducts a Tier 2 offering could remain 

subject to its ongoing reporting 

requirements indefinitely and thereby 

avoid having to comply with Exchange 

Act reporting requirements regardless of 

the size of its shareholder base, we note 

that the exemption from Section 12(g) is 

conditional and that an issuer that does 

not meet its conditions, including the 

limitation on public float and annual 

revenues, will be required to register 

under the Exchange Act. 

C. Offering Statement 

Section 3(b)(2)(G)(i) gives the 

Commission discretion to require an 

offering statement in such form and 

with such content as it determines 

necessary in the public interest and for 

the protection of investors.209 The 

provision permits electronic filing of 

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Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Rules and Regulations 21821 

210See proposed Rule 252(e). 

211See Proposing Release, at Section II.C.1. 

212 Id. 

213 Id. 

214See proposed Rule 254(a). 

215As proposed, a dealer would generally be 

required to deliver a copy of the current offering 

circular to purchasers for all sales that occur within 

90 calendar days after qualification, although this 

requirement would be satisfied when the final 

offering circular is filed and available on EDGAR 

and the dealer has otherwise complied with the 

obligation to deliver a notice of sales to the 

purchaser not later than two business days after 

completion of such sale. See proposed Rules 

251(d)(2)(ii)–(iii). 

216See Proposing Release, at Section II.C.1. 

217See proposed Rule 251(d)(2)(iii). 

218 17 CFR 230.251(d)(2)(i) (2014). 

219See proposed Rule 251(d)(2)(i). 

220See proposed Rule 251(d)(1)(iii). 

221 17 CFR 230.173. 

222See proposed Rule 251(d)(2)(ii). 

223 In the case of an electronic-only offering, the 

notice must include an active hyperlink to the final 

offering circular or to the offering statement of 

which such final offering circular is part. 

224See proposed Rule 251(d)(2)(ii). 

225See Securities Act Rule 477, 17 CFR 230.477, 

and Rule 479, 17 CFR 230.479. 

226See MCS Letter; OTC Markets Letter. 

227Paul Hastings Letter. 

228Massachusetts Letter 2; NASAA Letter 2; 

WDFI Letter. 

offering statements, and provides a nonexhaustive list of potential content that 

may be required in the offering 

statement, including audited financial 

statements, a description of the issuer’s 

business operations, financial condition, 

corporate governance principles, use of 

investor funds, and other appropriate 

matters. 

1. Electronic Filing; Delivery 

Requirements 

a. Proposed Rules 

Consistent with the language of 

Section 3(b)(2)(G)(i), we proposed to 

require Regulation A offering statements 

to be filed with the Commission 

electronically on EDGAR.210 We further 

proposed to amend Form 1–A, but to 

continue to have the form consist of 

three parts: 

• Part I: An eXtensible Markup 

Language (XML) based fillable form; 

• Part II: A text file attachment 

containing the body of the disclosure 

document and financial statements; and 

• Part III: Text file attachments, 

containing the signatures, exhibits 

index, and the exhibits to the offering 

statement.211

We further proposed to require all 

other documents required to be 

submitted or filed with the Commission 

in conjunction with a Regulation A 

offering, such as ongoing reports, to be 

submitted or filed electronically on 

EDGAR.212

Additionally, we proposed an access 

equals delivery model for Regulation A 

final offering circulars.213 Under the 

proposed rules, issuers would be 

required to include a notice in any 

preliminary offering circular used that 

would inform potential investors that 

the issuer may satisfy its delivery 

obligations for the final offering circular 

electronically.214 As with registered 

offerings, we also proposed aftermarket 

delivery obligations for dealers that 

would be satisfied if the final offering 

circular is filed and available on EDGAR 

and the appropriate notice was given by 

the dealer.215

Consistent with prior Commission 

releases on the use of electronic media 

for delivery purposes, we proposed that 

‘‘electronic-only’’ offerings of 

Regulation A securities would not be 

prohibited, but an issuer and its 

participating intermediaries would have 

to obtain the consent of investors to the 

electronic delivery of: 

• The preliminary offering circular 

and other information, but not the final 

offering circular, in instances where, 

upon qualification, the issuer plans to 

sell Regulation A securities based on 

offers made using a preliminary offering 

circular; and 

• all documents and information, 

including the final offering circular, 

when the issuer sells Regulation A 

securities based on offers conducted 

during the post-qualification period 

using a final offering circular.216

We further proposed to maintain the 

existing requirements in Regulation A, 

which require dealers to deliver a copy 

of the current offering circular to 

purchasers for sales that take place 

within 90 calendar days after 

qualification.217 We proposed to update 

and amend Rule 251(d)(2)(i) 218 to 

require issuers and participating brokerdealers to deliver only a preliminary 

offering circular to prospective 

purchasers 219 at least 48 hours in 

advance of sale when a preliminary 

offering circular is used during the 

prequalification period to offer such 

securities to potential investors. We also 

proposed to continue to require a final 

offering circular to accompany or 

precede any written communication 

that constitutes an offer in the postqualification period.220

In addition to the revised delivery 

requirements discussed above, we 

proposed to add a provision analogous 

to Rule 173,221 which would require 

issuers, underwriters, and dealers, not 

later than two business days after 

completion of a sale, to provide 

purchasers with a copy of the final 

offering circular or a notice stating that 

the sale occurred pursuant to a qualified 

offering statement.222 As proposed, the 

notice must include the Web site 

address 223 where the final offering 

circular, or the offering statement of 

which such final offering circular is 

part, may be obtained on EDGAR and 

contact information sufficient to notify 

a purchaser how it may request and 

receive a final offering circular from the 

issuer.224

We further proposed to allow an 

issuer to withdraw an offering 

statement, with the Commission’s 

consent, if none of the securities that are 

the subject of such offering statement 

has been sold and such offering 

statement is not the subject of a 

Commission order temporarily 

suspending a Regulation A exemption. 

Under the proposed rules, the 

Commission also would be able to 

declare an offering statement abandoned 

if the offering statement has been on file 

with the Commission for nine months 

without amendment and has not 

become qualified. These withdrawal 

and abandonment procedures are 

similar to the ones that apply to 

registration statements under the 

Securities Act.225

b. Comments on the Proposed Rules 

No commenters opposed the proposed 

requirement that issuers be required to 

file offering statements and related 

material electronically with the 

Commission on EDGAR, while two 

commenters expressly supported such a 

requirement.226 One commenter 

recommended only requiring 

preliminary or final offering circular 

delivery 48 hours in advance of sale for 

initial public offerings and not for 

offerings by issuers that are already 

subject to Tier 2 ongoing reporting 

requirements.227 This commenter also 

recommended eliminating dealer 

offering circular delivery requirements 

for Tier 2 issuers that are subject to 

ongoing reporting. 

A few commenters opposed an access 

equals delivery model of final offering 

circular delivery.228 These commenters 

raised concerns about the perceived 

challenge of finding these materials on 

EDGAR and not requiring delivery 48 

hours in advance of sale in all 

circumstances. 

One commenter recommended, in 

addition to requiring electronic filing on 

EDGAR, requiring issuers to maintain a 

corporate Web site where the public 

may access copies of all nonconfidential filings in a timely manner 

so that investors not familiar with 

EDGAR may access the most complete 

information provided to the 

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21822 Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Rules and Regulations 

229Ladd Letter 2. 

230Frutkin Law Letter; Heritage Letter (suggesting 

that the review time needs to be reduced by twothirds); Letter from Gregory S. Fryer, Esq., Partner, 

Verrill Dana LLP, February 28, 2014 (‘‘Verrill Dana 

Letter 1’’) (recommending providing guidance to 

issuers, staff training, and more discretion to the 

staff to make materiality determinations and to 

work informally with issuers); Letter from Ted J. 

Coombs, Chief Technology Officer, Workers On 

Call, March 24, 2014 (‘‘WOC Letter’’). 

231 In conjunction with the adoption of final rules 

for electronic filing and delivery, we are making 

clarifying revisions to the proposed rules that 

renumber some of the proposed provisions in the 

final rules. See, e.g., Rule 251(e), (f) (originally 

proposed Rules 252(c), (e), respectively). 

232See Rule 101(a)(vii), (xvii) of Regulation S–T, 

17 CFR 232.101(a)(xvii); see also Rule 251(f). As 

proposed, and in conjunction with this change, 

Item 101(c)(6) of Regulation S–T (17 CFR 

232.101(c)(6)) is revised so that it no longer 

prohibits electronic submission of filings related to 

Regulation A offerings. 

233Part I (Notification) of Form 1–A. As discussed 

more fully in Section II.C.3.a. below, the cover page 

and Part I of current Form 1–A would be converted 

into, and form the basis of, the XML-based fillable 

form. 

234Part II (Offering Circular) of Form 1–A. See 

discussion in Section II.C.3.b. below. 

235Part III (Exhibits) of Form 1–A. See discussion 

in Section II.C.3.c. below. 

236For a discussion on the ongoing reporting 

requirements, see Section II.E. below. 

237 Investors would not, however, have immediate 

access to non-public submissions of draft offering 

statements. See discussion in Section II.C.2. below. 

238The specific disclosure requirements included 

in the XML-based fillable form are discussed more 

fully in Section II.C.3.a. below. 

239See Section III. below. 

240See Securities Offering Reform, Rel. No. 33– 

8591. 

241See fn. 228 above. 

242See Rule 251(d)(2), Rule 254(a), and Rule 

255(b) and (d). 

Commission.229 In addition to suggested 

changes to the filing process itself, 

several commenters encouraged the 

Commission to find ways to reduce the 

staff’s review time for offering 

statements.230

c. Final Rules 

(1) Filing Requirements 

We are adopting provisions for 

electronic filing and delivery 

requirements in the final rules for 

Regulation A substantially as 

proposed.231 We agree with commenters 

that support requiring electronic filing 

of offering and related materials and 

believe that this requirement will 

ultimately benefit issuers and investors 

by streamlining the offering process. As 

adopted, issuers must file their 

Regulation A offering statements with 

the Commission electronically on 

EDGAR.232 Further, as proposed, we are 

amending Form 1–A to consist of the 

following three parts: 

• Part I: An eXtensible Markup 

Language (XML) based fillable form, 

which captures key information about 

the issuer and its offering using an easy 

to complete online form, similar to 

Form D, with drop-down menus, 

indicator boxes or buttons, and text 

boxes, and assists issuers in determining 

their ability to rely on the exemption. 

The XML-based fillable form will 

provide a convenient means of 

assembling and transmitting 

information to EDGAR, without 

requiring the issuer to purchase or 

maintain additional software or 

technology; 233

• Part II: A text file attachment 

containing the body of the disclosure 

document and financial statements, 

formatted in HyperText Markup 

Language (HTML) or American 

Standard Code for Information 

Interchange (ASCII) to be compatible 

with the EDGAR filing system; 234 and 

• Part III: Text file attachments, 

containing the signatures, exhibits 

index, and the exhibits to the offering 

statement, formatted in HTML or ASCII 

to be compatible with the EDGAR filing 

system.235

As proposed and adopted, all other 

documents required to be submitted or 

filed with the Commission in 

conjunction with a Regulation A 

offering, such as ongoing reports, must 

generally be submitted or filed 

electronically on EDGAR.236 As 

materials will be available on EDGAR, 

we do not see a need to separately 

require issuers to maintain a corporate 

Web site where the public may access 

all non-confidential filings. Issuers may, 

however, elect to provide the filings on 

their Web site or to their EDGAR filing 

page. Consistent with current 

Regulation A, there are no filing fees 

associated with the Regulation A filing 

and qualification process. 

We believe the approach to electronic 

filing adopted today will be both 

practical and useful for issuers of 

Regulation A securities, investors in 

such securities, and other market 

participants. Issuers will be able to 

maintain better control over their filing 

process, reduce the printing costs 

associated with filings, obtain 

immediate confirmation of acceptance 

of an offering statement, and ultimately 

save time in the qualification process. 

Investors will gain real-time access to 

the information contained in Regulation 

A filings.237 We anticipate that the 

efficiency of the Regulation A market 

should improve with the increased 

accessibility of information about 

Regulation A issuers and offerings. 

Additionally, as with registered 

offerings, electronic filing on EDGAR 

will allow for more efficient storing, 

processing, and disseminating of 

Regulation A filings than paper filings, 

which should improve the efficiency of 

the staff review and qualification 

processes. 

Electronic filing also will facilitate the 

capture of important financial and other 

information about Regulation A issuers 

and offerings that will enable the 

Commission and market participants to 

analyze any market that develops in 

Regulation A securities, including, for 

example, information about issuer size, 

issuer location, key financial metrics, 

summary information about securities 

offered and offering amounts, the 

jurisdictions in which offerings take 

place, and expenses associated with 

Regulation A offerings.238

We appreciate that requiring EDGAR 

filing will impose some new costs on 

issuers, as addressed more fully in the 

Economic Analysis section of the 

release.239 We do not, however, believe 

that the incremental cost associated 

with the EDGAR filing requirements 

justifies maintaining a paper-only filing 

requirement. On the contrary, we 

believe that the potential additional cost 

to issuers associated with the EDGAR 

filing requirement should be minimal 

and electronic filing on EDGAR would 

eliminate any processing delays and 

costs otherwise associated with the 

current paper filing system, such as 

printing or mailing costs. 

(2) Delivery Requirements 

We are adopting, as proposed, an 

access equals delivery model for 

Regulation A final offering circulars 

when sales are made on the basis of 

offers conducted during the 

prequalification period and the final 

offering circular is filed and available on 

EDGAR. The expanded use of the 

Internet and continuing technological 

developments suggest that we should 

update the final offering circular 

delivery method for Regulation A in a 

manner that is consistent with similar 

updates to delivery requirements for 

registered offerings.240 Contrary to the 

views of some commenters,241 we do 

not believe that access to EDGAR 

generally has proven to be a challenge 

for investors in registered offerings since 

the adoption of the Securities Offering 

Reform Release in 2005. We also do not 

believe that it will be a challenge for 

investors under Regulation A or raise 

investor protection concerns, 

particularly in light of our final delivery 

requirements (including, where 

applicable, the inclusion of hyperlinks 

to offering materials on EDGAR that 

must be provided to investors by issuers 

and intermediaries).242 Therefore, where 

sales of Regulation A securities occur 

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Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Rules and Regulations 21823 

243Cf. Rel. No. 33–8591, at 244. 

244See Rule 254(a). 

245An electronic-only offering is an offering in 

which investors are permitted to participate only if 

they agree to accept the electronic delivery of all 

documents and other information in connection 

with the offering. See Rel. No. 34–37182 (May 9, 

1996) [61 FR 24644] (Use of Electronic Media by 

Broker-Dealers, Transfer Agents and Investment 

Advisers for Delivery of Information), Rel. No. 34– 

42728 (Apr. 28, 2000) [65 FR 25843] (Use of 

Electronic Media), and Rel. No. 33–7233 (Oct. 6, 

1995) [60 FR 53458] (Use of Electronic Media for 

Delivery Purposes). 

246See Proposing Release, at Section II.C.1. 

247See Rule 251(d)(2)(ii). Notwithstanding the 

final delivery requirements, broker-dealers remain 

subject to the anti-fraud provisions of Section 15 of 

the Exchange Act. 

248While we have made clarifying revisions to 

proposed Rule 251(d)(2)(iii) and renumbered it as 

Rule 251(d)(2)(ii), the final rule is consistent with 

Rule 174, as there is no need for an analog to Rule 

174(g), which covers the dealer delivery obligations 

in registered offerings by blank check companies 

under Rule 174(g). Blank check companies are 

ineligible issuers under Regulation A. See Rule 

251(b). 

249See proposed Rule 251(d)(2)(iii). 

250Paul Hastings Letter. 

251See 17 CFR 230.174(b), (d). 

252Rule 251(d)(2)(ii)(D); see also Securities Act 

Rule 174(b). 

253Rule 251(d)(2)(ii)(C); see also Securities Act 

Rule 174(d). 

254See Proposing Release, at Section II.C.1. 

255See Securities Offering Reform, Rel. No. 33– 

8591, at 245 (noting that access equals delivery is 

not appropriate for preliminary prospectus delivery 

obligations in IPOs because it is important for 

potential investors to be sent the preliminary 

prospectus). 

256Prospective purchasers include any person 

that has indicated an interest in purchasing the 

Regulation A securities before qualification, 

including, but not limited to, those investors that 

respond to an issuer’s solicitation materials. See 

Rule 251(d)(2)(i). 

257 In accordance with time of sale provisions 

discussed in Securities Offering Reform, see Rel. 

No. 33–8591, at p. 173 et seq., the final rules 

provide that the 48-hour delivery obligation must 

be made in advance of ‘‘sale’’ rather than the 

‘‘mailing of the confirmation of sale.’’ See also 

Section II.D. below for a discussion of the delivery 

requirements for solicitation materials used after 

publicly filing the offering statement. 

after qualification on the basis of offers 

made using a preliminary offering 

circular, issuers and intermediaries can 

presume that investors have access to 

the Internet and may satisfy their 

delivery requirements for the final 

offering circular by filing it on 

EDGAR.243 Issuers are, however, 

required to include a notice in any 

preliminary offering circular that will 

inform potential investors that the 

issuer may satisfy its delivery 

obligations for the final offering circular 

electronically.244

Further, as proposed, ‘‘electroniconly’’ offerings of Regulation A 

securities will be permitted under the 

final rules, provided that issuers and 

intermediaries comply with relevant 

Commission guidance.245 Specifically, 

in such offerings, an issuer and its 

participating intermediaries must obtain 

the consent of investors to, or otherwise 

be able to evidence the receipt of, the 

electronic delivery of: 

• The preliminary offering circular 

and information other than the final 

offering circular, in instances where the 

issuer sells Regulation A securities 

based on offers made using a 

preliminary offering circular; and 

• all documents and information, 

including the final offering circular, 

when the issuer sells Regulation A 

securities based on offers made during 

the post-qualification period using a 

final offering circular. 

As we noted in the Proposing Release, 

in light of the proposed requirements for 

electronic delivery and in order to be 

consistent with requirements for 

registered offerings, we believe it 

appropriate to permit dealers, during 

the aftermarket delivery period, to be 

deemed to satisfy their final offering 

circular delivery requirements if such 

document is filed and available on 

EDGAR.246 We are amending Rule 

251(d)(2)(ii) of existing Regulation A to 

make clear that dealers, like issuers and 

intermediaries, can also rely on the 

provisions for access equals delivery.247

Additionally, the amendment clarifies 

that a dealer can rely on access equals 

delivery for a final offering circular 

provided it complies with the 

requirements of Rule 251(d)(2)(ii). This 

clarifying amendment is necessary to 

avoid any confusion that the final rules 

could be read to impose a double 

delivery requirement on dealers during 

the aftermarket delivery period. 

Separately, we are modifying the 

terms of Rule 251(d)(2)(ii) to make it 

more consistent with the dealer delivery 

requirements for registered offerings 

under Securities Act Rule 174.248 As 

proposed, the rules would have required 

dealers in all circumstances to deliver a 

copy of the current offering circular to 

purchasers for sales that take place 

within 90 calendar days after 

qualification.249 Consistent with the 

suggestion of one commenter,250 we are 

revising the proposed rules to more 

closely align the Regulation A delivery 

requirements with those required in 

Securities Act Rules 174(b) and (d).251

We, therefore, are adopting the 

proposed 90 calendar day dealer 

delivery requirement, but eliminating 

the dealer delivery requirement when 

the issuer is subject immediately prior 

to filing the offering statement to Tier 2 

ongoing reporting 252 and reducing the 

length of the delivery requirement to 25 

calendar days after the later of the 

qualification date of the offering 

statement or the first bona fide offering 

of securities if the securities will be 

listed on a national securities 

exchange.253 As adopted, the final rules 

reduce dealer aftermarket delivery 

requirements, which should aid dealers 

in compliance with the final rules. 

The final rules also update and amend 

Rule 251(d)(2)(i) to align with changes 

in the prospectus delivery requirements 

for registered offerings that have 

occurred since these requirements were 

last updated in Regulation A.254 We 

believe the delivery of the preliminary 

offering circular to potential investors 

before they make an investment 

decision on the basis of information 

provided during the prequalification 

period remains an important investor 

protection that the final rules should 

preserve, particularly in light of the 

proposed expanded use of ‘‘testing the 

waters’’ solicitation materials to include 

the period of time after non-public 

submission or filing of the offering 

statement, as discussed further in 

Section II.D. below.255 We also 

recognize that updating and amending 

Regulation A’s offering circular delivery 

requirements will likely benefit market 

participants by minimizing 

discrepancies between the requirements 

of broker-dealers in Regulation A and 

registered offerings. 

We therefore are amending, as 

proposed, Rule 251(d)(2)(i) to require 

issuers and participating broker-dealers 

to deliver only a preliminary offering 

circular to prospective purchasers 256 at 

least 48 hours in advance of sale only 

when a preliminary offering circular is 

used during the prequalification period 

to offer such securities to potential 

investors.257 To make the final rules 

more consistent with the requirements 

of Exchange Act Rule 15c2–8(b) for 

issuers who already provide continuous, 

ongoing information to investors and 

the market, the final rules do not require 

an issuer or its intermediaries to deliver 

a preliminary offering circular at least 

48 hours in advance of sale where the 

issuer is already subject to a Tier 2 

reporting obligation. In such instances, 

however, the issuer and its 

intermediaries will otherwise remain 

subject to the general delivery 

requirements of the rules, including 

compliance with the requirements for 

making offers pursuant to Rule 251(d)(1) 

and for including a preliminary offering 

circular in any solicitation materials 

used after filing the offering statement 

with the Commission pursuant to Rule 

255. As proposed and adopted, the 

delivery requirements under the final 

rules apply to both issuers and 

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21824 Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Rules and Regulations 

258 Issuers may rely on reasonable assurances of 

delivery from participating broker-dealers to satisfy 

their delivery obligations. 259See also 17 CFR 230.460 (Distribution of 

Preliminary Prospectus in Registered Offerings). 

Additionally, with continued improvements in 

information and communication technologies, we 

believe direct public offerings (i.e., offerings 

conducted by an issuer without the involvement of 

an underwriter) may become a more attractive 

option for certain issuers. For that reason, it is 

important that the advance preliminary offering 

circular delivery requirements for participating 

broker-dealers apply equally to issuers. 

260See Rule 251(d)(1)(iii). For written 

confirmations and notices of allocation in the postqualification period, issuers and intermediaries may 

rely on the EDGAR filing of the final offering 

circular to satisfy any delivery requirements that 

may apply under Rule 251(d)(1)(iii). This approach 

is consistent with Rule 172(a) in the context of 

registered offerings. For a discussion of Rule 172(a), 

see Securities Offering Reform, Rel. No. 33–8591, at 

251. 

261 17 CFR 230.173. 

262See Rule 251(d)(2)(ii). 

263As proposed, the final rules make clear that, 

in the case of an electronic-only offering, the notice 

must include an active hyperlink to the final 

offering circular or to the offering statement of 

which such final offering circular is part. See Rule 

251(d)(2)(ii)(E). 

264See Rule 259(a). As discussed in Section 

II.C.5. below in the context of qualification, we are 

amending the delegated authority of the director of 

the Division of Corporation Finance to permit the 

Division to consent to the withdrawal of an offering 

statement or to declare an offering statement 

abandoned, as opposed to requiring the 

Commission to issue an order. Rule 30–1(b)(3), 17 

CFR 200.30–1(b)(3). 

265See Rule 259(b). 

266Under Section 2(a)(19) of the Securities Act, 

an ‘‘emerging growth company’’ is defined as, 

among other things, an issuer that had total annual 

gross revenues of less than $1 billion during its 

most recently completed fiscal year. 15 U.S.C. 

77b(a)(19). 

267Under Section 6(e)(2) of the Securities Act, 

confidential submissions of draft registration 

statements by emerging growth companies are 

protected from compelled disclosure under the 

Freedom of Information Act (FOIA) (5 U.S.C. 552). 

There is no similar provision under Section 3(b) of 

the Securities Act. 

268See proposed Rule 252(f); see also Proposing 

Release, at fn. 212. 

269See proposed Rule 252(f). 

270BIO Letter; McCarter & English Letter; Paul 

Hastings Letter; Richardson Patel Letter. 

271 Verrill Dana Letter 1. 

272McCarter & English Letter. The Proposing 

Release indicated that issuers seeking to nonpublicly submit offering statements should submit 

such statements under cover of the Commission’s 

Rule 83, 17 CFR 200.83, which deals with 

confidential treatment requests. 

273Milken Institute Letter (recommending that 

the Commission seek Congressional authority, if 

necessary, to protect these submissions from 

requests under the FOIA. 

274See Rule 252(d). 

participating broker-dealers.258 We 

believe these delivery requirements are 

an important investor protection that 

should apply to issuers in advance of 

sale, in addition to their intermediaries, 

and is consistent with current 

Regulation A.259 We are also adopting, 

as proposed, the requirement that a final 

offering circular must accompany or 

precede any written communications 

that constitute offers in the postqualification period.260

In addition to the revised delivery 

requirements discussed above, we are 

adopting, as proposed, final rules 

analogous to Securities Act Rule 173.261

Rule 251(d)(2)(ii) requires issuers and 

participating broker-dealers, not later 

than two business days after completion 

of the sale, to provide the purchaser 

with a copy of the final offering circular 

or a notice stating that the sale occurred 

pursuant to a qualified offering 

statement.262 The notice must include 

the URL 263 where the final offering 

circular, or the offering statement of 

which such final offering circular is 

part, may be obtained on EDGAR and 

contact information sufficient to notify 

a purchaser where a request for a final 

offering circular can be sent and 

received in response. 

(3) Withdrawal of an Offering Statement 

The final rules will, as proposed, 

permit an issuer to withdraw an offering 

statement, with the Commission’s 

consent, if none of the securities that are 

the subject of such offering statement 

have been sold and such offering 

statement is not the subject of a 

Commission order temporarily 

suspending a Regulation A 

exemption.264 The final rules also 

permit, as proposed, the Commission to 

declare an offering statement abandoned 

if the offering statement has been on file 

with the Commission for nine months 

without amendment and has not 

become qualified.265 These withdrawal 

and abandonment procedures are 

similar to the ones that apply to issuers 

in registered offerings. 

2. Non-Public Submission of Draft 

Offering Statements 

a. Proposed Rules 

We proposed to allow the non-public 

submission of draft offering statements 

by issuers of Regulation A securities. As 

we noted in the Proposing Release, such 

submissions would not be subject to the 

statutorily-mandated confidentiality of 

draft initial public offering (IPO) 

registration statements confidentially 

submitted by ‘‘emerging growth 

companies’’ 266 under Title I of the JOBS 

Act.267 Instead, where an issuer seeks to 

non-publicly submit a draft offering 

statement, the proposal indicated it 

could do so in compliance with the 

Commission’s Rule 83.268 We also 

sought comment on whether we should 

instead adopt a new rule relating to 

confidential treatment of draft offering 

statements in Regulation A. 

Under the proposed rules, issuers 

whose securities have not been 

previously sold pursuant to a qualified 

offering statement under Regulation A 

or an effective registration statement 

under the Securities Act would be 

permitted to submit to the Commission 

a draft offering statement for non-public 

review. As with the confidential 

submission of draft registration 

statements by emerging growth 

companies, all non-public submissions 

of draft offering statements would be 

submitted via EDGAR. The initial nonpublic submission, all non-public 

amendments thereto, and 

correspondence with Commission staff 

regarding such submissions would be 

required to be publicly filed and 

available on EDGAR as exhibits to the 

offering statement not less than 21 

calendar days before qualification of the 

offering statement.269 Unlike emerging 

growth companies in registered 

offerings, which must publicly file any 

confidential submissions not later than 

21 calendar days before a road show, the 

timing requirements for filing by issuers 

seeking qualification under Regulation 

A would not depend on whether or not 

the issuer conducts a road show. 

b. Comments on Proposed Rules 

Commenters were generally 

supportive of the proposed non-public 

submission process for Regulation A 

offerings.270 One commenter 

recommended keeping all filings 

confidential other than the final 

qualified version and possibly any 

interim version actually used in 

conjunction with solicitation 

materials.271 Another commenter 

recommended requiring the inclusion of 

a legend on non-public offering 

statements so that the confidentiality of 

such submissions would be automatic, 

without the need for a separate 

confidentiality request,272 while another 

commenter recommended treating the 

proposed non-public submissions the 

same way that draft registration 

statements are treated under Title I of 

the JOBS Act.273

c. Final Rules 

We are adopting rules that will, as 

proposed, provide for the submission of 

non-public draft offering statements 

under Regulation A.274 In a change from 

the proposal, however, the final rules do 

not require an issuer seeking non-public 

staff review of its draft offering 

statement to submit such draft pursuant 

to the Commission’s Rule 83. Instead, 

all such draft offering statements under 

Rule 252(a) shall receive non-public 

review. The final rules only permit 

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Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Rules and Regulations 21825 

275 Verrill Dana Letter 1. 

276See discussion in Section II.H. below. 

277Notwithstanding the final rules that provide 

for the preemption of state securities laws’ 

registration and qualification requirements of Tier 

2 offerings, state securities regulators retain, among 

other things, their authority to require the filing 

with them of any documents filed with the 

Commission. See, e.g., Section 18(c)(2) of the 

Securities Act. The timing of filing requirements at 

the state level, however, may reduce the time 

period in which an offering statement and related 

materials are on file with the state before 

Commission qualification. 

278See Section II.D. below for a discussion on the 

timing and requirements for the use of solicitation 

materials under Rule 255. Regulation A’s testing the 

waters provisions encompass a variety of activities, 

including, but not limited to, activities that could 

constitute a traditional road show. 

279See fn. 267 above. 

280See 17 CFR 200.83. Where an issuer seeks 

confidential treatment of any information included 

in a publicly filed offering statement or related 

materials, it should do so in compliance with 

Securities Act Rule 406. See 17 CFR 230.406. See 

Rule 251(e) (confidential treatment). 

281This is in contrast to publicly filed draft and 

final offering statements that will be made 

automatically available on EDGAR at the time of 

filing. 

282See Non-Public Submissions from Foreign 

Private Issuers, available at: http://www.sec.gov/

divisions/corpfin/internatl/

nonpublicsubmissions.htm. 

283See 5 U.S.C. 552. 

284See Form 1–A, Part II, Part F/S (2014). Section 

3(b)(2)(G)(i) also contemplates that the Commission 

may require issuers to submit audited financial 

statements. Currently, the financial statements 

required under Regulation A need to be audited 

only if the issuer has them otherwise available. 

285 Id., Part II, e.g., Model B, Item 6 (Description 

of Business). 

286 Id., e.g., Part F/S. 

287 Id., e.g., Item 5 (Use of Proceeds to Issuer). 

288Rel. No. 33–6275 [46 FR 2637], at 2638. 

289As proposed, the cover page to current Form 

1–A would be eliminated as a standalone 

requirement, while portions of the information 

required on the cover page would be combined with 

Item 1 of Part I of Form 1–A in the XML fillable 

form. 

290The Commission would make the information 

available on EDGAR in a format that provides 

normal text for reading and XML-tagged data for 

analysis. With the exception of the items that focus 

issuers on eligibility to use Regulation A, much of 

the information called for in the XML-based fillable 

form is also required to be disclosed to investors in 

Part II of Form 1–A. 

291Letter from Ernst & Young LLP, March 24, 

2014 (‘‘E&Y Letter’’). 

issuers whose securities have not been 

previously sold pursuant to a qualified 

offering statement under Regulation A 

or an effective registration statement 

under the Securities Act to submit to the 

Commission a draft offering statement 

for non-public review. Consistent with 

the treatment of draft registration 

statements in registered offerings by 

emerging growth companies, a nonpublicly submitted offering statement 

must be substantially complete upon 

submission in order for staff of the 

Division of Corporation Finance to 

begin its review. All non-public 

submissions of draft offering statements 

must be submitted via EDGAR, and the 

initial non-public submission, all nonpublic amendments thereto, and 

correspondence submitted by or on 

behalf of the issuer to the Commission 

staff regarding such submissions must 

be publicly filed and available on 

EDGAR as exhibits to the offering 

statement not less than 21 calendar days 

before qualification of the offering 

statement. 

We do not believe, as was suggested 

by at least one commenter,275 that 

requiring issuers to file only the 

qualified version of the offering 

statement and any earlier versions used 

in conjunction with solicitation 

materials would provide investors with 

sufficient disclosure to make informed 

investment decisions. Further, in light 

of the preemption of state securities 

laws registration requirements for Tier 2 

offerings in the final rules,276 the 21 

calendar day filing requirement will 

insure that state securities regulators are 

able to require first-time issuers that 

non-publicly submit draft offering 

statements to file such material with 

them for a minimum of 21 calendar days 

before any potential sales to investors in 

their respective states.277 Unlike 

emerging growth companies, the timing 

requirement for filing by issuers seeking 

qualification under Regulation A does 

not depend on whether or not the issuer 

conducts a road show or tests the waters 

in a contemplated offering before 

qualification.278

Unlike Title I of the JOBS Act, Title 

IV does not provide for confidential 

submissions of offering statements 

under Regulation A.279 Consequently, 

the requirements of the FOIA are 

controlling on the scope of the 

Commission’s ability to adopt 

confidentiality rules for non-publicly 

submitted offering statements. We are 

therefore not adopting any specific 

additional rule or requirement for nonpublic submissions that would deem 

such submissions ‘‘confidential.’’ 

However, where an issuer seeks 

confidential treatment for non-publicly 

submitted offering materials, or any 

portion thereof, for which it believes an 

exemption from the FOIA exists, it 

should continue to do so in compliance 

with the Commission’s Rule 83.280

While non-publicly submitted 

offering statements must be submitted 

electronically on EDGAR, the 

Commission and its staff will not make 

such offering statements publicly 

available on EDGAR as a matter of 

course.281 The treatment of non-public 

submissions in this regard is consistent 

with the Commission staff’s approach to 

the public availability of draft 

registration statements submitted by 

foreign private issuers for registered 

offerings.282 As there is no statutory 

basis for withholding non-public 

submissions from production, absent an 

exemption from the FOIA,283 issuers 

that rely on our provisions for nonpublic submission should be aware that 

the Commission may, under certain 

circumstances, be compelled to provide 

such materials to a requesting party (or 

to otherwise make them publicly 

available) before the date on which an 

issuer would otherwise have been 

required to publicly file on EDGAR. 

3. Form and Content 

Section 3(b)(2)(G)(i) of the Securities 

Act identifies certain disclosure 

requirements that the Commission may 

require for offerings relying on the 

Regulation A exemption. The 

requirements largely coincide with the 

existing offering statement disclosure 

requirements of Form 1–A, such as 

financial statements,284 a description of 

the issuer’s business operations,285

financial condition,286 and use of 

investor funds.287 The proposed rules, 

comments received on the proposed 

rules, and the final rules being adopted 

today for each of Part I, II, and III of 

Form 1–A are discussed in detail below. 

a. Part I (Notification) 

(1) Proposed Rules 

Part I of Form 1–A serves as a notice 

of certain basic information about the 

issuer and its proposed offering, which 

also helps to confirm the availability of 

the exemption.288 As proposed, Part I of 

Form 1–A would be converted into an 

online XML-based fillable form with 

indicator boxes or buttons and text 

boxes and would be filed online with 

the Commission.289 The information 

would be publicly available on EDGAR, 

as an online data cover sheet, but not 

otherwise required to be distributed to 

investors.290

(2) Comments on Proposed Rules 

We received several comments with 

recommendations specific to certain 

items on Part I of Form 1–A. With 

respect to Item 1 of Part I, one 

commenter recommended defining the 

term ‘‘publicly traded,’’ eliminating the 

‘‘Financial Statements’’ section of Item 

1 of Part I or conforming it to the 

existing disclosures required by Item 

301 of Regulation S–K, or conforming 

the line item descriptions in Item 1 to 

those in Regulation S–X.291 Other 

commenters recommended clarifying 

that an auditor and related fees need not 

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21826 Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Rules and Regulations 

292Letter from Cynthia M. Fornelli, Executive 

Director, Center for Audit Quality, March 24, 2014 

(‘‘CAQ Letter’’); Letter from Deloitte & Touche LLP, 

March 24, 2014 (‘‘Deloitte Letter’’); E&Y Letter; 

Letter from PricewaterhouseCoopers LLP, March 24, 

2014 (‘‘PwC Letter’’). 

293NASAA Letter 2. 

294Letter from Mike Liles, Jr., Attorney, Karr 

Tuttle Campbell, January 17, 2014 (‘‘Karr Tuttle 

Letter’’). 

295Paul Hastings Letter. 

296NASAA Letter 2; WDFI Letter. These 

commenters requested that this information be 

included in XBRL format, rather than XML. We 

note that XBRL is a form of XML, and generally 

requires labeling information with data ‘‘tags’’ 

rather than providing the information through 

fillable forms. 

297NASAA Letter 2; WDFI Letter. 

298Some of the information in Item 1, such as the 

name of the issuer, jurisdiction of incorporation, 

contact information, primary Standard Industrial 

Classification Code Number, and I.R.S. Employer 

Identification Number is already required to be 

included on the cover page of Form 1–A. 

299See discussion of Rule 262(a)(3) and (a)(5) in 

Section II.G. below. 

300See discussion in Section II.G. below. 

301The primary purpose of Item 3 (Affiliate Sales) 

in Part I of Form 1–A (2014) is to ensure 

compliance with certain restrictions on affiliate 

resales under Rule 251(b). See discussion in Section 

II.B.3. above. 

302NASAA Letter 2; WDFI Letter. 

303 Id. 

304Rule 262(b)(1)–(2). 

305See paragraph (a)(2) to Part II of Form 1–A. 

Additionally, underwriters, those receiving sales 

commissions and finders’ fees, promoters, counsel, 

be listed in Part I if audited financial 

statements are not included.292 With 

respect to Item 5 of Part I, another 

commenter supported the proposal’s 

inclusion of checkboxes specifying the 

jurisdictions in which the securities are 

intended to be offered,293 while a 

different commenter recommended 

expanding the list of jurisdictions so 

that issuers could indicate the Canadian 

provinces in which they intended to 

conduct their offerings.294 With respect 

to Item 6 of Part I, one commenter 

recommended defining the term 

‘‘affiliated issuer.’’ 295 This commenter 

recommended defining the term to refer 

to entities controlled by the issuer, 

noting that otherwise it may require 

disclosure by parent and sister entities, 

which is information unrelated to the 

capitalization of the issuer. 

Other commenters recommended 

including additional disclosure in Part I. 

Two of these commenters recommended 

requiring issuers to include their Web 

site address and the jurisdiction of their 

principal place of business.296 These 

commenters also objected to removing 

the disclosure and contact information 

for persons that are covered by the bad 

actor rules.297

(3) Final Rules 

With the exception of technical 

clarifications, we are adopting 

provisions for Part I as proposed. The 

notification in Part I of Form 1–A will 

require disclosure in response to the 

following items: 

• Item 1. (Issuer Information) will 

require information about the issuer’s 

identity, industry, number of 

employees, financial statements and 

capital structure, as well as contact 

information.298

• Item 2. (Issuer Eligibility) will 

require the issuer to certify that it meets 

various issuer eligibility criteria. 

• Item 3. (Application of Rule 262 

(‘‘bad actor’’ disqualification and 

disclosure)) will require the issuer to 

certify that no disqualifying events have 

occurred and to indicate whether 

related disclosure will be included in 

the offering circular (i.e., events that 

would have been disqualifying, but 

occurred before the effective date of the 

amendments to Regulation A).299

• Item 4. (Summary Information 

Regarding the Offering and other 

Current or Proposed Offerings) will 

include indicator boxes or buttons and 

text boxes eliciting information about 

the offering (including whether the 

issuer is conducting a Tier 1 or Tier 2 

offering, amount and type of securities 

offered, proposed sales by selling 

securityholders and affiliates, type of 

offering, estimated aggregate sales of any 

concurrent offerings pursuant to 

Regulation A, anticipated fees in 

connection with the offering, and the 

names of audit and legal service 

providers, underwriters, and certain 

others providing services in connection 

with the offering). 

• Item 5. (Jurisdictions in Which 

Securities are to be Offered) will include 

information about the jurisdiction(s) in 

which the securities will be offered. 

• Item 6. (Unregistered Securities 

Issued or Sold Within One Year) will 

require disclosure about unregistered 

issuances or sales of securities within 

the last year, but will not include a 

requirement to provide the names and 

identities of the persons to whom 

unregistered securities were issued. 

We are adopting, as proposed, further 

changes to Part I of Form 1–A. We are 

eliminating Item 1 (Significant Parties) 

of current Part I, which requires 

disclosure of the names, business 

address, and residential address of all 

the persons covered by current Rule 

262. Instead, we are requiring only 

narrative disclosure in Part II of Form 1– 

A when the issuer has determined that 

a relevant party has a disclosable, but 

not disqualifying, ‘‘bad actor’’ event.300

We also are eliminating Item 3 of 

current Part I relating to affiliate sales, 

because we are eliminating the current 

restrictions on affiliate resales under 

Rule 251(b).301 Information about the 

amount of expected secondary sales and 

the existence of affiliate sales in the 

offering, however, will continue to be 

disclosed in Item 4. Item 6 (Other 

Present or Proposed Offerings) and Item 

9 (Use of a Solicitation of Interest 

Document) of current Part I will be 

incorporated into Item 4 (Summary 

Information Regarding the Offering and 

Other Current or Proposed Offerings). 

We also are eliminating Item 7 

(Marketing Arrangements) and Item 8 

(Relationship with Issuer of Experts 

Named in Offering Statement) of current 

Part I, as disclosure of this information 

is required in Part II (Offering Circular). 

Some of the technical changes from 

the proposed rules are non-substantive 

procedural revisions to the form that are 

needed to conform the form with the 

technical requirements of EDGAR, while 

the others will, as suggested by 

commenters, provide clarifications to 

the terms and requirements of Part I. 

We do not, however, believe that the 

additional disclosure items suggested by 

some commenters,302 such as the 

issuer’s Web site address and the 

jurisdiction of the issuer’s principal 

place of business, are necessary 

additional disclosures in Part I of Form 

1–A. As proposed and adopted, Item 1 

(Issuer Information) of Part I requires 

issuers to disclose the location of their 

principal executive offices, while Item 1 

(Cover Page of Offering Circular) of Part 

II requires issuers to provide investors 

with their Web site address, if the issuer 

has a Web site. In light of these required 

disclosures, we do not believe that the 

additional suggested disclosure items 

for Part I are necessary or would provide 

investors with any additional relevant 

information about the issuer. 

Additionally, notwithstanding the view 

of some commenters,303 we do not 

believe that the disclosure requirements 

for the application of Rule 262 

(Disqualification Provisions) in Item 3 to 

Part I of Form 1–A need to include 

descriptions and addresses of persons 

that trigger disqualification for several 

reasons. An issuer that has a 

disqualified person involved in its 

offering will not be eligible to conduct 

a Regulation A offering, issuers will 

have to certify their compliance with 

Rule 262, and, with the exception of the 

addresses of covered persons, much of 

the requested disclosure, as it applies to 

persons that would have been 

disqualified but whose conduct 

occurred before effectiveness of the final 

rules or have received a waiver from 

disqualification,304 will be required in 

Part II of the offering statement.305

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Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Rules and Regulations 21827 

executive officers, directors, and significant 

securityholders, among others, must be identified in 

the offering statement in most instances. See, e.g., 

Item 4 of Part I and Items 1, 10, and 11 of the 

Offering Circular, Part II of Form 1–A. 306E&Y Letter. 307 Id. 308 In the review of registered offerings the 

Commission’s staff will call filers to obtain email 

addresses so as to issue comment letters 

electronically. Depending on the responsiveness of 

the filer, this can be a time consuming process. 

309See E&Y Letter. 

310See fn. 292 above. 

311 Disclosure is only required in the fee table to 

the extent applicable fees were incurred by the 

issuer in connection with the offering. 

312 Karr Tuttle Letter. 

313 Item 5 of Part I of proposed Form 1–A did not 

include Canadian provinces, despite Canadian 

issuers being eligible issuers. Item 5, as adopted, 

corrects the form for Canadian issuers or for 

offerings that contemplate offers or sales in Canada. 

314Paul Hastings Letter. 

315Rule 405 defines ‘‘affiliate’’ to include, among 

other things, persons controlling the issuer or under 

common control with the issuer. 17 CFR 230.405. 

316Non-corporate issuers are not permitted to use 

Model A. 

317See Proposing Release, at Section II.C.3. 

318See Proposing Release, at Section II.C.3(b)(1). 

319See Item 9(c) of Offering Circular, Part II of 

proposed Form 1–A. 

320 Issuers following the Offering Circular 

disclosure model would be permitted to incorporate 

by reference Items 2 through 14, whereas issuers 

following the narrative disclosure in Part I of Form 

S–1 would be permitted to incorporate by reference 

Items 3 through 11 (other than Item 11(e)) of Part 

I of Form S–1. See General Instruction III to 

proposed Form 1–A. As with Model B, the item 

numbers in the Offering Circular format of proposed 

Part II of Form 1–A and Part I of Form S–1 do not 

align. 

Therefore, as proposed and adopted, the 

final rules for Part I of Form 1–A no 

longer require the disclosure of such 

information. 

Consistent with a comment 

received,306 we are making technical 

amendments to the financial statement 

requirements of Item 1 (Issuer 

Information) of Part I to clarify and 

require the use of certain industryspecific terminology and, wherever 

possible, to use terminology that is 

consistent with Regulation S–X and 

GAAP. These changes are designed to 

minimize potential confusion on the 

part of issuers in the banking and 

insurance industries that could result 

from the use of more general financial 

accounting terminology. We disagree, 

however, with the suggestion that we 

eliminate the financial statement 

section.307 As we noted in the Proposing 

Release, the disclosure of this type of 

information will provide the 

Commission (and market participants) 

with more information about the 

Regulation A market as it develops to 

use as it considers potential changes to 

the regulation in the future. We also 

believe that the disclosure of this 

information will provide relevant and 

useful information about issuers and 

their offerings to investors and market 

participants that will help to facilitate 

informed investment decisions. We do 

not anticipate that the disclosure of 

financial information in response to 

Item 1 to Part I of Form 1–A will 

materially alter the compliance 

obligations of issuers given that the 

requirements draw from disclosure 

already required in the financial 

statements included in the offering 

circular. Additionally, we are revising 

Item 1 to require issuers to provide up 

to two email addresses to which the 

Commission’s staff may send comment 

letters relating to an offering statement, 

rather than making this optional as 

proposed. The email addresses, 

however, will no longer be disseminated 

with the filings. We believe this change 

will result in faster reviews of offering 

statements by the Commission’s staff.308

Finally, consistent with the concerns 

underlying a comment we received, we 

recognize that the use of the term 

‘‘publicly traded’’ in the outstanding 

securities table of Item 1 may be 

confusing in the context of a Regulation 

A offering.309 Accordingly, we have 

revised Item 1 to only request the name 

of the trading center or quotation 

medium, if any, for outstanding 

securities. 

Consistent with the views of several 

commenters,310 we are clarifying that in 

the fee table included in Item 4 of Part 

I (Summary Information Regarding the 

Offering and Other Current or Proposed 

Offerings), auditor fees only need to be 

disclosed when the issuer is providing 

audited financial statements because, 

for example, an auditor might not be 

used for a Tier 1 offering.311 This and 

similar items in the fee table could be 

left blank if not applicable and 

responses could be clarified in the text 

box following the table. 

As suggested by one commenter,312

we are expanding the list of 

jurisdictions in Item 5 (Jurisdiction in 

Which Securities are to be Offered) so 

that issuers can indicate the Canadian 

provinces in which they intend to 

conduct their offerings.313

Finally, in response to one 

comment,314 we are clarifying, in this 

release, that the scope of the term 

‘‘affiliated issuer’’ in proposed Item 6 of 

Part I is only meant to include affiliates 

of the issuer that are issuing securities 

in the same offering for which 

qualification is currently being sought 

under Regulation A. We believe this 

clarification is necessary in the final 

rules in order to avoid potential 

confusion among issuers as to the scope 

of the definition, in light of the broader 

definition of ‘‘affiliate’’ as it appears in 

Securities Act Rule 405.315

b. Part II (Offering Circular) 

(1) Narrative Disclosure 

(a) Proposed Rules for Narrative 

Disclosure 

Part II (Offering Circular) in existing 

Form 1–A provides issuers with three 

options for their narrative disclosure: 

Model A, Model B, and Part I of Form 

S–1.316 We proposed to eliminate the 

Model A question-and-answer format as 

a disclosure option, to update and retain 

Model B as a disclosure option 

(renaming it ‘‘Offering Circular’’), and to 

continue to permit issuers to rely on 

Part I of Form S–1 to satisfy the 

disclosure obligations of Part II of Form 

1–A.317

We further proposed to create new 

requirements for audited financial 

statements and for a section containing 

management’s discussion and analysis 

(MD&A) of the issuer’s liquidity, capital 

resources, and results of operations.318

As proposed, issuers that have not 

generated revenue from operations 

during each of the three fiscal years 

immediately before the filing of the 

offering statement would be required to 

describe their plan of operations for the 

12 months following qualification of the 

offering statement, including a 

statement about whether, in the issuer’s 

opinion, it will be necessary to raise 

additional funds within the next six 

months to implement the plan of 

operations.319

Consistent with the treatment of 

issuers in registered offerings, we 

further proposed to permit issuers to 

incorporate by reference into Part II of 

Form 1–A certain items previously 

submitted or filed on EDGAR, regardless 

of whether they were provided pursuant 

to Regulation A disclosure 

requirements. As proposed, 

incorporation by reference would be 

limited to documents publicly 

submitted or filed under Regulation A 

and issuers would have to be subject to 

the ongoing reporting obligations for 

Tier 2 offerings.320 Issuers would be 

required to describe the information 

incorporated by reference, and include 

a separate hyperlink to the relevant 

document on EDGAR, which need not 

remain active after the filing of the 

related offering statement. 

(b) Comments on Proposed Rules 

Several commenters recommended 

against the proposed elimination of the 

Model A disclosure format, and instead 

recommended that the Commission 

retain an updated version of the 

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21828 Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Rules and Regulations 

321BIO Letter; Karr Tuttle Letter; NASAA Letter 

2; Verrill Dana Letter 1; WDFI Letter. 

322 Karr Tuttle Letter; Verrill Dana Letter 1. 

323NASAA Letter 2. 

324Canaccord Letter; CFIRA Letter 1; E&Y Letter; 

Ladd Letter 2 (recommending the change only to 

the extent that the Commission believed it would 

increase the speed of staff reviews); McCarter & 

English Letter; WR Hambrecht + Co Letter. 

325E&Y Letter. 

326ABA BLS Letter; MoFo Letter. 

327CFIRA Letter 1; MoFo Letter; SVB Financial 

Letter; WR Hambrecht + Co Letter. 

328WR Hambrecht + Co Letter. 

329NASAA Letter 2; WDFI Letter. 

330WR Hambrecht + Co Letter (indicating that, 

absent this requirement, such information would be 

shared orally by management or research analysts 

with only the biggest investors). 

331CFA Institute Letter. 

332Letter from Rutheford B. Campbell, Jr., SpearsGilbert Professor of Law, University of Kentucky, 

March 5, 2014 (‘‘Campbell Letter’’); MoFo Letter 

(recommending that the Commission reduce and 

clarify the disclosure obligations for executive 

compensation and management’s discussion and 

analysis by eliminating the need to repeat 

information already required to be included in the 

financial statements, reducing the number of years 

of business experience disclosure required to be 

included and clarifying the instructions of the 

executive compensation section). 

333Ladd Letter 2 (referring to PCAOB AU 325 and 

9325). 

334Financial statements disclosure requirements 

for Part F/S of Form 1–A are discussed in Section 

II.C.3.b(2)(c). below. 

format.321 Two of these commenters 

recommended including a Model A 

disclosure format that reflects the most 

recent version of NASAA’s Form U– 

7.322 One commenter recommended 

retaining existing Form 1–A with minor 

changes until such time as the 

Commission and NASAA could develop 

an improved form.323 Six commenters, 

however, suggested that the 

Commission eliminate Model A and the 

proposed Offering Circular disclosure 

formats and instead recommended 

requiring disclosure by reference to 

Regulation S–K (with reduced 

disclosure requirements in some 

instances).324 These commenters 

believed that such a change would 

increase efficiency and comparability. 

One of these commenters was 

concerned that differences between 

Items 303 and 402 of Regulation S–K 

and the comparable disclosure 

requirements of the Offering Circular 

format might cause confusion.325 Two 

commenters recommended requiring 

REITs to incorporate certain of the items 

contained in Industry Guide 5 and Form 

S–11.326

Several commenters had specific 

recommendations on disclosure 

requirements. Four commenters 

recommended that the Commission find 

a way to require more concise risk factor 

disclosure.327 One of these commenters 

recommended possibly imposing a limit 

on the number of risk factors or 

guidance to avoid repetition and 

emphasizing that disclosure should not 

be repeated throughout the offering 

circular.328 Two commenters 

recommended expanding the dilution 

disclosure requirement in the Offering 

Circular format’s Item 4.329 As 

proposed, Item 4 only requires 

disclosure of any material disparity 

between the public offering price and 

the effective cash cost to insiders over 

the past year. These commenters 

recommended removing the one year 

restriction. One commenter 

recommended focusing the disclosure 

requirements in the offering statement 

on valuation assessments and a 

discussion of management’s 

expectations about the company’s future 

performance, including projections.330

Another commenter recommended 

requiring disclosure of the names of 

‘‘those holding more than 20% of 

shares’’ and a description of the 

ownership and capital structure, 

including descriptions of how the 

exercise of rights by principal 

shareowners could negatively affect the 

purchasers of shares being offered.331

Two commenters recommended 

reducing and clarifying the disclosure 

obligations for executive compensation 

and management’s discussion and 

analysis for smaller offerings.332 One 

commenter recommended requiring 

disclosure regarding the existence of a 

code of ethics and corporate governance 

principles in a manner that would 

encourage issuers to adopt internal 

controls.333

(c) Final Rules for Narrative Disclosure 

With the exception of clarifying 

changes, certain additional scaled 

disclosure items applicable to Tier 1 

offerings, and additional guidance to 

issuers designed to streamline 

disclosure, we are adopting final rules 

for narrative disclosure in Form 1–A 

substantially as proposed. As adopted, 

Offering Circular disclosure in Part II of 

Form 1–A will cover: 334

• Basic information about the issuer 

and the offering, including 

identification of any underwriters and 

disclosure of any underwriting 

discounts and commissions (Item 1: 

Cover Page of Offering Circular); 

• Table of Contents (Item 2); 

• The most significant factors that 

make the offering speculative or 

substantially risky (Item 3: Summary 

and Risk Factors); 

• Material disparities between the 

public offering price and the effective 

cash costs for shares acquired by 

insiders during the past year (Item 4: 

Dilution); 

• Plan of distribution for the offering 

and disclosure regarding selling 

securityholders (Item 5: Plan of 

Distribution and Selling 

Securityholders); 

• Use of proceeds (Item 6: Use of 

Proceeds to Issuer); 

• Business operations of the issuer for 

the prior three fiscal years (or, if in 

existence for less than three years, since 

inception) (Item 7: Description of 

Business); 

• Material physical properties (Item 

8: Description of Property); 

• Discussion and analysis of the 

issuer’s liquidity and capital resources 

and results of operations through the 

eyes of management covering the two 

most recently completed fiscal years 

and interim periods, if required; and, for 

issuers that have not received revenue 

from operations during each of the three 

fiscal years immediately before the 

filing of the offering statement (or since 

inception, whichever is shorter), the 

plan of operations for the 12 months 

following qualification of the offering 

statement, including a statement about 

whether the issuer anticipates that it 

will be necessary to raise additional 

funds within the next six months (Item 

9: Management’s Discussion and 

Analysis of Financial Condition and 

Results of Operations); 

• Identification of directors, executive 

officers and significant employees with 

a discussion of any family relationships 

within that group, business experience 

during the past five years, and 

involvement in certain legal 

proceedings during the past five years 

(Item 10: Directors, Executive Officers 

and Significant Employees); 

• Group-level executive 

compensation disclosure for the most 

recent fiscal year for the three highest 

paid executive officers or directors with 

Tier 2 requiring individual disclosure of 

the three highest paid executive officers 

or directors (Item 11: Compensation of 

Directors and Executive Officers); 

• Beneficial ownership of voting 

securities by executive officers, 

directors, and 10% owners (Item 12: 

Security Ownership of Management and 

Certain Securityholders); 

• Transactions with related persons, 

promoters and certain control persons 

(Item 13: Interest of Management and 

Others in Certain Transactions); 

• The material terms of the securities 

being offered (Item 14: Securities Being 

Offered); and 

• Any events that would have 

triggered disqualification of the offering 

under Rule 262 if the issuer could not 

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335See discussion of the final disqualification 

provisions in Section II.G. below. The final rules 

require issuers to provide this ‘‘bad actor’’ 

disclosure even if it elects to follow the Part I of 

Form S–1 disclosure format. 

336See Proposing Release, at Section II.C.3. 

337See Section II.E. below for a discussion of the 

final rules for ongoing reporting. 

338As proposed, issuers must choose one format 

to follow for the offering circular and may not 

combine items from different formats. See General 

Instruction II to proposed and final Form 1–A. In 

order to avoid confusion and to facilitate the review 

of offering circulars by investors and the 

Commission’s staff, the final rules will also require 

issuers to indicate on the offering circular cover 

page which format they are following. See Part 

II(a)(1) of Form 1–A. 

339 17 CFR 230.405. 

340CFA Institute Letter. 

341See Item 7(c)–(d) of Offering Circular, Part II 

of Form 1–A ; see also Rel. No. 33–6900 (June 17, 

1991) [56 FR 28979] (setting forth the Commission’s 

view on the disclosure requirements for limited 

partnerships). 

342CFIRA Letter 1; MoFo Letter; WR Hambrecht 

+ Co Letter. 

343 Item 7(a)(1)(iii) of Offering Circular, Part II of 

Form 1–A. 

344See discussion in Section II.C.3.b(2)(c). below. 

345See Item 9 of Offering Circular, Part II of Form 

1–A. 

346 Item 9(b)(1) of Offering Circular, Part II of 

proposed Form 1–A is amended to track more 

closely the language and requirements of domestic 

issuers, as opposed to foreign private issuers. As 

proposed, the language more closely followed the 

requirements contained in Form 20–F for foreign 

private issuers. 

347We are eliminating proposed Item 9(b)(2)–(3) 

of Offering Circular, Part II of Form 1–A. As 

proposed, these disclosures would have increased 

the disclosure obligations of Regulation A issuers in 

comparison to those required of smaller reporting 

companies under Item 305 of Regulation S–K. 17 

CFR 229.305. 

rely on the provisions in Rule 

262(b)(1).335

The final rules eliminate Model A as 

a disclosure format for Regulation A 

offerings, as proposed. While some 

commenters suggested that the 

Commission should preserve Model A 

as an additional disclosure format for 

Part II of Form 1–A or update existing 

Model A with NASAA’s more recent 

Form U–7, we are not persuaded that a 

question-and-answer format should be 

retained in the final rules. As we noted 

in the Proposing Release, the Model A 

disclosure format has historically been 

used less frequently, and resulted in 

less-uniform disclosure and a longer 

time to qualification than the Model B 

disclosure format.336 We do not believe 

that the use of Form U–7, which is 

largely similar to Model A and is also 

in a question-and-answer format, will 

alter this result. While the question-andanswer disclosure format does provide 

issuers with additional flexibility, we 

believe that the Offering Circular 

disclosure format (formerly called 

Model B) and Part I of Forms S–1 or S– 

11 provide issuers with sufficient 

flexibility in choosing their disclosure 

format without any of the potential 

delays or uniform disclosure issues 

associated with Model A, either 

currently or even if it is updated with 

Form U–7. We are further concerned 

that a question-and-answer format may 

not best serve the interests of investors 

in Regulation A offerings by providing 

them with less-uniform disclosure in a 

potentially unfamiliar format. 

Additionally, we are concerned that a 

question-and-answer format may 

incorrectly lead issuers to believe that, 

despite the guidance contained in the 

form itself, less complete disclosure is 

required under this format, thereby 

causing unnecessary delays in the 

qualification process. Lastly, and 

particularly with respect to Tier 2 

offerings, we do not believe that a 

question-and-answer format is 

appropriate for issuers and investors in 

larger-sized offerings that generally 

benefit from disclosure that is 

comparable between offerings in format 

and information disclosed. For similar 

reasons, we do not believe that this 

format is appropriate in offerings of any 

size by issuers that seek to foster 

potential trading in the secondary 

markets.337

As proposed, the final rules will 

require issuers to provide disclosure in 

Part II of Form 1–A that follows the 

Offering Circular or Part I of Form S–1 

disclosure format. Additionally, we 

agree with commenters that certain 

additional disclosure requirements may 

be appropriate for offerings by REITs 

and similar issuers. The final rules, 

therefore, also permit issuers to follow, 

in addition to the Offering Circular and 

Part I of Form S–1 formats, the form 

disclosure requirements of Part I of 

Form S–11.338 An issuer may, however, 

only use Part I of Form S–11 if the 

securities are eligible to be registered on 

that form. As proposed and adopted 

with respect to disclosure under Part I 

of Form S–1, issuers following Part I of 

Form S–11 may follow smaller reporting 

company narrative disclosure 

requirements if they meet the definition 

of that term in Securities Act Rule 

405.339

Contrary to the suggestions of some 

commenters, we are not adopting rules 

that would limit the number of risk 

factors disclosed. While we appreciate 

the concern that certain issuers and 

their advisors may take an overly 

cautious approach to the application of 

our disclosure requirements resulting in 

numerous risk disclosures, the decision 

as to the appropriate mix of information 

that should be disclosed to investors 

must be based on the particular facts 

and circumstances of each company. We 

do not believe that a limit on risk factor 

disclosure is an appropriate substitute 

for the judgments of issuers and their 

advisors. A form-based limitation on the 

number of risk factors, beyond the 

guidance in Item 3 of Part II, could lead 

to incomplete disclosure that may place 

investors at a higher risk of potential 

loss and issuers at a higher risk for 

potential litigation if it results in 

appropriate risk factors being excluded. 

Further, we believe that certain other 

commenter concerns and suggestions as 

to specific narrative disclosures are 

already appropriately addressed by the 

final rules. For example, one commenter 

suggested that we require disclosure of 

the names of those holding more than 

20% beneficial ownership of the issuer 

and a description of the issuer’s 

ownership and capital structure, 

including descriptions of the exercise of 

rights of principal shareholders.340 The 

final rules substantially address these 

topics. Item 12 of the Offering Circular, 

as proposed and adopted, requires 

disclosure relating to more than 10% 

beneficial ownership and Item 14, 

which is adopted as proposed, requires 

disclosure of the terms of all classes of 

outstanding capital stock. 

As adopted, the Offering Circular 

includes disclosure based on disclosure 

guidelines set forth in the Securities Act 

Industry Guides as well as guidance 

applicable to limited partnerships and 

limited liability companies.341 As 

suggested by commenters,342 in order to 

create more flexibility in disclosure 

matters for smaller issuers, we are 

adding a materiality threshold for 

disclosure as it relates to time and dollar 

expenditures on research and 

development.343 Additionally, the final 

rules require issuers to provide financial 

statements, which in the case of Tier 2 

offerings must be audited,344 as well as 

a section on management’s discussion 

and analysis (MD&A) of the issuer’s 

liquidity, capital resources, and results 

of operations.345 We are amending the 

MD&A disclosure requirements in Item 

9 to align more closely with the 

language in Regulation S–K that applies 

to domestic registrants 346 and smaller 

reporting companies.347 Consistency 

with Regulation S–K in this regard may 

assist companies with compliance with 

the rules for registered offerings to the 

extent Tier 2 issuers eventually become 

Exchange Act reporting companies, 

while also making sure that Regulation 

A issuers do not have a greater 

disclosure obligation than registered 

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21830 Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Rules and Regulations 

348See also discussion of the final rules for 

simplifying Exchange Act registration of Tier 2 

issuers in Section II.E.3.c. below. 349 Item 9(c) of Offering Circular, Part II of Form 

1–A. 350 Id. 351 Item 12 of Offering Circular, Part II of Form 

1–A. 352 Item 13 of Offering Circular, Part II of Form 

1–A. As adopted, Tier 2 issuers that have more than 

$5 million in average total assets at year end for the 

last two completed fiscal years would be required 

to disclose related party transactions at a higher 

threshold (i.e., 1% or more) than was previously 

required under Regulation A, which required the 

disclosure of transactions in excess of $50,000 in 

the prior two years. 

353 Id. 

354See, e.g., Campbell Letter; MoFo Letter. 

355See Item 11 of Offering Circular, Part II of 

Form 1–A. The number of persons comprising the 

director-level group data is also required of issuers 

providing compensation data under Tier 2. 

356For example, there are no rule-based 

disclosure requirements for private placements 

pursuant to Rule 506 of Regulation D, 17 CFR 

230.500 et seq., when the issuer only sells to 

accredited investors. Contrary to the requirements 

of Regulation D, we believe mandated 

compensation (and other) disclosure is appropriate 

in the context of a public offering under Regulation 

A. Additionally, however, we believe that the final 

disclosure rules for such information are 

appropriately tailored to provide information to 

investors. 

357This requirement is a change to the disclosure 

requirements of group-level data in both Tiers. 

Although this information would have been 

ascertainable under Tier 2 by comparing the grouplevel disclosure of director compensation to the 

number of directors disclosed pursuant to Item 10 

of the Offering Circular, we believe the change will 

facilitate investors’ calculations of average director 

compensation without significantly increasing the 

burden on Tier 2 issuers. 

358Campbell Letter; MoFo Letter. 359MD&A disclosure is specifically required by 

Model A. Model B calls for similar information in 

Item 6, which requires disclosure of the 

characteristics of the issuer’s operations or industry 

that may have a material impact upon the issuer’s 

future financial performance. Item 6 also requires 

disclosure of the issuer’s plan of operations and 

short-term liquidity if the issuer has not received 

revenue from operations during each of the three 

fiscal years immediately prior to filing the offering 

statement. 

360 17 CFR 229.303. 361 17 CFR 303(a)(1)–(3). Cf. Form 20–F, at Item 

5. 362An issuer may, however, be required to 

disclose such information during the course of the 

domestic issuers.348 Further, consistent 

with the proposed rules, issuers that 

have not generated revenue from 

operations during each of the three 

fiscal years immediately before the 

filing of the offering statement (or since 

inception, whichever is shorter) will be 

required to describe their plan of 

operations for the 12 months following 

qualification of the offering 

statement.349 For companies that have 

been in existence for less than three 

years, the final rules clarify that this 

disclosure requirement applies to them 

since inception.350

The changes to the Offering Circular 

format adopted today will result in 

Offering Circular disclosure, 

particularly for Tier 2 offerings, more 

akin to what is required of smaller 

reporting companies in a prospectus for 

a registered offering. For example, the 

final rules require issuers in both Tier 

1 and Tier 2 offerings to disclose 

beneficial ownership of their voting 

securities, as opposed to record 

ownership of voting and non-voting 

securities.351 With respect to 

transactions with related persons, 

promoters, and certain control persons 

in Tier 2 offerings, issuers will no longer 

be required to disclose transactions in 

excess of $50,000 in the prior two years 

(or similar transactions currently 

contemplated), but rather must follow 

the requirements for smaller reporting 

company disclosure of transactions 

during the prior two fiscal years that 

exceed the lesser of $120,000 or 1% of 

the average total assets at year end for 

the last two completed fiscal years.352

We originally proposed to apply this 

threshold to Tier 1 offerings also, but 

believe that the 1% of average total 

assets threshold could result in a lower 

disclosure threshold for smaller issuers 

than was otherwise required of such 

issuers under the existing rules. The 

final rules therefore preserve the related 

party transaction disclosure 

requirements of Regulation A, as they 

existed before the adoption of final rules 

today, for Tier 1 offerings so that issuers 

in such offerings are only required to 

disclose such transactions in excess of 

$50,000 in the prior two years (or 

similar transactions currently 

contemplated).353

In addition to preserving the related 

party transaction disclosure threshold 

for Tier 1 offerings, we are adopting a 

change applicable to Tier 1 that will 

provide an additional scaled disclosure 

option for issuers in the Offering 

Circular. This change is consistent with 

the general views of a number of 

commenters that urged the Commission 

to consider additional potential scaling 

for smaller issuers generally and Tier 1 

offerings in particular.354 The final rules 

alter the format of, but not the ultimate 

aggregate amount of information 

required to be disclosed in, the 

proposed executive compensation 

disclosure requirements for Tier 1 

offerings. Instead of providing executive 

compensation data on an individual 

basis for the three highest paid officers 

or directors and on a group basis for all 

directors, as was proposed for both Tier 

1 and Tier 2, issuers in Tier 1 offerings 

will instead be required to disclose only 

group-level compensation data as it 

applies to the three highest paid 

executives or directors and all directors 

as a collective group, including the 

number of persons comprising such 

group, covering the period of the 

issuer’s last completed fiscal year.355 In 

this regard, the final rules for Tier 1 

offerings will continue to require the 

disclosure of important compensation 

data to investors, but on an aggregate, 

rather than individual, basis. The grouplevel disclosure format for the highest 

paid executives and all directors should 

help smaller issuers avoid some of the 

harm that could follow compensation 

disclosure of individual executives or 

directors to the market and competitors, 

especially when disclosure of such 

information would not necessarily be 

required in the context of a private 

placement or other exempt offering.356

Further, the additional requirement to 

disclose the total number of persons 

comprising any group for which grouplevel data is required to be disclosed 

will preserve the ability of investors in 

Tier 1 offerings to determine the average 

compensation paid to all persons within 

the group.357 Consistent with the 

suggestions of some commenters,358 we 

believe that this change to the final rules 

will assist smaller issuers with more 

appropriately tailored executive 

compensation disclosure requirements 

and will provide investors with useful 

information. 

We do not, however, believe that 

further scaling of smaller issuers’ MD&A 

is necessary under the final rules. As we 

noted in the Proposing Release, while 

the final rules provide issuers with more 

detailed instructions on MD&A 

disclosure, similar disclosure is already 

called for under existing 

requirements.359 The final MD&A 

requirements clarify existing 

requirements and will likely save 

issuers time by providing more express 

guidance regarding the type of 

information and analysis that should be 

included. We believe the clearer 

requirements will lead to improved 

MD&A disclosure, which will provide 

investors with better visibility into 

management’s perspective on the 

issuer’s financial condition and 

operations. The final provisions for 

MD&A disclosure in the Offering 

Circular, however, are not as extensive 

as those required under Item 303 of 

Regulation S–K.360 As proposed, the 

final Offering Circular format includes 

detailed guidance and requirements 

similar to Item 303 with respect to 

liquidity, capital resources, and results 

of operations, including the most 

significant trend information,361 but 

does not separately call for disclosure of 

off-balance sheet arrangements or a table 

of contractual obligations.362 Similar to 

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Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Rules and Regulations 21831 

qualification process, if material to an 

understanding of the issuer’s financial condition. 

363When management’s discussion and analysis 

of the financial condition and results of operations 

is provided for interim period financial statements, 

any material change in financial condition from the 

end of the preceding fiscal year to the date of the 

most recent interim balance sheet should be 

discussed. Also, any material changes in results of 

operations with respect to the most recent fiscal 

year-to-date period for which an income statement 

is provided and the corresponding year-to-date 

period of the preceding fiscal year shall be 

discussed. See Instruction 3 to Item 9(a) of the 

Offering Circular, Part II of Form 1–A. 

364See Item 4 (Dilution) of the Offering Circular, 

Part II of Form 1–A. 

365See NASAA Letter 2, at fn. 50; WDFI Letter, 

at 9. 

366See Instruction 5 to Item 6 (Use of Proceeds) 

of Part II of Form 1–A. 

367 In this regard, we have also clarified in 

General Instruction IV that supplemental 

information provided to the Commission may be 

returned in certain circumstances and will be 

handled by the Commission in a similar manner to 

supplemental information provided in connection 

with registered offerings. 

368The language in proposed Item 7 to Part II of 

Form 1–A indicated that issuers had to disclose 

characteristics that ‘‘may’’ have a material impact 

on its future financial performance. We believe this 

clarifying change in the final rules will help 

facilitate compliance by smaller issuers. 

369The language in proposed Items 11 and 13 to 

Part II of Form 1–A indicated that issuers had to 

disclose information regarding directors and 

officers. We believe the clarifying language will 

help smaller issuers comply with the final rules. 

370Ladd Letter 2 (referring to PCAOB AU 325 and 

9325). 

371See fn. 93 above and Section III.C.3. below. 

smaller reporting companies in 

registered offerings, Regulation A 

issuers are required to disclose 

information about the issuer’s results of 

operations for the two most recently 

completed fiscal years and interim 

periods, when applicable.363

Except as noted above, the updates to 

the Offering Circular disclosure 

requirements will not result in an 

overall increase in an issuer’s disclosure 

obligations. For example, as mentioned 

above, certain issuers will have a higher 

threshold for reporting related party 

transactions than would have 

previously been required under 

Regulation A. Additionally, Tier 1 

issuers (which will likely be smaller 

companies) will, in comparison to the 

proposed rules, benefit from further 

scaling of related party transactions and 

compensation-related disclosures. 

Further, as proposed, all issuers will be 

permitted to provide more streamlined 

disclosure of dilutive transactions with 

insiders by no longer being required to 

present a dilution table based on the net 

tangible book value per share of the 

issuer’s securities.364 While we disagree 

with commenters that suggested we 

should expand disclosure provisions 

related to dilution,365 the final rules, 

which reduce the disclosure time period 

from three years to one year, are 

consistent with their view that the 

disclosure of this information should 

not depend on when such shares were 

acquired. We do not believe that 

information regarding dilution covering 

more than the prior year is necessary for 

the smaller issuers likely to conduct 

Regulation A offerings, nor do we 

believe that a reduction in the required 

disclosure from three years to one year, 

as proposed and adopted, will 

negatively affect investor protection. 

Additionally, the final provisions for 

MD&A disclosure clarify existing 

requirements and should benefit issuers 

by providing more express guidance 

regarding the type of information and 

analysis that should be included, 

including instructions about disclosure 

of operating results. We believe that 

these clarifications should also lead to 

improved MD&A disclosure, which will 

provide investors with better visibility 

into management’s perspective on the 

issuer’s financial condition and results 

of operations. Investors, particularly in 

Tier 2 offerings, will also benefit from 

disclosure that is more consistent across 

issuers in both registered offerings and 

Regulation A offerings. 

We are making one change to the 

disclosure requirements of Item 6 (Use 

of Proceeds) in the final rules. As 

proposed, issuers were required to 

disclose if any material amount of other 

funds are to be used in conjunction with 

the proceeds raised in the offering. If so, 

an issuer would be required to state the 

amounts and sources of such other 

funds. The final rules include these 

proposed provisions, but add a 

requirement that the issuer further 

provide disclosure about whether such 

other funds are firm or contingent. 

While we did not receive any comment 

specifically addressing this issue, where 

applicable, this type of information 

would generally be required to be 

disclosed as part of the staff review and 

comment process before qualification. 

We believe an express requirement in 

the final rules will ultimately save 

issuers time in the qualification process 

and therefore are including language 

addressing this issue in the final 

rules.366

For clarity, we are moving the 

requirements to furnish certain 

supplemental information found in Item 

7 (Business Description) of Part II to 

Form 1–A to General Instruction IV 

(Supplemental Information) to Form 1– 

A, where similar requirements are 

found. We believe that providing these 

instructions in one place will help 

issuers understand and comply with the 

process for furnishing supplemental 

information to the Commission. The 

process for furnishing supplemental 

information to the Commission 

pursuant to Form 1–A is similar to the 

treatment of such information in 

registered offerings.367 Additionally, 

since we believe it is important for the 

Commission to be aware of the 

existence—rather than the nonexistence—of such reports, the final 

rules no longer require an issuer to 

inform the Commission if no such 

report has been prepared. Item 7 is 

further revised to clarify that issuers 

must only disclose distinctive or special 

characteristics of the issuer’s operation 

or industry that are reasonably likely to 

have a material impact on its future 

financial performance.368

The final rules also clarify in Item 5 

(Plan of Distribution and Selling 

Securityholders) the calculation of 

selling securityholder ownership prior 

to an offering, which we believe will 

facilitate compliance with, and 

calculations pursuant to, this 

requirement. Additionally, in order to 

avoid potential confusion as to the 

scope of Items 11 and 13 to Part II of 

Form 1–A, the final rules make clear 

that issuers are required to provide 

disclosure for ‘‘executive officers’’ 

rather than ‘‘officers.’’ 369 Contrary to 

the suggestion of one commenter,370 we 

do not believe that requiring disclosure 

regarding the existence of a code of 

ethics and corporate governance 

principles should be a required 

disclosure item for the types of issuers 

likely to conduct Regulation A offerings. 

While nothing in Part II of Form 1–A 

would prevent an issuer from providing 

more disclosure than is otherwise 

required in the form itself, we do not 

believe it would be appropriate to 

mandate this type of disclosure for all 

issuers because we anticipate that 

issuers of Regulation A securities will 

generally be smaller companies with 

less complex organizational 

structures.371 We further believe that the 

disclosure requirements of Part II of 

Form 1–A will provide investors with 

the information they need to adequately 

evaluate an issuer’s business and 

securities. 

As proposed, the final rules permit 

issuers to incorporate by reference into 

Part II of Form 1–A certain items 

previously submitted or filed on 

EDGAR. In a change from the proposed 

rules, issuers will be permitted to 

incorporate by reference any documents 

publicly submitted or filed on EDGAR, 

as opposed to being limited to 

documents submitted or filed pursuant 

to Regulation A. We believe that this 

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21832 Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Rules and Regulations 

372See General Instruction III to Form 1–A. Since, 

as proposed, the financial statements required by 

Part F/S would apply to those following the Form 

S–1 format, rather than Item 11(e), we have 

removed the reference to that item in General 

Instruction III for clarity. Although, as proposed, 

Items 11(f) and (g) are also not required for those 

following the Form S–1 format, we continue to 

specifically allow for cross-referencing and 

incorporation by reference in those items for those 

voluntarily choosing to provide such disclosure. As 

with Model B, the item numbers in the Offering 

Circular format of Part II of Form 1–A and Part I 

of Form S–1 do not align. 

373 Id. Issuers may, for example, add a crossreference to disclosure found in the financial 

statements. However, they may not incorporate by 

reference or add a cross-reference within the 

financial statements to disclosures found elsewhere. 

See General Instruction III to Form 1–A, which does 

not allow for incorporation by reference in Part F/ 

S. 

374Cf. Securities Act Rule 411(c) and Exchange 

Act Rule 12b–32 (providing a similar requirement 

when incorporating exhibits by reference in filings 

under the Securities Act and Exchange Act). 

375The requirements also apply to the issuer’s 

predecessors or any business to which the issuer is 

a successor. 

376See Form 1–A, Part F/S (2014). 

377The issuer would be considered to have 

audited financial statements if the qualifications 

and reports of the auditor meet the requirements of 

Article 2 of Regulation S–X (17 CFR 210.1 et seq.) 

and the audit was conducted in accordance with 

U.S. GAAS or the standards of the PCAOB. The 

auditor is not required to be registered with the 

PCAOB. 

378See paragraph (c) of Part F/S of proposed Form 

1–A. 

379 If the proposed financial statements comply 

with IFRS as issued by the IASB, such compliance 

must be unreservedly and explicitly stated in the 

notes to the financial statements and the auditor’s 

report must include an opinion on whether the 

financial statements comply with IFRS as issued by 

the IASB. See General Rule (a)(2) to Part F/S of 

proposed Form 1–A. Cf. Item 17(c) of Form 20–F. 380We proposed to update the requirements for 

financial statements of businesses acquired or to be 

acquired in Part F/S to refer to the requirements of 

Rule 8–04 of Regulation S–X. We also proposed to 

provide specific references to the relevant 

provisions of Regulation S–X regarding the 

requirements for financial statements of guarantors 

and the issuers of guaranteed securities (Rule 3–10 

of Regulation S–X), financial statements of affiliates 

whose securities collateralize an issuance of 

securities (Rule 3–16 of Regulation S–X), and 

financial statements provided in connection with 

oil and gas producing activities (Rule 4–10 of 

Regulation S–X). As proposed, the financial 

statements provided in these circumstances would 

only be required to be audited to the extent the 

issuer had already obtained an audit of its financial 

statements for other purposes. 

381Tier 2 issuers would, however, follow 

paragraph (a)(3) of Part F/S of proposed Form 1– 

A with respect to the age of the financial statements 

and the periods to be presented. In Tier 2 offerings, 

the form and contents of financial statements for 

other entities follow the requirements of Article 8 

of Regulation S–X. 

382See Part F/S of proposed Form 1–A 

(referencing Article 2 of Regulation S–X, 17 CFR 

210.2–01 et seq.). 

change will continue to facilitate the 

provision of required information to 

investors, while taking a consistent 

approach to information previously 

provided to the Commission and 

publicly available on EDGAR. Issuers 

following the Offering Circular 

disclosure model will be permitted to 

incorporate by reference into Items 2 

through 14; issuers following the 

narrative disclosure in Part I of Form S– 

1 will be permitted to incorporate by 

reference into Items 3 through 11 (other 

than Item 11(e)) of Part I of Form S–1; 

issuers following the narrative 

disclosure in Part I of Form S–11 will 

be permitted to incorporate by reference 

into Items 3 through 26, Item 28, and 

Item 30 of Part I of Form S–11.372 The 

final rules require issuers to describe the 

information incorporated by reference, 

and include a separate hyperlink to the 

relevant document on EDGAR, which 

need not remain active after the filing of 

the related offering statement. 

Additionally, Form 1–A encourages 

issuers to cross-reference items within 

the form, where applicable.373 Further, 

in order to avoid incorporation by 

reference to stale information without 

requiring the latest version of the 

document to be filed, Form 1–A 

indicates that, if any substantive 

modification has occurred in the text of 

any document incorporated by reference 

since such document was filed, the 

issuer must file with the reference a 

statement containing the text and date 

of such modification.374

(2) Financial Statements 

(a) Proposed Rules for Financial 

Statements 

Part F/S of Form 1–A currently 

requires issuers 375 in Regulation A 

offerings to provide the following 

financial statements prepared in 

accordance with U.S. GAAP: 376

• A balance sheet as of a date within 

90 days before filing the offering 

statement (or as of an earlier date, not 

more than six months before filing, if 

the Commission approves upon a 

showing of good cause) but, for filings 

made more than 90 days after the end 

of the issuer’s most recent fiscal year, 

the balance sheet must be dated as of 

the end of the fiscal year; 

• statements of income, cash flows, 

and stockholders’ equity for each of the 

two fiscal years preceding the date of 

the most recent balance sheet, and for 

any interim period between the end of 

the most recent fiscal year and the date 

of the most recent balance sheet; 

• financial statements of significant 

acquired or to be acquired businesses; 

and 

• pro forma information relating to 

significant business combinations. 

The required financial statements may 

be unaudited unless the issuer has 

already obtained an audit for another 

purpose.377

We proposed to generally maintain 

the existing financial statement 

requirements of current Part F/S of 

Form 1–A for Tier 1 offerings, while 

requiring Tier 2 issuers to file audited 

financial statements.378 We proposed to 

require all issuers to file balance sheets 

as of the two most recently completed 

fiscal year ends (or for such shorter time 

that they have been in existence), 

instead of the current requirement to file 

a balance sheet as of only the most 

recently completed fiscal year end. As 

proposed, financial statements for U.S.- 

domiciled issuers would be required to 

be prepared in accordance with U.S. 

GAAP. Additionally, however, we 

proposed to permit Canadian issuers to 

prepare financial statements in 

accordance with either U.S. GAAP or 

International Financial Reporting 

Standards (IFRS) as issued by the 

International Accounting Standards 

Board (IASB).379

As proposed, issuers conducting Tier 

1 offerings would be required to follow 

the requirements for the form and 

content of their financial statements set 

out in Part F/S, rather than the 

requirements in Regulation S–X. In 

certain less common circumstances, 

however, such as for an acquired 

business or subsidiary guarantors, Part 

F/S would direct issuers conducting 

Tier 1 offerings to comply with certain 

portions of Regulation S–X, which 

provides guidance on the financial 

statements required for entities other 

than the issuer.380

For all Tier 2 offerings, the proposed 

rules would require issuers to follow the 

financial statement requirements of 

Article 8 of Regulation S–X, as if the 

issuer conducting a Tier 2 offering were 

a smaller reporting company, unless 

otherwise noted in Part F/S. This 

requirement would include any 

financial information with respect to 

acquired businesses required by Rule 8– 

04 and 8–05 of Regulation S–X.381

As proposed, issuers conducting Tier 

2 offerings would be required to have 

their financial statements audited. As 

with Tier 1 offerings, the auditor of 

financial statements would need to be 

independent under Rule 2–01 of 

Regulation S–X and must comply with 

the other requirements of Article 2 of 

Regulation S–X, but need not be 

PCAOB-registered.382 Unlike Tier 1 

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383The rules for ongoing reporting are discussed 

in Section II.E. below. 

384See Form 1–A, Part F/S (2014). 

385 Id. 

386This age of financial statements requirement is 

also consistent with the treatment of foreign private 

issuers in the context of registered offerings. See 

Division of Corporation Finance’s Financial 

Reporting Manual, at 6620, available at: http://

www.sec.gov/divisions/corpfin/cffinancialreporting

manual.pdf#topic6. 

387Form 1–A currently does not expressly limit 

the age of financial statements at qualification. In 

practice, however, Commission staff requires 

issuers to update financial statements before 

qualification to the extent such financial statements 

no longer satisfy Form 1–A’s requirements for the 

age of financial statements at the time of filing. 

388See paragraph (a)(3)(i) to Part F/S of proposed 

Form 1–A. 

389 Id. 

390See paragraph (a)(3)(iv) to Part F/S of 

proposed Form 1–A. 

391See discussion in Section II.E.1. below. 

392See paragraph (a)(3)(i) to Part F/S of proposed 

Form 1–A. 

393See, e.g., CFA Institute Letter; ABA BLS Letter. 

394ABA BLS Letter (noting that in light of the 

existing requirements, the proposed change did not 

seem unduly burdensome). 

395Campbell Letter. 

396See, e.g., CFA Institute Letter; ABA BLS Letter; 

Campbell Letter. 

397ABA BLS Letter; BDO Letter; Canaccord 

Letter; CAQ Letter; CFA Letter; CFIRA Letter 2; 

Deloitte Letter; E&Y Letter; Letter from KPMG LLP, 

March 24, 2014 (‘‘KPMG Letter’’); Letter from 

McGladrey LLP (‘‘McGladrey Letter’’); MoFo Letter; 

WOC Letter; WR Hambrecht + Co Letter. 

398Letter from Jason Coombs, Co-Founder and 

CEO, Public Startup Company, Inc., March 25, 2014 

(‘‘Public Startup Co. Letter 3’’) (suggesting three 

tiers, where at least the first two would not require 

audited financial statements); Public Startup Co. 

Letter 6. 

399BDO Letter; CAQ Letter; Deloitte Letter; E&Y 

Letter; KPMG Letter; McGladrey Letter. 

400CAQ Letter. 

401CAQ Letter (recommending that such issuers 

disclose that the financial statements have not been 

subject to an audit or review by an independent 

accountant); E&Y Letter; KPMG Letter. 

issuers, issuers conducting Tier 2 

offerings would be required to provide 

financial statements that are audited in 

accordance with the standards issued by 

the PCAOB. 

Additionally, we proposed to update 

the Form 1–A financial statement 

requirements to be consistent with the 

proposed timetable for ongoing 

reporting.383 Under existing Regulation 

A, issuers are required to prepare a 

balance sheet as of a date not more than 

90 days before filing the offering 

statement, or not more than six months 

before filing if approved by the 

Commission upon a showing of good 

cause.384 In practice, issuers often 

receive a six-month accommodation. If 

the financial statements are filed more 

than 90 days after the end of the issuer’s 

most recently completed fiscal year, the 

financial statements must include that 

fiscal year.385

We proposed to extend the 

permissible age of financial statements 

in Form 1–A to nine months, in order 

to permit the provision of financial 

statements that are updated on a 

timetable consistent with our proposed 

requirement for semiannual interim 

reporting.386 We also proposed to add a 

new limitation on the age of financial 

statements at qualification, under which 

an offering statement could not be 

qualified if the date of the balance sheet 

included under Part F/S were more than 

nine months before the date of 

qualification.387 For filings made more 

than three months after the end of the 

issuer’s most recent fiscal year, the 

balance sheet would be required to be 

dated as of the end of the most recent 

fiscal year.388 For filings made more 

than nine months after the end of the 

issuer’s most recent fiscal year, the 

balance sheet would be required to be 

dated no earlier than as of six months 

after the end of the most recent fiscal 

year.389 If interim financial statements 

are required, they would be required to 

cover a period of at least six months.390

In the Proposing Release, we noted that 

requiring issuers to file interim financial 

statements no older than nine months 

and covering a minimum of six months 

would have the beneficial effect of 

eliminating what could otherwise be a 

requirement for certain issuers to 

provide quarterly interim financial 

statements during the qualification 

process and would be consistent with 

the timing of our proposed ongoing 

reporting requirements.391 We proposed 

to generally maintain the timing 

requirement of existing Form 1–A 

concerning the date after which an 

issuer must provide financial statements 

dated as of the most recently completed 

fiscal year, but to change the interval 

from 90 calendar days to three 

months.392 While not proposed, we 

additionally solicited comment on 

whether Tier 2 issuers should be 

required to submit financial statements 

in interactive data format using the 

eXtensible Business Reporting Language 

(XBRL). 

(b) Comments on Proposed Rules 

We received numerous detailed 

suggestions from commenters on our 

proposed financial statement 

requirements for Part F/S of Form 1–A. 

Commenters were generally supportive 

of the proposed rules, but also raised 

concerns as to the effect some of the 

proposed requirements for audits in Tier 

2 offerings could have on issuers and 

recommended clarifying revisions that 

would help to make the financial 

statements more consistent in some 

respects with those required in 

registered offerings, while also 

eliminating potentially confusing or 

inconsistent terminology. 

Commenters generally supported the 

proposed increase to two years of 

balance sheets.393 One commenter noted 

that the Commission’s proposal to 

require two years of balance sheets was 

appropriate, particularly in light of the 

existing requirement to provide 

statements of income, cash flows and 

stockholders’ equity for two years.394

Another commenter, however, argued 

against two years of balance sheets for 

Tier 1 issuers instead of the one year 

required under existing Regulation A.395

While commenters generally 

approved of the proposed rules not 

requiring audits for Tier 1 issuers,396

many recommended making changes to 

the proposed auditing requirements for 

the financial statements included in an 

offering.397 One commenter 

recommended not requiring audited 

financial statements until after the first 

year of operations as a ‘‘public startup 

company’’ or not at all for companies 

that are pre-revenue or that have paidin capital, assets and revenues below a 

specified threshold.398 Many 

commenters recommended allowing 

Tier 1 issuers to designate financial 

statements as ‘‘audited’’ if the auditor 

was only independent in accordance 

with the rules of the AICPA and not in 

accordance with the Commission’s 

auditor independence rules.399 These 

commenters noted that the proposed 

requirements for financial statements 

only to qualify as ‘‘audited’’ if the 

auditor complies with the independence 

standards of Article 2 of Regulation S– 

X, as opposed to the independence 

standards of the AICPA, may increase 

costs to smaller issuers due to the 

increased likelihood that an issuer 

would need to have their financial 

statements audited a second time by an 

auditor who was independent under 

Rule 2–01 of Regulation S–X. One 

commenter requested clarification of 

whether a Tier 1 issuer could 

voluntarily provide an audit opinion on 

its financial statements that was 

obtained for other purposes if the 

auditor complied with U.S. GAAS, 

including AICPA independence 

standards, but not with the 

Commission’s independence rules.400

Several commenters recommended 

requiring Tier 1 issuers that provide 

unaudited financial statements to label 

them as unaudited.401

Many commenters recommended 

allowing financial statements in Tier 2 

offerings to be audited in accordance 

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21834 Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Rules and Regulations 

402ABA BLS Letter; BDO Letter; Canaccord 

Letter; Deloitte Letter; E&Y Letter; KPMG Letter; 

McGladrey Letter; MoFo Letter; WR Hambrecht + 

Co Letter. 

403ABA BLS Letter. 

404 15 U.S.C. 7201(a) et seq. 

405 KPMG Letter. 

406BDO Letter; Deloitte Letter. 

407 Deloitte Letter. 

408BDO Letter. 

409E&Y Letter. 

410CAQ Letter. 

411WOC Letter. 

412CFA Letter. 

413ABA BLS Letter; BDO Letter; Letter from 

Frederick D. Lipman, Blank Rome LLP, March 17, 

2014 (‘‘Blank Rome Letter’’); Canaccord Letter; CAQ 

Letter; CFIRA Letter 1; Deloitte Letter; E&Y Letter; 

KPMG Letter; Karr Tuttle Letter; McGladrey Letter; 

MoFo Letter; PwC Letter; WR Hambrecht + Co 

Letter. 

414ABA BLS Letter; Canaccord Letter; CAQ 

Letter; CFIRA Letter 1; Deloitte Letter; E&Y Letter; 

KPMG Letter; McGladrey Letter; MoFo Letter; WR 

Hambrecht + Co Letter. 

415ABA BLS Letter. 

416McGladrey Letter. 

417 KPMG Letter. 

418E&Y Letter. 

419 Deloitte Letter. 

420CAQ Letter; Deloitte Letter; E&Y Letter; KPMG 

Letter. 

421CAQ Letter; PwC Letter. 

422E&Y Letter. 

423 Id. 

with either PCAOB standards or U.S. 

GAAS.402 One commenter limited its 

recommendation to smaller Tier 2 

issuers and conditioned this 

recommendation on the Commission 

not altering the requirement that 

auditors be independent under Rule 2– 

01 of Regulation S–X.403 This 

commenter also recommended 

conditioning the ability to follow U.S. 

GAAS under Tier 2 on the issuer’s 

showing of undue cost and 

impracticability in the offering 

statement and also limiting this relief to 

the issuer’s initial Tier 2 offering. One 

commenter noted that because 

Regulation A issuers are not ‘‘issuers’’ 

(as defined in Section 2(a)(7) of the 

Sarbanes-Oxley Act of 2002),404 when 

the audit is performed in accordance 

with PCAOB standards, AICPA rules 

would require the audit to be compliant 

with both AICPA and PCAOB standards 

and the auditor’s report would have to 

reference both AICPA and PCAOB 

standards. This commenter also noted, 

however, that given recent changes to 

the auditor’s report under AICPA 

standards, it may not be possible for the 

auditor to be in compliance with both 

AICPA and PCAOB standards from a 

reporting perspective.405

Additionally, two commenters 

expressed concern about potential 

confusion that could result from 

requiring PCAOB standards in Tier 2 

offerings, but not requiring PCAOB 

registration.406 One of these commenters 

recommended avoiding any potential 

confusion by allowing for audits under 

U.S. GAAS in Tier 2 offerings.407

Another commenter stated that the issue 

could be resolved by requiring either the 

use of PCAOB-registered auditors for 

Tier 2 offerings or appropriate 

disclosure of the auditor’s PCAOB 

registration status, noting that the 

disclosure option would result in lower 

costs to the issuer and fewer instances 

in which an issuer would need to have 

its financial statements audited a second 

time under PCAOB standards.408

One commenter asked the 

Commission to clarify issues relating to 

transition reporting for Tier 1 issuers 

that have previously conducted an 

offering pursuant to the exemption 

under Section 4(a)(6) and were required 

to file reviewed annual financial 

statements.409 Another commenter 

asked the Commission to clarify the 

application of the audit requirements 

applicable to Tier 1 issuers that have 

audited financial statements prepared 

for other purposes, in light of 

potentially contradictory references in 

proposed Form 1–A to the ‘‘standards of 

the PCAOB’’ and the PCAOB auditing 

standards.410 One commenter 

recommended not requiring audited 

financials under either Tier 1 or Tier 2 

for ‘‘small companies with limited 

revenues and assets.’’ 411 Another 

commenter raised concerns about 

allowing Tier 1 issuers to include 

financial statements audited using U.S. 

GAAS and not requiring that all audits 

be conducted by PCAOB-registered 

auditors.412

Many commenters recommend 

making other changes to the financial 

statement requirements not directly 

related to audit requirements.413 A 

number of commenters suggested 

allowing companies to use alternatives 

under U.S. GAAP for non-public 

business entities when preparing their 

financial statements, since Regulation A 

issuers would otherwise be considered 

‘‘public business entities’’ under FASB 

standards.414 These commenters were 

concerned about the need for issuers to 

have their financial statements prepared 

and audited a second time under U.S. 

GAAP applicable to public business 

entities, as discussed in greater detail 

below. One commenter did not address 

this issue with respect to Tier 1, but 

recommended allowing the smallest 

Tier 2 issuers to follow alternatives 

under U.S. GAAP applicable to nonpublic business entities.415 One 

commenter recommended allowing 

companies to include financial 

statements prepared in accordance with 

alternatives under U.S. GAAP for nonpublic business entities in offerings up 

to a specified minimum, suggesting $10 

million or $20 million.416 Another 

commenter recommended explicitly 

stating that Regulation A issuers are 

subject to ‘‘public business entity’’ 

requirements if the final rules do not 

provide for the use of, or a non-costly 

transition from, financial statements 

based on alternatives under U.S. GAAP 

for non-public business entities.417 One 

commenter limited its recommendation 

with respect to the applicability of 

alternatives under U.S. GAAP for nonpublic business entities to Tier 1 issuers 

and to entities whose financial 

statements are required to be included 

in offering statements relying on Tier 

1.418 Another commenter noted that 

significant acquired businesses will 

qualify as ‘‘public business entities’’ 

because their financial statements are 

filed with the Commission.419 As a 

result, financial statements of those 

businesses would also need to be 

revised, and an issuer would potentially 

need to have their financial statements 

prepared and audited a second time 

under U.S. GAAP applicable to public 

business entities. 

Several commenters recommended 

allowing issuers under Regulation A to 

defer adopting new or revised 

accounting standards effective for 

public companies if non-public business 

entities have a delayed effective date 

(similar to accommodations for 

emerging growth companies under 

Section 102(b) of the JOBS Act).420 Two 

commenters recommended either 

clarifying how the disclosure 

requirements for pro forma financial 

information in Part F/S for Tier 1 issuers 

differ from Rule 8–05 of Regulation S– 

X or requiring such Tier 1 issuers to 

follow Rule 8–05.421 One commenter 

recommended allowing companies 

formed within nine months of the filing 

date of the offering statement to provide 

only a discussion of their financial 

condition and operations since 

inception, rather than financial 

statements as of a date within nine 

months of the date of filing.422 This 

commenter further recommended 

aligning the financial statement 

updating requirements with the timing 

of periodic reports (e.g., allowing for 

120 days before year end financial 

statements are required in the offering 

statement, rather than 90 days).423 This 

commenter also recommended that the 

Commission consider additional scaling 

for Regulation A offerings in the 

requirements concerning the financial 

statements of: Acquired or to-bemstockstill on DSK4VPTVN1PROD with RULES2

Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Rules and Regulations 21835 

424 Id. 

425Blank Rome Letter. 

426E&Y Letter (referring to paragraphs (a)(3)(i) 

and (b)(2) of Part F/S of proposed Form 1–A). 

427E&Y Letter, Appendix B. 

428CAQ Letter. See Section II.C.3.a. above. 

429ABA BLS Letter; Canaccord Letter; MoFo 

Letter; NASAA Letter 2; PwC Letter. 

430ABA BLS Letter (although supporting 

excluding non-Canadian foreign companies); 

Andreessen/Cowen Letter; Canaccord Letter (stating 

generally that the Commission should clarify that 

companies may use IFRS); CAQ Letter; Deloitte 

Letter; PwC Letter. 

431 Karr Tuttle Letter. 

432BIO Letter; MoFo Letter; U.S. Chamber of 

Commerce Letter. 

433 If the financial statements comply with IFRS 

as issued by the IASB, such compliance must be 

unreservedly and explicitly stated in the notes to 

the financial statements and the auditor’s report 

must include an opinion on whether the financial 

statements comply with IFRS as issued by the IASB. 

See General Rule (a)(2) to Part F/S of Form 1–A. 

434CAQ Letter; Deloitte Letter; E&Y Letter; KPMG 

Letter. See also Section 7(a)(2)(B) of the Securities 

Act, 15 U.S.C. 77g(a)(2)(B), and Section 13(a) of the 

Exchange Act, 15 U.S.C. 78m(a). 435See paragraph (a)(3) of Part F/S of Form 1–A. 

436 Id. 

437See paragraph (b) of Part F/S of Form 1–A. 

438E&Y Letter. 

439We are updating the requirements for financial 

statements of businesses acquired or to be acquired 

in Part F/S to refer to the requirements of Rule 

8–04 of Regulation S–X. We are also providing 

specific references to the relevant provisions of 

Regulation S–X regarding the requirements for 

financial statements of guarantors and the issuers of 

guaranteed securities (Rule 3–10 of Regulation 

S–X), financial statements of affiliates whose 

securities collateralize an issuance of securities 

(Rule 3–16 of Regulation S–X), financial statements 

provided in connection with oil and gas producing 

activities (Rule 4–10 of Regulation 

S–X), pro forma financial information (Rule 8–05 of 

Regulation S–X) and income statements for real 

estate operations acquired or to be acquired (Rule 

8–06 of Regulation S–X). The financial statements 

provided in these circumstances would only be 

required to be audited to the extent the issuer had 

already obtained an audit of those financial 

statements for other purposes. 

440CAQ Letter; PwC Letter. 

acquired businesses; guarantors of 

issuers of guaranteed securities; and, 

affiliates that collateralize an 

issuance.424

Another commenter recommended 

that Tier 2 issuers not be subject to Rule 

8–04(b)(3) of Regulation S–X when the 

to-be-acquired business has significant 

loss operations.425 This commenter 

recommended at least not applying Rule 

8–04(b)(3) in situations where 

companies intend to eliminate the 

losses by dropping certain products or 

service lines of business that produced 

the loss. Another commenter 

recommended clarifying whether 

financial statements should also be 

dated within nine months of the 

qualification date of the offering 

statement.426

One commenter made a number of 

specific recommendations that we 

clarify language in particular paragraphs 

of the proposed requirements for 

financial statements in Part F/S of Form 

1–A.427 A different commenter 

indicated that proposed Form 1–A 

seemed to require issuers to disclose 

‘‘selected financial information’’ and 

objected to any such requirement as 

being more onerous than the 

requirements otherwise applicable to 

smaller reporting companies.428

Several commenters specifically 

supported allowing Canadian issuers to 

prepare their financial statements in 

accordance with IFRS as issued by the 

IASB, as proposed.429 More generally, 

many commenters recommended 

allowing foreign issuers to use IFRS as 

issued by the IASB to prepare their 

financial statements.430 One commenter 

recommended allowing U.S. companies 

to use IFRS when conducting offerings 

in Canada.431 This comment was made 

within the context of providing U.S. 

companies the ability to list on a 

Canadian exchange without being 

subject to resale restrictions imposed by 

Regulation S. Three commenters 

specifically opposed adding an XBRL 

requirement.432

(c) Final Rules for Financial Statements 

As discussed more fully below, we are 

adopting requirements for financial 

statements in Part F/S of Form 1–A with 

changes from the proposed rules that are 

designed to simplify and lower the cost 

of compliance for issuers, while 

maintaining important investor 

protections. As proposed, the final rules 

require Tier 1 and Tier 2 issuers to file 

balance sheets and other required 

financial statements as of the two most 

recently completed fiscal year ends (or 

for such shorter time that they have 

been in existence). With the exception 

of the requirement to file two years of 

balance sheets, the final rules largely 

maintain the existing financial 

statement requirements of current Part 

F/S for Tier 1 offerings, while requiring 

Tier 2 issuers to file audited financial 

statements in Part F/S. 

Financial statements for U.S.- 

domiciled issuers will be required to be 

prepared in accordance with U.S. 

GAAP, as is currently the case. 

Canadian issuers, however, may prepare 

financial statements in accordance with 

either U.S. GAAP or International 

Financial Reporting Standards (IFRS) as 

issued by the International Accounting 

Standards Board (IASB).433

Additionally, consistent with the 

suggestions of commenters and in order 

to be consistent with the treatment of 

emerging growth companies under 

Section 102(b)(1) of the JOBS Act, the 

final rules permit issuers, where 

applicable, to delay the implementation 

of new accounting standards to the 

extent such standards provide for 

delayed implementation by non-public 

business entities.434 In this regard, with 

respect to the delayed implementation 

of new or revised financial accounting 

standards, if the issuer chooses to take 

advantage of the extended transition 

period to the same extent that a ‘‘nonissuer’’ company is permitted to, the 

issuer: 

• Must disclose such choice at the 

time the issuer files the offering 

statement; and 

• May not take advantage of the 

extended transition period with respect 

to some standards and not others, but 

must apply the same choice to all 

standards.435

However, issuers electing not to use 

this accommodation must forgo this 

accommodation for all financial 

accounting standards and may not elect 

to rely on this accommodation in any 

future filings.436

As proposed, the final rules require 

issuers conducting Tier 1 offerings to 

follow the requirements for the form 

and content of their financial statements 

set out in Part F/S, rather than following 

the requirements in Regulation S–X.437

However, consistent with a comment 

received,438 in certain less common 

circumstances, such as for an acquired 

business or subsidiary guarantors, Part 

F/S directs issuers conducting Tier 1 

offerings to certain portions of 

Regulation S–X that provide guidance 

on when financial statements for 

entities other than the issuer are 

required.439 In Tier 1 offerings the form 

and content of the financial statements 

for those other entities also follow the 

requirements set out in Part F/S. We 

believe this guidance will assist issuers 

with compliance with the general 

requirements for financial statement 

disclosure in these less common 

circumstances and is an appropriate 

change in the final rules. In an effort to 

reduce confusion, as suggested by 

commenters,440 the final rules also 

direct issuers to Rule 8–05 of Regulation 

S–X for pro forma information 

disclosure requirements. Additionally, 

the final rules require compliance with 

Rule 8–06 of Regulation S–X for real 

estate operations acquired because real 

estate companies and REITs are eligible 

issuers. 

The final rules require Tier 2 issuers 

to follow the financial statement 

requirements of Article 8 of Regulation 

S–X, as if the issuer were a smaller 

reporting company, unless otherwise 

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441See paragraph (c) of Part F/S of Form 1–A. 

442Tier 2 issuers would, however, follow 

paragraphs (c)(1) of Part F/S of Form 1–A with 

respect to the age of the financial statements and 

the periods to be presented. In Tier 2 offerings, the 

form and content of financial statements for other 

entities follow the requirement of Article 8 of 

Regulation S–X. 

443CAQ Letter; E&Y Letter; KPMG Letter. 

444See CAQ Letter (requesting clarification on 

this issue). 

445While not a requirement, issuers in Tier 1 

offerings may have independent business reasons 

why they seek to provide, or investors that may 

otherwise demand, audited financial statements. 

446See paragraph (c)(1)(iii) of Part F/S of 

Form 1–A. 

447ABA BLS Letter; BDO Letter; Canaccord 

Letter; Deloitte Letter; E&Y Letter; KPMG Letter; 

McGladrey Letter; MoFo Letter; WR Hambrecht + 

Co Letter. 

448The AICPA Code of Professional Conduct is 

available at: http://pub.aicpa.org/codeofconduct/ 

ethicsresources/et-cod.pdf. 

449See KPMG Letter. 

450As discussed above, however, compliance 

with PCAOB standards could also require 

compliance with U.S. GAAS. 

451See, e.g., Section II.E.3.c (Exchange Act 

Registration of Regulation A Securities) below. 

452See Section 12 of the Exchange Act, Section 

102 of the Sarbanes Oxley Act of 2002 and Article 

2 of Regulation S–X. 

noted in Part F/S.441 This requirement 

also includes any financial information 

required for Tier 1 offerings, as 

discussed above, such as acquired 

businesses required by Rule 8–04 and 

8–05 of Regulation S–X.442

As adopted, financial statements in a 

Tier 1 offering are not required to be 

audited. Consistent with the suggestions 

of commenters,443 and in order to avoid 

potential confusion as to the 

presentation of financial statements, 

issuers in Tier 1 offerings that do not 

provide audited financial statements 

must label their financial statements as 

unaudited. However, the final rules 

clarify that, if an issuer conducting a 

Tier 1 offering has already obtained an 

audit of its financial statements for other 

purposes, and that audit was performed 

in accordance with U.S. GAAS or the 

standards of the PCAOB, and the 

auditor followed the independence 

standards of either Rule 2–01 of 

Regulation S–X or the independence 

standards of the AICPA, then those 

audited financial statements must be 

filed.444 We believe the requirement to 

file already available audited financial 

statements will benefit investors. The 

auditor need not be registered with the 

PCAOB. While audited financial 

statements are not generally required to 

be filed for Tier 1 offerings, allowing 

auditors to follow the independence 

standards of the AICPA or Rule 2–01 of 

Regulation S–X is consistent with the 

suggestions of most commenters and 

will provide smaller issuers that seek to 

submit ‘‘audited’’ financial statements 

in Tier 1 offerings with greater 

flexibility in satisfying the financial 

statement requirements.445 We agree 

that, when available, financial 

statements that satisfy the financial 

statement requirements and that have 

been audited by an auditor that meets 

the independence standards of the 

AICPA should be deemed ‘‘audited’’ for 

purposes of Tier 1 offerings. 

Issuers conducting Tier 2 offerings 

are, by contrast, required to have their 

financial statements audited. The 

auditor of financial statements being 

filed as part of a Tier 2 offering must be 

independent under Rule 2–01 of 

Regulation S–X and must comply with 

the other requirements of Article 2 of 

Regulation S–X, but need not be 

PCAOB-registered.446 In a change from 

the proposed rules, and consistent with 

the suggestions of commenters,447 the 

final rules require issuers conducting 

Tier 2 offerings to provide financial 

statements that are audited in 

accordance with either U.S. GAAS or 

the standards issued by the PCAOB. 

As noted above, one commenter 

indicated that, because Regulation A 

issuers are not ‘‘issuers,’’ as defined by 

Section 2(a)(7) of the Sarbanes-Oxley 

Act of 2002, AICPA rules would require 

the audit to be compliant with U.S. 

GAAS even if the auditor has conducted 

the audit in accordance with PCAOB 

standards. Staff of the Commission 

consulted with the AICPA on this issue 

and has been advised that an audit 

performed by its members of an issuer 

conducting an offering pursuant to 

Regulation A would be required to 

comply with U.S. GAAS in accordance 

with the AICPA’s Code of Professional 

Conduct.448 As a result, an auditor for 

a Regulation A issuer who is conducting 

its audit in accordance with PCAOB 

standards would also be required to 

comply with U.S. GAAS, and the 

auditor would need to comply with the 

reporting requirements of both the 

AICPA standards and the PCAOB 

standards. As further noted by this 

commenter,449 there may be some 

question as to whether an auditor can 

currently comply with both sets of 

standards when issuing its auditor’s 

report. Commission staff also consulted 

with the AICPA on this issue and has 

been informed that the AICPA will 

consider taking action to address this 

potential conflict so that an auditor’s 

report would be able to comply with 

both sets of auditing standards. 

Thus, requiring issuers in Tier 2 

offerings to have their financial 

statements audited in accordance with 

PCAOB standards would have the effect 

of requiring issuers to comply with two 

sets of auditing standards and 

potentially result in audits for Tier 2 

issuers being subject to additional 

incremental costs than would be 

required for registered offerings (which 

are only subject to PCAOB auditing 

standards). To avoid such a result, the 

final rules permit Tier 2 issuers the 

option of following U.S. GAAS or the 

standards of the PCAOB.450

We believe that providing issuers 

with this option could help reduce the 

cost of required audits in Tier 2 

offerings while maintaining appropriate 

safeguards for investors. We believe 

audits conducted in accordance with 

U.S. GAAS provide sufficient protection 

for investors in Regulation A offerings, 

especially in light of the requirement 

that auditors for Tier 2 offerings must be 

independent under Rule 2–01 of 

Regulation S–X. Moreover, we believe 

that the flexibility adopted in the final 

rules is more appropriately tailored for 

the different types of issuers likely to 

conduct Tier 2 offerings because it will 

not only eliminate the potential that 

existed under the proposed rules that 

some issuers would need to have their 

financial statements audited a second 

time under PCAOB standards, but also 

continue to permit issuers, such as those 

that may seek concurrent registration of 

a class of securities under the Exchange 

Act, to comply with the PCAOB 

standards if they so choose.451

An issuer that includes financial 

statements audited in accordance with 

U.S. GAAS and PCAOB standards will 

likely incur additional incremental costs 

compared with an issuer that includes 

financial statements audited only in 

accordance with U.S. GAAS. However, 

we assume that an issuer would only 

elect to comply with both sets of 

auditing standards because it has 

concluded that the benefit of doing so 

(for example, to facilitate Exchange Act 

registration) justify these additional 

incremental costs. Commission staff 

understands that many firms that 

conduct audits using PCAOB standards 

have developed their methodology in a 

manner that would comply with both 

sets of standards, which could help 

contain the costs related to complying 

with both U.S. GAAS and PCAOB 

auditing standards. 

An issuer conducting a Regulation A 

offering that seeks to concurrently 

register its securities under the 

Exchange Act would be required to file 

audited financial statements that are 

prepared in accordance with the 

standards of the PCAOB by an auditor 

that is PCAOB-registered.452 The final 

rules therefore provide Regulation A 

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453 If the final rules did not permit issuers to 

prepare audited financial statements in accordance 

with the standards of the PCAOB, Regulation A 

issuers that rely on the amendments to Form 8–A 

adopted today in order to register a class of 

securities pursuant to Section 12 of the Exchange 

Act would have to have their financial statements 

audited a second time under PCAOB standards by 

a PCAOB registered auditor. 

454Our final rules for ongoing reporting are 

discussed in Section II.E.1. below. 

455See paragraph(s) (b)(3)–(4) of Part F/S of Form 

1–A for Tier 1 issuers, which also apply to Tier 2 

issuers by virtue of paragraph (c)(1) of Part F/S of 

Form 1–A. 

456 Id. 

457See paragraph (b)(3)(A) of Part F/S of 

Form 1–A. 

458See paragraph (b)(3)(B) of Part F/S of 

Form 1–A. 

459See paragraph (b)(4) of Part F/S of Form 1–A. 

460See, e.g., discussion in Section II.E.1. below. 

461 Data becomes interactive when it is labeled or 

‘‘tagged’’ using a computer markup language such 

as XBRL that software can process for analysis. For 

a discussion of current financial statement 

interactive data requirements, see Rel. No. 33–9002 

(Jan. 30, 2009) [74 FR 6776]. 

462BIO Letter; MoFo Letter; US Chamber of 

Commerce Letter. 

463We recognize, however, that future 

technological developments may lessen the burden 

to smaller issuers associated currently with XBRL, 

at which time we may revisit this initial 

determination. 

464The Private Company Decision-Making 

Framework: A Guide for Evaluating Financial 

Accounting and Reporting for Private Companies 

(the ‘‘PCC Guide’’), available at: http://www.fasb.

org/cs/ContentServer?c=Document_C&pagename=

FASB%2FDocument_C%2FDocumentPage&cid=

1176163703583. 

465For a brief history behind the creation of the 

PCC, see: http://www.fasb.org/cs/ContentServer?c=

Page&pagename=FASB%2FPage%2FSectionPage&

cid=1351027243391. 

466See numbered paragraph 12 of the PCC Guide, 

p. 3. 

467 Id. 

468The Commission approved the proposed rules 

on December 18, 2013, while the PCC Guide was 

issued on December 23, 2013. 

469ABA BLS Letter; Canaccord Letter; CAQ 

Letter; CFIRA Letter 1; Deloitte Letter; E&Y Letter; 

KPMG Letter; McGladrey Letter; MoFo Letter; WR 

Hambrecht + Co Letter. 

470 Id. 

issuers with the option to provide 

financial statements in Part F/S of Form 

1–A that comply with correlating 

requirements under the Exchange 

Act.453

The Form 1–A financial statement 

requirements are being further updated 

to be consistent with the timetable for 

ongoing reporting.454 The final rules 

extend the permissible age of financial 

statements in Form 1–A to nine months, 

in order to permit the provision of 

financial statements that are updated on 

a timetable consistent with our 

requirement for semiannual interim 

reporting.455 As proposed, the final 

rules add a new limitation on the age of 

financial statements at qualification, 

under which an offering statement 

cannot be qualified if the date of the 

most recent balance sheet included 

under Part F/S is more than nine 

months before the date of 

qualification.456 For filings made more 

than three months but no more than 

nine months after the end of the issuer’s 

most recently completed fiscal year end, 

issuers are required to include a balance 

sheet as of the two most recently 

completed fiscal year ends.457 For 

filings made more than nine months 

after the end of the issuer’s most 

recently completed fiscal year end, the 

balance sheet is required to be dated as 

of the two most recently completed 

fiscal year ends and an interim balance 

sheet must be included as of a date no 

earlier than six months after the end of 

the most recently completed fiscal 

year.458 If interim financial statements 

are required, they are required to cover 

a period of at least six months.459

Requiring issuers to file interim 

financial statements no older than nine 

months and covering a minimum of six 

months has the beneficial effect of 

eliminating what would otherwise be a 

requirement for certain issuers to 

provide quarterly interim financial 

statements during the qualification 

process and is consistent with the 

timing of the ongoing reporting 

requirements adopted today.460 We are 

generally maintaining the requirement 

of existing Form 1–A concerning the 

date after which an issuer must provide 

financial statements dated as of the most 

recently completed fiscal year, but are 

changing the interval from 90 calendar 

days to three months, which we believe 

will simplify compliance by allowing 

issuers to follow full months. In order 

to further simplify compliance with the 

final rules, we also revised Part F/S of 

Form 1–A to streamline the application 

of, and simplify the language in, the 

rules without substantively changing 

the required content. 

Although we solicited comment on 

whether issuers conducting Tier 2 

offerings should be required to provide 

their financial statements to the 

Commission and on their corporate Web 

sites in interactive data format using 

XBRL, we are not adopting any such 

requirement in the final rules.461

Commenters that addressed this issue 

opposed requiring the use of XBRL in 

Regulation A filings.462 We agree and do 

not believe that requiring the use of 

XBRL in Regulation A filings would be 

an appropriately tailored requirement 

for smaller issuers at this time.463

On December 23, 2013, after we 

proposed rules for Regulation A, the 

Financial Accounting Standards Board 

(FASB) and Private Company Council 

(PCC) issued a guide for evaluating 

financial accounting and reporting for 

non-public business entities.464 The 

PCC was created in 2012 by the FASB 

and the Financial Accounting 

Foundation (FAF) to improve the 

standard-setting process, and provide 

for accounting and reporting 

alternatives, for non-public business 

entities under U.S. GAAP.465 As the 

standards for non-public business 

entities are new, there are currently very 

few distinctions between U.S. GAAP for 

public and non-public business entities. 

Over time, however, more distinctions 

between non-public business entity and 

public company accounting standards 

could develop. 

Issuers that offer securities pursuant 

to Regulation A will be considered 

‘‘public business entities’’ as defined by 

the FASB and, therefore, ineligible to 

rely on any alternative accounting or 

reporting standards for non-public 

business entities.466 Even though issuers 

of securities in a Regulation A offering 

fit within the definition of ‘‘public 

business entity,’’ the Commission 

retains the authority to determine 

whether or not such issuers would be 

permitted to rely on the developing nonpublic business entity standards.467

The distinction between public and 

non-public business entity standards 

was not directly contemplated in the 

Proposing Release, as the FASB/PCC 

Guide was issued after the Regulation A 

proposal was approved by the 

Commission.468 Commenters, however, 

generally expressed concern about the 

costs associated with requiring nonpublic business entities (e.g., nonExchange Act reporting companies) to 

follow public company U.S. GAAP 

accounting standards, particularly on a 

going forward basis.469 Commenters also 

expressed concern about the potential 

that an issuer would need to have its 

financial statements prepared and 

audited a second time, which would 

likely increase the costs associated with 

any previously obtained financial 

statements by a non-public business 

entity that would not comply with the 

financial statement requirements of an 

exemption that requires such issuer to 

follow the standards applicable to 

public business entities.470

The final rules do not allow 

Regulation A issuers to use the 

alternatives available to non-public 

business entities under U.S. GAAP in 

the preparation of their financial 

statements. One of the significant factors 

considered by the FASB in developing 

its definition of ‘‘public business entity’’ 

was the number of primary users of the 

financial statements and their access to 

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21838 Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Rules and Regulations 

471PCC Guide, p. 6. 

472 Id. 

473See General Instruction III to proposed Form 

1–A and discussion in Section II.C.3.b(1). above 

regarding incorporation by reference in Part II of 

Form 1–A. The hyperlink must be active at the time 

of filing, but need not remain active after filing. 

474See Part III (Exhibits) of Form 1–A. 

475See General Instruction III to Form 1–A. The 

hyperlink must be active at the time of filing, but 

need not remain active after filing. 476This is consistent with current practice under 

Regulation A, but will be made an express 

requirement under the final rules. See Rule 

252(f)(1)(ii). 477See id. 478See Instructions 2 and 3 to Signatures in 

proposed Form 1–A; cf. Rule 402(e), 17 CFR 

230.402(e). 

479 Id. 

480See 17 CFR 230.252(f) (2014) and Instruction 

1 to Signatures of Form 1–A (2014). 

481 17 CFR 239.42. 

482See Rel. No. 33–6902 (June 21, 1991) [56 FR 

30036] (adopting the multijurisdictional disclosure 

system). 

483See Instructions to Signatures, Form 1–A. 

484 17 CFR 230.415. Certain shelf offerings, 

however, are only permissible in offerings on Form 

S–3, which Regulation A issuers are ineligible to 

use. See, e.g., Rule 415(a)(1)(x). 

485 17 CFR 230.415(a)(3). 

486See 17 CFR 229.512(a)(1) (requiring issuers to 

file a post-effective amendment for purposes of an 

update under Section 10(a)(3) of the Securities Act, 

to reflect any facts or events arising after 

effectiveness that, individually or in the aggregate, 

represent a fundamental change in the information 

set forth in the registration statement, or to include, 

subject to certain exceptions, any material 

information with respect to the plan of distribution 

not previously disclosed (or material changes to 

information previously disclosed) in the registration 

statement). 

487See 17 CFR 230.253(e) (2014); 17 CFR 

230.252(h)(1) (2014). 

management.471 As the FASB noted, 

‘‘users of private company financial 

statements have continuous access to 

management and the ability to obtain 

financial information throughout the 

year.’’ 472 As the number of investors 

increases and the ability to influence 

management decreases, it is important 

that all investors receive or have timely 

access to comprehensive financial 

information. As a result, the 

Commission believes that investor 

protection is enhanced by Regulation A 

issuers providing financial statements 

prepared in the same manner as other 

entities meeting the FASB’s definition 

of ‘‘public business entity.’’ 

c. Part III (Exhibits) 

We proposed to maintain the existing 

exhibit requirements in Part III of Form 

1–A. Additionally, we proposed to 

continue to permit issuers to 

incorporate by reference certain 

information in documents filed under 

Regulation A that is already available on 

EDGAR, but also require issuers to 

describe the information incorporated 

by reference and include a hyperlink to 

such exhibit on EDGAR.473 As 

proposed, issuers also would have to be 

subject to the ongoing reporting 

obligations for Tier 2 offerings in order 

to avail themselves of this 

accommodation. 

We did not receive any comments on 

the proposed exhibit requirements for 

Part III of Form 1–A, and are adopting 

the proposed exhibit requirements 

substantially as proposed. As adopted, 

issuers will be required to file the 

following exhibits with the offering 

statement: Underwriting agreement; 

charter and by-laws; instrument 

defining the rights of securityholders; 

subscription agreement; voting trust 

agreement; material contracts; plan of 

acquisition, reorganization, 

arrangement, liquidation, or succession; 

escrow agreements; consents; opinion 

regarding legality; ‘‘testing the waters’’ 

materials; appointment of agent for 

service of process; and any additional 

exhibits the issuer may wish to file.474

In a change from the proposed 

requirements, however, the final rules 

no longer require issuers to file 

schedules (or similar attachments) to 

material contracts in all instances. As 

adopted, issuers are permitted to 

exclude schedules (or similar 

attachments) to material contracts if not 

material to an investment decision or if 

the material information contained in 

such schedules is otherwise disclosed in 

the agreement or the offering statement. 

Any material contract filed in response 

to Item 17, however, must contain a list 

briefly identifying the contents of all 

omitted schedules, together with an 

agreement to furnish supplementally a 

copy of any omitted schedule to the 

Commission upon request. 

We are adopting final rules that 

permit issuers to incorporate by 

reference certain information that is 

already available on EDGAR. In a 

change from the proposed rules, 

incorporation by reference will not be 

limited to documents previously filed 

pursuant to Regulation A and will not 

be limited to issuers subject to Tier 2 

ongoing reporting obligations. We 

believe that this change will continue to 

facilitate the provision of required 

information to investors, while taking a 

consistent approach to information 

previously provided to the Commission 

and publicly available on EDGAR. 

Issuers that seek to incorporate by 

reference are further required to 

describe the information incorporated 

by reference and include a hyperlink to 

such exhibit on EDGAR.475 As 

proposed, such issuers must be subject 

to the ongoing reporting obligations for 

Tier 2 offerings. Additionally, as 

proposed, to the extent postqualification amendments to offering 

statements must include audited 

financial statements, the final rules 

require the consent of the certifying 

accountant to the use of such 

accountant’s report in connection with 

amended financial statements to be 

included as an exhibit.476 The final rule, 

however, clarifies that the requirement 

to file the consent of the certifying 

accountant only applies where the 

financial statements required to be filed 

are amended.477

d. Signature Requirements 

Similar to the requirement for issuers 

in registered offerings, we proposed to 

require issuers to manually sign a copy 

of the offering statement before or at the 

time of filing and retain it for a period 

of five years.478 Issuers would be 

required to produce the manually 

signed copy to the Commission, upon 

request.479 Additionally, we proposed to 

eliminate the requirement that, where 

an issuer filing a Form 1–A is a 

Canadian issuer, its authorized 

representative in the United States is 

required to sign the offering 

statement.480 Also, we proposed to 

maintain the requirement that Canadian 

issuers file a Form F–X 481 to provide an 

express consent to service of process in 

connection with offerings qualified 

under Form 1–A. This treatment is 

similar to requirements for Canadian 

companies making filings under the 

multijurisdictional disclosure 

system.482

We did not receive any comments on 

this aspect of the proposal, and are 

adopting these provisions, as proposed, 

in the final rules.483

4. Continuous or Delayed Offerings and 

Offering Circular Supplements 

a. Proposed Rules 

Rule 251(d)(3) currently allows for 

continuous or delayed offerings under 

Regulation A if permitted by Rule 

415.484 By reference to the undertakings 

of Item 512(a) of Regulation S–K,485

Rule 415 does not necessarily require 

every change in the information 

contained in a prospectus to a 

registration statement in a continuous 

offering to be reflected in a posteffective amendment.486 On the other 

hand, currently Regulation A requires 

every revised or updated offering 

circular in a continuous offering to be 

filed as an amendment to the offering 

statement to which it relates and to be 

qualified in a process similar to the 

Commission staff review, comment and 

qualification process for initial offering 

statements.487 The requalification 

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Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Rules and Regulations 21839 

488See Rel. No. 33–6499 [48 FR 52889] (Nov. 23, 

1983) (noting the efficiency and cost savings issuers 

experienced during the eighteen month trial period 

for a previous temporary version of the rule). 

489 17 CFR 230.415. 

490Certain ‘‘traditional shelf offerings’’ have been 

allowed since at least 1968 by the Commission’s 

guides for the preparation and filing of registration 

statements, such as Guide 4, and related 

administrative practice. See id.; see also Rel. No. 

33–4936 [33 FR 18617] (Dec. 9, 1968) (adopting 

Guide 4 and other Commission guides). 

491See Proposing Release, at Section II.C.4. 

492Proposed Rule 251(d)(3)(i)(F). 

493Proposed Rule 251(d)(3). 

494See also fn. 484 above. 

495Rule 415(a)(1)(xi) discusses investment 

companies and BDCs. 

496See proposed Rule 251(d)(3)(ii). 

497See proposed Rule 252(h)(2). 

498 Id. 

499See proposed Rule 253(g). 

500See proposed Rule 251(d)(3)(i)(F) and note to 

proposed Rule 253(b). 

501See proposed Rule 253(g). 

502See proposed Rule 253(g)(2). 

503See proposed Rule 253(g)(4). 

504See, e.g., ABA BLS Letter; KVCF Letter; OTC 

Markets Letter; Paul Hastings Letter. 

505OTC Markets Letter; Paul Hastings Letter. 

506OTC Markets Letter. This commenter also 

recommended that securities offered under 

Regulation A that are not penny stocks and that 

trade on an established public market should be 

treated as having a ‘‘ready market’’ and thus be 

considered eligible for margin purposes, which the 

commenter believed would increase the value of 

securities and their liquidity. 

507Paul Hastings Letter. Regulation M was 

adopted by the Commission in 1996 and is intended 

to prevent potentially manipulative practices by 

underwriters, issuers, selling securityholders, and 

other participants in a securities offering. See Rel. 

No. 38067 (December 20, 1996) [62 FR 520]. 

508Rule 457(c) specifies that Securities Act 

registration fees for securities offered on the basis 

of fluctuating market prices shall be calculated as 

follows: Either the average of the high and low 

prices reported in the consolidated reporting system 

(for last sale reported over-the-counter securities) or 

the average of the bid and asked price (for other 

over-the-counter securities) as of a specified date 

within 5 business days prior to the date of filing the 

offering statement. 

process can be costly and time 

consuming for smaller issuers 

conducting continuous offerings of 

securities pursuant to Regulation A. We 

proposed to clarify in the rules for 

Regulation A the scope of permissible 

continuous or delayed offerings and the 

related concept of offering circular 

supplements. 

Rule 415 attempts to promote 

efficiency and cost savings in the 

securities markets by allowing for the 

registration of certain traditional and 

other shelf offerings.488 Prior to the 

adoption of final rules today, Rule 

251(d)(3) of Regulation A allowed for 

continuous or delayed offerings under 

Regulation A if permitted by Rule 

415.489 When Rule 415 was adopted, the 

Commission recognized that certain 

traditional shelf offerings have been 

allowed by administrative practice for 

many years despite the absence of such 

a rule.490 Since Rule 415 only addresses 

registered offerings, however, the 

precise scope of continuous or delayed 

offerings under Regulation A has been 

unclear. 

The proposed rules would clarify the 

scope of permissible continuous or 

delayed offerings under Regulation A 

and the related concept of offering 

circular supplements, and otherwise 

continue to allow for certain traditional 

shelf offerings to promote flexibility, 

efficiency, and to reduce unnecessary 

offerings costs.491 Further, as proposed, 

an issuer’s ability to sell securities in a 

continuous or delayed offering would be 

conditioned on being current with the 

Tier 2 ongoing reporting requirements at 

the time of sale.492

To provide clarity regarding the 

application of Rule 415 concepts to 

Regulation A offerings, we proposed to 

add a provision to Regulation A similar 

to Rule 415, but with limitations that we 

believed would be appropriate for 

Regulation A. The provision would 

establish time limits similar to those in 

Rule 415 and make conforming changes 

as necessary.493

In the Proposing Release we proposed 

excluding types of shelf offerings that 

cannot be conducted under existing 

Regulation A, such as offerings 

requiring registration on Form F–6, 

offerings requiring primary eligibility to 

use Forms S–3 or F–3,494 offerings 

conducted by issuers ineligible to use 

Regulation A,495 as well as certain 

offerings that we do not currently 

believe would be appropriate to include 

in the Regulation A framework. Further, 

we proposed prohibiting all ‘‘at the 

market’’ offerings under Regulation 

A.496

Additionally, as proposed, changes in 

the information contained in the 

offering statement would no longer 

necessarily trigger an obligation to 

amend.497 Offering circulars for 

continuous Regulation A offerings 

would, however, continue to be 

required to be updated annually through 

the filing of a post-qualification 

amendment. These annual postqualification amendments would 

include updated financial statements 

and post-qualification amendments 

would also be required when updating 

the offering circular to reflect facts or 

events arising after qualification which, 

in the aggregate, represent a 

fundamental change in the information 

set forth in the offering statement.498

In addition to these post-qualification 

amendments to the offering statement 

that must be qualified, we also proposed 

to allow issuers to use offering circular 

supplements in certain situations.499

Further, we proposed to permit issuers 

in continuous offerings to qualify 

additional securities in reliance on 

Regulation A by a post-qualification 

amendment.500

We also proposed provisions similar 

to Rule 424 that would require issuers 

omitting certain information from an 

offering statement at the time of 

qualification, in reliance on proposed 

Rule 253(b), to file such information as 

an offering circular supplement no later 

than two business days following the 

earlier of the date of determination of 

such pricing information or the date of 

first use of the offering circular after 

qualification.501 Further, these proposed 

provisions would require offering 

circulars that contain substantive 

changes in information previously 

provided in the last offering circular 

(other than information omitted in 

reliance on proposed Rule 253(b)) to be 

filed within five business days after the 

date such offering circular is first used 

after qualification.502 Offering circular 

supplements that are not filed within 

the required time frames provided by 

the proposed rules would be required to 

be filed as soon as practicable after the 

discovery of the failure to file.503

b. Comments on Proposed Rules 

Commenters were generally 

supportive of the proposed 

modernization of Regulation A’s 

offering process, in general, and the 

provisions for continuous or delayed 

offerings, in particular.504 Two 

commenters, however, recommended 

allowing for at the market offerings 

under Regulation A.505 Additionally, 

one commenter recommended allowing 

for at the market offerings in non-penny 

stocks on established trading 

markets.506 Another commenter 

recommended allowing for at the market 

offerings in securities that qualify for 

the actively-traded securities exceptions 

in Rules 101 and 102 of Regulation 

M.507 This commenter suggested that 

the offering amount could be 

determined by using the calculation set 

forth in Securities Act Rule 457(c) 508 as 

of a specified date within five business 

days of qualification of the offering 

statement. 

c. Final Rules 

We believe the proposed rules 

sufficiently update existing rules, while 

providing issuers with adequate 

flexibility with respect to, and 

additional guidance on, the permissible 

scope of continuous or delayed 

Regulation A offerings and offering 

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21840 Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Rules and Regulations 

509Rule 251(d)(3). 

510See Rel. No. 33–6499, at IV.A. (‘‘[T]he 

procedural flexibility afforded by the Rule enables 

a registrant to time its offering to avail itself of the 

most advantageous market conditions . . . 

registrants are able to obtain lower interest rates on 

debt and lower dividend rates on preferred stock, 

thereby benefiting their existing shareholders.’’). 

511This condition only applies to continuous 

offerings under Rule 251(d)(3)(i)(F). 

512 Id. 

513Rule 252(f)(2). 

514 Id. 

515Rule 253(g). 

516Rule 251(d)(3)(i)(F) and note to Rule 253(b). 

517Rule 253(b)(2). The bona fide price range 

estimate may not exceed $2 for offerings where the 

upper end of the range is $10 or less and 20% if 

the upper end of the price range is over $10. 

518Rule 253(b) (also permitting the omission of 

underwriting discounts or commissions, discounts 

or commissions to dealers, amount of proceeds, 

conversion rates, call prices and other items 

dependent upon the offering price, delivery dates, 

and terms of the securities dependent upon the 

offering date, so long as certain conditions are met). 

519Rule 253(b)(4). 

520See note to Rule 253(b). 

521 Id. 

522 Id. 

523Rule 253(g)(1). 

524Rule 253(g)(2). 

circular supplements. We are adopting 

these rules as proposed. 

The final rules add Rule 251(d)(3) to 

Regulation A, without changes from the 

proposed rule. This provision is similar 

to Rule 415, but its scope is limited to 

permissible Regulation A offerings.509 In 

this regard, the final rules for Regulation 

A will continue to allow for certain 

traditional shelf offerings to promote 

flexibility, efficiency, and to reduce 

unnecessary offerings costs.510 The final 

rules will condition the ability of an 

issuer to sell securities in a continuous 

offering on being current in its annual 

and semiannual report filing, if required 

under Rule 257(b), at the time of sale.511

As we indicated in the Proposing 

Release, we believe this additional 

condition will not impose incremental 

costs on issuers, which are in any case 

required to update their offering 

statement and to file such ongoing 

reports, and will promote parity of 

information in the secondary markets. 

As proposed, the final rules provide 

for the following types of continuous or 

delayed offerings: 

• Securities offered or sold by or on 

behalf of a person other than the issuer 

or its subsidiary or a person of which 

the issuer is a subsidiary; 

• securities offered and sold pursuant 

to a dividend or interest reinvestment 

plan or an employee benefit plan of the 

issuer; 

• securities issued upon the exercise 

of outstanding options, warrants, or 

rights; 

• securities issued upon conversion 

of other outstanding securities; 

• securities pledged as collateral; or 

• securities that are part of an offering 

which commences within two calendar 

days after the qualification date, will be 

offered on a continuous basis, may 

continue to be offered for a period in 

excess of 30 days from the date of initial 

qualification, and will be offered in an 

amount that, at the time the offering 

statement is qualified, is reasonably 

expected to be offered and sold within 

two years from the initial qualification 

date.512

Notwithstanding the suggestions of 

commenters regarding at the market 

offerings, we continue to believe that 

such offerings are not appropriate for 

Regulation A offerings, particularly at 

the outset of the adoption of today’s 

amendments to the existing rules. While 

it is possible that a market in Regulation 

A securities may develop that is capable 

of supporting primary and secondary at 

the market offerings, rather than permit 

such offerings at the outset, we believe 

that any determination as to whether the 

exemption would be an appropriate 

method for such offerings should occur 

in the future. Further, an offering sold 

at fluctuating market prices may not be 

appropriate within the context of an 

exemption that is contingent upon not 

exceeding a maximum offering size. 

Under the final rules, as proposed, 

changes in the information contained in 

the offering statement will no longer 

necessarily trigger an obligation to 

amend.513 Offering circulars for 

continuous or delayed Regulation A 

offerings will continue to be required to 

be updated, and the offering statements 

to which they relate requalified 

annually to include updated financial 

statements, and otherwise as necessary 

to reflect facts or events arising after 

qualification which, in the aggregate, 

represent a fundamental change in the 

information set forth in the offering 

statement.514 In addition to postqualification amendments to the 

offering statement that must be 

qualified, the final rules also will allow 

issuers to use offering circular 

supplements in certain situations.515

Further, issuers in continuous offerings 

will be permitted to qualify additional 

securities in reliance on Regulation A by 

a post-qualification amendment.516

The final rules will, as proposed, 

permit offering circular supplements to 

be used for final pricing information, 

where the offering statement is qualified 

on the basis of a bona fide price range 

estimate.517 Additionally, the final rules 

permit offering circulars to omit 

information with respect to the 

underwriting syndicate analogous to the 

provisions for registered offerings under 

Rule 430A.518 However, the final rules 

do not allow an issuer to omit the 

volume of securities (the number of 

equity securities or aggregate principal 

amount of debt securities) to be 

offered.519 The final rules also permit, 

as proposed, offering circular 

supplements to reflect a decrease in the 

volume of, or to change the price range 

of, the securities offered in reliance on 

a qualified offering statement under 

Regulation A, so long as the decrease in 

the volume of securities offered or 

change in the price range would not 

materially change the disclosure 

contained in the offering statement at 

qualification.520 Notwithstanding this 

provision, any decrease in the volume of 

securities offered and any deviation 

from the low or high end of the price 

range may be reflected in the offering 

circular supplement filed with the 

Commission if, in the aggregate, the 

decrease in volume and/or change in 

price represent no more than a 20% 

change from the maximum aggregate 

offering price calculable using the 

information in the qualified offering 

statement.521 Under no circumstances, 

however, would an issuer be able to 

amend its offering statement or rely on 

the provisions for offering circular 

supplements where the maximum 

aggregate offering price resulting from 

any changes in the price of the 

securities would exceed the offering 

amount limitation set forth in Rule 

251(a) or if the increase in aggregate 

offering price would result in a Tier 1 

offering becoming a Tier 2 offering.522

We are also adopting as proposed 

provisions similar to Rule 424 that 

require issuers omitting certain pricing 

and price-related information from an 

offering statement at the time of 

qualification, in reliance on Rule 253(b), 

to file such information as an offering 

circular supplement no later than two 

business days following the earlier of 

the date of determination of such 

pricing information or the date of first 

use of the offering circular after 

qualification.523 These provisions 

require offering circulars that contain 

substantive changes (other than 

information omitted in reliance on Rule 

253(b)) in information previously 

provided in the last offering circular to 

be filed within five business days after 

the date such offering circular is first 

used after qualification.524 Offering 

circular supplements that are not filed 

within the required time frames 

provided by the rules are required to be 

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525Rule 253(g)(4). 

526 17 CFR 230.252(g)(2) (2014). 

527 Id. 

528 17 CFR 230.252(g)(3) (2014). 

529 17 CFR 230.252(g)(1) (2014). 

530CFA Letter; CFA Institute Letter; MCS Letter. 

531See Rule 252(e). 

532See 17 CFR 200.30–1(a)(5) (The Director of the 

Division of Corporation Finance has the delegated 

authority to declare registration statements to be 

effective within shorter periods of time than 20 

days after filing, consistent with Section 8(a) of the 

Securities Act (15 U.S.C. 77h). 

533Rule 30–1(b)(2)–(4). 

534See discussion in Section II.C.1. above. 

535See discussion in Section II.C.3.b. above. 

536See discussion in Section II.H.3. below. 

537This timing is similar to the ‘‘testing the 

waters’’ permitted for emerging growth companies 

under new Section 5(d) of the Securities Act, added 

by the JOBS Act, which can also be conducted both 

before and after filing of a registration statement. 

Under Section 5(d), no legending or disclaimers are 

required, but testing the waters is limited to 

potential investors that are ‘‘qualified institutional 

buyers’’ or institutional ‘‘accredited investors.’’ 

538The Commission’s antifraud liability 

provisions in Section 17 of the Securities Act, 15 

U.S.C. 77q, apply to any person who commits fraud 

in connection with the offer or sale of securities. 

Section 3(b)(2)(D) of the Securities Act, 15 U.S.C. 

77c(b)(2)(D), states that the civil liability provisions 

of Section 12(a)(2) apply to any person offering or 

selling securities under Regulation A. See also Rel. 

No. 33–6924, at fn. 48. 

539Proposed Rule 255(b). As proposed, Rule 

255(b) would largely follow similar provisions in 

the context of registered offerings. See Rule 134(d), 

17 CFR 230.134(d) (requiring a disclaimer for 

solicitations of interest in registered offerings). 

540BIO Letter; Letter from Daniel McElroy, 

DuMoulin Black LLP, April 1, 2014 (‘‘DuMoulin 

Letter’’); Ladd Letter 2; Paul Hastings Letter; 

Richardson Patel Letter. 

541Massachusetts Letter 2; NASAA Letter 2; 

WDFI Letter. 

542Ladd Letter 2. 

543MCS Letter. 

544BIO Letter. 

filed as soon as practicable after the 

discovery of the failure to file.525

5. Qualification 

Under existing Regulation A, an 

offering statement is generally only 

qualified by order of the Commission in 

a manner similar to a registration 

statement being declared effective.526 In 

such instances, the issuer includes a 

delaying notation on the cover of the 

Form 1–A stating that the offering 

statement shall only be qualified by 

order of the Commission.527 In order to 

remove a delaying notation, an issuer 

must file an amendment to the offering 

statement indicating that the offering 

statement will become qualified on the 

20th calendar day after filing.528 An 

offering statement that does not include 

a delaying notation will be qualified 

without Commission action on the 20th 

calendar day after filing.529

We proposed to alter the qualification 

process of existing Regulation A. As 

proposed, an offering statement could 

only be qualified by order of the 

Commission, and the process associated 

with the delaying notation would be 

eliminated. A few commenters generally 

supported the proposed elimination of 

qualification without Commission 

action.530 No commenters opposed this 

aspect of the proposal. 

We are adopting, substantially as 

proposed, final rules that require 

Commission action before a Regulation 

A offering statement may be qualified. 

The final rules modify the proposed 

rules by permitting the offering 

statements to be declared qualified by a 

‘‘notice of qualification’’ issued by the 

Division of Corporation Finance, 

pursuant to delegated authority, rather 

than requiring the Commission itself to 

issue an order.531 The notice of 

qualification is analogous to a notice of 

effectiveness in registered offerings.532

We are therefore amending the 

Commission’s organization rules, as 

they relate to the delegated authority of 

the Director of the Division of 

Corporation Finance, to permit the 

Division to issue qualification orders 

pursuant to Regulation A.533 The final 

rules also eliminate the risk that an 

issuer may exclude a delaying notation 

either in error or in an effort to become 

qualified automatically without review 

and comment by the Commission staff. 

Given the electronic filing processes we 

are adopting,534 the scaled disclosure 

requirements for Tier 1 and Tier 2 

offerings,535 and the preemption of state 

securities law registration and 

qualification requirements for Tier 2 

offerings,536 we believe it is appropriate 

to ensure that the Commission staff has 

the opportunity to review and comment 

on an offering statement before it 

becomes qualified. 

D. Solicitation of Interest (Testing the 

Waters) 

1. Proposed Rules 

Under Securities Act Section 

3(b)(2)(E), issuers may test the waters for 

interest in an offering—without 

restriction as to the types of investors 

solicited—before filing an offering 

statement on such terms and conditions 

as the Commission prescribes. We 

proposed to permit issuers to use testing 

the waters solicitation materials both 

before and after the offering statement is 

filed, subject to issuer compliance with 

the rules on filing of solicitation 

materials and disclaimers.537 As we 

noted in the Proposing Release, the 

investor protections with respect to 

solicitation materials in existing 

Regulation A would remain in place as 

these materials remain subject to the 

antifraud and other civil liability 

provisions of the federal securities 

laws.538 As proposed, testing the waters 

materials used by an issuer or its 

intermediaries after publicly filing an 

offering statement would be required to 

include a current preliminary offering 

circular or contain a notice informing 

potential investors where and how the 

most current preliminary offering 

circular can be obtained. We further 

proposed to require issuers to publicly 

file their offering statements not later 

than 21 calendar days before 

qualification so that any solicitation 

made in the 21 calendar days before the 

earliest date of potential sales of 

securities would be conducted using the 

most recent version of the preliminary 

offering circular. The proposed rules 

would amend the requirements for 

submission or filing of solicitation 

materials, so that such material would 

be submitted or filed as an exhibit when 

the offering statement is either 

submitted for non-public review or filed 

(and updated for substantive changes in 

such material after the initial non-public 

submission or filing) but would no 

longer be required to be submitted at or 

before the time of first use. 

As proposed, Rule 255(b) would 

require all soliciting materials to bear 

certain legends or disclaimers.539

Further, we did not propose to limit 

testing the waters to QIBs and 

institutional accredited investors (as is 

currently the case with testing the 

waters by emerging growth companies 

under Securities Act Section 5(d)). 

2. Comments on Proposed Rules 

Most commenters generally supported 

the proposed amendments to the testing 

the waters provisions.540 Several 

commenters, however, recommended 

requiring the filing of testing the waters 

materials prior to first use.541 These 

commenters suggested that the antifraud 

and other civil liability provisions of the 

federal securities laws are not an 

adequate substitute for the investor 

protections afforded by an advance 

filing requirement for solicitation 

materials. They further suggested that 

their concerns about the proposed 

testing the waters provisions are 

compounded by an access equals 

delivery model of final offering circular 

delivery. One commenter recommended 

allowing states to have immediate 

access to all testing the waters materials 

filed with the Commission.542 Another 

commenter recommended making the 

filing of testing the waters materials a 

condition to the exemption,543 while a 

third commenter specifically opposed 

that recommendation.544

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545Heritage Letter; Ladd Letter 2. 

546BIO Letter. 

547MoFo Letter. 

548CFA Institute Letter. 

549ABA BLS Letter; Canaccord Letter; CFIRA 

Letter 1; CFIRA Letter 2; MoFo Letter; Public 

Startup Co. Letter 6; WR Hambrecht + Co Letter. See 

also discussion of Section 12(a)(2) liability in 

Proposing Release, Section II.B.7. 

550Rule 255. For a discussion of the use of 

solicitation materials as it relates to (i) the doctrine 

of integration, see Section II.B.5.c. above and Rule 

255(e), and (ii) the application of state securities 

laws, see Section II.H.3. below. 

551Rule 255(b)(4). 

552See fn. 538 above. 

553 Issuers would not, however, be required to 

update and redistribute solicitation materials to the 

extent that: (i) Any such changes occur only with 

respect to the preliminary offering circular, (ii) no 

similar changes are required in the solicitation 

materials previously relied upon, and (iii) such 

materials included (when originally distributed) a 

URL where the preliminary offering circular or the 

offering statement may be obtained and that URL 

continues to link to the most recent version of the 

preliminary offering circular. See Rule 255(d). 

554See fn. 277 above. 

555Rule 255. 

556See Item 17 (Exhibits), Part III of Form 1–A. 

557BIO Letter; Heritage Letter; Ladd Letter 2; 

MoFo Letter. 

558See Rule 255(a). 

559See Rule 255(b). 

Two commenters recommended 

ensuring that any testing the waters 

materials that are filed with the 

Commission be kept confidential, at 

least until the offering statement is 

qualified.545 One commenter 

recommended removing any 

requirement to file testing the waters 

materials publicly,546 while another 

commenter recommended not requiring 

testing the waters materials to be filed 

for Tier 2 offerings.547 One commenter 

supported the use of legends on testing 

the waters materials or, in lieu of 

legends, restricting testing the waters to 

certain types of investors, such as QIBs 

and accredited investors.548

Several commenters suggested that 

the Commission provide market 

participants with communication safe 

harbors from Section 12(a)(2) liability 

for regular business communications by 

a Regulation A issuer.549

3. Final Rules 

We are adopting testing the waters 

provisions in the final rules as 

proposed. Under the final rules, issuers 

will be permitted to test the waters with 

all potential investors and use 

solicitation materials both before and 

after the offering statement is filed, 

subject to issuer compliance with the 

rules on filing and disclaimers.550

The final rules require, as proposed, 

that testing the waters materials used by 

an issuer or its intermediaries after the 

issuer publicly files an offering 

statement be accompanied by a current 

preliminary offering circular or contain 

a notice informing potential investors 

where and how the most current 

preliminary offering circular can be 

obtained.551 This requirement may be 

satisfied by providing the URL where 

the preliminary offering circular or the 

offering statement may be obtained. 

Solicitation materials will remain 

subject to the antifraud and other civil 

liability provisions of the federal 

securities laws.552 Further, the final 

rules require issuers and intermediaries 

that use testing the waters materials 

after publicly filing the offering 

statement to update and redistribute 

such material in a substantially similar 

manner as such materials were 

originally distributed to the extent that 

either the material itself or the 

preliminary offering circular attached 

thereafter becomes inadequate or 

inaccurate in any material respect.553

As discussed in Section II.C.2. above, 

first-time issuers that are eligible for, 

and elect to, non-publicly submit draft 

offering statements are required to 

publicly file their offering statements 

not later than 21 calendar days before 

qualification so that any solicitation of 

interest made in the 21 calendar days 

before the earliest date of potential sales 

of securities by such issuers will be 

conducted while potential investors 

have access to the most recent version 

of the preliminary offering circular. 

Additionally, in light of the preemption 

of state securities laws registration 

requirements in the final rules for Tier 

2 offerings, the 21 calendar day 

requirement will enable state securities 

regulators to require such issuers to file 

such materials with them for a 

minimum of 21 calendar days before 

any potential sales to investors in their 

respective states.554

As proposed, the final rules require 

that issuers submit or file solicitation 

materials as an exhibit when the 

offering statement is either submitted 

for non-public review or filed (and 

update for substantive changes in such 

material after the initial non-public 

submission or filing). However, issuers 

are no longer required to submit 

solicitation materials at or before the 

time of first use.555 The treatment of 

solicitation materials in Regulation A 

offerings is generally consistent with the 

Commission staff’s treatment of 

solicitation materials used by emerging 

growth companies under Securities Act 

Section 5(d), with two exceptions that 

we believe will provide investors in 

Regulation A offerings with additional 

protections: 

• Solicitation materials used in 

Regulation A offerings are required to be 

included with the offering statement; 556

and 

• solicitation materials used by 

Regulation A issuers that file an offering 

statement with the Commission will be 

publicly available as a matter of course. 

Contrary to the views of commenters 

that suggested we keep solicitation 

materials confidential, or not require 

such materials to be filed (either 

publicly or at all), we believe the 

submission and filing requirements for 

solicitation materials are important 

elements of the final rules for the use of 

solicitation materials.557 We believe that 

issuers should be accountable for the 

content of solicitation materials and that 

such information must be consistent 

with the information contained in the 

offering circular. We believe that 

making these materials publicly 

available as an exhibit to the offering 

statement, and thereby subjecting them 

to staff review and comment and 

scrutiny by the public, will help ensure 

that issuers use solicitation materials 

with appropriate caution. However, for 

the reasons discussed in Section II.F. 

below, we do not believe that the filing 

of such materials should be a condition 

to relying on the Regulation A 

exemption. 

We are adopting as proposed the 

required legends for solicitation 

materials. The legends provide that 

sales made pursuant to Regulation A are 

contingent upon the qualification of the 

offering statement.558 Additionally, to 

provide greater flexibility when using 

solicitation materials, the final rules 

eliminate, as proposed, the requirement 

in existing Regulation A for testing the 

waters materials to identify the issuer’s 

chief executive officer, business, and 

products. Solicitation materials used 

before qualification will, therefore, be 

required to bear a legend or disclaimer 

indicating that: (1) No money or other 

consideration is being solicited, and if 

sent, will not be accepted; (2) no sales 

will be made or commitments to 

purchase accepted until the offering 

statement is qualified; and (3) a 

prospective purchaser’s indication of 

interest is non-binding.559 While the 

expansion of use of solicitation 

materials after filing may result in 

investors receiving more sales literature 

in marketed offerings, in such 

circumstances, potential investors will 

also be afforded more time with the 

preliminary offering circular before 

making an investment decision because, 

as noted above, testing the waters 

materials used by an issuer or its 

intermediaries after the issuer publicly 

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560Cf. The Regulation of Securities Offerings, Rel. 

No. 33–7606A, at 78 (Nov. 17, 1998) [63 FR 67174] 

(discussing the importance of providing a 

preliminary prospectus in conjunction with the 

distribution of sales materials). 

561See fn. 541 above. 

562See also fn. 277 above and discussion in 

Section II.H. below. Where states elect to require 

issuers to file such information with them, their 

respective securities regulators will, for example, 

have access to solicitation materials relied upon by 

first-time issuers that non-publicly submit draft 

offering statements for a minimum of 21 calendar 

days before the first date of any potential sales. 

563See fn. 549 above 564 17 CFR 230.169. 565See Rel. No. 33–5180 (Aug. 20, 1971) 

(Guidelines for Release of Information by Issuers 

Whose Securities are in Registration). 566 Id. 

567See Proposing Release, at Section II.E. 

568See 17 CFR 230.257 (2014); see also 17 CFR 

239.91 (Form 2–A). 

569We did not propose to continue to require 

issuers to disclose the use of proceeds currently 

disclosed in Form 2–A, as issuers would already 

have to disclose this information in Part II of 

proposed Form 1–A and changes in the use of 

proceeds after qualification not previously 

disclosed may require issuers to file a postqualification amendment or offering circular 

supplement to update such disclosure. See 

discussion of continuous or delayed offerings and 

offering circular supplements in Section II.C.4. 

above. 

570Proposed Form 1–Z (exit report) is discussed 

in Section II.E.4. below. 

571Proposed Rule 257(a), (b)(1). 

files an offering statement must be 

accompanied by a current preliminary 

offering circular or contain a notice 

informing potential investors where and 

how the most current preliminary 

offering circular can be obtained.560

We believe the approach to 

solicitation materials that we are 

adopting today is consistent with 

existing Regulation A that allows issuers 

to test the waters and will make the use 

of solicitation materials more beneficial 

for issuers and investors. For issuers, 

the final rules will generally reduce 

compliance burdens and entirely 

eliminate the filing requirement for 

issuers that, after testing the waters, 

decide not to proceed with an offering. 

With respect to investors, we note that 

the final rules contain significant 

safeguards that should help mitigate the 

concerns expressed by some 

commenters that not requiring testing 

the waters materials to be submitted or 

filed with the Commission before first 

use will result in a reduction in investor 

protections.561 These include the 

requirements to make the most recent 

preliminary offering circular available 

with solicitation materials after filing, to 

redistribute solicitation materials after 

filing to the extent that either the 

material itself or the preliminary 

offering circular attached thereafter 

becomes inadequate or inaccurate in 

any material respect, to deliver the 

preliminary offering circular at least 48 

hours in advance of sale if the issuer is 

not subject to a Tier 2 reporting 

obligation, to deliver the final offering 

circular (or a notice of the final offering 

circular) no later than two business days 

after sale in all instances, and the 

minimum 21 calendar day filing 

requirement for issuers that nonpublicly submit draft offering 

statements as well as the continued 

application of the antifraud provisions 

of the federal securities laws. 

Additionally, state securities regulators 

have the ability under the final rules to 

require issuers to file with them any 

materials required to be filed with the 

Commission.562 From an investor 

protection standpoint, we also note that 

sales under Regulation A may occur 

only in connection with a qualified 

offering statement that is filed with the 

Commission and that is subject to 

review by the staff. 

Lastly, to address the concerns of 

commenters regarding an issuers’ ability 

to conduct routine communications 

with customers and suppliers at or near 

the time of a contemplated Regulation A 

offering,563 we are confirming, 

consistent with Rule 169’s existing 

exemption from Sections 2(a)(10) and 

5(c) of the Securities Act for regularly 

released factual business 

communications,564 that we do not 

believe such communications constitute 

solicitation of interest materials under 

Regulation A. Ultimately, whether or 

not a communication is limited to 

factual business information depends on 

the facts and circumstances, but issuers 

may generally look to the provisions of 

Rule 169 for guidance in making this 

determination in the Regulation A 

context. More generally, we note that 

factual business information means 

information about the issuer, its 

business, financial condition, products, 

services, or advertisement of such 

products or services.565 Factual business 

information generally does not include 

such things as predictions, projections, 

forecasts, or opinions with respect to 

valuation of a security.566 The approach 

we are taking today with respect to 

factual business information is 

consistent with the Commission’s stated 

position on such communications for 

registered offerings and clarifies its 

application to Regulation A solicitation 

of interest materials. 

E. Ongoing Reporting 

Section 3(b)(2) of the Securities Act 

requires issuers to provide annual 

audited financial information on an 

ongoing basis and expressly provides 

that the Commission may consider 

whether additional ongoing reporting 

should be required. Specifically, Section 

3(b)(4) grants the Commission authority 

to require issuers ‘‘to make available to 

investors and file with the Commission 

periodic disclosures regarding the 

issuer, its business operations, its 

financial condition, its corporate 

governance principles, its use of 

investor funds, and other appropriate 

matters, and also may provide for the 

suspension and termination of such a 

requirement with respect to that issuer.’’ 

As we noted in the Proposing Release, 

we are mindful that a one-size-fits-all 

ongoing reporting regime may not be 

suitable for all types of entities and 

investors.567 In the final rules for 

Regulation A, we have endeavored to 

achieve an appropriate balance between 

the costs and benefits associated with 

the provision of ongoing information 

about issuers of Regulation A securities 

to investors in such securities and any 

market that develops. 

1. Continuing Disclosure Obligations 

a. Proposed Rules for Continuing 

Disclosure Obligations 

Regulation A currently requires 

issuers to file a Form 2–A with the 

Commission to report sales and the 

termination of sales made under 

Regulation A every six months after 

qualification and within 30 calendar 

days after the termination, completion, 

or final sale of securities in the 

offering.568 We proposed to rescind 

Form 2–A, but to continue to require 

Regulation A issuers to file with the 

Commission electronically on EDGAR 

after the termination or completion of 

the offering the information generally 

disclosed in Form 2–A.569 As proposed, 

issuers conducting Tier 1 offerings 

would be required to provide this 

information on Part I of proposed Form 

1–Z not later than 30 calendar days after 

termination or completion of the 

offering,570 while issuers conducting 

Tier 2 offerings have the flexibility to 

provide this information on either Part 

I of Form 1–Z at the time of filing an exit 

report or proposed Form 1–K as part of 

their annual report, whichever is filed 

first.571

As proposed, Tier 2 issuers would be 

subject to a Regulation A ongoing 

reporting regime that would require, in 

addition to annual reports and summary 

information about a recently completed 

offering, semiannual reports on 

proposed Form 1–SA, current event 

reports on proposed Form 1–U, and, 

when eligible and electing to do so, 

notice to the Commission of the 

suspension of ongoing reporting 

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572ABA BLS Letter; Campbell Letter; Canaccord 

Letter; CFA Letter; McCarter & English Letter; 

NASAA Letter 2; Letter from Jason Coombs, CoFounder and CEO, Public Startup Company, Inc., 

March 26, 2014 (‘‘Public Startup Co. Letter 5’’); US 

Alliance Corp. Letter; WDFI Letter. 

573US Alliance Corp. Letter. 

574McCarter & English Letter. 

575ABA BLS Letter; Canaccord Letter; NASAA 

Letter 2; WDFI Letter. 

576ABA BLS Letter (raising the issue particularly 

with respect to ‘‘very small issuers’’ under Tier 2). 

577 Guzik Letter 1 (suggesting that Tier 1 ongoing 

disclosure requirements could parallel Tier 2’s 

requirements but without the requirement for 

semiannual reports). 

578Ladd Letter 2. 

579SVB Financial Letter. 

580Public Startup Co. Letter 5. 

581Heritage Letter; IPA Letter (providing 

estimated costs of compliance for offering statement 

and periodic reports). 

582Heritage Letter. 

583 DuMoulin Letter. 

584McCarter & English Letter (noting Exchange 

Act Form 20–F, 40–F, Form 6–K, and ongoing home 

country reports). 

585Andreessen/Cowen Letter. 

586OTC Markets Letter. 

587E&Y Letter (noting the Commission’s intent to 

follow this approach, as mentioned in the 

Proposing Release at fn. 397). 

588 Id. 

589 Id. 

590E&Y Letter; Massachusetts Letter 2; NASAA 

Letter 2; OTC Markets Letter; WDFI Letter. 

591OTC Markets Letter. 

592Massachusetts Letter 2; WDFI Letter. 

593B. Riley Letter; Milken Institute Letter. 

594ABA BLS Letter. As proposed, such reviews 

would not be required for any Form 1–SA filing. 

595 KPMG Letter. 

596E&Y Letter. 

597 Id. 

598 Id. 

obligations on Part II of proposed Form 

1–Z. All of these reports would be filed 

electronically on EDGAR. 

b. Comments on the Proposed Rules 

We received both general comments 

and specific comments on the proposed 

forms. These comments are discussed in 

turn below. 

General Comments 

Commenters generally approved of 

the continuing disclosure obligations for 

Tier 2 offerings.572 One commenter 

noted favorably that professional fees, 

other costs, and the time burden 

associated with the proposed rules 

would likely be substantially lower for 

Regulation A issuers than for issuers 

subject to Exchange Act reporting.573

Another commenter remarked that the 

proposed ongoing reporting regime 

strikes an appropriate balance between 

the benefits of disclosure and costs to 

issuers.574

Other commenters expressed general 

support, but also recommended changes 

to the semiannual reporting requirement 

or the content of Form 1–U.575 One 

commenter supported the general policy 

that it should not be easier or harder to 

exit the Regulation A reporting system 

than it would be to exit the Exchange 

Act reporting system.576 Several 

commenters recommended including an 

ongoing disclosure requirement for Tier 

1 issuers, including disclosure at a level 

lower than what was proposed for Tier 

2,577 ongoing disclosure with yearly 

audited financials,578 or some 

unspecified continuous disclosure 

obligation.579 Another commenter 

recommended extending continuing 

disclosure obligations into Tier 1, but 

further suggested that the Commission 

replace any requirement to provide 

audited financial statements with an 

affidavit from management attesting to 

the accuracy of the financial 

statements.580 A few commenters 

generally recommended reducing the 

disclosure burden on Tier 2 issuers.581

One of these commenters recommended 

making continuing disclosure 

requirements contingent upon factors 

other than offering size, such as whether 

the issuer has taken steps to foster a 

market in its securities.582 This 

commenter also recommended allowing 

issuers to either avoid ongoing reporting 

or to file only financial statements and 

a management letter regarding 

operations and results if, shortly after 

commencing the offering upon 

qualification, issuers have less than 300 

record holders. Another commenter 

recommended allowing Canadian 

companies to rely on Rule 12g3–2(b) to 

avoid having to file ongoing reports 

under Regulation A.583 As an 

alternative, this commenter 

recommended allowing Canadian 

companies to furnish reports under 

cover of Form 6–K rather than using the 

Regulation A reports. One commenter 

recommended that, to the extent that the 

final rules allow foreign private issuers 

to use Regulation A, such issuers should 

be permitted to follow the ongoing 

reporting rules applicable to them in the 

Exchange Act context in lieu of 

Regulation A ongoing reporting 

requirements,584 while another 

commenter specifically opposed this 

suggestion.585 Another commenter 

recommended requiring officers, 

directors, and controlling shareholders 

of companies that offer securities under 

Regulation A to make ongoing 

disclosure of transactions in company 

securities, similar to reporting on Forms 

3, 4, and 5 and Schedules 13D, 13G, and 

13F in the registered context.586

Comments on Form 1–K 

One commenter recommended 

revising proposed Form 1–K to 

expressly not require the disclosure of 

an issuer’s plan of operations, as 

described in Item 9(c) of Part II of Form 

1–A.587 This commenter further 

recommended clarifying whether a Tier 

2 issuer is required to comply with 

Rules 3–10, 3–16, and 8–04 of 

Regulation S–X in Form 1–K, in light of 

the reference to segmented data in Item 

7(b) to Part F/S of proposed Form 1– 

A.588 This same commenter 

recommended that the Commission 

clarify whether a Tier 2 issuer is 

required to comply with Rule 8–04 of 

Regulation S–X in proposed Form 1–K, 

particularly with respect to probable 

acquisitions.589

Comments on Form 1–SA 

Several commenters recommended 

requiring or permitting quarterly 

reporting rather than semiannual 

reporting on proposed Form 1–SA.590

One of these commenters stated that 

quarterly reporting is standard in the 

United States and is not overly 

burdensome.591 Two other commenters 

stated that quarterly reporting was 

necessary for investor protection and to 

reduce the risk of insider trading.592

Other commenters noted that quarterly 

reporting might be preferred by market 

participants but supported a semiannual 

requirement.593

One commenter agreed with our 

proposal not to require Tier 2 issuers to 

have their Form 1–SA financial 

statements reviewed by an independent 

accountant, particularly with respect to 

smaller issuers.594 Another commenter 

recommended either requiring the 

financial statements in Form 1–SA to be 

reviewed by an independent accountant 

or requiring issuers to disclose on Form 

1–SA that the financial statements were 

not subject to review.595 Yet another 

commenter recommended that there be 

no requirement to provide Rule 3–16 of 

Regulation S–X financial statements or 

summarized financial information in 

semiannual reports (to align with 

requirements for existing registrants that 

are not required to include this in Form 

10–Q).596 This commenter also 

recommended clarifying if the financial 

statements in Form 1–SA can be 

presented using a condensed format 

consistent with Rule 8–03(a) of 

Regulation S–X and if additional 

disclosure requirements of Rule 8–03(b) 

are applicable.597 This same commenter 

recommended removing Item 3(d) of 

Form 1–SA, because neither this 

statement nor a statement of changes in 

stockholders’ equity is an existing 

requirement on Form 10–Q.598

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599ABA BLS Letter; Milken Institute Letter. 

600ABA BLS Letter; E&Y Letter; Milken Institute 

Letter. 

601E&Y Letter; Massachusetts Letter 2; NASAA 

Letter 2; WDFI Letter. 

602E&Y Letter. For description of Item 512, see fn. 

486 above. 

603Massachusetts Letter 2; NASAA Letter 2; 

WDFI Letter. 

604E&Y Letter. Two commenters made a similar 

recommendation without specifying which form 

should be used for that purpose. See ABA BLS 

Letter; Canaccord Letter. 

605PwC Letter. 

606E&Y Letter. 607ABA BLS Letter; MoFo Letter. 608See Part I of Form 1–K and Part I of Form 1– 

Z. For clarification purposes, we have changed the 

references in Part I in these forms from ‘‘number of 

securities’’ to ‘‘amount of securities.’’ These 

changes should avoid confusion when reporting 

debt offerings where a quantifiable number of 

securities is not being offered. In such cases, issuers 

will be able to report the aggregate sales of 

securities in the offering. 

609Additionally, in continuous offerings, issuers 

are required to file post-qualification amendments 

with the Commission every twelve months to the 

extent that sales are ongoing at that time. See Rule 

252(f)(2)(i). 

610See Rule 257(a). 

611An issuer offering up to $20 million in a Tier 

2 offering would, in addition to providing ongoing 

reports to the Commission on an annual and 

semiannual basis, with interim current event 

updates, be required to file audited financial 

statements in the offering statement, just as issuers 

in larger Tier 2 offerings are required to do. See 

Section II.C.3.b(2)(c). above. 

612Rule 257(b)(1). 

613Rule 257(b)(3). 

614Rule 257(b)(4). 

615Rule 257(d)(2). 

616Subject, in certain cases, to the hardship 

exemptions set forth in Rules 201 and 202 of 

Regulation S–T. 17 CFR 232.201–202. 

617Heritage Letter. 

Comments on Form 1–U 

Commenters made a number of 

suggestions regarding the current report 

requirements. Some commenters 

recommended eliminating the 

requirement to file Form 1–U for the 

smallest issuers, based on a measure 

such as asset size or market 

capitalization.599 Other commenters 

recommended extending the proposed 

filing requirement from four business 

days after the triggering event to fifteen 

business days after such event.600

Several commenters recommended 

changing or clarifying the ‘‘fundamental 

change’’ standard in Item 1 of proposed 

Form 1–U.601 One of these commenters 

expressed concerns about whether this 

item will be consistently interpreted 

and whether the use of the term 

‘‘fundamental change,’’ in light of the 

use of the same term in Item 512 of 

Regulation S–K, would cause additional 

confusion.602 This commenter further 

recommended that, for contracts 

involving business acquisitions, the 

measurement of significance in this item 

should be limited to the investment test 

and the numerical threshold should be 

increased to at least 50% to be more 

consistent with the stated disclosure 

objective. Three commenters 

recommended moving to a materiality 

standard so as to be consistent with the 

standards in the anti-fraud provisions of 

federal securities laws, suggesting that 

this would help avoid confusion.603 One 

commenter recommended allowing (but 

not requiring) Tier 1 issuers to report 

material information on Form 1–U, 

including the financial statements of 

significant acquired businesses.604

Other commenters suggested changes 

to the substance of what would need to 

be reported on Form 1–U. One 

commenter generally recommended 

cross-referencing existing disclosure 

requirements when a proposed 

disclosure standard is meant to be the 

same.605 For example, this commenter 

suggested that Form 1–U include a 

cross-reference to Form 8–K when 

disclosure requirements are meant to be 

the same. One commenter 

recommended permitting companies to 

disclose: (1) A change in accountants in 

the next periodic filing instead of 

reporting it on Form 1–U if the change 

does not involve a disagreement or 

reportable event (as defined in Item 304 

of Regulation S–K); and (2) sales of 

equity securities in the next periodic 

filing if the price was not below that of 

previous primary offerings.606 Two of 

these commenters recommended 

eliminating the requirement to report 

unregistered sales of securities on Form 

1–U, or to raise the reporting threshold 

to only cover offerings that represent at 

least 10% of the issuer’s pre-transaction 

outstanding shares.607

c. Final Rules for Continuing Disclosure 

Obligations 

We are adopting rules for continuing 

disclosure obligations under Regulation 

A generally as proposed, with certain 

technical modifications and 

clarifications. The final rules eliminate 

Form 2–A and in its place require the 

disclosure of similar information 

pursuant to Part I of Form 1–Z for Tier 

1 issuers and, depending on when the 

issuer’s offering is terminated or 

completed, in either Form 1–K or Part 

I of Form 1–Z for Tier 2 issuers. As 

proposed, the respective disclosure 

requirements in Part I of Forms 1–K and 

1–Z will include the date the offering 

was qualified and commenced, the 

amount of securities qualified, the 

amount of securities sold in the offering, 

the price of the securities, the portions 

of the offering that were sold on behalf 

of the issuer and any selling 

securityholders, any fees associated 

with the offering, and the net proceeds 

to the issuer.608 We believe that 

summary information and data about an 

issuer and its Regulation A offering is 

most valuable when obtained after the 

offering is completed or terminated.609

Therefore, as proposed, issuers will only 

be required to disclose such information 

after the termination or completion of 

the offering. 

As noted in the Proposing Release, we 

are concerned that uniform ongoing 

reporting requirements for all issuers of 

Regulation A securities could 

disproportionately affect issuers in 

smaller offerings. For that reason, the 

final rules do not require any ongoing 

reporting for issuers conducting Tier 1 

offerings, other than the disclosure of 

the summary information discussed 

above.610 Issuers in smaller offerings 

will, however, have the option to 

conduct a Tier 2 offering and subject 

themselves to ongoing reporting and 

other Tier 2 requirements.611

The final rules for ongoing reporting 

for Tier 2 issuers are being adopted as 

proposed, except where noted below, 

and will require issuers to file annual 

reports on Form 1–K,612 file semiannual 

reports on Form 1–SA,613 file current 

event reports on Form 1–U,614 and 

provide notice to the Commission of the 

suspension of their ongoing reporting 

obligations on Part II of Form 1–Z.615

All reports for Tier 1 and Tier 2 

offerings are required to be filed 

electronically on EDGAR.616

As discussed above, commenters 

suggested that the Commission consider 

various potential changes to the 

proposed ongoing reporting 

requirements for Tier 2 issuers, 

including: Extending ongoing reporting 

to Tier 1 offerings with some 

modifications; increasing the ongoing 

reporting requirements for Tier 2 issuers 

to include analogs to Exchange Act 

Forms 3, 4, and 5 and beneficial 

ownership reporting on Schedules 13D, 

13G and 13F; basing the ongoing 

reporting requirements on 

characteristics of the issuer, such as 

whether the issuer has taken steps to 

foster a secondary market; or providing 

different requirements for Canadian 

companies or foreign private issuers. 

Another commenter suggested that we 

allow issuers to either avoid ongoing 

reporting or to file only financial 

statements and a management letter 

regarding operations and results if, 

shortly after commencing the offering 

upon qualification, issuers have less 

than 300 record holders.617

We do not, however, believe that the 

changes suggested by commenters 

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618See fn. 830 in Section II.H.3. below. 

619See discussion of the nature of offerings in 

Section II.H.3. below. 

620 DuMoulin Letter; see also McCarter & English 

Letter. 

621Commenters also suggested that their 

proposed ongoing reporting for Canadian issuers 

apply to foreign private issuers. As noted above in 

Section II.B.1.c., however, non-Canadian foreign 

issuers are not eligible under Regulation A. 622 General Instruction (3) to Form 1–Z. 

623See also discussion in Section II.E.4. below. 

624Part II of Form 1–K. 

625E&Y Letter. 

626See Item 2 to Part II of Form 1–K. 

627E&Y Letter. 

described above are advisable at this 

time. Instead, we believe the approach 

to ongoing reporting adopted in the final 

rules is preferable and will support a 

regular flow of information about 

issuers conducting Tier 2 offerings, 

which will benefit investors in these 

larger offerings and also help foster the 

development of a secondary market in 

such securities, while balancing the 

compliance burden that would be 

imposed on smaller issuers. We do not 

believe that requiring ongoing reporting 

for Tier 1 issuers, other than the 

requirement to file a Form 1–Z upon 

completion or termination of the 

offering, is necessary for Tier 1 

offerings. We believe issuers in Tier 1 

offerings will be small companies whose 

businesses revolve around products, 

services, and a customer base that will 

likely be more local in nature than 

issuers in Tier 2 offerings.618 Further, 

we believe Tier 1 offerings will be 

conducted by issuers that are unlikely to 

seek the creation of a secondary trading 

market in their securities.619 In light of 

this, we do not believe that it is 

necessary to require ongoing reporting 

for Tier 1 issuers. Consistent with our 

experience under existing Regulation A, 

we do not believe that a lack of ongoing 

reporting for issuers in Tier 1 offerings 

will adversely affect investors that base 

purchasing decisions on the narrative 

and financial statement disclosure 

requirements included in the offering 

statement and, with respect to 

continuous offerings lasting for more 

than one year, updated annually by 

post-qualification amendment 

thereafter. Further, notwithstanding the 

suggestions of some commenters,620 we 

believe that adopting different ongoing 

reporting requirements for Canadian 

issuers 621 would not be consistent with 

our goal to adopt a uniform reporting 

standard for Tier 2 issuers that provides 

investors with certainty as to the 

amount of information they can expect 

to receive from an issuer in a Tier 2 

offering on an ongoing basis. We believe 

that the final rules will provide 

investors and potential investors with 

the information they need to make 

investment decisions and facilitate 

capital formation for smaller companies. 

We are therefore adopting the 

following ongoing reporting 

requirements for Tier 2 offerings: 

(1) Annual Reports on Form 1–K 

As proposed and adopted, Form 1–K 

will consist of two parts: Part I 

(Notification) and Part II (Information to 

be included in the report). The contents 

of and requirements for Part I and Part 

II are, with the exception of technical 

amendments to the forms, amendments 

that are necessary to reflect 

corresponding changes to the required 

audit standards of financial statements 

filed under Part F/S of Form 1–A, and 

additional guidance designed to 

streamline disclosure, adopted without 

changes from the proposed rules. 

(a) Part I (Notification) 

As adopted, Part I of Form 1–K will 

be an online XML-based fillable form 

that will include certain basic 

information about the issuer, 

prepopulated on the basis of 

information previously disclosed in Part 

I of Form 1–A, which can be updated by 

the issuer at the time of filing. 

Additionally, if at the time of filing the 

Form 1–K an issuer has terminated or 

completed a qualified Regulation A 

offering, the issuer will be required to 

provide certain updated summary 

information about itself and such 

offering in Part I, including the date the 

offering was qualified and commenced, 

the amount of securities qualified, the 

amount of securities sold in the offering, 

the price of the securities, the portions 

of the offering that were sold on behalf 

of the issuer and any selling 

securityholders, any fees associated 

with the offering, and the net proceeds 

to the issuer. 

As proposed and adopted, issuers will 

only be required to fill out the XMLbased portion of Part I of Form 1–K that 

relates to the summary information 

about a terminated or completed 

offering once per offering. An issuer that 

elects to terminate its ongoing reporting 

obligation under Tier 2 of Regulation A 

after terminating or completing an 

offering, in a fiscal year other than the 

fiscal year in which the offering 

statement was qualified, but before 

reporting the required summary 

information on Form 1–K, will be 

required to file the summary offering 

information in Part I of Form 1–K by 

filing a Form 1–Z (exit report) that 

includes such information.622

The summary information disclosed 

will facilitate analysis of Regulation A 

offerings by the Commission, other 

regulators, third-party data providers, 

and market participants and thereby 

enable the Commission and others to 

evaluate the use and effectiveness of 

Regulation A as a capital formation 

tool.623 The fillable form will enable 

issuers to provide the required 

information in a convenient medium 

and capture relevant data about the 

recently terminated or completed 

Regulation A offering. The required 

disclosure will be publicly available on 

EDGAR. Consistent with Part I of Form 

1–A, the issuer will not be required to 

obtain specialty software to file Part I of 

Form 1–K on EDGAR. 

(b) Part II (Information To Be Included 

in the Report) 

As with Part II of Form 1–A, the final 

rules require that the issuer submit Part 

II of Form 1–K electronically as a text 

file attachment containing the body of 

the disclosure document and financial 

statements, formatted to be compatible 

with the EDGAR filing system. Part II 

will require issuers to disclose 

information about themselves and their 

business based on the financial 

statement and narrative disclosure 

requirements of Form 1–A.624

As adopted, Item 2 to Part II of Form 

1–K (Management’s Discussion and 

Analysis of Financial Condition and 

Results of Operation) requires issuers, 

by cross-reference to the requirements of 

Form 1–A, to provide information for 

the two most recently completed fiscal 

years. As suggested by one 

commenter,625 we are clarifying that the 

Form 1–K cross-reference to the 

requirements of Item 9 to Part II of Form 

1–A does not require issuers to include 

the additional MD&A disclosure 

required in Item 9(c) for issuers that 

have not received revenue from 

operations during each of the three 

fiscal years immediately before the 

filing of the offering statement (or since 

inception, whichever is shorter).626

Additionally, we are revising the 

financial statement requirements in Item 

7 to Part II of Form 1–K. As proposed, 

Form 1–K directed issuers to the 

financial statement requirements of Part 

F/S of Form 1–A. We are revising this 

portion of the form so as to include the 

financial statement requirements 

directly in Item 7 to Part II of Form 1– 

K. We believe this change to Item 7 will 

make it easier for issuers to comply by 

clarifying, as one commenter 

recommended,627 the specific portions 

of Regulation S–X relating to financial 

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628See discussion in Section II.C.3.b(2)(c). above. 

629 General Instruction D. to Form 1–K. The 

hyperlink to EDGAR need only be active at the time 

of filing of the Form 1–K. Cf. Securities Act Rule 

411(c) and Exchange Act Rule 12b–32. 

630 Id. Issuers may, for example, add a crossreference to disclosure in the financial statements. 

We have clarified, however, that like with Form 1– 

A, they may not add a cross-reference within the 

financial statements themselves to disclosures 

elsewhere. 

631 Id. 

632Part II of Form 1–K. 

633See Item 7 (Financial Statements), Part II of 

Form 1–K. 

634See General Instruction A.(2), Form 1–K. 

635See General Instruction C., Form 1–K. 

636 Id. 

637See Rule 257(c) (also requiring the signature 

on behalf of an authorized representative of the 

issuer and the inclusion of any specified 

certifications). 

638Rule 257(b)(3); Form 1–SA. 

639Consistent with the suggestions of 

commenters, we are clarifying that issuers seeking 

to voluntarily report information to the market on 

a more frequent basis may do so under the final 

rules for current reporting on Form 1–U. See 

discussion in Section II.E.1.c(3). below; see also 

discussion in Section II.E.2.c. below regarding the 

provision of ongoing reports as it applies to 

Securities Act Rule 144. 

640See Part I (Financial Information) of Form 10– 

Q, 17 CFR 249.308a. 

641See Item 3 and Item 4 of Part I of Form 10– 

Q. 

642See, e.g., E&Y Letter; KPMG letter. 

statements for entities other than the 

issuer that are required in Form 1–K. 

Additionally, since Tier 2 issuers are 

now permitted to file financial 

statements that are audited in 

accordance with either U.S. GAAS or 

the standards of the PCAOB, a 

corresponding change has been made to 

the financial statement requirements of 

Item 7 of Form 1–K.628 As proposed, the 

auditor of financial statements would 

need to be independent under Rule 2– 

01 of Regulation S–X and must comply 

with the other requirements of Article 2 

of Regulation S–X, but need not be 

PCAOB-registered. Further, in 

comparison to the proposed rules, Item 

7(a) no longer requires issuers to 

provide a list of the financial statements 

included in Form 1–K at the beginning 

of the financial statement section. We 

eliminated this requirement in the final 

rules because we do not believe that 

there is a need for a separate list of the 

financial statements at the beginning of 

this section, when the financial 

statements themselves will be labeled. 

Form 1–K will permit issuers to 

incorporate by reference certain 

information previously filed on EDGAR, 

but will require issuers to include a 

hyperlink to such material on 

EDGAR.629 In a change from the 

proposed rules, the final rules do not 

limit the availability of incorporation by 

reference to information previously filed 

pursuant to Regulation A. We believe 

that this change will facilitate the 

provision of required information to 

investors, while taking a consistent 

approach to information previously 

provided to the Commission and 

publicly available on EDGAR. 

Additionally, to avoid unnecessary 

repetition of disclosure items, Form 1– 

K encourages issuers to cross-reference 

items within the form, where 

applicable.630 Further, in order to avoid 

incorporation by reference to stale 

information without requiring the latest 

version of the document to be filed, 

Form 1–K indicates that, if any 

substantive modification has occurred 

in the text of any document 

incorporated by reference since such 

document was filed, the issuer must file 

with the reference a statement 

containing the text and date of such 

modification.631 Form 1–K will cover: 

• Business operations of the issuer for 

the prior three fiscal years (or, if in 

existence for less than three years, since 

inception); 

• Transactions with related persons, 

promoters, and certain control persons; 

• Beneficial ownership of voting 

securities by executive officers, 

directors, and 10% owners; 

• Identities of directors, executive 

officers, and significant employees, with 

a description of their business 

experience and involvement in certain 

legal proceedings; 

• Executive compensation data for 

the most recent fiscal year for the three 

highest paid executive officers or 

directors; 

• MD&A of the issuer’s liquidity, 

capital resources, and results of 

operations covering the two most 

recently completed fiscal years; and 

• Two years of audited financial 

statements.632

We anticipate that issuers will 

generally be able to use the offering 

materials as a basis to prepare their 

ongoing disclosure. 

As adopted in the final rules, Form 1– 

K includes requirements for financial 

statements prepared on the same basis, 

and subject to the same requirements as 

to audit standards and auditor 

independence, as the financial 

statements required in the Regulation A 

offering circular for Tier 2 offerings.633

Form 1–K must be filed within 120 

calendar days after the issuer’s fiscal 

year end.634 A manually signed copy of 

the Form 1–K must be executed by the 

issuer and related signatories before or 

at the time of filing and retained by the 

issuer for a period of five years.635

Issuers will be required to produce the 

manually signed copy to the 

Commission, upon request.636 Any 

amendments to the form must comply 

with the requirements of the applicable 

items and be filed under cover of Form 

1–K/A.637

(2) Semiannual Reports on Form 1–SA 

We are adopting final rules for 

semiannual interim reporting for 

Regulation A issuers generally as 

proposed, with technical amendments 

and additional guidance designed to 

streamline the disclosure requirements 

for Tier 2 issuers and harmonize them 

with the requirements of issuers subject 

to an ongoing reporting obligation under 

the Exchange Act.638 As proposed, we 

continue to believe that a semiannual, 

rather than a quarterly, reporting 

requirement strikes an appropriate 

balance between the need to provide 

information to the market and the cost 

of compliance for smaller issuers, 

especially given the further flexibility 

provided to issuers in Form 1–U to 

provide quarterly information if they 

elect to do so.639 Issuers will be required 

to provide semiannual reports on Form 

1–SA that, much like reports on Form 

10–Q, consist primarily of financial 

statements and MD&A.640 Unlike Form 

10–Q, however, Form 1–SA does not 

require disclosure about quantitative 

and qualitative market risk, controls and 

procedures, updates to risk factors, or 

defaults on senior securities.641 We do 

not believe such disclosure is necessary 

for ongoing reports under Regulation A, 

as we believe such disclosure is not 

applicable to, or appropriately tailored 

for, the types of issuers likely to conduct 

Regulation A offerings. 

Consistent with the technical, 

specialized suggestions of several 

commenters,642 we are including 

provisions in Form 1–SA that will help 

issuers comply with the form 

requirements, eliminate potential 

confusion over such requirements, and 

streamline and harmonize disclosure to 

make the requirements for Tier 2 issuers 

no more onerous than, and consistent 

with, the ongoing disclosures required 

of smaller reporting companies under 

the Exchange Act. Specifically, the final 

rules: 

• Add clarifying language to Item 1 

(Management Discussion and Analysis 

of Financial Condition and Results of 

Operations) of Form 1–SA to indicate 

that compliance with this disclosure 

requirement only applies to the interim 

financial statements required by Item 3 

to Form 1–SA and that, similar to our 

clarification of Form 1–K’s 

requirements, issuers are not required to 

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21848 Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Rules and Regulations 

643See Section II.F.1.c.(1)(b) above for a 

discussion of this clarification in Form 1–K. 

644Tier 2 issuers are required under Part F/S of 

Form 1–A to provide financial statements that 

comply with Article 8 of Regulation S–X. 

645E&Y Letter. 

646 General Instruction D. to Form 1–SA. The 

hyperlink to EDGAR need only be active at the time 

of filing of the Form 1–SA. Cf. Securities Act Rule 

411(c) and Exchange Act Rule 12b–32. 

647 Id. Issuers may, for example, add a crossreference to disclosure in the financial statements. 

We have clarified, however, that like with Form 1– 

A, they may not add a cross-reference within the 

financial statements themselves to disclosures 

elsewhere. 

648 Id. 

649See General Instruction A.(2), Form 1–SA. 

650For example, where an offering statement is 

filed in October 2015 and includes full financial 

statements for the fiscal years ended December 31, 

2014 and December 31, 2013 and interim financial 

statements for the six months ended June 30, 2015 

and June 30, 2014 and is qualified in December 

2015, the Form 1–SA will not be required until 

within 90 days following the first six months of the 

following fiscal year (i.e., within 90 days following 

June 30, 2016). 

If, however, the offering statement is filed in 

March 2015 and qualified in June of 2015 than the 

first Form 1–SA would cover the six months ended 

June 30, 2015 and June 30, 2014 and would not be 

required to be filed until within 90 days following 

June 30, 2015. 

651See General Instruction C. to Form 1–SA. 

652See Rule 257(c). 

653As discussed below, disclosure pursuant to 

this requirement is limited to the entry into or 

termination of material definitive agreements 

resulting in fundamental changes in the nature of 

an issuer’s business. More generally, a fundamental 

change in the nature of an issuer’s business 

includes major and substantial changes in the 

issuer’s business or plan of operations or changes 

reasonably expected to result in such changes, such 

as significant acquisitions or dispositions, or the 

entry into, or termination of, a material definitive 

agreement that has or will result in major and 

substantial changes to the nature of an issuer’s 

business or plan of operations. 

654See fn. 639 and 604 above. 

655An issuer seeking to, for example, report 

information that satisfies, and on a frequency that 

accords with, the requirements of Exchange Act 

Rule 15c2–11(a)(5) and (g) or Securities Act Rule 

144A(d)(4) may do so pursuant to Item 9 of Form 

1–U. 

656ABA BLS Letter; Milken Institute Letter. 

include the additional MD&A disclosure 

required by Item 9(c) of Form 1–A; 643

• Update the financial statement 

disclosure requirements of Form 1–SA 

to more clearly delineate the 

requirements for compliance with Item 

3 of Form 1–SA; 

• Provide that the financial 

statements that must be included 

pursuant to Item 3 may be condensed, 

in addition to being unaudited, and that 

the financial statements are not required 

to be reviewed; 

• Amend the final form to note that 

additional guidance on the presentation 

of financial statements and footnotes 

and other disclosures can be found in 

Rule 8–03 of Regulation S–X; 644

• Revise the requirements of Item 3(e) 

of Form 1–SA to match the disclosure 

language contained in Rule 3–10 of 

Regulation S–X for smaller reporting 

companies; 

• Delete the requirement in Item 3(d) 

of proposed Form 1–SA to present 

interim statements of changes in 

financial position for the period 

between the end of the preceding fiscal 

year and the end of the interim period 

covered by this report, and for the 

corresponding period of the preceding 

fiscal year, as this is not required of 

issuers under Rule 8–03 of Regulation 

S–X; and 

• Make the ongoing reporting 

requirements under Item 3 of Form 1– 

SA more consistent with what is 

required of issuers subject to an ongoing 

reporting obligation under the Exchange 

Act, consistent with the suggestion of 

one commenter,645 by eliminating the 

line item requirements of Item 3(f) and 

(g), as Rule 3–16 and Rule 4–10 of 

Regulation S–X generally do not require 

the disclosure of such information other 

than in registration statements and 

annual reports. 

As adopted, Form 1–SA will require 

disclosure of updates otherwise 

reportable on Form 1–U. The final rules 

permit issuers to incorporate by 

reference in Form 1–SA certain 

information previously filed on EDGAR, 

but must include a hyperlink to such 

material on EDGAR.646 In a change from 

the proposed rules, the final rules do 

not limit the availability of 

incorporation by reference to 

information previously filed pursuant to 

Regulation A. We believe that this 

change will continue to facilitate the 

provision of required information to 

investors, while taking a consistent 

approach to information previously 

provided to the Commission and 

publicly available on EDGAR. 

Additionally, in a change from the 

proposed form that seeks to avoid 

unnecessary repetition of disclosure 

items, Form 1–SA encourages issuers to 

cross-reference items within the form, 

where applicable.647 Further, in order to 

avoid incorporation by reference to stale 

information without requiring the latest 

version of the document to be filed, 

Form 1–SA indicates that, if any 

substantive modification has occurred 

in the text of any document 

incorporated by reference since such 

document was filed, the issuer must file 

with the reference a statement 

containing the text and date of such 

modification.648

Form 1–SA must be filed within 90 

calendar days after the end of the first 

six months of the issuer’s fiscal year.649

The first such obligation to file will 

commence immediately following the 

most recent fiscal year for which full 

financial statements were included in 

the offering statement, or, if the offering 

statement included financial statements 

for the first six months of the fiscal year 

following the most recent full fiscal 

year, for the first six months of the 

following fiscal year.650 As proposed, a 

manually signed copy of the Form 1–SA 

must be executed by the issuer and 

related signatories before or at the time 

of filing, retained by the issuer for a 

period of five years, and produced by 

the issuer to the Commission, upon 

request.651 The final rules require, as 

proposed, any amendments to the form 

to comply with the requirements of the 

applicable items and be filed under 

cover of Form 1–SA/A.652

(3) Current Reports on Form 1–U 

In addition to the annual report on 

Form 1–K and semiannual report on 

Form 1–SA, the final rules require 

issuers to submit current reports on 

Form 1–U. The final rules are being 

adopted largely as proposed with one 

change and some technical amendments 

and additional guidance designed to 

ease compliance with the final rules and 

eliminate potential confusion as to the 

scope and applicability of the disclosure 

requirements. The final rules require 

issuers to submit a report on Form 1– 

U when it experiences one (or more) of 

the following events: 

• Fundamental changes; 653

• Bankruptcy or receivership; 

• Material modification to the rights 

of securityholders; 

• Changes in the issuer’s certifying 

accountant; 

• Non-reliance on previous financial 

statements or a related audit report or 

completed interim review; 

• Changes in control of the issuer; 

• Departure of the principal executive 

officer, principal financial officer, or 

principal accounting officer; and 

• Unregistered sales of 10% or more 

of outstanding equity securities. 

Additionally, as proposed, Item 9 of 

final Form 1–U contains provisions for 

disclosing other events not directly 

required of issuers in the form. As noted 

above in the context of suggestions by 

commenters to require or permit 

quarterly reporting by issuers,654 issuers 

that elect to provide relevant 

information to the market on, for 

example, a quarterly basis may do so 

pursuant to Item 9 (Other Events) of 

Form 1–U.655

Notwithstanding the view of some 

commenters,656 we believe that Form 1– 

U should be required of all Tier 2 

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657ABA Letter; MoFo Letter. 

658See E&Y Letter; see also ABA BLS Letter; 

Canaccord Letter. 

659 Item 1(d) to Form 1–U. 

660E&Y Letter. 

661 Instruction(s) 2(b)–(c) to Item 1 of Form 1–U 

are adopted, as proposed. 

662E&Y Letter; Massachusetts Letter 2; NASAA 

Letter 2; WDFI Letter. 

663See Instruction 2(a) to Item 1 for the 

circumstances when an acquisition transaction 

would be deemed to trigger a fundamental change 

for purposes of Form 1–U. 

664ABA BLS Letter; MoFo Letter. 

665 Item 8 to Form 1–U. We have also clarified in 

Item 8(b) that only periodic reports that contain 

disclosure regarding unregistered sales of equity 

securities will reset the five percent reporting 

threshold for unregistered sales of securities, rather 

than any periodic report. 

666 General Instruction D. to Form 1–U. The 

hyperlink to EDGAR need only be active at the time 

of filing of the Form 1–U. Cf. Securities Act Rule 

411(c) and Exchange Act Rule 12b–32. 

667ABA BLS Letter; E&Y Letter; Milken Institute 

Letter. 

668PwC Letter. 

669 General Instruction D. to Form 1–U. We have 

clarified, however, that like with Form 1–A, they 

may not add a cross-reference within any financial 

statements that may be included to disclosures 

elsewhere. 

issuers, including smaller issuers. We 

believe that, on balance, the benefit of 

requiring a uniform base level of 

disclosure to investors of current event 

reporting for all issuers in Tier 2 

offerings outweighs any potential 

additional compliance cost to smaller 

issuers. Additionally, given the 

inclusion of only the most significant 

events in the list of disclosable current 

events on Form 1–U, we do not 

anticipate that issuers, particularly 

smaller issuers, will on average be 

required to file many reports in this 

regard. 

In a change from the proposed rules, 

and consistent with the suggestions of 

commenters,657 the final rules increase 

the threshold below which an issuer 

need not report unregistered sales of 

equity securities pursuant to Item 8 of 

Form 1–U from 5% to 10% of the 

number of shares outstanding of the 

class of equity securities sold. We 

believe that this increase in the 

threshold below which an issuer would 

not be required to report such sales 

remains consistent with our general 

approach to the final rules for Form 1– 

U—namely, that Form 1–U should 

reflect the most significant or 

substantial events that an issuer may 

experience in the interim period 

between the filing of the required 

periodic reports. 

We are not amending Item 1 of Form 

1–U to alter the use of the term 

‘‘fundamental change,’’ as suggested by 

some commenters.658 We are, however, 

revising Instruction 2 to Item 1 to make 

clear that the transactions described 

therein are deemed to be ‘‘fundamental 

changes’’ solely for purposes of Item 1 

of Form 1–U and should not be read to 

influence the definition of that term in 

other contexts.659 Item 1 of Form 1–U is 

meant to require issuers to disclose 

material definitive agreements, 

including agreements to acquire other 

entities, which result or would 

reasonably be expected to result in 

fundamental changes to the nature of 

the issuer’s business or plan of 

operations. As Instruction 2 to Item 1 

indicates, certain transactions are 

deemed to involve fundamental 

changes, and disclosure of these 

transactions, as prescribed by Item 1 is 

required. Consistent with the suggestion 

of one commenter,660 we are narrowing 

from the proposed rules the 

applicability of Instruction 2(a) so that 

an acquisition transaction will only 

result in a fundamental change for these 

purposes if the purchase price, as 

defined by U.S. GAAP and IFRS, 

exceeds 50% of the total consolidated 

assets of the issuer as of the end of the 

most recently completed fiscal year.661

We believe that this is consistent with 

our general goal of only requiring 

disclosure of significant and substantial 

matters that may affect an issuer’s 

business or plan of operations. We 

believe that this requirement is 

appropriately tailored for the types of 

issuers likely to conduct Tier 2 offerings 

by providing them with important 

flexibility as to the determination of a 

‘‘fundamental change,’’ while providing 

clear guidance that certain transactions 

will always trigger disclosure under 

Item 1. 

On a related point, we continue to 

believe, despite the suggestions of some 

commenters,662 that a fundamental 

change standard for some of the 

disclosure requirements in Form 1–U is 

a more appropriately tailored standard 

for Tier 2 issuers than a broader 

materiality standard. A fundamental (as 

opposed to a material) change to the 

nature of an issuer’s business includes 

major and substantial changes to the 

issuer’s business or plan of operations 

or changes reasonably expected to result 

in such changes.663 The final rules 

reflect our belief that, on balance, Tier 

2 issuers should only be required make 

disclosures in Form 1–U that reflect 

major and substantial changes to 

business plans or operations, as 

opposed to material events that are 

otherwise reportable in their periodic 

reports. Moreover, we do not believe 

that a fundamental change standard will 

cause confusion or raise concerns as to 

the applicability of other standards 

applicable in the anti-fraud provisions 

of the federal securities laws. 

Additionally, we note that Item 6 of 

Form 1–K and Item 2 of Form 1–SA 

permit issuers to disclose any 

information required to be disclosed 

under Form 1–U, but not so reported. 

For example, if an event occurs that 

would, under normal circumstances, 

require an issuer to file a Form 1–U 

within four business days, but such 

issuer is due to file either its annual or 

semiannual report within that period, 

then the issuer may instead report such 

information in its periodic report. 

Finally, contrary to the suggestions of 

some commenters,664 we continue to 

believe that the requirement to report 

unregistered sales of securities in Item 

8 of Form 1–U will provide investors 

with valuable current information as to 

significant capital raising events by the 

issuer and should be disclosed in a 

timely manner to the market. We 

therefore retain this disclosure 

requirement in the final rules.665

As adopted, Form 1–U must be filed 

within four business days after the 

occurrence of any of the triggering 

events, and, where applicable, will 

permit issuers to incorporate by 

reference certain information previously 

filed on EDGAR.666 Notwithstanding the 

suggestions of some commenters,667 we 

believe that requiring issuers to file the 

form within four business days, as 

opposed to fifteen business days, is 

appropriate in an ongoing reporting 

regime that otherwise only requires 

issuers to provide annual and 

semiannual reports. Further, we are 

concerned that extending the filing 

deadline for Form 1–U reports would 

make the reporting of disclosable events 

no longer ‘‘current.’’ We are therefore 

adopting the timing requirements, as 

proposed. Additionally, in a change 

from the proposed rules, the final rules 

do not limit the availability of 

incorporation by reference to 

information previously filed pursuant to 

Regulation A. We believe that this 

change will continue to facilitate the 

provision of required information to 

investors, while taking a consistent 

approach to information previously 

provided to the Commission and 

publicly available on EDGAR. 

Additionally, consistent with the 

changes made to Form 1–K and Form 1– 

SA and suggestions of at least one 

commenter,668 Form 1–U encourages 

issuers to cross-reference items within 

the form, where applicable.669 Further, 

in order to avoid incorporation by 

reference to stale information without 

requiring the latest version of the 

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21850 Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Rules and Regulations 

670 Id. 

671See General Instruction C to proposed Form 1– 

U. 

672 Id. 

673Rule 257(c). 

674 17 CFR 240.15d–2. 

675Rule 257(b)(2)(ii). As adopted, we are revising 

Rule 257(b)(2)(ii) to reference the fiscal year or 

other period specified in Rule 257(b)(2)(i)(A), in 

order to avoid potential confusion about which 

most recent fiscal year is covered. 

676 Id. 

677 Id. 

678See General Instruction A.(3) to Form 1–K and 

General Instruction A.(3) to Form 1–SA. 

679See Rule 257(b)(5). 

680See Section II.E.4. below for a discussion of 

the suspension or termination of disclosure 

obligations. 

681 17 CFR 240.15c2–11. 

682See Rel. No. 34–39670 (Feb. 17, 1998) 

(Publication or Submission of Quotations Without 

Specified Information) (describing Rel. No. 34–9310 

(Sept. 13, 1971) [36 FR 18641]). See 17 CFR 

240.15c2–11(e)(1) (defining quotation medium as 

any ‘‘interdealer quotation system’’ or any 

publication or electronic communications network 

or other device which is used by brokers or dealers 

to make known to others their interest in 

transactions in any security, including offers to buy 

or sell at a stated price or otherwise, or invitations 

of offers to buy or sell). 

683 17 CFR 240.15c2–11(a); See also Rel. No. 34– 

29094 (April 17, 1991) [56 FR 19148]. 

684See 17 CFR 240.15c2–11 (Preliminary Note). 

685A broker-dealer can also satisfy its review 

requirements under Rule 15c2–11 by reviewing 

certain information published pursuant to a Rule 

12g3–2(b) exemption for foreign private issuers that 

claim the registration exemption or information 

specified in Rule 15c2–11(a)(5) for non-reporting 

issuers. 

686 In addition, we proposed a technical 

amendment to Rule 15c2–11 to amend subsection 

(d)(2)(i) of the rule to update the outdated reference 

to ‘‘Schedule H of the By-Laws of the National 

Association of Securities Dealers, Inc.’’ which is 

now known as the ‘‘Financial Industry Regulatory 

Authority, Inc.’’ and to reflect the correct rule 

reference. 

document to be filed, Form 1–U 

indicates that, if any substantive 

modification has occurred in the text of 

any document incorporated by reference 

since such document was filed, the 

issuer must file with the reference a 

statement containing the text and date 

of such modification.670 A manually 

signed copy of the Form 1–U must be 

executed by the issuer and related 

signatories before or at the time of filing 

and retained by the issuer for a period 

of five years.671 Issuers are required to 

produce the manually signed copy to 

the Commission, upon request.672 Any 

amendments to the Form 1–U must 

comply with the requirements of the 

applicable items, and be filed under 

cover of Form 1–U/A.673

(4) Special Financial Reports on Form 

1–K and Form 1–SA 

We did not receive any comment on 

the proposed provisions for special 

financial reports and are adopting them 

as proposed with one minor clarifying 

change. This report serves to close 

lengthy gaps in financial reporting 

between the financial statements 

included in Form 1–A and the issuer’s 

first periodic report due after 

qualification of the offering statement. 

Where applicable, issuers conducting 

Tier 2 offerings must provide special 

financial reports analogous to those 

required under Exchange Act Rule 15d– 

2.674 The special financial report 

requires audited financial statements for 

the issuer’s most recent fiscal year (or 

for the life of the issuer if less than a full 

fiscal year) to be filed not later than 120 

calendar days after qualification of the 

offering statement if the offering 

statement does not include such 

financial statements.675 The special 

financial report requires semiannual 

financial statements for the first six 

months of the issuer’s fiscal year, which 

may be unaudited, to be filed 90 

calendar days after qualification of the 

offering statement if the offering 

statement does not include such 

financial statements and the offering 

statement was qualified in the second 

half of the issuer’s current fiscal year.676

The special financial report must be 

filed under cover of Form 1–K if it 

includes audited year end financial 

statements and under cover of Form 1– 

SA if it includes semiannual financial 

statements for the first six months of the 

issuer’s fiscal year.677 The financial 

statement and auditing requirements 

must follow the requirements of those 

forms, and the issuer must indicate on 

the front page of the applicable form 

that only financial statements are 

included.678

(5) Reporting by Successor Issuers 

We did not receive any comment on 

reporting by successor issuers, and we 

are adopting the proposed rules without 

change. Where in connection with a 

succession by merger, consolidation, 

exchange of securities, acquisition of 

assets, or otherwise, securities of an 

issuer that is not subject to the reporting 

requirements of Regulation A are issued 

to the holders of any class of securities 

of an issuer that is subject to ongoing 

reporting under Tier 2, the issuer 

succeeding to that class of securities 

must continue to file the reports 

required for Tier 2 offerings on the same 

basis as would have been required of the 

original Tier 2 issuer.679 The successor 

issuer may suspend or terminate its 

reporting obligations on the same basis 

as the original issuer under Rule 

257(d).680

2. Exchange Act Rule 15c2–11 and 

Other Implications of Ongoing 

Reporting Under Regulation A 

Exchange Act Rule 15c2–11 governs 

broker-dealers’ publication of quotations 

for securities in a quotation medium 

other than a national securities 

exchange.681 The Commission adopted 

Rule 15c2–11 in 1971 to prevent 

fraudulent and manipulative trading 

schemes that had arisen in connection 

with the distribution and trading of 

certain unregistered securities.682 The 

rule prohibits broker-dealers from 

publishing quotations (or submitting 

quotations for publication) in a 

‘‘quotation medium’’ for covered overthe-counter securities without first 

reviewing basic information about the 

issuer, subject to certain exceptions.683

A broker-dealer also must have a 

reasonable basis for believing that the 

issuer information is accurate in all 

material respects and that it was 

obtained from a reliable source.684

A broker-dealer can satisfy its 

obligations under Rule 15c2–11 if it has 

reviewed and maintained in its records 

certain specified information. The 

particular information that is required 

by the rule varies depending on the 

nature of the issuer and includes, among 

other things: 

• For an issuer that has filed a 

registration statement under the 

Securities Act, a copy of the prospectus; 

• for an issuer that has filed an 

offering statement under the Securities 

Act pursuant to Regulation A, a copy of 

the offering circular; or 

• for an issuer subject to ongoing 

reporting under Sections 13 or 15(d) of 

the Exchange Act, the issuer’s most 

recent annual report and any quarterly 

or current reports filed thereafter.685

a. Proposed Rules 

As proposed, the ongoing reports for 

Tier 2 offerings under Regulation A, 

which would update the narrative and 

financial statement disclosures 

previously provided in Form 1–A on an 

annual and semiannual basis, with 

additional provisions for current 

reporting, would satisfy a brokerdealer’s obligations under Rule 15c2–11 

to review and maintain records of basic 

information about an issuer and its 

securities. In this regard, we proposed to 

amend Rule 15c2–11 to permit an 

issuer’s ongoing reports filed in a Tier 

2 offering under Regulation A to satisfy 

a broker-dealer’s obligations to review 

specified information about an issuer 

and its security before publishing a 

quotation for a security (or submitting a 

quotation for publication) in a quotation 

medium.686

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687 17 CFR 230.144(c). 

688 17 CFR 230.144(c)(2); see also 17 CFR 

230.15c2–11(a), (g). 

689 17 CFR 230.144A(d)(4). 

690 Id. 

691ABA BLS Letter; Canaccord Letter; CFIRA 

Letter 1; KVCF Letter; Milken Institute Letter; MoFo 

Letter; Paul Hastings Letter; Public Startup Co. 

Letter 1; REISA Letter; WR Hambrecht + Co Letter. 

692ABA BLS Letter; Canaccord Letter; Milken 

Institute Letter; MoFo Letter. 

693ABA BLS Letter; Canaccord Letter; CFIRA 

Letter 1; McCarter & English Letter; Paul Hastings 

Letter; KVCF Letter; Milken Institute Letter; 

Richardson Patel Letter; REISA Letter; WR 

Hambrecht + Co Letter. 

694ABA BLS Letter; Canaccord Letter; Milken 

Institute Letter; MoFo Letter. 

695McCarter & English Letter. 

696Public Startup Co. Letter 1. 

697Letter from Jason Coombs, Co-Founder and 

CEO, Public Startup Company, Inc., March 24, 2014 

(‘‘Public Startup Co. Letter 2’’). 

698See, e.g., Rel. No. 33–6099 (Aug. 2, 1979) 

(Question 20). See also Section 13(a) of the 

Exchange Act, which contemplates, but does not 

prescribe, reasonably current information in the 

context of annual and quarterly reporting. 15 U.S.C. 

78m(a). 

699See Securities Act Rule 144(c)(2); Securities 

Act Rule 144A(d)(4)(ii); Exchange Act Rule 15c2– 

11(a) and Rule 15c2–11(g). 

700See Item 9 of Form 1–U; see also Section 

II.E.1.c(3). and fn. 655 above. 

701While issuers with a Section 15(d) reporting 

obligation are required to file the same periodic 

reports as issuers that have registered a class of 

securities under Section 12, Section 15(d) reporting 

issuers are not subject to additional Exchange Act 

obligations (e.g., proxy rules, short-swing profit 

rules, and beneficial ownership reporting) that 

apply to Exchange Act registrants. 

702See also Section II.B.6. above for a discussion 

of the conditional exemption from Section 12(g) 

adopted in the final rules today. 

We also solicited comment on other 

potential effects that Tier 2 ongoing 

reporting under Regulation A could 

have under other provisions of the 

federal securities laws, such as whether 

timely ongoing Regulation A reporting 

under Tier 2 should constitute 

‘‘adequate current public information’’ 

for purposes of paragraph (c) of Rule 

144.687 Under this provision, issuers are 

required to make available adequate 

current public information about 

themselves, which, for issuers not 

subject to Exchange Act reporting, must 

include certain information described in 

Exchange Act Rule 15c2–11(a)(5).688 We 

also solicited comment on whether 

ongoing Regulation A reporting for Tier 

2 offerings should satisfy the 

information requirements of paragraph 

(d)(4) of Rule 144A.689 Under that 

provision, holders of Rule 144A 

securities must have the right to obtain 

from the issuer, upon request, a very 

brief statement of the nature of the 

issuer’s business and the products and 

services it offers, the issuer’s most 

recent balance sheet and profit and loss 

and retained earnings statements, and 

similar financial statements for each of 

the two preceding fiscal years, which 

information must be ‘‘reasonably 

current.’’ 690

b. Comments on Proposed Rules 

All commenters that addressed Rule 

15c2–11 supported amending the rule in 

the manner proposed.691 Some 

commenters recommended further 

amending Rule 15c2–11(g) to provide 

that an issuer that is current in its Tier 

2 obligations would be deemed to have 

‘‘reasonably current’’ financial 

information, even if its most current 

balance sheet is as of a date up to nine 

months old and it has not provided 

other updated information.692 Most 

commenters also recommended 

amending Rule 144(c) to allow for 

ongoing reporting under Tier 2 to 

constitute ‘‘adequate current public 

information.’’ 693 Other commenters 

recommended amending Rule 

144A(d)(4) to allow for ongoing 

reporting under Tier 2 to satisfy the 

‘‘reasonably current information’’ 

requirements of that rule.694 Although 

the proposal did not solicit comment on 

Rule 144(i), one commenter 

recommended amending this rule to 

allow former shell companies to rely on 

Rule 144 if they have been current in 

their ongoing reporting under 

Regulation A for a certain period of time 

and without having to file a Form 10.695

One commenter also supported allowing 

use of the Rule 144 safe harbor for 

former shell companies that were not 

previously registered under the 

Exchange Act and that are now selling 

securities under Regulation A.696

Another commenter requested that the 

Commission limit the prohibitions on 

reliance on Rule 144 only to Exchange 

Act registered issuers.697

c. Final Rules 

We are adopting final rules for 

Regulation A that, as proposed, amend 

Exchange Act Rule 15c2–11(a) so that an 

issuer’s ongoing reports filed under Tier 

2 will satisfy the specified information 

about an issuer and its security that a 

broker-dealer must review before 

publishing a quotation for a security (or 

submitting a quotation for publication) 

in a quotation medium. In addition, we 

are adopting, as proposed, a technical 

amendment to Rule 15c2–11 to amend 

subsection (d)(2)(i) of the rule to update 

the outdated reference to ‘‘Schedule H 

of the By-Laws of the National 

Association of Securities Dealers, Inc.’’ 

which is now known as the ‘‘Financial 

Industry Regulatory Authority, Inc.’’ 

and to reflect the correct rule reference. 

We are not following the suggestions 

of some commenters that we adopt 

provisions in the final rules so that Tier 

2 ongoing reports will satisfy the current 

information requirements of Rule 144 

and Rule 144A for the entirety of an 

issuer’s fiscal year. While commenters 

were generally supportive, we do not 

believe that the frequency of the 

required Tier 2 ongoing reporting merits 

a broad determination that such reports 

will constitute ‘‘adequate public 

information’’ or ‘‘reasonably current 

information’’ on a year-round basis. On 

the contrary, quarterly reporting is an 

integral part of the resale safe harbors 

provided for in Rule 144 and Rule 144A 

that contemplate the provision of 

ongoing and continuous information.698

While the semiannual reporting 

required under the final rules for Tier 2 

offerings will result in issuers only 

having ‘‘reasonably current 

information’’ and ‘‘adequate current 

public information’’ for the portions of 

the year during which the financial 

statements of such issuers continue to 

satisfy the respective rules,699 we note 

that issuers may voluntarily submit on 

Form 1–U quarterly financial statements 

or other information necessary to satisfy 

the respective rule requirements.700 In 

such instances, and provided that the 

financial statements otherwise meet the 

financial statement requirements of 

Form 1–SA, such voluntarily provided 

quarterly information could satisfy the 

‘‘reasonably current information’’ and 

‘‘adequate current public information’’ 

requirements of Rule 144 and Rule 

144A. An issuer that is therefore current 

in its semiannual reporting required 

under the rules and voluntarily provides 

quarterly financial statements on Form 

1–U will have provided reasonably 

current and adequate current public 

information for the entirety of such year 

under Rule 144 and Rule 144A. 

3. Exchange Act Registration of 

Regulation A Securities 

Under Section 15(d) of the Exchange 

Act, an issuer that has had a Securities 

Act registration statement declared 

effective must comply with the periodic 

reporting requirements of the Exchange 

Act.701 Qualification of a Regulation A 

offering statement does not have the 

same effect. An issuer of Regulation A 

securities would not take on Exchange 

Act reporting obligations unless it 

separately registered a class of securities 

under Section 12 of the Exchange Act, 

or conducted a registered public 

offering.702

An issuer registering a class of 

securities under Section 12 of the 

Exchange Act must file either a Form 

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703 17 CFR 249.210. Foreign private issuers must 

file a Form 20–F, 17 CFR 249.220f, or, where 

available, a Form 8–A. 

704 17 CFR 249.208a. 

705See Rel. No. 34–38850 (Sept. 2, 1997) [62 FR 

39755], at 39757 (‘‘[A]n issuer registering an initial 

public offering will be permitted to use Form 8–A 

even though it will not be subject to reporting until 

after the effectiveness of that Securities Act 

registration statement.’’). 

706ABA BLS Letter; Canaccord Letter; CFIRA 

Letter 1; CFIRA Letter 2; Fallbrook Technologies 

Letter; Frutkin Law Letter; McCarter & English 

Letter; Milken Institute Letter; MoFo Letter; OTC 

Markets Letter; Paul Hastings Letter; Richardson 

Patel Letter; WR Hambrecht + Co Letter. 

707ABA BLS Letter; CFIRA Letter 1; WR 

Hambrecht + Co Letter. 

708Canaccord Letter; Milken Institute Letter; 

MoFo Letter. 

709ABA BLS Letter; Canaccord Letter; MoFo 

Letter. 

710Milken Institute Letter. 

711Frutkin Law Letter; Richardson Patel Letter. 

712McCarter & English Letter. 

713ABA BLS Letter; MoFo Letter. 

714Paul Hastings Letter. 

715Heritage Letter; SBIA Letter. 

716OTC Markets Letter. 

717See fn. 706 above. 

718See Form 8–A, General Instructions A(c). 

719As discussed more fully in in Section II.E.4. 

below, a Tier 2 issuer may terminate its Regulation 

A ongoing disclosure obligation when it is no 

longer subject to the ongoing reporting 

requirements of Section 13 of the Exchange Act. See 

also Rule 257(e). 

720 In order to ensure that registration on Form 8– 

A is limited to a concurrently qualified Regulation 

A offering statement, the amendments to Form 8– 

A expressly limit the use of the form to instances 

where the filing of the Form 8–A and, where 

applicable, the receipt by the Commission of 

certification from the national securities exchange 

listed on the form occur within five calendar days 

after the qualification of the Regulation A offering 

statement. 

721See, e.g., Initial Listing Guide for the 

NASDQAQ Stock Market, available at: https:// 

listingcenter.nasdaq.com/assets/initialguide.pdf; 

10 703 or Form 8–A 704 with the 

Commission. Form 10 is the general 

form for Exchange Act registration, 

while Form 8–A is a short-form 

registration statement. An issuer must 

use a Form 10 if, at the time it files its 

registration statement, it is not already 

subject to a Section 13 or Section 15(d) 

reporting obligation. An issuer may use 

Form 8–A if it is already subject to the 

provisions of either Section 13 or 

Section 15(d). Additionally, when an 

issuer that is not already subject to the 

provisions of either Section 13 or 15(d) 

plans to list its securities on a national 

securities exchange contemporaneously 

with the effectiveness of a Securities Act 

registration statement, the Commission 

staff will not object if that issuer files a 

Form 8–A in lieu of a Form 10 in order 

to avoid having the issuer restate the 

contents of its Securities Act registration 

statement in its Exchange Act 

registration statement.705

a. Proposed Rules 

As proposed, issuers conducting 

offerings under Regulation A that seek 

to list their securities on a national 

securities exchange or otherwise register 

a class of securities under the Exchange 

Act would be required to file a 

registration statement on Form 10. We 

solicited comment, however, on 

whether we should provide a simplified 

means for Regulation A issuers to 

register a class of securities under the 

Exchange Act, for example, by 

permitting such issuers to file a Form 8– 

A rather than a Form 10 in conjunction 

with, or following, the qualification of a 

Regulation A offering statement on 

Form 1–A. 

We also invited comment on ways to 

facilitate secondary market trading in 

the securities of Regulation A issuers, 

such as by encouraging the development 

of ‘‘venture exchanges’’ or other trading 

venues that are focused on attracting 

such issuers. 

b. Comments on Proposed Rules 

Many commenters recommended that 

Regulation A issuers be allowed to use 

Form 8–A to register a class of securities 

under the Exchange Act in Tier 2 

offerings.706 Some of these commenters 

limited their recommendation to when 

the issuer follows the requirements of 

Part I of Form S–1 in its offering 

circular.707 Separately, three 

commenters recommended allowing 

issuers to use a ‘‘super’’ Form 8–A that 

would require issuers to include any 

disclosure that is required in a Form 10, 

but is not included in the chosen 

offering circular format under Form 1– 

A.708 Several commenters suggested 

allowing issuers to use a Form 10 that 

would go effective immediately as an 

alternative to filing a Form 8–A.709 This 

process could be used to register 

securities under the Exchange Act when 

a simultaneous exchange listing was not 

contemplated. Other commenters 

recommended limiting the use of Form 

8–A to situations contemporaneous with 

qualification of an offering statement,710

within 12 months of qualification,711 or 

after a brief time period after an offering 

statement is qualified.712 Separately, 

two commenters recommended that 

Regulation A issuers that become 

Exchange Act reporting companies be 

considered ‘‘emerging growth 

companies.’’ 713 One commenter 

recommended allowing issuers to use 

Form 8–A but to continue using 

Regulation A reports until its nonaffiliate market capitalization reached 

$250 million.714

Two commenters encouraged the 

Commission to foster the development 

of venture exchanges on which 

Regulation A securities could be 

traded,715 while another commenter 

largely opposed the creation of venture 

exchanges.716

c. Final Rules 

In the final rules, and consistent with 

the views of many commenters,717 we 

are simplifying Exchange Act 

registration in connection with 

Regulation A offerings conducted 

pursuant to Tier 2 so that issuers 

wishing to register a class of Regulation 

A securities under the Exchange Act 

may do so by filing a Form 8–A in 

conjunction with the qualification of a 

Form 1–A. Only issuers that follow Part 

I of Form S–1 or the Form S–11 

disclosure model in the offering circular 

will be permitted to use Form 8–A.718

An issuer registering a class of securities 

under the Exchange Act concurrently 

with the qualification of a Regulation A 

offering statement will become an 

Exchange Act reporting company upon 

effectiveness of the Form 8–A and, if 

applicable, its obligation to file ongoing 

reports under Regulation A will be 

suspended for the duration of the 

resulting reporting obligation under 

Section 13 of the Exchange Act.719

While some commenters suggested that 

we permit issuers to rely on the Form 

8–A to register a class of securities for 

up to 12 months following the 

qualification of an offering statement, 

we believe limiting short form 

registration to situations in which an 

offering statement is being concurrently 

qualified will help ensure that the 

disclosures incorporated by reference 

into the Form 8–A, including financial 

statements contained in the offering 

statement are current.720 The final rules 

would not, however, prevent an issuer 

from registering a class of securities 

under the Exchange Act on Form 8–A 

concurrent with the re-qualification of a 

previously qualified offering statement. 

We recognize that Exchange Act 

reporting requires more comprehensive 

ongoing reporting than the Regulation A 

disclosure regime, which is why 

facilitating issuers’ entrance into the 

Exchange Act reporting system on Form 

8–A concurrent with the qualification of 

a Regulation A offering statement will 

benefit investors. At a minimum, issuers 

pursuing this route to exchange listing 

must meet listing standards of, and be 

certified by, the exchange before the 

Form 8–A will be declared effective. In 

order to be approved for listing on an 

exchange, issuers generally must meet 

certain size, financial, minimum 

securities distribution (or liquidity), and 

corporate governance criteria.721

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Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Rules and Regulations 21853 

U.S. Listing Standards for the New York Stock 

Exchange (NYSE), available at: https:// 

www.nyse.com/publicdocs/nyse/listing/ 

NYSE%20_Initial_Listing_Standards_Summary.pdf. 

722See, e.g., Continued Listing Guide for the 

NASDQAQ Stock Market, available at: https:// 

listingcenter.nasdaq.com/assets/ 

continuedguide.pdf; Continued Listing Standards 

for the New York Stock Exchange (NYSE), available 

at: https://www.nyse.com/get-started/reference. 

723See Section II.C.3.b(2)(c). above for a 

description of the financial statement requirements. 

724See General Instruction A.(a) to Form 8–A. 

725ABA BLS Letter; MoFo Letter. 

726Under Section 2(a)(19) of the Securities Act, 

an ‘‘emerging growth company’’ is defined as, 

among other things, an issuer that had total annual 

gross revenues of less than $1 billion during its 

most recently completed fiscal year. 15 U.S.C. 

77b(a)(19). See also Section 3(a)(80) of the Exchange 

Act (which repeats the same definition). 15 U.S.C. 

78c(a)(80). 

727See also discussion in Section II.C.1. 

(Electronic Filing; Delivery Requirements) and 

Section II.C.3.a. (Part I (Notification)) above. 

728See Section II.E.1. above for a discussion of 

the requirements for proposed Form 1–K. 

729See proposed Rule 257(d)(2). 

730See Instruction to proposed Form 1–Z. 

731 Id. 

732See proposed Rule 257(d)(1) and (e). 

Additionally, in order to maintain 

listing on an exchange, issuers must 

maintain certain qualitative and 

quantitative continued listing 

standards.722 Therefore, in addition to 

the provision of ongoing Exchange Act 

reports, investors will benefit from the 

issuer’s satisfaction of the exchange’s 

initial and ongoing listing standards, 

and may benefit from greater liquidity 

for their shares as a result. 

As suggested by commenters, we 

believe that our accommodation should 

be limited to instances where an issuer 

provides disclosure in Part II of Form 1– 

A that follows Part I of Form S–1 or 

Form S–11, instead of the Offering 

Circular format. While all formats 

require extensive disclosure that, with 

the exception of item numbering, is 

similar in many respects, we believe 

that an issuer entering Exchange Act 

reporting should provide disclosure in a 

manner that is generally consistent with 

the requirements of issuers entering the 

Exchange Act reporting regime through 

registered offerings.723 In this regard, we 

note that issuers qualifying an offering 

statement that follows Part I of Form S– 

1 or Form S–11 will, however, be 

required to follow the financial 

statement requirements of Part F/S of 

Form 1–A. For purposes of concurrent 

Exchange Act registration, the financial 

statements included in Form 1–A must 

be audited in accordance with the 

standards of the PCAOB by a PCAOBregistered auditor that is independent 

pursuant to Article 2 of Regulation S– 

X.724 After effectiveness of the Form 8– 

A, they will be subject to Exchange Act 

reporting and compliance with the 

financial statement requirements of 

Exchange Act reporting companies. 

Consistent with the suggestion of 

commenters,725 we agree that issuers 

entering Exchange Act reporting under 

a qualified Regulation A offering 

statement and Form 8–A will be 

considered ‘‘emerging growth 

companies’’ to the extent the issuers 

otherwise qualify for such status. Issuers 

should base status determinations on 

the definition of an emerging growth 

company as it appears in the Securities 

Act and the Exchange Act.726

As noted above, the Proposing Release 

sought comment on whether we should 

consider encouraging the development 

of venture exchanges or other trading 

venues to facilitate the secondary 

market trading of Regulation A 

securities. We are considering venture 

exchanges as a way to provide liquidity 

for smaller issuers, and are 

contemplating their use for Regulation 

A securities as part of that 

consideration. 

4. Exit Report on Form 1–Z 

a. Proposed Rules 

(1) Summary Information on 

Terminated or Completed Offerings 

As discussed in Section II.E.1. above, 

we proposed to rescind Form 2–A but 

to continue to require Regulation A 

issuers to file the information generally 

disclosed in Form 2–A with the 

Commission electronically on EDGAR. 

Consistent with the related portion of 

proposed Form 1–K,727 we proposed to 

convert the Form 2–A information into 

an online XML-based fillable form with 

indicator boxes or buttons and text 

boxes to be filed electronically with the 

Commission as Part I of proposed Form 

1–Z (exit report). Issuers conducting 

Tier 1 offerings would be required to 

provide this information on Form 1–Z 

not later 30 calendar days after 

termination or completion of the 

offering, while issuers conducting Tier 2 

offerings would be required to provide 

this information on Form 1–Z at the 

time of filing the exit report, if not 

previously provided on Form 1–K as 

part of their annual report.728 As 

proposed, the summary offering 

information disclosed on Form 1–Z 

would be publicly available on EDGAR 

(but not otherwise required to be 

distributed to investors) and would 

include the date the offering was 

qualified and commenced, the number 

of securities qualified, the number of 

securities sold in the offering, the price 

of the securities, any fees associated 

with the offering, and the net proceeds 

to the issuer. 

(2) Termination or Suspension of Tier 2 

Disclosure Obligations 

We further proposed to permit a Tier 

2 issuer that has filed all ongoing 

reports required by Regulation A for the 

shorter of (1) the period since the issuer 

became subject to such reporting 

obligation or (2) its most recent three 

fiscal years and the portion of the 

current year preceding the date of filing 

Form 1–Z to immediately suspend its 

ongoing reporting obligation under 

Regulation A at any time after 

completing reporting for the fiscal year 

in which the offering statement was 

qualified, if the securities of each class 

to which the offering statement relates 

are held of record by fewer than 300 

persons and offers or sales made in 

reliance on a qualified offering 

statement are not ongoing.729 In such 

circumstances, an issuer’s obligation to 

continue to file ongoing reports in a Tier 

2 offering under Regulation A would be 

suspended immediately upon the filing 

of a notice with the Commission on Part 

II of proposed Form 1–Z. A manually 

signed copy of the Form 1–Z would 

have to be executed by the issuer and 

related signatories before or at the time 

of filing and retained by the issuer for 

a period of five years.730 Issuers would 

be required to produce the manually 

signed copy to the Commission, upon 

request.731

We further proposed that issuers’ 

obligations to file ongoing reports in a 

Tier 2 offering under Regulation A 

would be automatically suspended 

upon registration of a class of securities 

under Section 12 of the Exchange Act or 

effectiveness of a registration statement 

under the Securities Act, such that 

Exchange Act reporting obligations 

would always supersede ongoing 

reporting obligations under Regulation 

A. If an issuer terminates or suspends its 

reporting obligations under the 

Exchange Act and the issuer is eligible 

to suspend its Regulation A reporting 

obligation by filing a Form 1–Z at that 

time, the ongoing reporting obligations 

would terminate automatically and no 

Form 1–Z filing would be required to 

terminate the issuer’s Regulation A 

reporting obligation. If the issuer is not 

eligible to file a Form 1–Z at that time, 

it would need to recommence its 

Regulation A reporting with a report 

covering any financial period not 

completely covered by an effective 

registration statement or filed Exchange 

Act report.732

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21854 Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Rules and Regulations 

733CFA Institute Letter. 

734See Exchange Act Section 15(d), 15 U.S.C. 

78o(d); Exchange Act Rule 12h-3, 17 CFR 240.12h– 

3. 

735Rule 257(d)(2). 

736The Commission recently proposed changes to 

its rules regarding Exchange Act registration to 

implement Title V and Title VI of the JOBS Act. See 

Rel. No. 33–9693 (Dec. 18, 2014) [79 FR 78343]. 

These proposed changes would, among other 

things, apply the registration thresholds applicable 

to banks and bank holding companies, as set forth 

in Section 12(g) of the Exchange Act, to savings and 

loan holding companies. Should we adopt this 

provision in the final rules for Section 12(g), we 

would anticipate making a corresponding change to 

the termination provisions of Rule 257(d). 

737Rule 257(d)(2). The final rules, as they apply 

to the number of record holders of other types of 

issuers, are adopted without changes from the 

proposal. Although Rule 257(d)(2) relies on the 

definition of ‘‘held of record’’ in Rule 12g5–1, 

issuers seeking to terminate or suspend their Tier 

2 ongoing disclosure obligations are specifically 

excluded from relying on the amendment to such 

definition, which exclude securities issued in Tier 

2 offerings. See Rule 12g5–1(a)(7) and Section II.B.6 

above. 

738 Id. In this regard, we have clarified that the 

Commission may only deny a Form 1–Z filing if the 

issuer is ineligible to use the form. See Rule 257(d). 

739See Instruction to Form 1–Z. 

740 Id. 

741 17 CFR 230.260. 

742Heritage Letter. 

743MCS Letter. 

744Rule 260. 

b. Final Rules 

(1) Summary Information on 

Terminated or Completed Offerings 

The single commenter on this issue 

approved of the proposed requirement 

to file summary information after the 

termination or completion of a 

Regulation A offering under both 

tiers.733 We are adopting this 

requirement without changes. 

(2) Termination or Suspension of Tier 2 

Disclosure Obligations 

We are adopting, with a change from 

the proposal, final rules that will permit 

issuers that conduct a Tier 2 offering to 

terminate or suspend their ongoing 

reporting obligations on a basis similar 

to the provisions that allow issuers to 

suspend their ongoing reporting 

obligations under Section 13 and 

Section 15(d) of the Exchange Act.734 As 

proposed, the final rules permit a Tier 

2 issuer that has filed all reports 

required by Regulation A for the shorter 

of: (1) The period since the issuer 

became subject to such reporting 

obligation, or (2) its most recent three 

fiscal years and the portion of the 

current year preceding the date of filing 

Form 1–Z to immediately suspend its 

ongoing reporting obligation under 

Regulation A at any time after 

completing reporting for the fiscal year 

in which the offering statement was 

qualified, if the securities of each class 

to which the offering statement relates 

are held of record by fewer than 300 

persons and offers or sales made in 

reliance on a qualified Tier 2 offering 

statement are not ongoing.735 In a 

change from the proposal, in order to be 

consistent with Title VI of the JOBS Act, 

the final rules permit banks or bank 

holding companies 736 to immediately 

suspend their ongoing reporting 

obligation under Regulation A at any 

time after completing reporting for the 

fiscal year in which the offering 

statement was qualified, if the securities 

of each class to which the offering 

statement relates are held of record by 

fewer than 1,200 persons, instead of 300 

persons, and offers or sales made in 

reliance on a qualified Tier 2 offering 

statement are not ongoing.737 As 

proposed, an issuer’s obligation to 

continue to file ongoing reports in a Tier 

2 offering under Regulation A will be 

suspended immediately upon the filing 

of a notice to the Commission on Part 

II of proposed Form 1–Z.738 As 

proposed, a manually signed copy of the 

Form 1–Z must be executed by the 

issuer and related signatories before or 

at the time of filing and retained by the 

issuer for a period of five years.739

Issuers must produce the manually 

signed copy to the Commission, upon 

request.740

We otherwise adopt the proposed 

rules for the termination or suspension 

of a Tier 2 ongoing reporting obligation 

as proposed and without changes. 

F. Insignificant Deviations From a Term, 

Condition or Requirement 

We did not propose any changes to 

the existing insignificant deviation 

provisions of Rule 260. Rule 260 

provides that certain insignificant 

deviations from a term, condition or 

requirement of Regulation A will not 

result in the issuer’s loss of the 

exemption from registration under 

Section 5 of the Securities Act.741 The 

provisions of Regulation A regarding 

issuer eligibility, offering limits, offers, 

and continuous or delayed offerings of 

Regulation A are deemed to be 

significant to the offering as a whole, 

and any deviations from these 

provisions result in the issuer’s loss of 

the exemption. 

One commenter generally supported 

the concept of allowing for insignificant 

deviations from the rules without the 

loss of the exemption.742 This 

commenter recommended that the 

Commission give notice of violations 

and allow companies to have an 

opportunity to cure any such violation. 

The commenter also recommended 

imposing lesser sanctions, such as fines, 

if less significant violations could not be 

cured. Another commenter 

recommended including deviations 

from the prohibitions on the timing of 

sales and the amounts sold to investors 

on the list of matters deemed significant 

in proposed Rule 260, noting that, in its 

view, it would be difficult for issuers to 

show a good faith and reasonable 

attempt was made to comply with the 

requirements of Rule 251(d)(2).743 This 

commenter noted that issuers, investors 

and state regulators need clear 

boundaries to know what actions will 

disqualify an offering from exemption 

and thus, with respect to the proposed 

provisions for Tier 2 offerings, would 

result in a loss of state preemption. 

The final rules maintain the existing 

provisions for insignificant deviations, 

as proposed. Under the final rules, a 

failure to comply with a term, condition 

or requirement of Regulation A will not 

result in the loss of the exemption for 

any offer or sale to a particular 

individual or entity, if the person 

relying on the exemption establishes 

that: 

(1) The failure to comply did not 

pertain to a term, condition or 

requirement directly intended to protect 

that particular individual or entity; 

(2) The failure to comply was 

insignificant with respect to the offering 

as a whole, provided that any failure to 

comply with the offering limitations, 

issuer eligibility criteria, or 

requirements for offers or continuous or 

delayed offerings will be deemed to be 

significant to the offering as a whole; 

and 

(3) A good faith and reasonable 

attempt was made to comply with all 

applicable terms, conditions and 

requirements of Regulation A.744

We believe that provisions for 

insignificant deviations serve an 

important function by allowing for 

certain errors that can occur in the 

offering process, while clearly 

delineating those provisions from which 

an issuer may not deviate. We believe 

the current provisions provide 

assurances to investors that issuers will 

not be able to deviate from certain 

fundamental requirements in the rules 

and avoid undue hardship that could 

befall issuers for inadvertent errors, 

such as loss of the exemption and, with 

respect to Tier 2 offerings, the loss of 

preemption of state securities law 

registration and qualification 

requirements. We are not expanding the 

list of provisions from which an issuer 

may not deviate. We note that whether 

a deviation from the requirements 

would be significant to the offering as a 

whole would depend on the facts and 

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Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Rules and Regulations 21855 

745Rel. No. 33–9414 (July 10, 2013) [78 FR 

44729]. The Commission proposed rules 

substantially similar to those adopted pursuant to 

Section 926 of the Dodd-Frank Act in the Proposing 

Release for securities-based crowdfunding 

transactions under Title III of the JOBS Act. See Rel. 

No. 33–9470, at 284. 

746See, e.g., KVCF Letter; MCS Letter; 

747 KVCF Letter. 

748 Karr Tuttle Letter. 

749Ladd Letter 2. 

750MCS Letter. 

751ABA BLS Letter (suggesting ‘‘voting 

securities’’ be deemed securities the holders of 

which are presently entitled to vote for the election 

of directors (or the equivalent)). 

752 17 CFR 230.506(d). 

753Rule 262(a). 

754Rule 262(a)(3). 

755Rule 262(a)(5). 

756Rule 261(d). 

757Rule 506(d), 17 CFR 230.506(d). 

758Under Rule 503 of Regulation D, issuers must 

file a notice of sales on Form D no later than 15 

calendar days after the first sale of securities. 17 

CFR 230.503(a). 

759See Rule 262(b)(4). 

760 Id. 

761Rule 262(b)(2). 

circumstances related to the offering 

and the deviation. We also note that in 

certain situations, such as in the event 

of pre-qualification sales, it may be 

difficult for issuers to establish a good 

faith attempt at compliance. In such 

circumstances, an issuer would not be 

able to rely on the provision. 

G. Bad Actor Disqualification 

1. Proposed Rules 

Under Securities Act Section 

3(b)(2)(G)(ii), the Commission has 

discretion to issue rules disqualifying 

certain felons and other ‘bad actors’ 

from using amended Regulation A. Such 

rules, if adopted, must be ‘‘substantially 

similar’’ to those adopted to implement 

Section 926 of the Dodd-Frank Act, 

which requires the Commission to adopt 

disqualification rules for securities 

offerings under Rule 506 of Regulation 

D. The Commission adopted the 

disqualification provisions required by 

Section 926 in Rule 506(d) together with 

a related disclosure requirement in Rule 

506(e) on July 10, 2013.745

We proposed amendments to 

Regulation A’s bad actor 

disqualification provisions that would 

make those provisions substantially 

similar to those adopted under Rule 506 

of Regulation D. We also sought 

comment on the proposed 

disqualification rules and the categories 

of persons and types of events covered 

by the proposed rules. Additionally, we 

sought comment more broadly on the 

interpretation of the phrase ‘‘voting 

equity securities,’’ as it appears in ‘‘any 

beneficial owner of 20% or more of the 

issuer’s outstanding voting equity 

securities, calculated on the basis of 

voting power,’’ a category of covered 

persons in Rule 506(d) and the proposed 

disqualification provisions for 

Regulation A as well as our proposed 

rules for securities-based crowdfunding 

transactions. 

2. Comments on Proposed Rules 

In general, commenters did not 

oppose the proposed amendments to 

Regulation A’s bad actor 

disqualification rules. Some 

commenters expressly supported the 

proposed rules.746 Some commenters, 

however, recommended changes to 

particular provisions of the proposal. 

One commenter recommended revising 

the look-back periods for disqualifying 

events to run from the time of sale, not 

from the time of filing of the offering 

statement as proposed.747 Another 

commenter recommended adding final 

orders of Canadian provincial regulators 

to the list of disqualifying events.748

This commenter noted that some 

Canadian provinces have information 

publicly posted on their Web sites that 

would facilitate the bad actor diligence 

process. One commenter recommended 

that the Commission develop an online 

bad actor database.749 Another 

commenter supported bad actor 

provisions as extensive as those under 

Rule 506(d).750 Finally, one commenter 

recommended defining voting equity 

securities for purposes of the bad actor 

disqualifications provisions using the 

definition in Rule 12b-2 of the Exchange 

Act.751

3. Final Rules 

We are adopting bad actor 

disqualification provisions for 

Regulation A, substantially as proposed 

with the exception of one change to 

further align the final rules for 

Regulation A with similar provisions in 

Rule 506(d). The covered persons and 

triggering events in the final rules for 

Regulation A are substantially the same 

as the covered persons and triggering 

events included in Rule 506(d).752 The 

covered persons include managing 

members of limited liability companies; 

compensated solicitors of investors; 

underwriters; executive officers and 

other officers participating in the 

offering; and beneficial owners of 20% 

or more of the issuer’s outstanding 

voting equity securities, calculated on 

the basis of voting power.753 Consistent 

with the bad actor disqualification rules 

under Rule 506(d), the final rules also 

include two new disqualification 

triggers not previously present in 

Regulation A: (1) Final orders and bars 

of certain state and other federal 

regulators,754 and (2) Commission ceaseand-desist orders relating to violations 

of scienter-based anti-fraud provisions 

of the federal securities laws or Section 

5 of the Securities Act.755 In order to 

clarify the scope of the term ‘‘final 

order’’ as it appears in Rule 262, we are 

including a definition of that term in 

Regulation A that is consistent with the 

term as it appears in Rule 501(g) of 

Regulation D. As adopted, a ‘‘final 

order’’ shall mean a written directive or 

declaratory statement issued by a 

federal or state agency described in Rule 

262(a)(3) under applicable statutory 

authority that provides for notice and an 

opportunity for hearing, which 

constitutes a final disposition or action 

by that federal or state agency.756 We 

believe that creating a uniform set of 

bad actor triggering events should 

simplify due diligence, particularly for 

issuers that may engage in different 

types of exempt offerings. For this 

reason, consistent with the 

disqualification provisions of Rule 

506(d), the final rules do not include 

final orders of Canadian provincial 

regulators in the list of disqualifying 

events. 

The final disqualification rules in 

Regulation A also specify that an order 

must bar the covered person at the time 

of filing of the offering statement, as 

opposed to the requirement in Rule 

506(d) that the order must bar the 

covered person at the time of the 

relevant sale.757 This clarification 

accords with the current provisions of 

Rule 262 and is appropriate for 

Regulation A because there is no filing 

requirement before the time of first sale 

in Rule 506.758 We are further adopting 

a reasonable care exception to the 

disqualification provisions on a basis 

consistent with Rule 506(d).759 Under 

the final rules, an issuer will not lose 

the benefit of the Regulation A 

exemption if it is able to show that it did 

not know, and in the exercise of 

reasonable care could not have known, 

of the existence of a disqualification.760

As proposed, and consistent with the 

provisions of existing Regulation A, the 

final rules permit issuers that are 

disqualified from relying on the 

exemption to request a waiver of 

disqualification from the 

Commission.761

In the Proposing Release, we solicited 

comment on the interpretation of the 

phrase ‘‘voting equity securities,’’ as it 

appears in ‘‘any beneficial owner of 

20% or more of the issuer’s outstanding 

voting equity securities, calculated on 

the basis of voting power,’’ a category of 

covered persons in Rule 506(d) and 

proposed Rule 262 as well as our 

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21856 Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Rules and Regulations 

762ABA BLS Letter. 

763When we adopted Rule 506(d), we did not 

define ‘‘voting equity securities,’’ but rather 

indicated that our initial intention would be to 

consider securities as voting equity securities if 

‘‘securityholders have or share the ability, either 

currently or on a contingent basis, to control or 

significantly influence the management and 

policies of the issuer through the exercise of a 

voting right.’’ See SEC Rel. No. 33–9414 (July 10, 

2013) [78 FR 44729], text accompanying fn. 62. In 

light of concerns that our initial interpretation may 

be overbroad and that a ‘‘bright line’’ test may be 

more workable and would facilitate compliance, as 

we indicated in the Proposing Release, we are 

reconsidering our initial views. See Proposing 

Release, at Section II.G. 

764 In addition to Regulation A, this interpretive 

position would apply to Rule 505 and Rule 506 of 

Regulation D. 

765 In Securities Act Rule 405, the term voting 

securities means securities the holders of which are 

presently entitled to vote for the election of 

directors. 17 CFR 230.405. 

766As discussed in Section II.C.3.a. above, Part I 

of Form 1–A focuses, in part, on issuer eligibility, 

and requires issuers to make an eligibility 

determination at the outset of filling out 

Form 1–A. 

767Section 18 of the Securities Act generally 

provides for exemption from state law registration 

and qualification requirements for certain categories 

of securities, defined as ‘‘covered securities.’’ See 

Section 18(c), 15 U.S.C. 77r(c). State securities 

regulators retain authority to impose certain filing 

and fee requirements and general antifraud 

enforcement authority with respect to covered 

securities. See Section 18(c), 15 U.S.C. 77r(c). 

768See fn. 90 above. 769Proposed Rule 256. 770We understand that some state securities 

regulators do not require the registration of broadly 

advertised offerings such as internet offerings, if the 

advertisement indicates, directly or indirectly, that 

the offering is not available to residents of that state. 

See, e.g., Washington State Dep’t of Financial 

Institutions, Securities Act Policy Statement—16, 

available at: http://dfi.wa.gov/sd/ 

securitiespolicy.htm#ps-16; see also NASAA 

Reports ¶ 7,040 (regarding NASAA resolution, 

dated January 7, 1996, which encourages states to 

take appropriate steps to exempt from securities 

registration offers of securities over the Internet). 

proposed rules for securities-based 

crowdfunding transactions. Consistent 

with the views of at least one 

commenter,762 we have reconsidered 

our initial views on the interpretation of 

‘‘voting equity securities.’’ We believe 

that it is appropriate to refine our initial 

interpretation,763 as it applies to our bad 

actor disqualification rules,764 and 

create a ‘‘bright-line’’ standard that is 

consistent with the definition of the 

term ‘‘voting securities’’ in Rule 405 of 

the Securities Act.765 In this regard, we 

believe that such a term should include 

only those voting equity securities 

which, by their terms, currently entitle 

the holder to vote for the election of 

directors. In other words, we believe the 

term should be read to denote securities 

having a right to vote that are presently 

exercisable. Additionally, while the 

ability to control or significantly 

influence the management or policies of 

the issuer may be derived in part from 

the power to vote for the election of 

directors, in order to dispel any 

uncertainty as to the scope of our 

interpretation, we believe the term 

‘‘voting equity securities’’ should be 

interpreted based on the present right to 

vote for the election of directors, 

irrespective of the existence of control 

or significant influence. 

Under the final rules, offerings that 

would have been disqualified from 

reliance on Regulation A under Rule 

262 as in effect before today’s 

amendments will continue to be 

disqualified. Triggering events that were 

not previously included in the bad actor 

rules for Regulation A and that pre-date 

effectiveness of the final rules will not 

cause disqualification, but instead must 

be disclosed on a basis consistent with 

Rule 506(e). Specifically, issuers will be 

required to indicate in Part I of Form 1– 

A that none of the persons described in 

Rule 262 are disqualified and, where 

applicable, that disclosure of triggering 

events that would have triggered 

disqualification, but occurred before the 

effective date of the Regulation A 

amendments, will be provided in Part II 

of Form 1–A.766

We believe that the final rules are 

appropriate in light of the Section 

3(b)(2)(G)(ii) mandate, the benefits of 

creating a more uniform set of standards 

for all exemptions that include bad actor 

disqualification, and the required 

disclosure in the offering circular of 

persons subject to events that would 

have triggered disqualification, but 

occurred before the effective date of the 

final rules. 

H. Relationship With State Securities 

Law 

1. Proposed Rules 

Although Section 401(b) of the JOBS 

Act does not exempt offerings made 

under Section 3(b)(2) and the related 

rules from state law registration and 

qualification requirements, it added 

Section 18(b)(4)(D) to the Securities 

Act.767 That provision states that 

Section 3(b)(2) securities are covered 

securities for purposes of Section 18 if 

they are ‘‘offered or sold on a national 

securities exchange’’ or ‘‘offered or sold 

to a qualified purchaser, as defined by 

the Commission pursuant to [Section 

18(b)(3)] with respect to that purchase 

or sale.’’ Section 18(b)(3) provides that 

‘‘the Commission may define the term 

‘qualified purchaser’ differently with 

respect to different categories of 

securities, consistent with the public 

interest and the protection of investors.’’ 

Commenters in the pre-proposal stage 

suggested that the cost of state securities 

law compliance, which they identified 

as an obstacle to the use of Regulation 

A, would discourage market 

participants from using the new 

exemption. In addition, the GAO, as 

required by Section 402 of the JOBS Act, 

conducted a study on the impact of state 

securities laws registration and 

qualification requirements on offerings 

conducted under Regulation A and 

found that state securities laws were 

among several central factors that may 

have contributed to the lack of use of 

Regulation A.768

In light of the issues raised by 

commenters and in the GAO Report, as 

well the substantial investor protections 

included in the proposed rules to 

amend Regulation A and implement 

Title IV of the JOBS Act, we proposed 

to define the term ‘‘qualified purchaser’’ 

in a Regulation A offering to consist of: 

(1) All offerees in a Regulation A 

offering and (2) all purchasers in a Tier 

2 offering.769 We indicated in the 

Proposing Release that we believed this 

approach would protect offerees and 

purchasers in Regulation A securities, 

while streamlining compliance and 

reducing transaction costs. 

We proposed to preempt state 

securities laws registration and 

qualification requirements with respect 

to all offerees in a Regulation A offering, 

in order to allow issuers relying on 

Regulation A to communicate with 

potential investors about their offerings 

using the internet, social media, and 

other means of widespread 

communication, without concern that 

such communications might trigger 

registration requirements under state 

law.770 We further proposed to preempt 

state securities laws registration and 

qualification requirements with respect 

to all purchasers in a Tier 2 offering to 

help make Regulation A a more 

workable means of capital formation. 

We also noted our belief that the 

substantial investor protections 

embedded in the proposed rules, 

including issuer eligibility conditions, 

limitations on investment, disclosure 

requirements, qualification process, and 

ongoing reporting requirements of Tier 

2, in combination, could address 

potential concerns that may arise as a 

result of preemption. 

Under the proposed rules, state 

securities regulators would retain their 

authority to: 

• Require the filing of any document 

filed with the Commission and the 

payment of filing fees; 

• investigate and bring enforcement 

actions against fraudulent securities 

transactions and unlawful conduct by 

broker-dealers in such offerings; and 

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771Section 18(c) (Preservation of Authority) of the 

Securities Act, 15 U.S.C. 77r(c). 

772Letter from A. Heath Abshure, Arkansas 

Securities Commissioner, February 20, 2014 (‘‘ASD 

Letter’’); CFA Letter; CFA Institute Letter; Letter 

from Rep. Stephen F. Lynch, et al, U.S. House of 

Representatives, June 3, 2014 (‘‘Congressional Letter 

2’’); Letter from Sen. Barbara Boxer, et al, U.S. 

Senate, Aug. 1, 2014 (‘‘Congressional Letter 4’’); 

Cornell Clinic Letter; Groundfloor Letter (suggesting 

that the Commission should at least evaluate 

NASAA’s coordinated review program for 12 

months); Karr Tuttle Letter (acknowledging that 

state preemption may still be necessary for states 

not participating in NASAA’s new coordinated 

review program); Letter from William F. Galvin, 

Secretary, Commonwealth of Massachusetts, 

December 18, 2013 (‘‘Massachusetts Letter 1’’); 

Massachusetts Letter 2; MCS Letter; Letter from 

Andrea Seidt, President, et al., North American 

Securities Administrators Association (NASAA), 

February 19, 2014 (‘‘NASAA Letter 1’’); NASAA 

Letter 2; Letter from William Beatty, President, 

North American Securities Administrators 

Association (NASAA), February 11, 2015 (‘‘NASAA 

Letter 3’’); Letter from Jack E. Herstein, Assistant 

Director, Nebraska Department of Banking and 

Finance, February 10, 2014 (‘‘NDBF Letter’’); Letter 

from Chad Johnson, Bureau Chief, Investor 

Protection Bureau, New York State Attorney 

General’s Office, New York, May 7, 2014 (‘‘NYIPB 

Letter’’); Letter from Irving L. Faught, 

Administrator, Oklahoma Department of Securities, 

March 24, 2014 (‘‘ODS Letter’’); Letter from Damaris 

Mendoza-Roma ́n, Assistant Commissioner, Office of 

the Commissioner of Financial Institutions, Puerto 

Rico, March 5, 2014 (‘‘PRCFI Letter’’); Letter from 

Hon. Jesse White, Illinois Secretary of State, et al., 

March 4, 2014 (‘‘Secretaries of State Letter’’); Letter 

from Lindsay M. Scherber, May 8, 2014 (‘‘Scherber 

Letter’’); Letter from Janet M. Tavakoli, President, 

Tavakoli Structured Finance, Inc., February 24, 

2014 (‘‘Tavakoli Letter’’); Letter from John Morgan, 

Securities Commissioner, Texas State Securities 

Board, March 21, 2014 (‘‘TSSB Letter’’); WDFI 

Letter. 

773See, e.g., ASD Letter; CFA Letter; 

Congressional Letter 4; Cornell Clinic Letter; 

Massachusetts Letter 1; NASAA Letter 2; ODS 

Letter; PRCFI Letter; WDFI Letter. 

774See, e.g., CFA Letter; Massachusetts Letter 1; 

NASAA Letter 2; PRCFI Letter; Tavakoli Letter; 

WDFI Letter. 

775Pub. L. 104–290, 110 Stat. 3416 (Oct. 11, 

1996). 

776See, e.g., ASD Letter; Karr Tuttle Letter; 

Congressional Letter 4; Massachusetts Letter 1; 

Massachusetts Letter 2; NASAA Letter 1; NASAA 

Letter 2; NDBF Letter; NYIPB Letter; ODS Letter; 

PRCFI Letter; Secretaries of State Letter; Tavakoli 

Letter; WDFI Letter. 

777Rel. No. 33–8041 (Dec. 27, 2001) (the ‘‘2001 

Proposing Release’’). 

778See, e.g., ASD Letter; CFA Letter; 

Congressional Letter 2; Congressional Letter 4; 

Groundfloor Letter; Massachusetts Letter 1; 

Massachusetts Letter 2; NASAA Letter 2; NDBF 

Letter; NYIPB Letter; Secretaries of State Letter; 

Tavakoli Letter; WDFI Letter. 

779See, e.g., CFA Letter; Groundfloor Letter; 

Massachusetts Letter 2; NASAA Letter 2; Scherber 

Letter; WDFI Letter. 

780See, e.g., CFA Letter; Massachusetts Letter 2; 

NASAA Letter 2; WDFI Letter. 

781See, e.g., NASAA Letter 1; ODS Letter; PRCFI 

Letter; WDFI Letter. 

782See, e.g., CFA Letter; CFA Institute Letter; 

MCS Letter; NASAA Letter 2; Scherber Letter; TSSB 

Letter; WDFI Letter. 

783See, e.g., ASD Letter; CFA Institute Letter; 

Cornell Clinic Letter; Groundfloor Letter; Karr 

Tuttle Letter; Massachusetts Letter 1; Massachusetts 

Letter 2; NASAA Letter 1; NASAA Letter 2; NASAA 

Letter 3; NYIPB Letter; PRCFI Letter; Secretaries of 

State Letter; Tavakoli Letter; TSSB Letter; WDFI 

Letter. 

784ABA BLS Letter; Letter from Kendall 

Almerico, Crowdfunding Expert, Attorney and CEO, 

Fund Hub and ClickStartMe, February 11, 2014 

(‘‘Almerico Letter’’); Andreessen/Cowen Letter; B. 

Riley Letter; BIO Letter; Campbell Letter; Canaccord 

Letter; CFIRA Letter 1; CFIRA Letter 2; Letter from 

Rep. David Schweikert, et al, U.S. House of 

Representatives, Sept. 25, 2014 (‘‘Congressional 

Letter 3’’); DuMoulin Letter (noting that Canadian 

issuers conducting simultaneous offerings in 

Canada would otherwise be subject to three levels 

of review); Letter from Stanley Keller, Edwards 

Wildman Palmer LLP, April 3, 2014 (‘‘Edwards 

Wildman Letter’’) (recommending defining 

‘‘qualified purchasers’’ as ‘‘accredited investors’’ if 

the proposed preemption is not adopted); Letter 

from Daniel Eng, CEO, March 20, 2014 (‘‘Eng 

Letter’’); Fallbrook Technologies Letter; Gilman Law 

Letter; McCarter & English Letter; Guzik Letter 1 

(see also Guzik Letter 2 (suggesting that if the 

proposed preemption is not adopted to consider 

adopting an accredited investor style definition for 

‘‘qualified purchaser,’’ but with a lower income or 

net worth test)); Letter from Todd Hart, Aug. 20, 

2014 (‘‘Hart Letter’’); Heritage Letter; Letter from 

Charles Huynh, February 24, 2014 (‘‘Huynh 

Letter’’); IPA Letter; Kisel Letter; Letter from Akbert 

P. Kretz, Ph.D., Founder/Manager, Mentor, March 

11, 2014 (‘‘Kretz Letter’’); KVCF Letter; Ladd 

Letters; Leading Biosciences Letter; Letter from 

Bruce E. Methven, Securities Law Attorney, March 

23, 2014 (‘‘Methven Letter’’); Milken Institute 

Letter; MoFo Letter; Letter from Donald R. Hancock, 

CEO, Moloney Securities Co., Inc., February 20, 

2014 (‘‘Moloney Letter’’); Letter from Jason Akel, 

President, New Food Ventures LLC, March 12, 2014 

(‘‘New Food Letter’’); OTC Markets Letter; Letter 

from Jesse J. Palomino, February 25, 2014 

(‘‘Palomino Letter’’); Paul Hastings Letter; Public 

Startup Co. Letters; REISA Letter; Richardson Patel 

Letter; SBIA Letter; Letter from Bradley L. Staples, 

MBA, University of Utah, February 21, 2014 

(‘‘Staples Letter’’); Letter from Chris Sugai, February 

21, 2014 (‘‘Sugai Letter’’); SVB Financial Letter; 

SVGS Letter; Letter from Ryan Hawxhurst, Founder 

and CEO of Unorthodocs Printing LLC, February 21, 

2014 (‘‘Unorthodocs Letter’’); U.S. Chamber of 

Commerce Letter; Letter from Gregory S. Fryer, Esq., 

Partner, Verrill Dana LLP, July 15, 2014 (‘‘Verrill 

Dana Letter 2’’); Letter from John Warren, Esq., 

February 24, 2014 (‘‘Warren Letter’’); WR 

Hambrecht + Co Letter. 

• enforce the filing and fee 

requirements by suspending the offer or 

sale of securities within a given state for 

the failure to file or pay the appropriate 

fee.771

As noted in the Proposing Release, it 

was our preliminary view that the 

additional requirements for Tier 2 

offerings would meaningfully bolster 

the protections otherwise embedded in 

Regulation A and therefore a different 

treatment than Tier 1 offerings is 

appropriate. 

2. Comments on Proposed Rules 

The preemption of state securities law 

registration and qualification 

requirements contemplated in the 

proposed ‘‘qualified purchaser’’ 

definition received an extensive amount 

of public commentary. Commenters 

were sharply divided on the need for 

state securities law preemption in 

Regulation A. 

Many commenters objected to the 

preemption of state securities law 

registration and qualification 

requirements.772 The views of these 

commenters were based on the 

following arguments: 

• A ‘‘qualified purchaser’’ means a 

purchaser with specialized skill, 

experience or knowledge.773

• The qualifications of the purchaser 

are key, not the nature of the issuer or 

the offering. Thus, the proposed 

definition of ‘‘qualified purchaser’’ is 

contrary to the plain meaning of this 

term.774

• The legislative history of the 

National Securities Markets 

Improvement Act of 1996 (NSMIA) 775

suggests that definitions of ‘‘qualified 

purchaser’’ must include an investor 

sophistication test.776 The Commission 

made similar statements on the 

‘‘qualified purchaser’’ definition in a 

2001 Proposing Release.777

• Congress considered preemption in 

the context of a provision to preempt 

offerings conducted through a brokerdealer in an early draft of Title IV of the 

JOBS Act, but then purposefully 

excluded such broad preemption from 

the final statute.778

• The Commission’s cost-benefit 

analysis of preemption was inadequate 

because it largely ignored investor 

protections, the benefits of state 

regulation, perceived resource 

constraints at the Commission, and 

preemption’s impact on investor 

confidence in the markets.779

• Although the GAO Report 

conducted under Section 402 of the 

JOBS Act cited compliance with state 

securities law review and qualification 

requirements as a factor in the lack of 

use of Regulation A, it also noted 

lengthy Commission reviews of Form 

1–A filings.780

• States play a unique role in 

regulating securities offerings due to 

their localized knowledge and 

resources, which aid in detecting fraud 

and facilitating issuer compliance.781

• The investor protections included 

in the proposal do not act as an 

adequate substitute for state review and 

comment on offering statements.782

• The states have adopted and 

implemented a new coordinated review 

program, designed to address many of 

the perceived inefficiencies associated 

with state registration.783

Many other commenters expressed 

their support for preemption, as 

proposed.784 These commenters made 

the following arguments: 

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21858 Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Rules and Regulations 

785See, e.g., ABA BLS Letter; Almerico Letter; B. 

Riley Letter; Campbell Letter; Canaccord Letter; 

CFIRA Letter 1; Congressional Letter 3; Edwards 

Wildman Letter; Fallbrook Technologies Letter; 

Gilman Law Letter; Guzik Letter 1; Guzik Letter 2; 

KVCF Letter; Leading Biosciences Letter; Milken 

Institute Letter; MoFo Letter; OTC Markets Letter; 

Paul Hastings Letter; Richardson Patel Letter; 

Verrill Dana Letter 2; WR Hambrecht + Co Letter. 

786See, e.g., ABA BLS Letter; Almerico Letter; 

BIO Letter; Campbell Letter; Canaccord Letter; 

Congressional Letter 3; DuMoulin Letter; Edwards 

Wildman Letter; Fallbrook Technologies Letter; 

Gilman Law Letter; Guzik Letter 1; Guzik Letter 2; 

Kisel Letter; Kretz Letter; KVCF Letter; Ladd Letters; 

Leading Biosciences Letter; McCarter & English 

Letter; Milken Institute Letter; Moloney Letter; OTC 

Markets Letter; Paul Hastings Letter; REISA Letter; 

Richardson Patel Letter; SBIA Letter; Staples Letter; 

SVB Financial Letter; U.S. Chamber of Commerce 

Letter; Verrill Dana Letter 2. 

787See, e.g., ABA BLS Letter; BIO Letter; 

Campbell Letter; Edwards Wildman Letter; Guzik 

Letter 1; Heritage Letter; IPA Letter; KVCF Letter; 

Public Startup Co. Letters; Richardson Patel Letter; 

U.S. Chamber of Commerce Letter; Verrill Dana 

Letter 2. 

788See, e.g., Congressional Letter 3; Heritage 

Letter; KVCF Letter; Methven Letter; REISA Letter. 

789See, e.g., ABA BLS Letter; BIO Letter; 

Canaccord Letter; Congressional Letter 3; Edwards 

Wildman Letter; Guzik Letter 2; KVCF Letter; Ladd 

Letters; Milken Institute Letter; Paul Hastings 

Letter; REISA Letter; Richardson Patel Letter; SVB 

Financial Letter; Verrill Dana Letter 2. 

790ABA BLS Letter; Campbell Letter; 

Congressional Letter 3; Guzik Letter 1; Hart Letter; 

Heritage Letter; IPA Letter; KVCF Letter; Ladd 

Letter 2; Milken Institute Letter; OTC Markets 

Letter; Paul Hastings Letter; Public Startup Co. 

Letter 1; SVB Financial Letter. 

791ABA BLS Letter; IPA Letter (recommending 

preempting for resales of all securities of a Tier 2 

issuer that is current in Regulation A reporting); 

KVCF Letter; OTC Markets Letter (recommending 

preemption for at least Regulation A securities that 

are not penny stocks); Paul Hastings Letter; SVB 

Financial Letter. 

792Andreessen/Cowen Letter; Campbell Letter; 

Congressional Letter 3; Guzik Letter 1 

(recommending preemption with audited financial 

statements and a substantially lighter disclosure 

regime compared to Tier 2); Heritage Letter; Ladd 

Letter 2 (recommending preemption if company 

adopts internal controls and meets continuing 

disclosure requirements, including yearly audited 

financials); Milken Institute Letter (recommending 

preemption if audited financial statements are 

included in the ‘‘initial filing’’); Public Startup Co. 

Letter 1; SVB Financial Letter (recommending 

preemption with additional, unspecified disclosure 

obligations). See Section II.I. below for additional 

recommended changes to Tier 1. 

793 Groundfloor Letter; Ladd Letter 2; Public 

Startup Co. Letter 5; Verrill Dana Letter 2. 

794Ladd Letter 2; Public Startup Co. Letter 5. 

795Public Startup Co. Letter 5. 

796 Verrill Dana Letter 2. 

797 Groundfloor Letter. 

798Massachusetts Letter 2; NASAA Letter 2; 

WDFI Letter. These commenters suggested that the 

Commission require the filing of solicitation 

materials before the time of first use, as, in their 

view, the antifraud and other civil liability 

provisions of the federal securities laws are not an 

adequate substitute for the investor protections 

afforded by an advance filing requirement for 

solicitation materials, while also noting that 

problems with the use of solicitation materials are 

compounded by the provisions for access equals 

delivery of final offering circulars. 

799See Section II.H.3.d. below; see also fn. 830 

below. 

800See fn. 772 above. 

• The proposed rules provide 

substantial investor protections to 

investors.785

• State securities law review of 

offering statements is a significant 

impediment to the use of Regulation 

A.786

• The Commission has the authority 

to preempt state qualification and 

review requirements.787

• States continue to have the 

authority to, among other things, bring 

anti-fraud enforcement actions and to 

review the publicly filed disclosure 

documents before sales occur.788

• NASAA’s coordinated review 

program as implemented will remain 

inefficient due to internal conflict, the 

application of merit review standards 

and the program’s inability to bind 

participants in the event of 

disagreements among the states.789

Many commenters that expressed 

general support for preemption, as 

proposed, also recommended applying 

it on an expanded basis.790 Some 

commenters recommended preempting 

state regulation of secondary trading in 

Regulation A securities,791 and some 

recommended preempting state 

regulation of Tier 1 offerings.792

Alternatively, several commenters 

recommended possibly eliminating the 

Commission’s review of Regulation A 

offerings to varying extents.793 Two 

commenters recommended eliminating 

the Commission’s review of Tier 1 

offerings.794 One of these commenters 

recommended only doing this for 

offerings that are ‘‘local’’ in nature.795

One commenter recommended having a 

single state review, in lieu of a review 

and qualification by the Commission, if 

the Commission’s staff is unwilling to 

review Regulation A offerings 

‘‘promptly with content-appropriate 

standards.’’ 796 One commenter 

recommended completely eliminating 

the Commission’s review if NASAA’s 

coordinated review program promotes a 

‘‘robust’’ Regulation A market.797

3. Final Rules 

For the reasons discussed below, we 

are adopting the ‘‘qualified purchaser’’ 

definition in Regulation A, substantially 

as proposed. In the final rules, a 

‘‘qualified purchaser’’ for purposes of 

Section 18(b)(4)(D)(ii) of the Securities 

Act includes any person to whom 

securities are offered or sold in a Tier 

2 offering. Because of the requirements 

for all Tier 2 offerings, all purchasers in 

Tier 2 offerings persons must be either 

accredited investors or persons who 

limit their investment amount to no 

more than 10% of the greater of annual 

income or net worth (for natural 

persons), or 10% of the greater of annual 

revenue or net assets at fiscal year end 

(for non-natural persons). 

To address commenter concerns and 

avoid potential confusion as to the 

application of the preemption 

provisions in Tier 1 offerings, the final 

definition of ‘‘qualified purchaser’’ does 

not include offerees in Tier 1 offerings. 

While the final rules permit Regulation 

A issuers to test the waters and make 

offers in the pre-qualification period at 

the federal level, in light of the concerns 

raised by state regulators about the 

proposed rule’s expanded use of 

solicitation materials 798 and what we 

anticipate to be the generally more local 

nature of Tier 1 offerings,799 we believe 

it is appropriate, in this context, for the 

states to retain oversight over how these 

offerings are conducted. Although we 

acknowledge that this could potentially 

inhibit the use of solicitation materials 

in certain Tier 1 offerings, for these 

smaller, more localized offerings, we 

think the states should be permitted to 

regulate the use of solicitation materials. 

Given the sharply divided views of 

commenters on the ‘‘qualified 

purchaser’’ definition included in the 

Proposing Release, we want to clarify 

the scope of the Commission’s authority 

under the Securities Act to define such 

a term and the effect the final qualified 

purchaser definition will have on the 

continued ability of the states to 

regulate offers and sales within their 

jurisdiction. We continue to believe that 

the substantial investor protections 

embedded in the final rules for Tier 2 

offerings, including the requisite 

qualifications of the issuer, offering, and 

eventual purchasers, as well as the 

particular characteristics associated 

with this category of securities, support 

the limited preemption of state 

securities laws registration and 

qualification requirements adopted in 

the final rules. 

a. NSMIA and the JOBS Act 

As noted above, some commenters 

questioned the ability of the 

Commission to adopt a ‘‘qualified 

purchaser’’ definition that includes any 

person to whom securities are offered or 

sold in a Tier 2 offering.800 These 

commenters suggested that a qualified 

purchaser definition under Section 

18(b)(3) of the Securities Act must be 

based on attributes of the purchaser, not 

the nature of the issuer or offering. 

These commenters stated that broad 

preemption was contemplated in the 

legislative history of Title IV of the JOBS 

Act and expressly rejected by Congress. 

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Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Rules and Regulations 21859 

801NSMIA, section 101 (Short Title). 802H.R. Rep. No. 622, 104th Cong. 2d Sess. at 1 

(1996) (House Report). 803As enacted, NSMIA included five separate 

titles, each of which served a different purpose in 

the overarching statutory goal of improving national 

securities markets. See preamble and Section 1 to 

NSMIA. 804The stated purpose of the JOBS Act is to 

‘‘increase American job creation and economic 

growth by improving access to the public capital 

markets. . . .’’ See JOBS Act (Preamble). 

805 JOBS Act section 401(b) (adding Section 

18(b)(4)(D)(ii) to the Securities Act). Section 401(b) 

also included in the list of ‘‘covered securities’’ 

transactions involving Section 3(b)(2) securities that 

are offered or sold on a national securities 

exchange, see Section 18(b)(4)(D)(i). See also Title 

III of the JOBS Act, which added to the list of 

‘‘covered securities’’ in Section 18(b)(4)(C) 

transactions involving securities issued pursuant to 

Section 4(a)(6). 

806 15 U.S.C. 77c(b)(2)(D), (F). 

807See 15 U.S.C. 77c(b)(2)(G); 15 U.S.C. 77c(b)(4). 

808See fn. 772 above. 

809See, e.g., NASAA Letter 2. 

810 2001 Proposing Release. In this release, the 

Commission proposed to define a ‘‘qualified 

purchaser’’ to be an ‘‘accredited investor,’’ as that 

term is defined under Rule 501(a) of Regulation D. 

811See 2001 Proposing Release, Section II.B. (for 

example, asking questions about the national 

character of offerings and the potential for 

eliminating redundancies and inefficiencies in the 

application of disparate state standards); see also 

House Report, at 31. 

812See 2001 Proposing Release, Section I.C., II.B. 

The Commission did not adopt final rules based on 

the 2001 Proposing Release. 

Title I of the NSMIA, referred to as the 

‘‘Capital Markets Efficiency Act of 

1996’’ (the ‘‘Efficiency Act’’),801 was, as 

its name suggests, enacted to promote 

efficiency and capital formation in the 

financial markets.802 The Efficiency Act 

realigned the respective responsibilities 

of federal and state securities regulators 

in the context of the dual system of 

securities offering registration that 

existed before enactment of the 

statute.803 The Efficiency Act achieved 

this regulatory realignment by amending 

Section 18 of the Securities Act to 

provide for exemption from state law 

registration and qualification 

requirements for certain categories of 

securities, defined as ‘‘covered 

securities.’’ 

Section 18(b)(3) provides that ‘‘[a] 

security is a covered security with 

respect to the offer or sale of the security 

to qualified purchasers, as defined by 

the Commission by rule.’’ Congress 

stated in Section 18(b)(3) that the 

Commission may ‘‘define the term 

‘qualified purchaser’ differently with 

respect to different categories of 

securities, consistent with the public 

interest and the protection of investors.’’ 

The JOBS Act 804 amended Section 18 

by adding to its list of ‘‘covered 

securities’’ transactions involving 

securities that are exempt from 

registration pursuant to a rule or 

regulation adopted pursuant to Section 

3(b)(2) and that are ‘‘offered or sold to 

a qualified purchaser, as defined by the 

Commission pursuant to [Section 

18(b)(3)] with respect to that purchase 

or sale.’’ 805

By its terms, Section 18(b)(3) provides 

the Commission with the express 

authority to adopt rules that define a 

‘‘qualified purchaser.’’ The provision 

does not prescribe specific criteria that 

the Commission must consider in 

determining, or the manner in which it 

must determine, a purchaser to be 

‘‘qualified.’’ Furthermore, Section 

18(b)(3) states that the definition of 

qualified purchaser may be different for 

different categories of securities. This 

means that, rather than considering the 

characteristics of the purchaser in 

isolation, the Commission may adopt a 

qualified purchaser definition that is 

also tailored to reflect the characteristics 

of the particular type of issuer or 

transaction. Further, Section 18(b)(3) 

does not proscribe any particular terms 

or characteristics that the Commission 

must include in any rules defining 

qualified purchaser with respect to a 

given category of securities. What it 

does instead is require that any rules so 

adopted be consistent with the public 

interest and the protection of investors. 

Unlike Section 18(b)(3), which 

provides for preemption with respect to 

offers or sales to qualified purchasers in 

any context, Section 18(b)(4)(D)(ii) 

provides for preemption specifically 

with respect to transactions exempt 

from registration pursuant to Section 

3(b)(2). As such, the preemption 

afforded under Section 18(b)(4)(D)(ii) 

necessarily encompasses the mandatory 

requirements for conducting an exempt 

offering pursuant to Section 3(b)(2). 

These include, among other things, that 

the civil liability provisions of Section 

12(a)(2) must apply and that an issuer 

must file audited financial statements 

with the Commission annually.806 Other 

potential requirements left to the 

discretion of the Commission include 

provisions for ongoing reporting, bad 

actor disqualification, and requirements 

for electronic filing of offering 

materials.807

We believe that the terms of Section 

18(b)(3) and Section 18(b)(4)(D)(ii)— 

read in conjunction—provide the 

Commission with discretionary 

authority to adopt a ‘‘qualified 

purchaser’’ definition that reflects the 

particular characteristics of transactions 

exempt from registration pursuant to 

Section 3(b)(2). Thus, in determining 

who should be considered a qualified 

purchaser for purposes of the 

amendments to Regulation A, we have 

considered not only the mandatory 

features of Section 3(b)(2), but also 

many of the discretionary features 

contained in our final rules, such as the 

requirement that purchasers in Tier 2 

offerings be limited to accredited 

investors or persons otherwise subject to 

specified investment limitations. 

We recognize that a number of 

commenters disagreed with this 

approach.808 Some stated that a 

‘‘qualified purchaser’’ definition 

adopted by the Commission must at a 

minimum be based on attributes of the 

purchaser, such as a person’s wealth, 

income, or sophistication,809 and noted 

that the Commission had highlighted 

such factors in a 2001 Proposing Release 

to define a ‘‘qualified purchaser’’ 

pursuant to Section 18(b)(3).810 The 

2001 Proposing Release, however, 

contemplated that state securities 

review and qualification requirements 

would be preempted in all categories of 

transactions to the extent that sales were 

made to ‘‘accredited investors.’’ By 

contrast, our rules to implement Title IV 

of the JOBS Act provide for preemption 

in the more limited circumstances in 

which the requirements of Section 

3(b)(2) and the rules adopted thereunder 

are satisfied. 

In the 2001 Proposing Release, we 

noted that certain aspects of NSMIA’s 

legislative history suggest that a 

qualified purchaser definition should 

include investors that are sophisticated 

and capable of protecting themselves. In 

addition, we asked questions about the 

proposed approach to the definition and 

whether other potential factors 

mentioned in the legislative history, 

such as the national character of an 

offering, could or should bear on 

potential qualified purchaser definitions 

adopted pursuant to Section 18(b)(3).811

We do not believe that the 2001 

Proposing Release is inconsistent with 

the qualified purchaser definition for 

Regulation A that we are adopting 

today. The 2001 Proposing Release was 

not a Commission statement on the 

scope of all permissible definitions for 

a qualified purchaser adopted pursuant 

to Section 18(b)(3). Rather, it expressed 

a preliminary interpretive view of 

certain aspects of the legislative history 

of NSMIA in the context of a proposed 

rulemaking that would have equated 

‘‘qualified purchaser’’ with the 

definition of an ‘‘accredited investor’’ 

for sales by any category of issuer in any 

type of transaction.812 While it may 

have been appropriate to focus on 

attributes of the purchaser when crafting 

a ‘‘qualified purchaser’’ definition that 

would have applied in a broad set of 

possible transactions, as in the 2001 

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21860 Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Rules and Regulations 

813See, e.g., Congressional Record Volume 157, 

Number 166 (Wednesday, Nov. 2, 2011), p. 7231 

(Statement of Rep. Peters: ‘‘Finally, the gentleman 

[Rep. Schweikert (AZ)] has also worked with 

Democrats on the remaining issue of contention, 

and that was the preemption of State law. [Rep. 

Schweikert’s] substitute amendment to H.R. 1070 

removes the exemption from State level review that 

was previously provided to an issuer using a 

broker-dealer to distribute and [sic] issue.’’) Cf. H.R. 

Rep. No. 112–206, at 2 (2011). 

814See, e.g., NASAA Letter 2, at 10. 

815 15 U.S.C. 77r(a)(1). 

816Under Section 18(d), the term ‘‘offering 

document’’ has the same meaning given the term 

‘‘prospectus’’ in first portion of section 2(a)(10) and 

includes a communication that is not deemed to 

offer a security pursuant to a rule of the 

Commission. For these purposes, the term 

‘‘prospectus’’ means any prospectus, notice, 

circular, advertisement, letter, or communication, 

written or by radio or television, which offers any 

security for sale or confirms the sale of any security. 

817 15 U.S.C. 77r(a)(2)–(3). 

818 15 U.S.C. 77r(c). 

819 15 U.S.C. 77r(c)(1). 

820 15 U.S.C. 77r(c)(2). For example, even though 

state securities law registration requirements are 

preempted in offerings pursuant to Rule 506 of 

Regulation D, 17 CFR 230.506, many states continue 

to require the filing of Form D notices and 

amendments, and most of them charge a filing fee. 

See, e.g., https://www.efdnasaa.org; cf. 15 U.S.C. 

77r(b)(4)(E). 

821 15 U.S.C. 77r(c)(3). 

822House Report, at 1. 

823 Id., at 16 (Noting the reason behind the 

legislation that eventually became NSMIA was a 

clear need for modernization and that ‘‘there 

continues to be a substantial degree of duplication 

between Federal and State securities regulation, and 

that this duplication tends to raise the cost of 

capital to American issuers of securities without 

providing commensurate protection to investors or 

our markets.’’). 

824A description of NASAA’s coordinated review 

program can be found at: http://www.nasaa.org/

industry-resources/corporation-finance/coordinated

-review/regulation-a-offerings/. The Proposing 

Release also discusses this program, as it was 

contemplated and proposed at that time. See 

Proposing Release, at Section II.H. 

825An illustrated timeline for NASAA’s multistate coordinated review program is available at: 

http://www.nasaa.org/wp-content/uploads/2015/

03/Coordinated-Review-Chart.pdf. 

Proposing Release, the definition being 

adopted today serves a different purpose 

because it applies only in Regulation A 

offerings. Indeed, Section 18(b)(3) 

contemplates that the term ‘‘qualified 

purchaser’’ can be defined ‘‘differently 

with respect to different categories of 

securities.’’ 

The enactment of the JOBS Act in 

2012, and in particular its addition of 

Section 18(b)(4)(D)(ii) to the Securities 

Act has caused us to consider the 

definition of qualified purchaser 

specifically within the context of 

transactions under the new Section 

3(b)(2) exemption. This is a new and 

different context in which to consider 

the definition of qualified purchaser 

than existed at the time of the 2001 

Proposing Release. In this new context, 

we believe that the definition of 

qualified purchaser that we are adopting 

is appropriately tailored to these 

transactions because, as explained 

above, the requirements applicable to 

Tier 2 offerings include numerous 

provisions designed to protect investors, 

including, among other things, a 

requirement that all purchasers in these 

offerings be either accredited investors 

or persons who are subject to 

investment limitations. 

We do not agree with the commenters 

who assert that broad state securities 

law preemption was expressly rejected 

by Congress in Title IV of the JOBS Act. 

The legislative record indicates that the 

only form of state securities law 

preemption directly contemplated, but 

not adopted, in the drafting of Title IV 

of the JOBS Act was for offers and sales 

through a broker or dealer.813

b. Section 18 of the Securities Act and 

the Effect of Preemption on State 

Securities Laws 

As discussed above, some 

commenters expressed concern about 

the effect preemption would have on the 

ability of state securities regulators to 

remain actively involved in Regulation 

A offerings.814 We believe it is 

important to clarify the effect 

preemption will have on the ability of 

state securities regulators to continue to 

play a vital role in the supervision of 

Regulation A securities. 

Under Section 18(a) of the Securities 

Act, no law, rule or regulation of any 

state requiring the registration or 

qualification of securities applies to a 

covered security or to a security that 

will be a covered security upon 

completion of the transaction.815

Further, with respect to a covered 

security, no state law, rule or regulation 

shall prohibit, limit, or impose, among 

other things, any conditions upon the 

use of any offering document 816 that is 

prepared by or on behalf of the issuer, 

or, based on the merits of such offering 

or issuer, upon the offer or sale of any 

covered security.817

While covered security status under 

Section 18 prohibits the states from 

requiring the registration or 

qualification of such securities, Section 

18(c) preserves the power of the states 

in several important areas.818 Under 

Section 18(c), the states retain: 

• The jurisdiction to investigate and 

bring enforcement actions with respect 

to fraudulent securities transactions and 

unlawful conduct by broker-dealers; 819

• the ability to require issuers to file 

with the states any document filed with 

the Commission, solely for notice 

purposes and the assessment of fees, 

together with a consent to service of 

process and any required fee; 820 and 

• the power to enforce the filing and 

fee requirements by suspending the 

offer or sale of securities within a given 

state for the failure to file or pay the 

appropriate fee.821

As the name of the statute that added 

Section 18 to the Securities Act 

suggests, the preemption of state 

securities laws is about improving the 

‘‘efficiency’’ of our capital markets by 

eliminating unnecessary, duplicative 

regulation of securities offerings at both 

the federal and state level.822 It is not 

about eliminating investor protections 

or otherwise limiting the continued 

involvement of the states in such 

offerings.823

c. State Coordinated Review Program for 

Section 3(b)(2) Securities 

Since the proposed rules to 

implement Title IV of the JOBS Act 

were issued in December 2013, NASAA 

has implemented a multi-state 

coordinated review program for 

Regulation A offerings, the goal of 

which is to reduce the state law 

disclosure and compliance obligations 

of Regulation A issuers.824 Under the 

coordinated review program, issuers are 

required to file Regulation A offering 

materials with the states via electronic 

mail. The administrator of the 

coordinated review program must then 

select a lead disclosure examiner and, 

where applicable, a lead merit 

examiner, which are responsible for 

drafting and circulating comment letters 

to the participating jurisdictions, and for 

seeking resolution of those comments 

with the issuer and its counsel. As 

enacted, the program contemplates a 

twenty-one business day turnaround 

from the time of filing of an offering 

statement until the issuer receives 

comments from the states.825 The 

coordinated review program’s review 

protocol also modifies (or disapplies 

altogether) certain of NASAA statements 

of policy for offerings undergoing 

coordinated review. Where, however, an 

issuer elects to offer or sell Regulation 

A securities in at least one merit state, 

the coordinated review program may 

require the issuer to apply NASAA’s 

statements of policy to the offering as a 

whole (i.e., not solely for purposes of 

offers or sales within such merit review 

state(s)). 

At the proposing stage, we indicated 

that a number of open questions 

remained about the then-proposed 

multi-state review program. In the 

intervening time, many questions have 

been answered, largely relating to the 

final adoption and implementation of 

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Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Rules and Regulations 21861 

826At this time, it is our understanding that 49 

of NASAA’s 53 constituent members have agreed to 

participate in the coordinated review program. 

827See, e.g., GAO–12–839, at 14 (discussing the 

varying standards and degrees of stringency applied 

during the qualification and review process in merit 

review states); see also, e.g., ABA BLS Letter, at 14. 

828See, e.g., Groundfloor Letter (the first issuer to 

rely on NASAA’s coordinate review program, with 

the exception of having to seek qualification outside 

of the coordinated review program in the state of 

Georgia). 

829 Id. (suggesting that in its experience the 

benefits of NASAA’s coordinated review program 

outweighed the approximately $50,000 cost of the 

average Regulation A offering); see also NASAA 

Letter 3. 

830For example, issuers of securities in the seven 

offering statements qualified by the Commission 

pursuant to Regulation A in 2014 indicated, on 

average, that they were seeking qualification in 

approximately five states per offering. The financial 

statements provided by these issuers further 

indicated, on average, that issuers had 

approximately $1.2 million in assets. No issuer 

indicated assets greater than $3.6 million, while 

two issuers indicated assets of less than $20,000. 

the program by a vast majority of the 

states.826 Other crucial questions, 

however, remain, such as whether the 

program will be able to address the 

concerns related to state securities law 

compliance identified by the GAO 

Report and commenters,827 and whether 

the program can continue, as 

contemplated, in the face of numerous 

filings by issuers that seek to participate 

in the streamlined process. As of the 

date of this release, we are aware of 

three issuers that have elected to seek 

qualification at the state level pursuant 

to the protocols of the multi-state 

coordinated review program.828 While 

the program, as contemplated in its 

enactment, could potentially reduce the 

state law disclosure and compliance 

obligations of issuers,829 the limited 

experience of issuers with the program 

prevents us from being able to fully 

evaluate it at this time. We note that 

Tier 1 issuers may well benefit from the 

coordinated review program as it 

continues to develop. We remain 

concerned, however, that, even under 

the coordinated review program, state 

securities law registration and 

qualification requirements would be 

unnecessarily duplicative for, and 

impose unnecessary costs on, securities 

issued in Tier 2 offerings. In light of the 

recent efforts of state securities 

regulators to address concerns about the 

costs associated with state qualification 

of Regulation A offering statements, 

however, the ongoing implementation 

and development of the coordinated 

review program, particularly as it may 

operate within Tier 1 offerings, may 

provide additional data that will aid any 

future evaluation of whether such a 

program could effectively operate 

within the context of larger, more 

national Tier 2 offerings as an 

alternative to preemption. 

d. Application of State Securities Law in 

Tier 1 and Tier 2 Offerings 

As we noted in the Proposing Release, 

in light of the issues raised by 

commenters and in the GAO report, we 

remain concerned that costs associated 

with state securities law compliance, 

even under a coordinated review 

program, may deter issuers from using 

amended Regulation A, which could 

significantly limit the impact of the 

exemption as a tool for capital 

formation. In considering our approach 

to preemption in the final rules, 

particularly as we evaluate what is 

consistent with the public interest and 

the protection of investors, we have 

taken into account the amended 

Regulation A regime, including the 

distinctions between the two tiers and 

in particular the additional protections 

provided in Tier 2 beyond the 

requirements of Tier 1. 

In addition to certain basic 

requirements that are applicable to both 

tiers, Tier 2 issuers will be subject to 

significant additional requirements, 

some arising directly from Section 

3(b)(2) and others that we have imposed 

through our discretionary authority 

under that section. For example, the 

financial statements that Tier 2 issuers 

include in their offering circulars are 

required to be audited, and Tier 2 

issuers must file audited financial 

statements with the Commission 

annually. Tier 2 issuers also must 

provide ongoing reports on an annual 

and semiannual basis with additional 

requirements for interim current event 

updates, assuring a continuous flow of 

information to investors and the market. 

In addition, purchasers in Tier 2 

offerings must be either accredited 

investors or subject to limitations in the 

amount they may invest in a single 

offering. Finally, as with Tier 1 

offerings, Tier 2 offering statements will 

be filed electronically, reviewed and 

qualified by Commission staff, and the 

offerings are subject to both limitations 

on eligible issuers and ‘‘bad actor’’ 

disqualification provisions. In 

consideration of these requirements, as 

well as our view, as discussed in greater 

detail below, that Tier 2 offerings are 

more likely to be national rather than 

local in nature, we believe that 

preemption of state securities law 

registration and qualification 

requirements is appropriate for 

purchasers in these offerings. 

We believe that the final rules for 

Regulation A create two different 

categories of securities for purposes of 

Section 18(b)(3). The requirements for 

Tier 1 issuers create a category of 

securities that is more local in character, 

while Tier 2 offerings involve a category 

of securities that is more national in 

character. In this regard, to the extent an 

issuer seeks to raise money through a 

public offering pursuant to Regulation 

A, the distinctions between the 

requirements for Tier 1 and Tier 2 will 

provide issuers with a meaningful 

choice at the outset between initial and 

ongoing offering costs and requirements. 

Tier 1 issuers are not required to 

include audited financial statements in 

their offering statements, nor are they 

required—as contemplated by Section 

3(b)(2)—to file audited financial 

statements with the Commission 

annually. They are further not subject to 

any ongoing reporting, beyond the 

requirements contained in Part I of 

Form 1–Z. While the final rules raise the 

offering limitation in Tier 1 to $20 

million in a 12-month period, which we 

believe should increase the general 

utility of the tier, such offerings by 

virtue of the lower dollar amounts that 

can be raised in comparison to Tier 2 

offerings, as well as the form filing 

requirements and the lack of ongoing 

reporting, will likely be conducted by a 

different set of issuers than those that 

conduct offerings pursuant to Tier 2. 

Specifically, we think that issuers 

conducting Tier 1 offerings are likely to 

be smaller companies whose businesses 

revolve around products, services, and a 

customer base that will more likely be 

located within a single state, region, or 

a small number of geographically 

dispersed states.830 We believe that 

these issuers will typically not seek or, 

on the basis of their business models, be 

able to: (i) Raise capital on a national 

scale; or (ii) create a secondary trading 

market in their Regulation A securities. 

By contrast, we believe that the higher 

offering limitation for Tier 2 offerings, 

the higher costs associated with 

complying with the audited financial 

statement and ongoing reporting 

requirements, as well as the requirement 

to sell to ‘‘accredited investors’’ or 

otherwise limit the amount of securities 

sold to non-accredited investors, will 

necessitate that such offerings be offered 

and sold on a larger and more national 

scale. Additionally, an issuer electing to 

conduct a Tier 2 offering would likely 

do so, or be required by its investors to 

do so, in order to provide ongoing 

reports in a manner that will facilitate, 

or otherwise result in, secondary trading 

on a national level. While issuers 

conducting Regulation A offerings for 

less than $20 million are free to choose 

between the requirements of either tier, 

we believe that the initial and ongoing 

costs and limitations associated with 

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21862 Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Rules and Regulations 

831Andreessen/Cowen Letter; Campbell Letter; 

Guzik Letter 1; Heritage Letter; Ladd Letter 2; 

Milken Institute Letter; Public Startup Co. Letter 1; 

SVB Letter. 

832House Report, at 16. See also WDFI Letter, at 

3 (‘‘Given the relatively small size of these offerings 

and the low probability of attracting the attention 

of national broker-dealers to distribute them, these 

offerings are likely to be local in nature.’’). The 

Commission is exploring the possibility of 

establishing a program whereby a representative of 

NASAA, or of a state securities regulator, would be 

assigned to work at the Commission in the Division 

of Corporation Finance to assist the staff as it 

implements the final rules. 

833House Report, at 16. While further preemption 

of state securities law regulation of the secondary 

trading of Regulation A securities issued in a Tier 

2 offerings could, as some commenters suggest, 

further advance the development of a national 

securities market by easing the compliance 

obligations of investors that trade in the secondary 

markets, we believe that the approach to 

preemption of state securities laws adopted today 

is more appropriate at the outset and will afford the 

Commission time to subsequently review the 

development of, and consider potential changes to, 

the final rules for primary and secondary 

Regulation A markets. 

834See id.; see also, e.g., ABA BLS Letter, at 13 

(noting the challenges posed to smaller companies 

that arise when having to respond to both federal 

and state reviews and coordinating overlapping or 

potentially inconsistent comments and approvals); 

Groundfloor Letter (noting the existence of, and 

additional costs associated with, duplicative 

qualification requirements at the state and federal 

level, as well as potential complications between 

investment limitations at the federal level and state 

suitability standards). 

835See, e.g., comment letters cited in fn. 788 

above; see also Letter from A. Heath Abshure, 

President, NASAA, September 27, 2013 (comments 

on SEC. Rel. No. 33–9416 (Proposed Amendments 

to Regulation D, Form D and Rule 156 under the 

Securities Act)) (indicating that although ‘‘states are 

preempted from requiring registration of securities 

that are sold in compliance with Rule 506 . . . state 

regulators routinely review Form D filings to ensure 

that the offerings actually qualify for an exemption 

. . . and to look for ‘‘red flags’’ that may indicate 

a fraudulent offering. The absence of a Form D 

filing complicates our efforts to protect the 

investing public.’’). The concerns of the states, as 

they relate to Form D filings, would be addressed 

in the final rules for Regulation A that require the 

filing with the Commission of substantive offering 

materials, thereby triggering any notice filing 

requirements with the states, before sales can be 

made. 

836See, e.g., Proposing Release, at Section I.C.; see 

also GAO Report. 

837These methods include, for example, Rules 

504, 505 and 506 under Regulation D and Section 

4(a)(6) of the Securities Act and any rules adopted 

thereunder. See also Proposing Release, at Section 

II.I. 

838Some commenters at the pre-proposal stage 

suggested that the Commission should largely 

preserve the requirements of the then-existing 

Regulation A in the final rules. See Proposing 

Release, at fn. 505. 

complying with Tier 2 will provide for 

the natural separation of offerings into 

the respective tiers with issuers in more 

local offerings electing to comply with 

the less onerous requirements of Tier 1. 

As noted above, some of the basic 

requirements of the offering statement 

are applicable to both tiers, and issuers 

of securities pursuant to either tier will 

remain subject to the same review and 

comment process by the staff of the 

Division of Corporation Finance before 

qualification. On this basis, some 

commenters argued that the same 

reasons supporting the preemption of 

state securities law registration 

requirements for Tier 2 offerings 

suggests that the Commission should 

also extend preemption to Tier 1 

offerings.831

The distinctions between the tiers in 

the final rules for purposes of the 

preemption of state securities law 

registration requirements are based only 

in part on the form distinctions and 

process requirements for issuers at the 

time of qualification at the federal level. 

The preemption of state securities law 

registration requirements in the final 

rules for Tier 2 offerings is additionally 

related to the inefficiencies of 

qualification at the state and federal 

level, the differing characteristics of Tier 

1 and Tier 2 offerings, and the statutory 

purposes behind the enactment of the 

Efficiency Act that are served by 

deeming Tier 2 offerings to involve a 

covered class of securities. 

While, as some commenters suggest, 

the review and qualification of Tier 1 

offerings at the state level will involve 

inefficiencies to which Tier 2 issuers 

will not be subject, we believe that 

continued state involvement in Tier 1 

offerings is consistent with the policy 

underlying the enactment of NSMIA 

that suggests that states should 

‘‘generally retain their authority to 

regulate small, regional, or intrastate 

securities offerings.’’ 832 As noted above, 

we believe that the implementation of 

NASAA’s multi-state coordinated 

review program has the potential to 

ameliorate some of these inefficiencies. 

We will observe issuers’ experience 

under the coordinated review program 

and amended Regulation A, and 

whether changes to the rule could be 

beneficial. We also believe that the 

requirements for Tier 2 offerings will 

advance ‘‘the development of national 

securities markets and eliminate the 

costs and burdens of duplicative and 

unnecessary regulation.’’ 833 The 

absence of preemption in Tier 2 

offerings would unnecessarily subject 

issuers in such offerings to a substantial 

degree of duplication between federal 

and state securities regulation in the 

qualification of offering statements, 

which would raise the cost of capital to 

issuers without providing 

commensurate additional protection to 

investors or our markets.834

As noted above, under Section 18(c), 

the states retain authority to (1) 

investigate and bring enforcement 

actions with respect to fraudulent 

transactions, (2) require the filing of any 

documents filed with the Commission 

‘‘solely for notice purposes and the 

assessment of any fee,’’ and (3) enforce 

filing and fee requirements by 

suspending offerings within a given 

state. We see no reason why state 

securities regulators could not continue 

to rely on the multi-state coordinated 

review program as a mechanism to 

allow Tier 2 issuers to make notice 

filings of their offering statements with 

the states consistent with Section 18(c). 

In this regard, notice filings of offering 

statements of Tier 2 issuers would be 

available to the states for a period of 

time prior to the qualification of the 

offering.835 For example, the final rules 

for Regulation A require an issuer that 

non-publicly submits its offering 

statement for review to the Commission 

to publicly file its offering statement 

and related documents with the 

Commission not less than 21 calendar 

days before qualification. At that time, 

the states would be permitted to require 

issuers to also make notice filings of 

such materials with them and to assess 

any filing fees under Section 18(c)(2). 

I. Additional Considerations Related to 

Smaller Offerings 

As we noted in the Proposing Release, 

a number of factors have influenced the 

use of Regulation A in the form it has 

taken since its last substantive update in 

1992, including the process of filing the 

offering statement with the Commission, 

state securities law compliance, the 

types of investors businesses seek to 

attract, and the cost-effectiveness of 

Regulation A relative to other 

exemptions.836 In developing the final 

rules we are adopting, we have 

attempted to create a more efficient and 

effective method to raise capital under 

Regulation A that incorporates 

important investor protections. We are 

also cognizant of how issuers seeking to 

raise relatively smaller amounts of 

capital could consider a range of 

possible approaches to capital 

raising.837

Under our proposal, offerings for up 

to $5 million conducted under Tier 1 

would benefit from the proposed 

updates to Regulation A’s filing and 

qualification processes, but the 

proposed amendments did not 

otherwise substantially alter the existing 

exemption for such offerings.838 We 

were mindful of the possibility that 

additional changes to Tier 1 could 

expand its use by, and thus potentially 

benefit, issuers conducting smaller 

offerings. We therefore solicited 

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Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Rules and Regulations 21863 

839Andreessen/Cowen Letter; BDO Letter; Letter 

from Kevin Bernard, Sept. 3, 2014 (‘‘Bernard 

Letter’’); Campbell Letter; CAQ Letter; Deloitte 

Letter; E&Y Letter; Guzik Letter 1; Heritage Letter; 

ICBA Letter; KPMG Letter; Ladd Letter 2; 

McGladrey Letter; Milken Institute Letter; Public 

Startup Co. Letter 1; SVB Financial Letter; Verrill 

Dana Letter 1; WR Hambrecht + Co Letter. 840Andreessen/Cowen Letter; Bernard Letter; 

Campbell Letter; Guzik Letter 1; Heritage Letter; 

Ladd Letter 2; Milken Institute Letter; Public 

Startup Co. Letter 1; SVB Financial Letter. 841 Guzik Letter 1; ICBA Letter. 842 Guzik Letter 1 (suggesting that Tier 1 ongoing 

disclosure requirements could parallel Tier 2’s 

requirements, but without the requirement for 

semiannual reports). 

843Ladd Letter 2. 

844SVB Financial Letter. 

845Campbell Letter. 

846Public Startup Co. Letter 1. As mentioned in 

the relevant sections above, this commenter 

recommended three tiers based on offering size. The 

first tier could potentially only require state review 

and would be ‘‘local’’ in nature. This tier would 

include some form of ongoing reporting with the 

states, but not audited financials. Instead directors 

and officers would have to certify under penalty of 

perjury that the financial statements were accurate. 

The second tier would only require audited 

financial statements if they were otherwise 

available, would preempt state review and would 

require periodic reporting. This tier might allow for 

more flexibility with respect to auditor 

independence. The third tier would require more 

reporting than currently proposed for Tier 2 and 

would appear to require PCAOB-registered auditors. 

847BDO Letter; CAQ Letter; Deloitte Letter; E&Y 

Letter; ICBA Letter; KPMG Letter; McGladrey Letter. 

848BDO Letter; CAQ Letter; Deloitte Letter; E&Y 

Letter; KPMG Letter; McGladrey Letter. 

849See Section II.H.3. above. 

850See Section II.B.3.c. above. 

851See Section II.C.3.b(1). above. 

852BDO Letter; CAQ Letter; Deloitte Letter; E&Y 

Letter; KPMG Letter; McGladrey Letter. 

853See Section II.C.3.b(2)(c). above. 

comment on additional considerations 

with respect to Tier 1 and a potential 

intermediate tier for offerings 

incrementally larger than Tier 1 

offerings and how such offerings would 

affect investor protection and capital 

formation. 

Many commenters recommended 

making changes to proposed Tier 1 to 

make it a more viable option for small 

business capital formation.839 Some of 

these commenters recommended 

preempting state regulation of Tier 1 

offerings, as mentioned above.840 Two 

commenters recommended raising the 

offering limit of Tier 1 to $10 million or 

more.841 Several commenters 

recommended including an ongoing 

disclosure requirement for Tier 1 

issuers, including disclosure at a level 

lower than what is required for Tier 

2,842 ongoing disclosure with yearly 

audited financials,843 or some 

unspecified continuous disclosure 

obligation.844 One commenter 

recommended lowering the Tier 1 

disclosure obligations from the current 

proposed requirements, particularly for 

offerings of $2 million or less.845 One 

commenter recommended expanding 

the offering limit for Tier 1 to $15 

million and creating a new tier below 

Tier 1 with fewer disclosure 

requirements.846 Many commenters 

recommended changes to proposed Tier 

1, but did not address preemption.847

Several of these commenters made 

recommendations with respect to the 

financial statement and auditing 

requirements in Form 1–A.848

The final rules for Regulation A take 

into account some of the suggestions by 

commenters on ways to improve the 

requirements for smaller offerings, 

particularly in Tier 1. The comments we 

received did not reflect any consensus 

on the particular provisions in Tier 1 

that were most in need of amendment. 

As noted above, we do not agree that 

preemption of state securities laws 

registration and qualification 

requirements is appropriate for Tier 1 

offerings.849 Further, while some 

commenters suggested that preemption 

of state securities laws may improve the 

attractiveness of Tier 1 offerings, they 

did so on the condition that other 

aspects of the tier should change 

accordingly, such as by requiring Tier 1 

issuers to provide audited financial 

statements in the offering statement and 

possibly on an ongoing basis. For the 

reasons discussed in Section 

II.C.3.b(2)(c) above, however, we have 

not adopted such changes in Tier 1. 

Alternatively, some commenters 

suggested that the Commission adopt a 

third tier either expressly or through the 

flexible applicability of the proposed 

tier requirements. While a third tier may 

provide issuers with some additional 

flexibility for capital formation under 

Regulation A, this additional flexibility 

would also have potential costs. For 

example, a third tier may unnecessarily 

complicate compliance with Regulation 

A for smaller issuers, and could 

potentially confuse investors as to the 

type of Regulation A offering an issuer 

was undertaking and the type of 

information such investor could expect 

to receive as a result, thereby lessening 

the viability of the exemption as a 

whole. For this reason, we are not 

adopting a third or intermediate tier in 

Regulation A. 

We are adopting certain changes in 

the final rules that are intended to make 

Tier 1 more useful for small business 

capital formation. As discussed above, 

in line with the suggestions of 

commenters, we have raised the offering 

limitation in Tier 1 to $20 million in a 

12-month period, including no more 

than $6 million on behalf of selling 

securityholders that are affiliates of the 

issuer.850 With respect to the offering 

circular narrative disclosure 

requirements,851 we have adopted 

certain additional scaled disclosure 

requirements for Tier 1 that are 

intended to lessen the compliance 

obligations for issuers. For example, 

Tier 1 issuers will be required to 

disclose related party transactions at the 

thresholds in current Regulation A, as 

opposed to the lower thresholds in the 

proposed rules, and simplified 

executive compensation data. We are 

further providing issuers under both 

Tiers with the accommodation provided 

to emerging growth companies in 

Securities Act Section 7(a) to delay the 

implementation of new accounting 

standards to the extent such standards 

provide for delayed implementation by 

non-public business entities. Lastly, we 

have provided Tier 1 issuers with 

additional flexibility with respect to 

auditor independence standards. As 

originally proposed, an issuer electing 

to provide audited financial statements 

in a Tier 1 offering—even though 

audited financial statements would not 

generally be required—would have had 

to engage the services of an auditor that 

followed the independence standards 

outlined in Article 2 of Regulation S–X. 

Commenters suggested that we should 

permit auditors of the financial 

statements of Tier 1 issuers to 

alternatively follow the independence 

standards of the AICPA or Article 2 of 

Regulation S–X.852 In the view of these 

comments, allowing auditors of Tier 1 

issuer financial statements the option to 

follow the independence standards of 

the AICPA would permit more issuers to 

include financial statements that would 

be deemed audited under the 

requirements for Tier 1 in the first 

instance, thereby avoiding any fees 

associated with an issuer having their 

existing financial statements audited a 

second time under PCAOB standards. 

As noted above,853 we agree with 

commenters that this accommodation 

may benefit smaller issuers in Tier 1 

offerings who wish to file audited final 

statements for purposes of the offering 

statement and thus are adopting this 

suggestion. 

In the light of the changes discussed 

above, we believe that the final rules we 

are adopting will provide Tier 1 issuers 

with a meaningful choice within 

Regulation A between the costs and 

benefits associated with compliance 

with the requirements for Tier 1 and 

Tier 2 and therefore do not believe that 

an intermediate or other tier is 

necessary at this time. 

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21864 Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Rules and Regulations 

854 17 CFR 230.251 through 230.263. 

855 17 CFR 230.157(a). 

856 17 CFR 230.505(b)(2)(iii). 

857 17 CFR 232.101(a). 

858 17 CFR 232.10 et seq. 

859 17 CFR 232.101(c)(6). 

860 17 CFR 232.101(b)(8). 

861 15 U.S.C. 77b(b). 

862 15 U.S.C. 78c(f). 

863 15 U.S.C. 78w(a)(2). 

J. Transitional Guidance for Issuers 

Currently Conducting Regulation A 

Offerings 

While Regulation A has been used 

infrequently in recent years, there are 

issuers that are currently conducting, or 

that have filed offering statements, 

under the preexisting Regulation A 

rules. By way of transitional guidance, 

we are clarifying that issuers currently 

conducting sales of securities pursuant 

to a qualified Regulation A offering 

statement may continue to do so. Such 

offerings will be considered Tier 1 

offerings after the effectiveness of the 

final rules. Qualified offering statements 

under the preexisting rules for 

Regulation A are, however, 

incompatible with the final 

requirements for Tier 2 offerings and, as 

discussed below, issuers that wish to 

transition to a Tier 2 offering will need 

to file a post-qualification amendment 

that satisfies the requirements for Tier 2. 

Upon effectiveness of the final rules, 

issuers currently conducting Regulation 

A offerings under the preexisting rules 

must begin to comply with the final 

rules for Tier 1 offerings, including, for 

example, the requirement of electronic 

filing and the rules for post-qualification 

amendments, at the time of their next 

filing under Regulation A. Additionally, 

after effectiveness of the final rules, to 

the extent that issuers provided offering 

statements that were qualified using the 

Model A disclosure format of Part II of 

the Form 1–A, any subsequently 

required filing or amendment to such 

offering statement must be filed using a 

disclosure format that is permissible 

under the final rules for Tier 1 offerings. 

Model A will no longer be appropriate 

or permitted for post-qualification 

amendments of qualified offerings that 

pre-date effectiveness of the final rules. 

Lastly, an issuer that is offering 

securities pursuant to a qualified 

offering statement under the preexisting 

rules will, upon effectiveness of the 

final rules, no longer be required to file 

a Form 2–A, but instead be required to 

file a Form 1–Z with the Commission 

electronically upon completion or 

termination of the offering. 

Issuers that are currently in the 

review process for the qualification of a 

Regulation A offering statement may 

continue to follow the preexisting rules 

for Regulation A until the effective date 

of the final rules. On or after the 

effective date, such an issuer will be 

required to comply with the final rules, 

including the requirements for 

electronic filing and, where applicable, 

transitioning to a disclosure format that 

is approved for Regulation A offerings. 

The issuer may also elect to proceed at 

that time with its offering under the 

final requirements for either Tier 1 or 

Tier 2 offerings, provided it follows the 

requirements for the respective tiers. 

Issuers in ongoing offerings that were 

qualified before effectiveness of the final 

rules that wish to transition to a Tier 2 

offering may do so by filing a postqualification amendment that satisfies 

all of the requirements for Tier 2. Such 

issuers will transition to the 

requirements for Tier 2 upon 

qualification of the post-qualification 

amendment. For purposes of calculating 

the maximum offering amount 

permissible under Rule 251(a), an issuer 

must reduce the maximum offering 

amount sought to be qualified under the 

final rules for the respective tiers by the 

amount which such issuer has sold 

during the previous 12-month period 

pursuant to the preexisting rules for 

Regulation A. 

K. Technical and Conforming 

Amendments 

The final rules for Regulation A 

amend existing Rules 251–263.854 The 

amendments take into account changes 

to Regulation A associated with the 

addition of Section 3(b)(2) to the 

Securities Act, and the items detailed in 

this release. 

As a result of the revisions to 

Regulation A, we are adopting 

conforming and technical amendments 

to Securities Act Rules 157(a),855

505(b)(2)(iii),856 and Form 8–A. 

Additionally, we are revising Item 

101(a) 857 of Regulation S–T858 to reflect 

the mandatory electronic filing of all 

issuer initial filing and ongoing 

reporting requirements under 

Regulation A. We are also revising Item 

101(c)(6) 859 of Regulation S–T to 

remove the reference to paper filings in 

a Regulation A offering, and removing 

and reserving Item 101(b)(8) 860 of 

Regulation S–T dealing with the 

optional electronic filing of Form F–X 

by Canadian issuers. 

III. Economic Analysis 

In this section, we analyze the 

expected economic effects of the final 

rules relative to the current baseline, 

which is the market situation in 

existence today, including current 

methods of raising up to $50 million in 

capital available to potential issuers. 

Our analysis considers the anticipated 

costs and benefits for market 

participants affected by the final rules as 

well as the impact of the final rules on 

efficiency, competition, and capital 

formation relative to the baseline. This 

includes the likely economic effects of 

the specific provisions of the final rules 

related to the scope of the exemption, 

the format and contents of the offering 

statement, solicitation of interest, 

ongoing reporting, insignificant 

deviations, bad actor disqualification, 

and relationship with state securities 

law. 

The final rules to implement Section 

401 of the JOBS Act and amend 

Regulation A seek to promote capital 

formation, efficiency and competition 

for small companies, and provide for 

meaningful investor protection. We are 

mindful of the costs imposed by, and 

the benefits to be obtained from, our 

rules. Securities Act Section 2(b) 861 and 

Exchange Act Section 3(f) 862 require us, 

when engaging in rulemaking that 

requires us to consider or determine 

whether an action is necessary or 

appropriate in the public interest, to 

consider, in addition to the protection of 

investors, whether the action will 

promote efficiency, competition, and 

capital formation. Exchange Act Section 

23(a)(2) 863 requires us, when adopting 

rules under the Exchange Act, to 

consider the impact that any new rule 

would have on competition and not to 

adopt any rule that would impose a 

burden on competition that is not 

necessary or appropriate in furtherance 

of the purposes of the Exchange Act. 

The final rules include provisions 

mandated by the statute as well as 

provisions that rely on our discretionary 

authority. As a result, while many of the 

costs and benefits of the final rules stem 

from the statutory mandate of Title IV 

of the JOBS Act, certain benefits and 

costs are affected by the discretion we 

exercise in connection with 

implementing this mandate. For 

purposes of this economic analysis, we 

address the benefits and costs resulting 

from the mandatory statutory provisions 

and our exercise of discretion together 

because the two types of benefits and 

costs are not readily separable. We also 

analyze the benefits and costs of 

significant alternatives to the final rules 

that were suggested by commenters and 

that we considered. Many of the benefits 

and costs discussed below are difficult 

to quantify when analyzing the likely 

effects of the final rules on efficiency, 

competition, and capital formation. For 

example, the extent to which the 

amendments to Regulation A will 

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Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Rules and Regulations 21865 

864Congress enacted Section 3(b)(2) against a 

background of public commentary suggesting that 

Regulation A, an exemption for small offerings 

originally adopted by the Commission in 1936 

under the authority of Section 3(b) of the Securities 

Act, should be expanded and updated to make it 

more useful to small issuers. H.R. 1070 (Small 

Company Capital Formation Act of 2011) was 

introduced in April 2011. In its September 2011 

report, the Committee on Financial Services noted: 

‘‘H.R. 1070, the Small Company Capital Formation 

Act, raises the offering threshold for companies 

exempted from registration with the U.S. Securities 

and Exchange Commission (SEC) under Regulation 

A from $5 million—the threshold set in the early 

1990s—to $50 million. Raising the offering 

threshold helps small companies gain access to 

capital markets without the costs and delays 

associated with the full-scale securities registration 

process . . .’’ See H.R. Rep. No. 112–206 (2011). 

865See GAO Report. According to the GAO 

Report, the limited use of Regulation A appears to 

have been influenced by multiple factors, including 

‘‘the type of investors businesses sought to attract, 

the process of filing the offering with SEC, state 

securities laws, and the cost-effectiveness of 

Regulation A relative to other SEC exemptions. For 

example, identifying and addressing individual 

state’s securities registration requirements can be 

both costly and time-consuming for small 

businesses, according to research, an organization 

that advocates for small businesses, and securities 

attorneys that GAO interviewed. Additionally, 

another SEC exemption [Regulation D] is viewed by 

securities attorneys that GAO met with as more 

cost-effective for small businesses . . .’’ 

866See Berger, Allen N., and Gregory F. Udell, 

1998, The economics of small business finance: The 

roles of private equity and debt markets in the 

financial growth cycle, Journal of Banking and 

Finance 22(6), pp. 613–673. 

867 17 CFR 230.500 through 230.508. 

868See V. Ivanov, and S. Bauguess, 2013, Capital 

Raising in the U.S.: An Analysis of Unregistered 

Offerings Using the Regulation D Exemption, 2009– 

Continued 

promote future reliance by issuers on 

this offering method, and the extent to 

which future use of Regulation A will 

affect the use of other offering methods, 

is difficult to precisely estimate. 

Similarly, there is some uncertainty as 

to the effect of some of the provisions 

in the final rules on investor protection. 

Therefore, much of the discussion is 

qualitative in nature but, where 

possible, we attempted to quantify the 

potential costs and benefits of the final 

rules. 

A. Broad Economic Considerations 

One of the primary objectives of 

Section 401 was to expand the capital 

raising options available to smaller and 

emerging companies and thereby to 

promote capital formation within the 

larger economy.864 With this objective 

in mind, and as background to our 

analysis of the likely costs and benefits 

of the final rule provisions, we consider 

the broader impact of amended 

Regulation A on capital formation. As 

discussed below, this will depend on 

whether issuers that currently raise 

capital elect to rely on amended 

Regulation A in place of other offering 

methods and whether issuers that have 

been unable to raise capital, or raise 

enough capital, avail themselves of 

amended Regulation A because it is 

preferable over other capital rising 

methods otherwise available to them. To 

the extent that amended Regulation A 

provides a method of raising capital for 

issuers that currently have no method of 

doing so, it could enhance the overall 

level of capital formation in the 

economy in addition to any 

redistributive effect that could arise 

from issuers changing their capital 

raising methods. 

The impact of the final rules on an 

issuer’s ability to raise capital will also 

depend on whether new investor capital 

is attracted to the Regulation A market, 

and on whether investors reallocate 

existing capital among various types of 

offerings. Investor demand for securities 

offered under amended Regulation A 

will depend on the expected risk, return 

and liquidity of the offered securities, 

and in particular, how these 

characteristics compare to what 

investors can obtain from securities in 

other exempt offerings and in registered 

offerings. Investor demand also will 

depend on whether Regulation A 

disclosure requirements are sufficient to 

enable investors to evaluate the 

aforementioned characteristics of 

Regulation A offerings. 

To assess the likely impact of the final 

rules on capital formation, we consider 

the features of amended Regulation A 

that potentially could increase the use 

of Regulation A by new issuers and by 

issuers that already rely on private and 

registered offerings. 

The amendments to Regulation A we 

are adopting remove certain burdens 

identified by commenters and others in 

existing Regulation A. Offerings relying 

on existing Regulation A must be 

qualified by the states and the 

Commission, which also requires a 

review and qualification process for 

issuers to access capital.865 Amended 

Regulation A removes the requirement 

of state qualification for Tier 2 offerings, 

thereby eliminating the cost and other 

burdens of the duplicative review under 

existing Regulation A. Issuance costs 

may also be reduced, as a percentage of 

proceeds, by increasing the maximum 

offering size from $5 million annually 

under existing Regulation A, to $20 

million for Tier 1 offerings and to $50 

million for Tier 2 offerings relying on 

amended Regulation A. 

We believe that the potential use of 

amended Regulation A for Tier 2 

offerings depends largely on how 

issuers perceive, the trade-off between 

the costs of qualification and ongoing 

disclosure requirements and the benefits 

to issuers from access to a broad 

investor base, expansion of the offering 

size, the preemption of state securities 

law registration requirements and the 

potential for enhanced secondary 

market liquidity. 

With respect to Tier 1 offerings, the 

potential use of amended Regulation A 

depends largely on how issuers perceive 

the trade-off between state review and 

qualification requirements, limited 

disclosure requirements (with 

potentially greater information 

asymmetry between issuers and 

investors) and the $20 million 

maximum offering size. 

We also recognize that the level of 

investor protection resulting from the 

final rules is an important consideration 

that could affect the ultimate use and 

success of amended Regulation A. For 

example, if preempting state review of 

Tier 2 offerings, or not requiring audited 

financials or ongoing disclosures in Tier 

1 offerings, leads to undisclosed risks or 

misconduct in the offering process, then 

investors may be unwilling to 

participate in those types of Regulation 

A offerings. On the other hand, 

Commission staff review of the offerings 

and investment limitations for Tier 2 

offerings may mitigate some of these 

concerns for certain investors. 

Many of the potential issuers of 

securities under amended Regulation A 

may be small companies, particularly 

early-stage and high-growth companies, 

seeking capital through equity-based 

financing because they do not have 

sufficient collateral or the cash flows 

necessary to support the fixed 

repayment schedule of debt 

financing.866 Currently, these 

companies often seek capital from 

institutional or accredited investors 

through offerings that are exempt from 

registration under the Securities Act or 

through registered public offerings. In 

the future, whether issuers opt to rely 

instead on Regulation A will depend on 

the perceived utility of the amended 

Regulation A exemption compared to: 

(i) Other available exemptions from 

registration, and (ii) registered public 

offerings. Below we discuss each of 

these considerations in turn. 

Some issuers may prefer to offer 

securities under amended Regulation A 

relative to using other offering methods 

exempt from registration because of 

potentially limiting features associated 

with the other exemptions. In particular, 

securities sold pursuant to the 

exemptions from registration under 

Regulation D,867 which account for a 

significant amount of exempt 

offerings,868 are generally subject to 

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21866 Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Rules and Regulations 

2012, available at: http://www.sec.gov/divisions/

riskfin/whitepapers/dera-unregistered-offerings-regd.pdf. 

869Non-accredited investors in Tier 2 offerings 

will be subject to an investment limitation. 

870For example, ‘‘NASDAQ Private Market’s 

affiliated marketplace is an electronic network of 

Member Broker-Dealers who provide accredited 

institutions and individual clients with access to 

the market. Companies use a private portal to 

enable approved parties to access certain 

information and transact in its securities.’’ See 

NASDAQ Private Market overview, available at: 

https://www.nasdaqprivatemarket.com/market/

overview. 

871See Section II.B.6.c. 

872See IPO Task Force, Rebuilding the IPO OnRamp (Oct. 20, 2011), available at: http://

www.sec.gov/info/smallbus/acsec/rebuilding_the_

ipo_on-ramp.pdf (‘‘IPO Task Force’’). 

There are other possible explanations for the 

decline in IPOs, for example, macro-economic 

effects on investment opportunities in the economy 

and the cost of capital. See Lowry, M., 2003, Why 

does IPO volume fluctuate so much? Journal of 

Financial Economics 67(1), pp. 3–40. Another 

possible explanation is an increase in the benefits 

of being acquired by a larger entity relative to the 

benefits of operating as an independent firm. See 

Gao, X., J. Ritter, and Z. Zhu, 2013, Where have all 

the IPOs gone? Journal of Financial and 

Quantitative Analysis 48(6), pp. 1663–1692. 

873For example, one study found improved 

liquidity at companies that chose to comply with 

Exchange Act reporting requirements in order to 

remain eligible for quotation on OTCBB. See 

Bushee, B., and C. Leuz, 2005, Economic 

consequences of SEC disclosure regulation: 

Evidence from the OTC bulletin board, Journal of 

Accounting and Economics 39(2), pp. 233–264. 

Another study found significant decreases in 

liquidity for issuers that deregistered their 

securities, with the subsequent loss of liquidity 

attributed to decreased disclosure separate from the 

effect of delisting from a major exchange. This 

study also shows that some companies choose to 

deregister under Section 12(b) and trade on less 

liquid OTC markets instead of trading on national 

securities exchanges, indicating that, for such 

companies, the expected costs of reporting under 

the Exchange Act outweigh the expected liquidity 

benefits. See Leuz, C., A. Triantis, and T. Wang, 

2008, Why do firms go dark? Causes and economic 

consequences of voluntary SEC deregistrations, 

Journal of Accounting and Economics 45(2–3), pp. 

181–208. 

restrictions on resale or limits on 

participation by non-accredited 

investors in ways that can limit the 

ability to raise capital. In contrast to 

Rule 506 of Regulation D, companies 

relying on amended Regulation A can 

sell securities to an unlimited number of 

non-accredited investors,869 and the 

securities will not be restricted 

securities for purposes of the federal 

securities laws, which will allow for a 

more diffuse investor base and potential 

liquidity benefits. 

The use of amended Regulation A 

may also depend on whether companies 

considering seeking capital through an 

exempt offering believe that the benefits 

from access to a broader investor base 

under amended Regulation A offset the 

costs of qualification and, with respect 

to Tier 2 offerings, ongoing disclosure 

requirements. Other offering exemptions 

could remain attractive relative to 

amended Regulation A. For example, 

general solicitation is now permissible 

under Rule 506(c) of Regulation D. 

Issuers relying on Rule 506(c) to solicit 

offerings may now more easily reach 

institutional and accredited investors, 

making it less necessary for them to seek 

capital from a broader non-accredited 

investor base, especially if trading 

platforms aimed at accredited investors 

in privately placed securities continue 

to develop.870

Finally, the conditional exemption 

from registration of a class of securities 

under Section 12(g) available to some 

Tier 2 issuers may encourage them to 

pursue a Regulation A offering as a 

means to avoid the associated costs and 

requirements of Exchange Act 

registration and reporting.871 This effect 

may be limited by the imposition of the 

conditions on the Section 12(g) 

exemption, in particular, the condition 

limiting the availability of the 

exemption to smaller companies that do 

not exceed certain thresholds for public 

float or, in the absence of float, 

revenues. Larger issuers of Regulation A 

securities or issuers using Regulation A 

to raise capital as part of a growth 

strategy, or seeking to increase liquidity 

through a broader investor base, may 

still be subject to a Section 12(g) 

registration requirement in the future. 

The trade-offs between amended 

Regulation A and a registered offering 

are somewhat different. In a registered 

offering, issuers can offer the securities 

directly to all potential investors, 

without a limitation on the aggregate 

offering amount and with no resale 

restrictions. Moreover, securities issued 

through registered offerings often trade 

on national securities exchanges and 

can offer a degree of liquidity to 

investors that is generally not available 

for securities issued in private offerings. 

However, the issuance costs associated 

with small registered public offerings 

are generally a significant percentage of 

proceeds and issuers in registered 

offerings must bear the costs arising 

from ongoing disclosure requirements 

under the Exchange Act. These costs are 

perceived to be one of the determinants 

of the relatively low incidence of initial 

public offerings (‘‘IPOs’’) over the past 

decade and may be a motivating factor 

for potential issuers to prefer offering 

securities under amended Regulation 

A.872 Relative to registered public 

offerings, offerings under amended 

Regulation A will provide smaller 

issuers with access to sources of capital 

without necessarily imposing the full 

ongoing reporting requirements of the 

Exchange Act. 

The use of amended Regulation A 

may depend on the extent to which 

companies considering a traditional IPO 

believe that amended Regulation A is a 

viable alternative. These potential 

issuers will need to assess whether the 

cost savings from reduced reporting 

requirements under amended 

Regulation A offset the potential 

reduction in secondary market liquidity 

compared to registered offerings that 

meet the listing requirements of national 

securities exchanges. In particular, 

securities listed on a national securities 

exchange are likely to benefit from 

increased liquidity as a result of greater 

access to potential investors and a lower 

level of information asymmetry due to 

more extensive reporting requirements. 

At present, only some securities issued 

under existing Regulation A trade overthe-counter, with the majority not 

known to trade in any secondary 

market. 

The liquidity trade-off faced by 

issuers considering amended Regulation 

A relative to other exempt or registered 

offering methods may ultimately center 

on whether the ongoing reporting 

requirements of Tier 2 offerings can 

generate sufficient information for 

secondary markets to provide the 

intended liquidity benefits. Academic 

studies have found a close relationship 

between disclosure requirements and 

liquidity.873 The disclosure 

requirements in the final rules seek to 

balance the burden of disclosure 

requirements on issuers and the demand 

of investors for information by offering 

issuers a capital raising option with 

lower compliance costs while still 

mandating relevant information about 

the issuer and the securities for the 

market. 

Overall, amended Regulation A could 

increase the aggregate amount of capital 

raised in the economy if used by private 

issuers that have until now been limited 

in their ability to raise capital through 

other types of exempt offerings or by 

smaller private issuers that seek a public 

market for their securities but that are 

not sufficiently large to bear the fixed 

costs of being an Exchange Act reporting 

company. The impact of amended 

Regulation A on capital formation could 

also be redistributive in nature by 

encouraging issuers to shift from one 

method of capital raising to another. 

This potential outcome may have 

significant net positive effects on capital 

formation and allocative efficiency by 

providing issuers with access to capital 

at a lower cost than alternative capital 

raising methods and by providing 

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874Other rules mandated by the JOBS Act have 

been proposed but not adopted by the Commission. 

The baseline does not account for potential changes 

that may result from future adoption of proposed 

rules. 

875See IPO Task Force. 

876Under Securities Act Section 3(a)(11), except 

as expressly provided, the provisions of the 

Securities Act (including Section 5 registration 

requirement) do not apply to a security that is ‘‘part 

of an issue offered and sold only to persons resident 

within a single State or Territory, where the issuer 

of such security is a person resident and doing 

business within, or, if a corporation, incorporated 

by and doing business within, such State or 

Territory.’’ 15 U.S.C 77c(a)(3)(a)(11). 

877Securities Act Section 4(a)(2) provides that the 

provisions of Section 5 shall not apply to 

‘‘transactions by an issuer not involving a public 

offering.’’ 15 U.S.C. 77d(4)(a)(2). 

878Regulation D contains rules providing 

exemptions and safe harbors from the Securities 

Act’s registration requirements, allowing some 

companies to offer and sell their securities without 

having to register the offering with the Commission. 

17 CFR 230.504, 505, 506. 

879See Campbell, R., 2005, Regulation A: Small 

business’ search for a moderate capital, Delaware 

Journal of Corporate Law 31(1), pp. 77–123. See 

also GAO Report. 

880Aggregate offering limit on securities sold 

within a twelve-month period. 

881Resale restrictions are determined by state 

securities laws, which typically restrict in-state 

resales for a one-year period. 

882Section 4(a)(2) of the Securities Act provides 

a statutory exemption for ‘‘transactions by an issuer 

not involving any public offering.’’ See SEC v. 

Ralston Purina Co., 346 U.S. 119 (1953) (holding 

that an offering to those who are shown to be able 

to fend for themselves is a transaction ‘‘not 

involving any public offering.’’) 

883This description is based on Regulation A 

before the adoption of the final rules today. 

884No general solicitation or advertising is 

permitted unless the offering is registered in a state 

requiring the use of a substantive disclosure 

document or sold under a state exemption for sales 

to accredited investors with general solicitation. 

885Filing is not a condition of the exemption. 

886Restricted unless the offering is registered in 

a state requiring the use of a substantive disclosure 

document or sold under a state exemption for sale 

to accredited investors. 

investors with additional investment 

opportunities. 

The net effect of the final rules on 

capital formation will depend on 

whether issuers that rely on amended 

Regulation A do so in addition to or 

instead of other methods of raising 

capital. The effect will also depend on 

whether investors find Regulation A 

disclosure requirements and investor 

protections to be sufficient to evaluate 

the expected return and risk of such 

offerings and to choose between 

offerings reliant on Regulation A, other 

exempt offerings and registered 

offerings. Due to a lack of data, we are 

not able to estimate the effects of the 

final rules on the potential rate of 

substitution between alternative 

methods of raising capital and amended 

Regulation A and the overall expansion, 

if any, in capital raising by potential 

issuers eligible for amended Regulation 

A. 

B. Baseline 

As we described in the Proposing 

Release, the baseline for our economic 

analysis of amended Regulation A is 

market conditions as they exist today, in 

which issuers seeking to raise capital 

through securities offerings must 

register the offer and sale of securities 

under the Securities Act unless they can 

rely on an exemption from registration 

under the federal securities laws.874 The 

baseline discussion below also includes 

a description of investors in offerings of 

similar amounts and a discussion of the 

role of intermediaries that may be 

affected by the final rules. 

1. Current Methods of Raising up to $50 

Million of Capital 

Issuers seeking to raise up to $50 

million over a twelve-month period are 

expected to be affected directly by 

amended Regulation A. As we described 

in the Proposing Release, while there 

are a number of factors that companies 

consider when determining how to raise 

capital, one of the primary 

considerations is whether to issue 

securities through a registered public 

offering or through an offering that is 

exempt from Securities Act registration 

and ongoing Exchange Act reporting 

requirements. The choice of offering 

method may depend on the size of the 

issuer, the type of investors the issuer 

seeks to attract and the amount of new 

capital sought. Registered offerings 

entail considerable initial and ongoing 

costs that can weigh more heavily on 

smaller issuers, providing incentives to 

remain private and to raise capital 

outside of public markets.875 To the 

extent that these issuance costs 

constrain small firms’ access to capital, 

they may result in underinvestment in 

some value-generating projects and thus 

potentially less efficient allocation of 

capital to investment projects. This 

section describes the various currently 

available offering methods and the 

prevalence of their use. 

a. Exempt Offerings 

Currently, small issuers can raise 

capital by relying on an exemption from 

registration under the Securities Act, 

such as Section 3(a)(11),876 Section 

4(a)(2),877 Regulation D,878 and 

Regulation A. Each of these exemptions, 

however, has requirements that may 

limit its utility for issuers. For example, 

the exemption under Securities Act 

Section 3(a)(11) is limited to intrastate 

offerings, and Regulation D offerings 

may limit or prohibit participation by 

non-accredited investors. Additionally, 

offerings relying on existing Regulation 

A require preparation of offering 

materials and qualification of an 

offering statement by the Commission 

and may require qualification or 

registration in multiple states.879 The 

table below summarizes the main 

features of each exemption. 

Type of offering Offering limit 880 Solicitation Issuer and investor 

requirements 

Filing 

requirement 

Resale 

restrictions 

Blue sky 

law 

preemption 

Section 3(a)(11) ....... None ...................... No limitations ......... All issuers and investors must be resident in state.None ...................... Restricted in some 

cases. 881

No. 

Section 4(a)(2) ......... None ...................... No general solicitation.Transactions by an issuer not involving 

any public offering. 882

None ...................... Restricted securities.No. 

Regulation A883 ....... $5 million with $1.5 

million limit on 

secondary sales.

Testing the waters 

permitted before 

filing.

U.S. or Canadian issuers, excluding investment companies, blank-check 

companies, reporting companies, 

and issuers of fractional undivided interests in oil or gas rights, or similar 

interests in other mineral rights.

File testing the 

waters materials, 

Form 1–A, Form 

2–A.

No .......................... No. 

Rule 504 Regulation 

D.

$1 million ............... General solicitation 

permitted in 

some cases. 884

Excludes investment companies, blankcheck companies, and Exchange Act 

reporting companies.

File Form D 885 ...... Restricted in some 

cases. 886

No. 

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887Aggregate offering limit on securities sold 

within a twelve-month period. 888Filing is not a condition of the exemption. 889No general solicitation or advertising is 

permitted under Rule 506(b). General solicitation 

and general advertising permitted under Rule 

506(c), provided all purchasers are accredited 

investors and the issuer takes reasonable steps to 

verify accredited investor status. 890Under Rule 506(b), offerings may involve an 

unlimited number of accredited investors and up to 

35 non-accredited investors. Under Rule 506(c), all 

purchasers must be accredited investors. 

891Filing is not a condition of the exemption. 892For the purposes of this chart, a Regulation A 

offering is considered ‘‘filed’’ when the Commission 

receives a potential issuer’s offering materials 

through Form 1–A. A Regulation A offering is 

considered qualified after the Commission staff has 

reviewed the offering materials and determined that 

all conditions have been met. Therefore, offerings 

that are filed and not qualified are either pending, 

withdrawn, or abandoned. 

893 In cases in which an issuer made multiple 

Form 1–A filings over this time period, only the 

first qualified offering by that issuer was included 

in the number of qualified Regulation A offerings. 

The estimate also excludes amendments filed on 

Form 1–A/A, including post-qualification 

amendments to earlier Form 1–A filings, as well as 

abandoned and withdrawn filings. 

894See discussion in Section III.I below. 

895A description of NASAA’s coordinated review 

program can be found at: http://www.nasaa.org/

industry-resources/corporation-finance/

coordinated-review/regulation-a-offerings/. See 

discussion in Section III.I below. 

Type of offering Offering limit 887 Solicitation Issuer and investor 

requirements 

Filing 

requirement 

Resale 

restrictions 

Blue sky 

law 

preemption 

Rule 505 Regulation 

D.

$5 million ............... No general solicitation.Unlimited accredited investors and up 

to 35 non-accredited investors.

File Form D 888 ...... Restricted securities.

No. 

Rule 506 Regulation 

D.

None ...................... General solicitation 

permitted in 

some cases. 889

Unlimited accredited investors. Limitations on non-accredited investors. 890

File Form D 891 ...... Restricted securities.

Yes. 

While we do not have data on 

offerings relying on an exemption under 

Section 3(a)(11) or Section 4(a)(2), 

available data related to Regulation D 

and Regulation A filings allow us to 

gauge how frequently issuers currently 

use these exemptions when raising 

capital. 

i. Regulation A Offerings 

As we described in the Proposing 

Release, issuers rarely rely on existing 

Regulation A to raise capital. The chart 

below, from the GAO Report shows the 

number of filed and qualified 

Regulation A offerings in fiscal years 

1992 to 2011.892

In calendar years 2012 to 2014, 26 

Regulation A offerings, excluding 

amendments, were qualified by the 

Commission.893

Section 402 of the JOBS Act required 

the GAO to study the impact of state 

securities laws on Regulation A 

offerings. The GAO examined: (1) 

Trends in Regulation A filings, (2) 

differences in state registration of 

Regulation A filings, and (3) factors that 

may have affected the number of 

Regulation A filings. In its July 2012 

report on Regulation A, the GAO cited 

four factors affecting the use of 

Regulation A offerings: (1) Costs 

associated with compliance with state 

securities regulations, or blue sky laws; 

(2) the availability of alternative offering 

methods exempt from registration, such 

as Regulation D offerings; (3) costs 

associated with the Commission’s filing 

and qualification process; and (4) the 

type of investors businesses sought to 

attract. 

As identified by the GAO, compliance 

with state securities laws is one of the 

factors that impacts the use of existing 

Regulation A. The GAO did not provide 

an estimate of the compliance costs. For 

issuers seeking to offer securities in 

multiple states, differences in securities 

laws and applicable procedures across 

states may result in significant legal 

costs 894 and a time consuming process 

for issuers, which could adversely affect 

their efforts to raise capital in a timely 

and cost-effective manner. NASAA has 

recently initiated a Coordinated Review 

Program for Regulation A offerings.895

Only a limited number of issuers have 

undergone state review through this 

process to date, so we are unable to 

conclude whether it may result in lower 

costs or a shorter amount of review time 

than was the case prior to its inception. 

The GAO also identified costs 

associated with the Commission’s filing 

and qualification process for Regulation 

A offerings as another factor 

contributing to its limited current use. 


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896See GAO Report. 

897This estimate is generated by staff from the 

Commission’s Division of Economic and Risk 

Analysis using Form 1–A filings and is determined 

as the difference between the filing date for the 

initial Form 1–A filing and the final disposition 

date for the final Form 1–A or 1–A/A filing through 

which the offering was qualified. 

898See Bettis, J., J. Coles, and M. Lemmon, 2000, 

Corporate policies restricting trading by insiders, 

Journal of Financial Economics 57, pp. 191–220 

(discussing adverse selection issues and corporate 

policies restricting trading by insiders. See also 

Michaely, R., and W. Shaw, 1994, The pricing of 

initial public offerings: Tests of adverse-selection 

and signaling theories, Review of Financial Studies 

7(2), pp. 279–319 (analyzing the role of adverse 

selection and the possibility of informed trading in 

IPOs). 

899This tendency could, in part, be attributed to 

two features of Rule 506: State securities law 

preemption and unlimited offering amount. See 

also GAO Report. 

900Based on an analysis performed by staff in the 

Division of Economic and Risk Analysis of Form D 

filings submitted for calendar year 2014. The 

numbers exclude offerings by reporting companies, 

non-Canadian foreign issuers and pooled 

investment funds, as well as offerings of interests 

in claims on natural resources, which are not 

eligible for amended Regulation A. We do not have 

a scalable way of excluding blank check companies, 

which are also not eligible for amended Regulation 

A, from this sample, which leads to a higher 

estimate of the number of issuers that would be 

eligible to rely on amended Regulation A. 

901Based on an analysis performed by staff in the 

Division of Economic and Risk Analysis of Form D 

filings submitted for calendar year 2014. 

While existing Regulation A permits 

offerings to an unlimited number of 

non-accredited investors, the total 

offering amount must not exceed $5 

million in a twelve-month period, 

limiting the opportunity to scale the 

fixed component of these costs as a 

percentage of proceeds. 

As described above, a business that 

relies on Regulation A must file an 

offering statement with the Commission 

that must be qualified by Commission 

staff before the offering can proceed. 

From 2002 through 2011, Regulation A 

filings took an average of 228 days to 

qualify.896 Average time to qualification 

exceeded 300 days in 2012–2014.897

Factors that affect the time to 

qualification include the paper filing 

method, quality of the initial filing, time 

taken by the Commission staff, and time 

taken by the issuer to provide required 

information or address questions from 

previous correspondence with the 

Commission staff. 

Our analysis of the Regulation A 

filings qualified between 2002 and 2014 

shows that approximately half of the 

issuers operated in the financial 

industry and the majority of offerings 

involved equity securities. Offerings 

with affiliate sales were rare, likely due 

not only to the requirement of the 

existing Regulation A that the issuer 

have net income from continuing 

operations in the prior two years but 

also due to the perceptions that adverse 

selection concerns may limit investor 

demand in securities offerings with 

affiliate sales.898

ii. Regulation D Offerings 

Based on the information available to 

us, it appears that the most common 

way to issue up to $50 million of 

securities is pursuant to an offering 

under a Regulation D exemption. 

Eligible issuers can rely on Rule 504 to 

raise up to $1 million within a twelvemonth period, on Rule 505 to raise up 

to $5 million within a twelve-month 

period, and on Rule 506 to raise an 

unlimited amount of capital. In total, 

based on the analysis of offering 

amounts reported on Form D in 

calendar year 2014, Regulation D 

offerings accounted for over one trillion 

dollars. Most issuers choose to raise 

capital by relying on Rule 506, even 

when their offering size would have 

potentially permitted reliance on Rule 

504 or Rule 505.899 For example, in 

2014, we identified 11,228 Regulation D 

offerings that would have been 

potentially eligible to be conducted 

under amended Regulation A. Of those, 

10,671 offerings relied on Rule 506, 376 

on Rule 504, and 181 on Rule 505. We 

summarize their characteristics in the 

table below. 

REGULATION D OFFERINGS IN 2014 BY ISSUERS THAT WOULD BE ELIGIBLE TO RELY ON AMENDED REGULATION A 900

Offering size 

Rule 504 Rule 505 Rule 506 

≤$1M ≤$5M ≤$20M $20–50M 

Current Reg A Eligible ..................................................................................... Yes Yes Up to $5M No

Amended Reg A Eligible ................................................................................. Yes Yes Yes Yes 

Number of filings .............................................................................................. 376 181 10,071 600 

Average offering amount ($ million) ................................................................ 0.4 1.4 3.2 31.6 

Offerings with non-accredited investors .......................................................... 58% 31% 6% 2% 

Median number of investors ............................................................................ 3 7 6 9 

As shown in the table above, 

approximately 95% of Regulation D 

offerings that would be eligible for 

amended Regulation A relied on Rule 

506. A comparison of Rule 506 offerings 

over $20 million to those below $20 

million shows that larger offerings 

generally had a higher number of 

investors and were less likely to have 

non-accredited investors. 

Additional data on Regulation D 

offerings that would have been eligible 

for amended Regulation A exemption is 

provided in the graph below, which 

displays the offering size distribution of 

Rule 506 offerings and other Regulation 

D offerings that would have been 

potentially eligible for the amended 

Regulation A exemption in calendar 

year 2014. Approximately 95% of 

Regulation D offerings that would have 

been potentially eligible for amended 

Regulation A had offering amounts 

below $20 million. 

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Distribution of offering size of Rule 506 offerings and other Regulation D offerings 

in 2014 by issuers that would be eligible to rely on amended Regulation A901 

901 

0 5 10 15 20 25 30 35 40 45 50 

Offering size 

Regulation D Rule 5061 

Based on an analysis performed by staff in the Division of Economic and Risk Analysis ofF orm 

D filings submitted for calendar year 2014. 
Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Rules and Regulations 21871 

902The sample excludes offerings from nonCanadian foreign issuers, blank check companies, 

and investment companies, which would not be 

eligible to rely on amended Regulation A. Offerings 

with gross proceeds below $1,000 are excluded to 

minimize measurement error. Issuers of interests in 

claims on natural resources, which also would not 

be eligible for amended Regulation A, were not 

separately eliminated due to data constraints. 

903See IPO Task Force. However, a recent study 

notes that the decline in IPOs has been partly 

reversed in 2012–2014. See Dambra, M., L. Field, 

and M. Gustafson, 2014, The JOBS Act and IPO 

volume: Evidence that disclosure costs affect the 

IPO decision, Journal of Financial Economics 

(forthcoming), available at: http://papers.ssrn.com/ 

sol3/papers.cfm?abstract_id=2459591. 

904Other potential reasons, such as macroeconomic conditions, are discussed below. 

905See Chen, H., and J. Ritter, 2000, The seven 

percent solution, Journal of Finance 55(3), pp. 

1105–1131; Abrahamson, M., T. Jenkinson, and H. 

Jones, 2011, Why don’t U.S. issuers demand 

European fees for IPOs? Journal of Finance 66(6), 

pp. 2055–2082; Corwin, S., 2000, The determinants 

of underpricing for seasoned equity offers, Journal 

of Finance 58(5), pp. 2249–2279; Huang, R., and D. 

Zhang, 2011, Managing underwriters and the 

marketing of Seasoned Equity Offerings, Journal of 

Financial and Quantitative Analysis 46(1), pp. 141– 

170; Fang, L., 2005, Investment bank reputation and 

the price and quality of underwriting services, 

Journal of Finance 60(6), pp. 2729–2761. 

906According to the survey cited in the IPO Task 

Force report, 92% of the surveyed CEOs listed the 

‘‘Administrative Burden of Public Reporting’’ as 

being one of the most significant challenges of an 

IPO. See IPO Task Force. 

907See IPO Task Force. However, some studies 

conclude that the decline in U.S. small-firm IPOs 

predated the adoption of the Sarbanes-Oxley Act. 

See Gao, X., J. Ritter, and Z. Zhu, 2013, Where have 

all the IPOs gone? Journal of Financial and 

Quantitative Analysis 48(6), pp. 1663–1692. See 

also Doidge, C., A. Karolyi, and R. Stulz, 2013, The 

U.S. left behind? Financial globalization and the 

rise of IPOs outside the U.S., Journal of Financial 

Economics 110(3), pp. 546–573. 

908Fee information is compiled from Thomson 

Reuters SDC data on IPOs for 1992–2014. The 

sample excludes offerings from non-Canadian 

foreign issuers, blank-check companies, and 

investment companies. Averages are computed 

based on observations with non-missing data 

(where a particular type of fees is separately 

reported). Offerings with gross proceeds below 

$1,000 are excluded to minimize measurement 

error. 

The analysis includes legal, accounting, blue sky, 

and registration fees, to which we collectively refer 

as ‘‘compliance fees’’. Blue Sky Fees denotes fees 

and expenses related to compliance with state 

securities regulations. We note that Blue Sky fees 

associated with small registered offerings may overor under-estimate similar expenses for Regulation A 

offerings of the same size. 

909See Lowry, M., 2003, Why does IPO volume 

fluctuate so much? Journal of Financial Economics 

67(1), pp. 3–40. 

910See Gao, X., J. Ritter, and Z. Zhu, 2013, Where 

have all the IPOs gone? Journal of Financial and 

Quantitative Analysis 48(6), pp. 1663–1692. 

911See IPO Task Force. 

912See Verrecchia, R., 2001, Essays on disclosure, 

Journal of Accounting and Economics 32, pp. 97– 

180. 

913See Burkart, M., D. Gromb, and F. Panunzi, 

2000, Agency conflicts in public and negotiated 

transfers of corporate control, Journal of Finance 

55(2), pp. 647–677. 

Approximately seventy percent of 

Regulation D issuers that would be 

eligible for amended Regulation A 

declined to disclose their revenue range 

in their Form D filings for 2014. Of the 

remaining 30%, 13% reported ‘‘no 

revenues.’’ The portion of issuers with 

no revenues is noteworthy because it 

may be more difficult for issuers 

without regular cash flows to obtain 

debt financing (without collateral or a 

guarantee). 

b. Registered Offerings 

Issuers may seek to raise capital by 

registering the offer and sale of 

securities under the Securities Act. In 

calendar year 2014, using data from 

Thomson Reuters, we identified 75 IPOs 

and 246 seasoned equity offerings 

(SEOs) of up to $50 million by issuers 

that would have been potentially 

eligible for amended Regulation A.902

There has been a general decline in 

the number of IPOs, particularly those 

undertaken by small firms, since the late 

1990s.903 One possible reason behind 

the relatively low number of IPOs under 

$50 million is that public offerings may 

be too costly to be a viable capital 

raising option for smaller issuers.904

Fees paid to underwriters average 7% 

for IPOs, 5% for SEOs, and 1% for bond 

issuances.905 Issuers conducting 

registered public offerings also incur 

Commission registration fees and 

FINRA filing fees, legal and accounting 

fees and expenses, transfer agent and 

registrar fees, costs associated with 

periodic reporting requirements and 

other regulatory requirements and 

various other fees.906 Two surveys cited 

in the IPO Task Force report concluded 

that regulatory compliance costs of IPOs 

average $2.5 million initially, followed 

by an average ongoing cost of $1.5 

million per year.907

Because of the fixed-cost nature of 

some of the compliance-related fees 

associated with public offerings, 

compliance-related fees as a percentage 

of offering proceeds tend to decline as 

offering size increases, as illustrated in 

the table below. Offerings below $50 

million, and especially offerings below 

$20 million, incur significantly higher 

registration, legal and accountingrelated fees, as a percentage of proceeds. 

CERTAIN NON-UNDERWRITER IPO-RELATED FEES AS A PERCENTAGE OF OFFERING PROCEEDS FROM 1992–2014 908

Offering 

≤$20M 

% 

Offering 

$20–$50M 

% 

Offering 

>$50M 

% 

SEC Registration Fees ................................................................................................................ 0.11 0.04 0.03 

Blue Sky Fees ............................................................................................................................. 0.35 0.05 0.02 

Accounting Fees .......................................................................................................................... 1.38 0.84 0.56 

Legal Fees ................................................................................................................................... 2.32 1.18 0.81 

In addition to compliance costs, there 

are other possible explanations for the 

trends in IPOs. A decline in public 

offerings also could result from macroeconomic effects on investment 

opportunities and the cost of capital 909

or an increase in the economies of scope 

from being acquired by a larger entity 

relative to the benefits of operating as an 

independent firm.910

Several other trade-offs may affect an 

issuer’s willingness to pursue an IPO. 

According to the IPO Task Force survey, 

88% of CEOs that had completed an IPO 

listed ‘‘Managing Public 

Communications Restrictions’’ as one of 

the most significant challenges brought 

on by becoming a reporting company.911

Additionally, issuers in certain 

industries, such as high-technology 

sectors, may be sensitive to the costs of 

disclosure of proprietary information 

and may find private capital sources 

more attractive.912 Access to capital may 

be especially time-sensitive for the types 

of issuers most likely to conduct small 

offerings, such as startups and small 

businesses, rendering these issuers 

unwilling to go through a potentially 

lengthy registration process. Directors 

and officers of small issuers also may 

not want to subject themselves to the 

increased liability and takeover threats 

that come with dispersed ownership.913

The cost and disclosure requirements 

of IPOs have been affected by the recent 

adoption of scaled reporting 

requirements for emerging growth 

companies (EGCs) under Title I of the 

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914See Dambra, M., L. Field, and M. Gustafson, 

2014, The JOBS Act and IPO volume: Evidence that 

disclosure costs affect the IPO decision, Journal of 

Financial Economics (forthcoming), available at: 

http://papers.ssrn.com/sol3/papers.cfm?abstract_

id=2459591. 915See Chaplinsky, S., K. Hanley, and S. K. 

Moon, 2014, The JOBS Act and the costs of going 

public, Working paper, available at: http://

papers.ssrn.com/sol3/papers.cfm?abstract_

id=2492241; Barth, M., W. Landsman, and D. 

Taylor, 2014, The JOBS Act and information 

uncertainty in IPO firms, Working paper, available 

at: http://papers.ssrn.com/sol3/

papers.cfm?abstract_id=2465927; Westfall, T.J., and 

T.C. Omer, 2014, The impact of emerging growth 

company status on initial public offering valuation 

and the associated auditor risk and effort, Working 

paper, available at: http://papers.ssrn.com/sol3/

papers.cfm?abstract_id=2512605. 

916See Berger, A., and G. Udell, 2006, Small 

business credit availability and relationship 

lending: The importance of bank organisational 

structure, Economic Journal 112(477), pp. 32–53. In 

this study, equity accounted for approximately half 

of the total capital, including approximately 31% 

(45% for the smallest firms—that is, those, with less 

than $1 million in revenues or less than twenty 

employees) attributed to the principal owner. The 

remainder came from debt financing, with about 

one quarter accounted for by loans from commercial 

banks, finance companies and other financial 

institutions, and another 16% comprised of trade 

credit. The study was conducted based on the 1993 

edition of the Federal Reserve Board’s Survey of 

Small Business Finances, which collects 

information on small businesses in the United 

States. 

917See Robb, A., and D. Robinson, 2014, The 

capital structure decisions of new firms, Review of 

Financial Studies 27(1), pp. 153–179. 

918Approximately 92% of all small business debt 

to financial institutions is secured, and owners of 

the firm guarantee about 52% of that debt. See 

Berger, A., and G. Udell, 1995, Relationship lending 

and lines of credit in small firm finance, Journal of 

Business 68(3), pp. 351–381. Some studies of small 

business lending also document the creation of 

local captive markets with higher borrowing costs 

for small, opaque firms as a result of strategic use 

of soft information by local lenders. See Agarwal, 

Sumit, and Robert Hauswald, 2010, Distance and 

private information in lending, Review of Financial 

Studies 13(7), pp. 2757–2788. 

919Based on an analysis by staff from the 

Commission’s Division of Economic and Risk 

Analysis of initial Form D filings submitted during 

calendar year 2014. The estimated number of 

investors likely exceeds the actual number of 

Regulation D investors because investors could 

have participated in more than one offering. 

920These estimates are based on an analysis by 

staff from the Commission’s Division of Economic 

and Risk Analysis, using the Federal Reserve 

Board’s 2013 Survey of Consumer Finances. 921Based on an analysis performed by staff in the 

Division of Economic and Risk Analysis of Form D 

filings for calendar year 2014. 

JOBS Act, which can ease the 

compliance obligations of certain 

issuers in registered offerings. There is 

some evidence that Title I has 

contributed to an increase in IPO 

volume in 2012–2014, particularly in 

industries with high proprietary 

disclosure costs, such as biotechnology 

and pharmaceuticals.914 Some recent 

studies, however, suggest that the 

overall cost of going public for EGCs has 

not decreased whereas the indirect cost 

(e.g., IPO underpricing) has 

increased.915

c. Private Debt Financing 

Equity, including principal owner 

equity, accounts for a significant 

proportion of the total capital of a 

typical small business. Other sources of 

capital for small businesses include 

loans from commercial banks, finance 

companies and other financial 

institutions, and trade credit.916

Borrowing is relatively costly for 

many early-stage issuers as they may 

have low revenues, irregular cash-flow 

projections, insufficient assets to offer as 

collateral and high external monitoring 

costs.917 For example, a small growth 

company, such as a technology or life 

sciences startup, without steady 

revenues or substantial tangible assets is 

likely to have trouble obtaining a loan 

or a line of credit from a bank because 

it would have difficulty proving its 

ability to repay. Financial institutions 

generally require such small business 

borrowers to provide collateral or a 

guarantee by owners,918 which some 

issuers may be unable or reluctant to 

provide. 

2. Investors 

There are currently no limitations on 

who can invest in existing Regulation A 

offerings. In considering the baseline for 

the amendments to Regulation A, we 

also examine the investors in other 

existing methods of raising up to $50 

million in capital because the final rules 

we are adopting may impact an issuer’s 

choice of offering method and the 

potential investor base of the offering. 

For example, as discussed above, while 

there are no limitations on the number 

of non-accredited investors that can 

invest in offerings made pursuant to 

Rule 504 of Regulation D and in 

registered public offerings, offerings 

made pursuant to Rule 505 and Rule 

506(b) of Regulation D are limited to a 

maximum of 35 non-accredited 

investors. Issuers making offerings 

pursuant to Rule 506(c) of Regulation D 

must take reasonable steps to verify that 

investors are accredited investors. 

While non-accredited investors can 

participate in Regulation D offerings, 

subject to limitations described above, 

data from Form D filings suggests that 

non-accredited investors are not 

significantly involved in Regulation D 

offerings of up to $50 million. Offerings 

involving non-accredited investors are 

typically smaller than those that do not 

involve non-accredited investors. In 

2014, we estimate that approximately 

152,641 investors participated in 

Regulation D offerings of less than $50 

million by issuers that would be eligible 

for amended Regulation A.919 Such 

offerings had an average of 13.6 

investors per offering. Approximately 

8% of such offerings involved one or 

more non-accredited investors. 

The total number of households 

estimated to qualify as accredited 

investors is substantially larger than the 

total number of investors reported to 

have participated in an unregistered 

offering. As of 2013, we estimated that 

over 9 million U.S. households qualified 

as accredited investors based on the net 

worth standard alone, approximately 8 

million U.S. households qualified as 

accredited investors based on the 

income standard alone, and 

approximately 12.4 million U.S. 

households qualified based on either the 

income standard or the net worth 

standard.920

3. Financial Intermediaries 

Regulation A amendments may also 

affect financial intermediaries that may 

become involved in the placement and 

quotation of Regulation A securities. 

Currently, there is limited involvement 

of intermediaries in a Regulation A 

offering. However, financial 

intermediaries are used in certain of the 

other types of offerings, including 

registered offerings and certain exempt 

offerings. To the extent that the 

amendments to Regulation A that we are 

adopting today impact the number and 

the overall amount of capital raised in 

other types of offerings, financial 

intermediaries may be affected. For 

example, in registered offerings, 

underwriters are frequently used to 

identify potential investors and are 

primarily responsible for facilitating a 

successful distribution of the offered 

securities. While intermediaries are 

used less frequently in Regulation D 

offerings, they play a role in some 

offerings. We estimate that fewer than 

10% of Regulation D offerings that 

would have been potentially eligible 

under amended Regulation A involved 

an intermediary (the estimate is based 

on information about sales 

compensation or sales compensation 

recipients reported in connection with 

the offering).921

C. Scope of Exemption 

1. Eligible Issuers 

Consistent with the restrictions in 

existing Regulation A, the final rules 

exclude non-Canadian foreign issuers, 

investment companies (including 

BDCs), Exchange Act reporting 

companies, blank check companies, and 

issuers of fractional undivided interests 

in oil or gas rights, or similar interests 

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Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Rules and Regulations 21873 

922See ABA SIL Letter; Andreessen/Cowen 

Letter; BDO Letter; McCarter & English Letter; OTC 

Markets Letter; Richardson Patel Letter; SVB Letter; 

SVGS Letter. 

923See Gilman Law Letter; IPA Letter; Richardson 

Patel Letter. 

924See ABA BLS Letter; CFIRA Letter 1; 

Commonwealth Fund Letters 1 and 2; KVCF Letter; 

Milken Institute Letter; MoFo Letter; REISA Letter; 

SBIA Letter; WR Hambrecht + Co Letter. 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 private to public markets. 

925See REISA Letter. 

926 If eligibility under amended Regulation A had 

been extended to investment companies and BDCs, 

and such companies obtained a lower cost of capital 

and passed savings through to the companies in 

which they invest, the latter could also realize 

indirect capital formation benefits. 

927Three commenters recommended allowing 

Exchange Act reporting companies that are current 

in their reporting obligations to conduct Tier 2 

offerings. See Andreessen/Cowen Letter; BIO Letter; 

OTC Markets Letter. One of these three commenters 

limited its recommendation to companies with a 

non-affiliate float of less than $250 million. See BIO 

Letter. The other two commenters further 

commented that Exchange Act reporting should 

satisfy Regulation A reporting obligations if the 

Commission adopted their recommendation. See 

Andreessen/Cowen Letter and OTC Markets Letter. 

928According to one commenter, Form S–1 

registration may be too costly for micro-cap 

companies, and the eligibility requirements of Form 

S–3 limit primary capital raising for issuers with a 

small public float. See Andreessen/Cowen Letter. 

But see earlier discussion of indirect costs of 

issuance for issuers using scaled disclosures in 

Section III.B.1.b. 

929See CFIRA Letter 1 and WR Hambrecht + Co 

Letter. 

930See ABA BLS Letter and MoFo Letter. 

in other mineral rights, from relying on 

the exemption. 

The final rules also exclude two 

additional categories of issuers: (i) 

issuers that are or have been subject to 

a denial, suspension, or revocation 

order by the Commission pursuant to 

Section 12(j) of the Exchange Act within 

the five years immediately preceding 

the filing of the offering statement, and 

(ii) 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. 

Excluding issuers that have not 

complied with Regulation A’s ongoing 

reporting requirements in the two-year 

period immediately preceding the filing 

of a new offering statement will 

incentivize issuers that intend to rely on 

amended Regulation A exemption in the 

future to comply with its ongoing 

reporting requirements. Similarly, 

excluding issuers that were subject to a 

denial, suspension, or revocation order 

by the Commission pursuant to Section 

12(j) of the Exchange Act within the five 

years immediately preceding the filing 

of the offering statement will incentivize 

registrants to comply with their 

obligations under the Exchange Act, 

including their ongoing reporting 

obligations, and will prevent issuers 

with a history of non-compliance from 

relying on Regulation A after they 

terminate or suspend their Exchange 

Act reporting obligations. At the same 

time, neither of these exclusions should 

result in additional compliance costs for 

issuers because they do not impose any 

reporting or other requirements on 

issuers beyond those already mandated 

by existing regulations. 

We recognize that excluding these 

additional categories of issuers would 

have an effect on capital formation as it 

could prevent Regulation A offerings by 

issuers who otherwise might have 

utilized the Regulation A exemption 

rather than other methods of capital 

raising. However, to the extent that the 

information contained in required past 

reports provides investors in follow-on 

offerings of Regulation A securities with 

a more complete picture of the issuer’s 

business and financial condition and is 

relevant for current investment 

decisions, the exclusion of issuers that 

are not compliant with Regulation A’s 

reporting requirements and issuers 

subject to an order by the Commission 

pursuant to Section 12(j) should 

therefore enhance investor protection 

and the informational efficiency of 

prices of Regulation A securities by 

allowing investors to make better 

informed investment decisions. 

Moreover, we believe that these 

additional issuer eligibility 

requirements will complement each 

other in facilitating compliance with our 

rules. 

To the extent that more issuers use 

the amended Regulation A exemption, 

the final rules may promote competition 

among eligible issuers in the market for 

investor capital and in the market for 

goods and services. The final rules may 

also promote competition in the product 

market between small issuers and larger 

issuers. 

As suggested by some commenters, 

we could have expanded the categories 

of eligible Regulation A issuers to 

include non-Canadian foreign 

issuers,922 blank check companies,923

BDCs,924 and issuers of fractional 

undivided interests in oil or gas rights, 

or similar interests in other mineral 

rights.925 These alternatives could 

potentially enhance capital formation 

and competition.926

However, it may be potentially 

difficult and costly for investors, 

especially less sophisticated investors, 

to determine the valuation and risk of 

securities of non-Canadian foreign 

issuers, blank check companies and 

issuers of fractional undivided interests 

in oil or gas rights, or similar interests 

in other mineral rights, so extending 

eligibility to such issuers may also 

decrease investor protection. To the 

extent that such information 

asymmetries are not fully mitigated by 

initial and ongoing Regulation A 

disclosure requirements, which are 

generally less extensive than the 

disclosure requirements for registered 

offerings, the prices of Regulation A 

securities of these issuers could be less 

informationally efficient. Along the 

same lines, we believe the specialized 

nature of capital formation and 

investment strategies at BDCs warrants 

disclosures that are more specialized 

than what is required by existing or 

amended Regulation A for a proper 

understanding of an investment in the 

securities of these types of issuers. 

We also could have expanded the 

categories of eligible Regulation A 

issuers to include issuers that are 

subject to the ongoing reporting 

requirements of Section 13 or 15(d) of 

the Exchange Act (‘‘reporting 

companies’’), as suggested by some 

commenters.927 Although reporting 

companies sometimes conduct offerings 

exempt from registration, we are unable 

to estimate the number of reporting 

companies that would use the amended 

Regulation A exemption if it were made 

available to them. We recognize that 

some reporting companies may have 

benefited from this alternative due to, 

for example, the lower costs of 

preparation of a Regulation A offering 

statement than a registration 

statement.928 Additionally, some 

reporting companies whose securities 

are not listed on a national securities 

exchange could potentially benefit from 

savings of time and dollar expenditures 

that may result from the state securities 

law preemption in Tier 2 offerings. 

However, because Exchange Act 

disclosure requirements for reporting 

companies are more extensive than 

those under amended Regulation A, 

reporting companies would not be able 

to derive the benefit of reduced ongoing 

reporting costs under amended 

Regulation A. Other commenters 

suggested imposing more restrictive 

issuer eligibility criteria, by excluding 

issuers that are not ‘‘operating 

companies’’ 929 or excluding shell 

companies and issuers of penny 

stock.930 While these additional 

exclusions may create some investor 

protection benefits, such additional 

exclusions would be likely to limit 

capital formation and competition 

among small issuers, which are more 

likely to fall into the penny stock 

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931See discussion in Section II.B.2 above. 

932This indirect effect may result because, due to 

bank accounting standards and capital 

requirements, securitization allows originators to 

move assets off the balance sheet, freeing up capital 

for additional loans. The resulting increase in 

capital available for lending could lead to lower 

borrowing costs for all borrowers down the capital 

supply chain. See Pennacchi, G., 1995, Loan sales 

and the cost of bank capital, Journal of Finance 

43(2), pp. 375–396; Carlstrom, C., and K. Samolyk, 

1995, Loan sales as a response to market-based 

capital constraints, Journal of Banking and Finance 

19(3), pp. 627–646. 

933Our analysis indicates that from 2011–2013, 

approximately 2.9% of ABS issuances were below 

$50 million. This estimate uses the AB Alert and 

CM Alert databases and includes only private label 

ABS deals. 

934Some commenters recommended raising the 

Tier 1 offering limitation to $10 million or more. 

See Guzik Letter 1 and ICBA Letter. 

935To the extent that issuers in Tier 2 offerings 

face additional costs due to revised disclosure 

requirements under amended Regulation A, 

issuance costs as a percentage of proceeds may 

remain unchanged or may increase. 

936We recognize the possibility that, despite the 

absence of resale restrictions, even large Regulation 

A offerings with heavy investor participation may 

fail to attain sufficient liquidity due to a lack of 

secondary trading and a lack of breadth of 

institutional ownership, and thus may be associated 

with a higher cost of capital due to the illiquidity 

premium. In such a scenario, some issuers and 

investors may still benefit from having access to a 

type of offering that provides greater liquidity than 

Regulation D securities offerings although less 

liquidity than registered offerings of securities 

listed on major national exchanges. 

category, or some early-stage companies, 

which may not meet the definition of an 

‘‘operating company.’’ Overall, due to 

the implications of extending issuer 

eligibility before the Commission has 

the ability to assess the impact of the 

changes to Regulation A being adopted 

today, we believe that it is prudent to 

defer consideration of potential changes 

to the categories of eligible issuers until 

we have the opportunity to observe the 

use of the amended Regulation A 

exemption and assess any new market 

practices as they develop. 

2. Eligible Securities 

Consistent with the statute, the final 

rules apply to offerings of equity 

securities, debt securities, and securities 

convertible or exchangeable to equity 

interests, for example, warrants, 

including any guarantees of such 

securities.931

Similar to the proposal, the final rules 

exclude offerings of asset-backed 

securities (‘‘ABS’’) from eligibility for 

Regulation A. As discussed above, we 

believe that ABS issuers are not the 

intended beneficiaries of the mandated 

expansion of Regulation A. ABS are 

subject to the provisions of Regulation 

AB and other rules specifically tailored 

to the offering process, disclosure and 

reporting requirements for such 

securities, and we do not believe that 

Regulation A’s requirements are suitable 

for offerings of such securities. ABS are 

designed to pool the risk of alreadyissued loans and other financial assets 

and, in this respect, do not constitute 

new capital formation. We recognize 

that, in certain cases, permitting ABS 

offerings to be conducted under 

Regulation A could lower the cost of 

capital for underlying borrowers whose 

loans are eventually securitized by ABS 

issuers and therefore indirectly facilitate 

capital formation.932 In practice, 

however, the vast majority of ABS 

offerings are much larger than the 

maximum allowable offering size under 

amended Regulation A.933 As a result, 

we believe that excluding ABS offerings 

from eligibility for Regulation A likely 

will not have a significant adverse effect 

on capital formation. 

3. Offering Limitations and Secondary 

Sales 

a. Offering Limitations 

As explained above, the final rules 

introduce two tiers of offerings 

compared with the baseline of one tier 

in existing Regulation A. The tiered 

approach in the final rules allows us to 

scale regulatory requirements based on 

offering size, to give issuers more 

flexibility in raising capital under 

Regulation A, and to provide 

appropriately tailored protections for 

investors in each tier. Issuers seeking to 

raise a larger amount of capital are, 

among other things, required to provide 

more extensive initial and ongoing 

disclosures, but are also able to take 

advantage of the larger maximum 

offering size in Tier 2 (up to $50 million 

in a twelve-month period). In light of 

this larger maximum offering size, the 

final rules impose additional disclosure 

requirements and other provisions to 

provide protection to investors in Tier 2 

offerings. Issuers seeking a smaller 

amount of capital retain the advantage 

of more scaled disclosures required in 

Tier 1 offerings but must comply with 

a lower offering size limit. 

We recognize that the cost associated 

with greater disclosure requirements for 

offerings made under Tier 2 in amounts 

up to $20 million may place Tier 2 

issuers at a relative competitive 

disadvantage as compared to issuers 

seeking to raise an amount below $20 

million in a Tier 1 offering. Such 

potential competitive effects are likely 

to be mitigated by the ability of issuers 

to evaluate the trade-off between the 

costs associated with more extensive 

disclosure requirements for Tier 2 

offerings and the benefit of a potentially 

higher securities valuation stemming 

from a reduction in information 

asymmetry between issuers and 

investors due to the more extensive 

disclosure requirements for Tier 2 

offerings. 

In a change from the proposal, and in 

line with the suggestions of some 

commenters, the final rules raise the 

Tier 1 maximum offering size from $5 

million to $20 million in a twelvemonth period in order to provide 

smaller issuers with additional 

flexibility to meet their financing 

needs.934 We expect the higher Tier 1 

maximum offering size will facilitate 

capital formation under Regulation A 

for those issuers seeking to raise 

between $5 and $20 million in a twelvemonth period. We expect the resulting 

capital formation benefits to be greater 

for smaller issuers for which the 

incremental costs of the Tier 2 

disclosure regime—relative to the costs 

of complying with state registration— 

exceed the benefits of more extensive 

disclosure. 

Compared to the baseline, the 

increase in the maximum offering size 

to $20 million for Tier 1 offerings and 

the creation of Tier 2 with the maximum 

offering size of $50 million will provide 

issuers with increased flexibility with 

regard to their offering size and should 

lower the burden of fixed costs 

associated with conducting Regulation 

A offerings as a percentage of 

proceeds.935 This could make amended 

Regulation A more cost effective and 

attractive to issuers than existing 

Regulation A, resulting in potential 

favorable effects on capital formation 

and competition. The increase in the 

maximum offering size could also make 

Regulation A attractive to a broader 

range of issuers, including larger 

issuers. This could provide investors 

with a broader range of investment 

opportunities in the Regulation A 

market and potentially result in a more 

efficient allocation of investor capital. 

The increased maximum offering size 

could also contribute to improved 

liquidity for Regulation A securities, to 

the extent that larger issues may 

encourage greater breadth of equity 

ownership, assuming sufficient 

secondary market demand develops.936

Improved liquidity would enable 

investors in Regulation A offerings to 

unwind their investments more easily 

and at a lower cost, thus making such 

investments more attractive to potential 

investors. On the other hand, if investor 

demand for securities offered under 

amended Regulation A is low, this 

could negatively affect security prices 

and liquidity. 

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937Academic studies show that firm size is an 

important predictor of analyst coverage, so if larger 

issuers are attracted to the Regulation A market, 

they may be more likely to be covered by analysts 

than smaller issuers, all else equal. See Barth, M., 

R. Kasznik, and M. McNichols, 2001, Analyst 

coverage and intangible assets, Journal of 

Accounting Research 39(1), pp. 1–34. 

938See B. Riley Letter; Fallbrook Technologies 

Letter; OTC Markets Letter; Public Startup Co. 

Letter 1; Richardson Patel Letter. 

939Based on an analysis of Form D filings for 

2014 by staff from Commission’s Division of 

Economic and Risk Analysis, less than 3% of 

Regulation D offerings by issuers that would be 

eligible for amended Regulation A had offering size 

greater than $50 million. 

We also considered the overall distribution of 

registered offerings (initial public offerings and 

seasoned equity offerings). The overall number of 

Regulation D offerings significantly exceeded the 

number of registered equity offerings, thus the 

combined distribution of registered and Regulation 

D offerings closely resembles the distribution of 

Regulation D offerings. In 2014, most (92.2%) of the 

offerings conducted in the form of registered equity 

offerings or Regulation D offerings had offer sizes 

up to $50 million. In 2014, offerings in the $50–$75 

million range accounted for 1.0% of Regulation D 

offerings and approximately 10% of registered 

equity offerings. Data on registered offerings was 

obtained from Thomson Reuters, as described in 

Section III.B.1.b. 

940The fixed costs of registered offerings 

represent a significantly higher portion of offering 

proceeds as offering sizes decrease. For instance, 

compliance related costs (registration, legal and 

accounting expenses and fees) increase from an 

average of an average of 1.7% for IPOs and 0.5% 

for SEOs in the $50–$75 million range to an average 

of 2.9% for IPOs and 1.6% for SEOs in the below 

$50 million range. Fee information is compiled 

from Thomson Reuters SDC data for 1992–2014, 

excluding offerings from non-Canadian foreign 

issuers, blank-check companies, and investment 

companies. Average compliance fees and expenses 

for this calculation are based on observations with 

non-missing data (where all four types of fees— 

legal, accounting, blue sky, and registration fees, to 

which we collectively refer as compliance fees—are 

separately reported). Offerings with gross proceeds 

below $1,000 are excluded to minimize 

measurement error. 

941Early in the firm’s life cycle, it may be optimal 

for a firm to remain private, but as it grows larger, 

it may become optimal to conduct a registered IPO. 

See Chemmanur, Thomas J., and Paolo Fulghieri, 

1999, A theory of the going-public decision, Review 

of Financial Studies 12(2), pp. 249–279. Privately 

held firms tend to be significantly smaller than 

firms with publicly traded securities. See Asker, 

John, Joan Farre-Mensa, and Alexander Ljungqvist, 

2014, Corporate investment and stock market 

listing: A puzzle? Review of Financial Studies 

28(2), pp. 342–390. Asker, John, Joan Farre-Mensa, 

and Alexander Ljungqvist, 2011, What do private 

firms look like? Data appendix, available at: 

http://ssrn.com/abstract_id=1659926. Other studies 

support the notion that larger firms are more likely 

to conduct a registered IPO. See Pagano, Marco, 

Fabio Panetta, and Luigi Zingales, 1998, Why do 

computers go public? An empirical analysis, 

Journal of Finance 53, 27–64 (showing that size 

predicts going public using Italian data). See also 

Chemmanur, Thomas J., Shan He, and Debarshi K. 

Nandy, 2010, The going-public decision and the 

product market, Review of Financial Studies 23(5), 

pp. 1855–1908 (showing that size predicts a higher 

likelihood of conducting a registered IPO using US 

data). In turn, smaller firms that have undertaken 

an IPO in the past are more likely to go private later 

on. See Mehran, Hamid, and Stavros Peristiani, 

Continued 

If investor demand for Regulation A 

securities and information about issuers 

is sufficient, the increase in maximum 

offering size could also contribute to the 

development of intermediation services, 

such as market making, and to the 

coverage of Regulation A securities by 

analysts.937 It is possible that an 

underwriting market may develop to 

provide Regulation A offering services, 

especially in larger Tier 2 offerings. The 

presence of these services could have a 

positive impact on investor 

participation and aftermarket liquidity 

of Regulation A securities, further 

increasing demand for such services. It 

is also possible, however, that investor 

demand for Regulation A securities will 

not expand sufficiently to make such 

services economically feasible. 

Finally, the increase in the maximum 

offering size could result in increased 

competition among Regulation A issuers 

for investor capital. If the number of 

issuers seeking to raise larger amounts 

of capital pursuant to Regulation A 

increases more than the size of the 

accredited and non-accredited investor 

base, investors considering Regulation A 

securities will have more choice of 

investment opportunities in the 

Regulation A market, resulting in greater 

competition among issuers for 

prospective investors. Increased 

competition, in turn, could result in 

more efficient allocation of capital by 

investors. The intensity of competition 

among issuers for investor capital may 

not change, however, if issuers are able 

to attract additional numbers of 

accredited and non-accredited investors 

as the Regulation A market develops. 

Alternatively, as suggested by some 

commenters, we could have increased 

the Tier 2 maximum offering size above 

$50 million, for example, to $75 or $100 

million.938 This alternative could result 

in benefits that are similar to the 

benefits of the increase in the maximum 

offering size contained in the final rules 

but of a potentially larger magnitude. 

However, there is reason to believe that 

the magnitude of the increase in such 

benefits may be limited. In particular, 

although Rule 506 does not limit 

maximum offering size, few Regulation 

D offerings by issuers that would be 

eligible for amended Regulation A 

exceeded $50 million.939 To the extent 

that the current use of other types of 

exempt offerings is indicative of future 

Regulation A offerings, the alternative of 

raising the Tier 2 offering size above $50 

million may not lead to a significant 

increase in the number of issuers. 

However, we recognize that historical 

use of Regulation D may not fully 

represent future potential use of 

Regulation A, particularly to the extent 

that the amended rules facilitate 

offerings by issuers that do not currently 

rely on other private offering 

exemptions and that are seeking a 

broader investor base and enhanced 

liquidity for their issued securities. In 

particular, amended Regulation A may 

attract issuers seeking a public 

ownership status, and for whom a likely 

alternative is a registered offering. An 

increase in the Tier 2 offering size above 

$50 million could result in some issuers 

shifting from conducting a registered 

offering to conducting a Tier 2 offering. 

As discussed earlier, amended 

Regulation A may facilitate offerings 

that would not otherwise be conducted 

given the cost of registered offerings. 

However, it is also possible that an 

increase in the Tier 2 offering size above 

$50 million will not result in a 

significant number of issuers shifting 

from conducting a registered offering to 

conducting a Tier 2 offering given that 

the relative cost savings from a Tier 2 

offering compared to a registered 

offering may be lower for offerings in 

the $50 million to $75 million range 

than for those below $50 million.940

An increased maximum offering size 

for Tier 1 offerings could increase the 

overall amount of securities being 

offered to the general public that are 

subject to less extensive initial 

disclosure requirements and not subject 

to ongoing disclosure requirements, 

which may reduce the ability of 

investors to make informed investment 

decisions. However, some issuers that 

conduct offerings that are eligible for 

Tier 1 may instead choose a Tier 2 

offering, for example, to take advantage 

of the benefits of more extensive 

disclosure, such as potentially greater 

secondary market liquidity, and the 

benefits of a single level of regulatory 

review. 

An increased maximum offering size 

for Tier 2 Regulation A offerings could 

increase the overall amount of securities 

being offered to the general public that 

are subject to initial and ongoing 

disclosure requirements that are less 

extensive than the requirements for 

registered offerings being offered to the 

general public, which may result in less 

informed decisions by investors, thus 

potentially impacting investor 

protection. This may be partly mitigated 

by the investment limitations imposed 

on non-accredited investors in Tier 2 

offerings. Further, larger issuers are 

more likely to conduct registered 

offerings, associated with the more 

extensive disclosure requirements of the 

Exchange Act.941 We believe that the 

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21876 Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Rules and Regulations 

2010, Financial visibility and the decision to go 

private, Review of Financial Studies, 23(2), pp. 

519–547. 

942The dollar limits are broadly consistent with 

existing Regulation A, which limits sales by 

existing securityholders to $1.5 million, or 30% of 

the $5 million maximum offering size, in a 12- 

month period. 

943Tier 1 offerings may still be subject to state 

law limitations on secondary sales and sales by 

affiliates. 

944See ABA BLS Letter; B. Riley Letter; 

Canaccord Letter; CFIRA Letter 1; CFIRA Letter 2; 

Milken Institute Letter; MoFo Letter; WR 

Hambrecht + Co Letter. 

945See Milken Institute Letter. 

946See Massachusetts Letter 2; NASAA Letter 2; 

Carey Letter. 

947See NASAA Letter 2 (supporting the proposed 

limits coupled with a board approval requirement 

in lieu of prohibiting resales entirely) and WDFI 

Letter (not expressing a preference for prohibiting 

resales entirely). 

948See MCS Letter. 

949See Easley, D., and M. O’Hara, 2004, 

Information and the cost of capital, Journal of 

Finance 59(4), pp. 1553–1583. We note that these 

potential effects may be limited to the extent that 

purchasers are aware that they may be transacting 

with better informed affiliates in the course of 

offerings with affiliate securityholder sale 

disclosures, in which case these informational 

asymmetries could be partially or fully reflected in 

lower security prices and lower proceeds at the 

time of the offering. 

950See Jensen, M., and W. Meckling, 1976, 

Theory of the firm: Managerial behavior, agency 

costs and ownership structure, Journal of Financial 

Economics 3(4), pp. 305–360. 

951See Core, J., R. Holthausen, and D. Larcker, 

1999, Corporate governance, chief executive officer 

compensation, and firm performance, Journal of 

Financial Economics 51(3), pp. 371–406; Mehran, 

H., 1995, Executive compensation structure, 

ownership, and firm performance, Journal of 

Financial Economics 38(2), pp. 163–184. 

952See Cumming, D., and J. MacIntosh, 2003, 

Venture-capital exits in Canada and the United 

States, University of Toronto Law Journal 53(2), pp. 

101–199. 

953See Zhang, J., 2011, The advantage of 

experienced start-up founders in venture capital 

acquisition: Evidence from serial entrepreneurs, 

Small Business Economics 36(2), pp. 187–208. See 

also Gompers, P., A. Kovner, J. Lerner, and D. 

Scharfstein, 2006, Skill vs. luck in entrepreneurship 

and venture capital: Evidence from serial 

entrepreneurs, Working paper No. w12592, 

National Bureau of Economic Research. 

954See Davila, A., and G. Foster, 2005, 

Management accounting systems adoption 

decisions: Evidence and performance implications 

from early-stage/startup companies, Accounting 

Review 80(4), pp. 1039–1068 (suggesting that 

standard accounting measures are often poor 

indicators of financial health in small companies). 

955See ABA BLS Letter; B. Riley Letter; 

Canaccord Letter; CFIRA Letter 1; Milken Institute 

Letter; MoFo Letter; WR Hambrecht + Co Letter. 

annual offering limitation for Tier 2 will 

serve to limit the utility of the 

Regulation A exemption for larger 

issuers and thus will make it more 

likely that they will continue to raise 

money through registered offerings and 

provide the corresponding disclosure. 

b. Secondary Sales 

The final rules continue to permit 

secondary sales as part of a Regulation 

A offering, subject to the following 

conditions. The amount of securities 

that selling securityholders can sell at 

the time of an issuer’s initial offering 

and within the following 12-month 

period may not exceed 30% of the 

aggregate offering price (offering size) of 

a particular offering. Following the 

expiration of the first 12-month period 

after an issuer’s initial qualification of 

an offering statement, the amount of 

securities that affiliate securityholders 

can sell in a Regulation A offering in 

any 12-month period will be limited to 

$6 million in Tier 1 offerings and $15 

million in Tier 2 offerings.942 After the 

initial 12-month period, sales by nonaffiliate securityholders made pursuant 

to the offering statement will not be 

subject to a limit on secondary sales but 

will be aggregated with sales by the 

issuer and affiliates for the purposes of 

compliance with the maximum offering 

limitation for the respective tier. The 

final rules also eliminate the provision 

in the current Rule 251(b), which 

prohibits resales by affiliates unless the 

issuer has had net income from 

continuing operations in at least one of 

the last two years.943

Several commenters recommended 

eliminating limits on sales by existing 

securityholders,944 including one 

commenter that recommended 

eliminating restrictions on sales by nonaffiliate securityholders since concerns 

over information asymmetries between 

potential investors and non-affiliate 

securityholders would be reduced.945

Other commenters recommended either 

proscribing resales entirely 946 or 

requiring the approval of the resale 

offering by a majority of the issuer’s 

independent directors upon a finding 

that the offering is in the best interests 

of both the selling securityholders and 

the issuer.947 Another commenter 

recommended requiring a twelve-month 

holding period for selling shareholders 

in order to distinguish between 

investors seeking to invest in a business 

and investors simply seeking to sell to 

the public for a gain or limiting 

securityholders not qualifying for the 

twelve-month holding period to selling 

a fraction of their shares, such as 

50%.948

Whether and to what extent 

securityholders should be permitted to 

sell in a Regulation A offering involves 

a trade-off between enhancing liquidity 

for selling securityholders and limiting 

the potential harm to investors that 

could arise from such sales. The final 

rules attempt to balance these 

considerations. The trade-off between 

these countervailing considerations will 

depend in large part on whether the 

selling securityholder is an affiliate of 

the issuer. There are two concerns about 

sales by affiliates. One is that there is an 

information asymmetry between an 

affiliate and outside investors. In 

particular, an affiliate selling 

securityholder is likely to have an 

informational advantage that it may 

potentially utilize to the detriment of 

outside investors.949 The other concern 

is the alignment of incentives. With 

respect to affiliates, it is often argued 

that the incentives of company 

management are better aligned with 

other shareholders when managers hold 

a significant equity interest in the 

company.950 Thus, it can be important 

that insiders retain an ownership stake 

in the company to ensure that their 

incentives are aligned.951 A divestiture 

of the ownership stake of an affiliate 

owner may therefore exacerbate agency 

conflicts, thus suggesting that large 

affiliate sales can be detrimental to 

current and future investors. 

We recognize, however, that there are 

benefits to be realized from permitting 

affiliate securityholders, such as 

company founders and employees, to 

sell in a Regulation A offering. Because 

entrepreneurs and other affiliates 

consider available exit options before 

participating in a new venture, 

permitting secondary sales increases 

their incentives to make the original 

investment, which may promote 

innovation and business formation.952

Allowing exit could also facilitate 

efficient reallocation of capital and 

talents of entrepreneurs to new 

ventures.953 Additionally, exit of a large 

affiliate shareholder could potentially 

result in a broader base of investors. 

As noted above, the final rules relax 

the existing limitations on secondary 

sales by affiliates by eliminating the net 

income test for affiliate resales in 

existing Rule 251(b). We are concerned 

that this criterion may not be the best 

measure of financial health and 

investment opportunities for some 

issuers eligible for amended Regulation 

A and thus may inappropriately 

disadvantage those issuers, and their 

affiliates, with respect to secondary 

sales.954 In particular, this change 

should benefit growth and R&Dintensive issuers that may experience 

longer periods of negative revenues. 

Several commenters supported the 

elimination of the net income test for 

affiliate resales, generally noting that 

some issuers may have net losses for 

several years, including due to high 

R&D costs.955 We recognize that 

eliminating this criterion could lead to 

reduced investor protection due to 

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Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Rules and Regulations 21877 

956See Securities Act Section 3(b)(2)(D) 

(expressly providing for Section 12(a)(2) liability for 

any person offering or selling Section 3(b)(2) 

securities). 

957See ABA BLS Letter; Andreessen/Cowen 

Letter; Canaccord Letter; Cornell Clinic Letter; 

Fallbrook Technologies Letter; Heritage Letter; Ladd 

Letter 2; Leading Biosciences Letter; McCarter & 

English Letter; MCS Letter; Milken Institute Letter; 

MoFo Letter; Paul Hastings Letter; Richardson Patel 

Letter; SVB Letter; WR Hambrecht + Co Letter. 

958See Milken Institute Letter. 

959Annual income and net worth would be 

calculated for individual purchasers as provided in 

the accredited investor definition in Rule 501 of 

Regulation D. See 17 CFR 230.501. 

960An issuer would, however, be able to conduct 

a Tier 1 offering, which does not impose investment 

limitations. 

961See CFA Institute Letter. 

962See CFA Letter. 

963See CFA Letter (not recommending this 

specifically, but noting this as one reason why the 

investment limit was not an adequate substitute for 

state review of Tier 2 offerings) and Cornell Clinic 

Letter. 

insiders in Regulation A offerings being 

able to sell securities in issuers that 

have not reported net income. However, 

we note that the disclosures required for 

Regulation A offerings, as well as the 

overall limits on secondary sales during 

the initial 12-month period and 

subsequent limits on secondary sales by 

affiliates, should partly mitigate this 

cost. 

The trade-off between enhanced 

liquidity and investor protection is 

different with respect to sales by nonaffiliates, because these securityholders 

are less likely to have access to inside 

information, and their sales do not raise 

the incentive alignment concerns 

discussed above in the context of 

affiliate securityholders. The option to 

exit through a Regulation A offering 

provides additional liquidity to existing 

non-affiliate securityholders. During the 

initial 12-month period, the final rules 

enable selling securityholders to access 

liquidity through a Regulation A 

offering while ensuring that secondary 

sales at the time of such offerings are 

made in conjunction with new capital 

raising by the issuer. After the 

expiration of the initial 12-month 

period, the ability of non-affiliate 

securityholders to sell securities 

pursuant to a qualified Regulation A 

offering statement without limitation 

(except the maximum Regulation A 

offering size) should make Regulation A 

securities more attractive to prospective 

investors, which may encourage initial 

investment and increase capital 

formation. Non-affiliate securityholders 

who hold restricted securities 

purchased in reliance on another 

exemption will be able to sell them 

freely after a one-year holding period. 

Purchasers of the securities from such 

non-affiliate securityholders would not 

have the benefit of the more robust 

disclosure provisions of a Regulation A 

offering, where the seller will be subject 

to Section 12(a)(2) liability. Thus, 

allowing secondary sales in a Regulation 

A offering will provide an additional 

measure of protection for purchasers as 

compared to transactions in the 

secondary market.956 Consequently, we 

believe that removing restrictions on 

non-affiliate securityholder sales in 

Regulation A offerings will not have an 

adverse effect on investor protection. 

Although secondary sales increase the 

liquidity for existing securityholders, 

since secondary sales will be aggregated 

with issuer sales for purposes of 

compliance with the maximum offering 

amount permissible under the 

respective tiers, secondary sales may 

reduce the maximum amount of issuer 

sales in a Regulation A offering. The 

30% limit on secondary sales imposed 

during the initial 12-month period 

partly mitigates this potential effect. 

4. Investment Limitation 

Regulation A currently does not place 

limits on the amount of securities that 

may be purchased by an investor. The 

proposed rules included a 10% 

investment limit for all investors in Tier 

2 offerings. Several commenters 

recommended providing exceptions to 

the limit, or altering the limit, for 

certain types of investors, such as 

accredited investors,957 and for 

securities that will be listed on an 

exchange upon qualification.958

We recognize that there are potential 

investor protection benefits as well as 

costs from imposing investment limits 

in Regulation A offerings. To help 

balance those benefits and costs, the 

final rules seek to focus these limits on 

those investors who may be less likely 

to be able to fend for themselves and 

sustain losses. Accordingly, nonaccredited investors in Tier 2 offerings 

will be limited to purchases of no more 

than 10% of the greater of annual 

income or net worth (for natural 

persons) or the greater of annual 

revenue or net assets (for non-natural 

persons), as proposed.959 In a change 

from the proposal, the final rules do not 

apply the investment limit to investors 

in Tier 2 offerings that are accredited 

investors as defined in Rule 501 of 

Regulation D. We believe that accredited 

investors, due to their level of income 

or net worth, are more likely to be able 

to withstand losses from an 

undiversified exposure to an individual 

offering. 

We also recognize that there are costs 

associated with investment limits. In 

particular, the investment limitation 

could limit potential gains for nonaccredited investors in Tier 2 offerings. 

The investment limitation could require 

some issuers to solicit a greater number 

of investors or to solicit additional 

accredited investors, which could 

impose additional costs on those issuers 

or limit capital formation if they are 

unable to attract additional investors.960

Despite these costs, we believe that this 

limitation, as tailored in the final rules, 

is an appropriate means of protecting 

investors while promoting efficiency, 

competition and capital formation. 

The investment limitation could also 

lead to a more dispersed non-accredited 

investor base or a higher proportion of 

accredited investors in the investor base 

to the extent that the 10% threshold 

impacts investor participation. This 

could facilitate increased liquidity as 

there would be more investors with 

which to trade. More diffuse ownership 

could also exacerbate the shareholder 

collective action problem and weaken 

external monitoring by non-affiliated 

shareholders to the extent that 

coordination costs with other 

shareholders increase. We do not 

believe, however, that either of these 

outcomes is a likely consequence of the 

10% investment limit. 

In a change from the proposal, the 

final rules exclude sales of securities 

that will be listed on a national 

securities exchange upon qualification 

from Tier 2 investment limitations. This 

provision may provide additional 

investment opportunities for some 

investors and may enhance capital 

formation for some issuers. We do not 

anticipate that this provision will 

reduce investor protection since such 

issuers will be required to meet the 

listing standards of a national securities 

exchange and become subject to ongoing 

Exchange Act reporting, resulting in a 

high level of investor protection. 

As an alternative to the final rules, we 

considered imposing more restrictive 

investment limitations, as suggested by 

various comments, including extending 

investment limitations to Tier 1 

offerings,961 imposing a limit lower than 

10% on ‘‘all but the wealthiest, least 

risk averse’’ investors,962 or imposing a 

10% investment limitation across 

investments in all Regulation A 

offerings rather than applying the 

limitation on a per offering basis.963

Applying the investment limitation in 

Tier 1 offerings could marginally 

enhance investor protection, especially 

since these offerings will be subject to 

less extensive disclosure and 

transactional requirements. However, 

given that Tier 1 offerings will remain 

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21878 Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Rules and Regulations 

964One commenter noted that the investment 

limitation is unnecessary with appropriate state 

oversight. See NASAA Letter 2. 

965See Accredited Assurance Letter; CFA Letter; 

CFA Institute Letter; Cornell Clinic Letter; MCS 

Letter; WDFI Letter. 

966See B. Riley Letter; CFIRA Letter 1; CFIRA 

Letter 2; Fallbrook Technologies Letter; Frutkin Law 

Letter; Guzik Letter 1 and Letter 3; Heritage Letter; 

IPA Letter; Ladd Letter 2; Milken Institute Letter; 

MoFo Letter; SBIA Letter (recommending that the 

trigger be ‘‘raised or remedied,’’ but not explicitly 

calling for elimination); U.S. Chamber of Commerce 

Letter; WR Hambrecht + Co Letter. 

967See Heritage Letter; KVCF; McCarter & English 

Letter; Milken Institute Letter; MoFo Letter; Paul 

Hastings Letter; SBIA Letter. 

968See Rule 12g5–1(a)(7). 

subject to state registration 

requirements, it is unclear whether 

investment limits would significantly 

enhance investor protection in these 

offerings.964 Moreover, adding the 

investment limitation in Tier 1 offerings 

could have an adverse effect on capital 

formation for the smallest Regulation A 

issuers, which may face greater hurdles 

than larger issuers in attracting a broad 

investor base. 

The alternative of imposing a cap that 

is lower than 10% on ‘‘all but the 

wealthiest, least risk averse’’ investors 

may confer additional investor 

protection benefits on investors that are 

unable to withstand significant 

investment losses. However, this 

alternative could also limit some 

investors from pursuing attractive 

investment opportunities and limit 

capital formation for some issuers. 

Further, since risk preferences vary 

considerably among investors, 

objectively identifying ‘‘risk averse’’ 

investors in a way that is broadly 

applicable is a challenge. In contrast, 

the 10% investment limitation in the 

final rules that applies to all investors 

in a Tier 2 offering, except accredited 

investors, defined pursuant to Rule 501 

of Regulation D, provides a standard 

that market participants can easily 

implement. 

The alternative of imposing the 10% 

investment limitation that is aggregated 

across investments in all Regulation A 

offerings rather than applying the 

limitation on a per offering basis may 

strengthen investor protection. Because 

the risk profiles of different securities 

offerings by the same issuer are likely to 

be correlated, and some issuers may 

participate in multiple Regulation A 

offerings over time, such an alternative 

definition of the limitation may prevent 

a non-accredited investor from using a 

significant share (potentially, 

significantly in excess of 10%) of their 

net worth or income to establish a 

highly undiversified exposure to a 

single issuer. However, this alternative 

could also limit some investors from 

pursuing attractive investment 

opportunities and limit capital 

formation for issuers. Moreover, 

different offerings by the same issuer 

under Regulation A may have different 

risk profiles, depending on security type 

and class, thus for some investors, 

depending on their preferences, 

investing a larger aggregate amount in 

multiple offerings by the same issuer 

may be optimal. 

Overall, while such additional 

restrictions may strengthen investor 

protection, their incremental 

contribution to investor protection may 

be small in light of other provisions of 

amended Regulation A. At the same 

time, such additional restrictions may 

prevent some investors from taking 

advantage of potentially beneficial 

investment opportunities and may limit 

the attractiveness of Regulation A to 

prospective issuers, reducing capital 

formation and competition benefits. 

The final rules permit issuers to rely 

on an investor’s representation that the 

investment represents no more than 

10% of the greater of the investor’s net 

worth and annual income, unless the 

issuer has knowledge that such 

representation is untrue. The ability to 

rely on investor representations should 

help mitigate potential costs that issuers 

could incur to comply with the 

investment limitation provisions. At the 

same time, we realize that investors 

might make inaccurate representations, 

whether intentionally or not, which 

could expose these investors to 

increased losses. 

As an alternative to investor 

representations, we could have imposed 

additional requirements on the issuer to 

verify that investors in Tier 2 offerings 

are compliant with the 10% investment 

limit, as suggested by some 

commenters.965 Such additional 

provisions could strengthen investor 

protections. At the same time, they 

would likely result in a disproportionate 

increase in the cost of compliance, 

especially for smaller issuers in Tier 2 

offerings, and might deter some 

investors from participating in such 

offerings due to the potential burdens of 

the verification process and privacy 

concerns. 

5. Integration 

The final rules provide issuers with a 

safe harbor from integration that, with 

the exception of the addition of 

security-based crowdfunding 

transactions conducted pursuant to 

Section 4(a)(6) of the Securities Act, 

preserves the provisions of existing 

Regulation A. 

We believe that the final rules provide 

issuers with valuable certainty as to the 

contours of offerings conducted before, 

or close in time with, Regulation A 

offerings. This certainty may be 

particularly beneficial for smaller 

issuers whose capital needs, and thus 

preferred capital raising methods, may 

change frequently. 

As an alternative, we could have 

eliminated the integration safe harbor. 

We believe that the elimination of the 

safe harbor, however, would inject 

uncertainty into offerings conducted 

before, or close in time with, Regulation 

A offerings and would, in turn, decrease 

the utility of the exemption. Uncertainty 

as to the contours of offerings, as they 

relate to Regulation A, could possibly 

cause issuers to prefer other offering 

methods to Regulation A, which may 

have an effect on investor protection. 

For example, if issuers rely more on 

Regulation D, this alternative could 

result in investors receiving less 

information about an issuer before 

making an investment, thereby reducing 

investor protection. Instead, if issuers 

rely more on registered offerings, this 

alternative could potentially provide 

investors with the more extensive 

disclosure required of, and liability 

protections associated with, such 

offerings, although it would cause 

smaller issuers to incur the higher 

initial and ongoing costs associated with 

such offerings. 

6. Treatment Under Section 12(g) 

Existing rules currently do not exempt 

Regulation A securities from the 

requirements of Section 12(g), but the 

Proposing Release requested comment 

on whether we should adopt such an 

exemption. A number of commenters 

recommended exempting Regulation A 

securities from Section 12(g) of the 

Exchange Act,966 and several 

commenters recommended changing or 

delaying the application of Section 

12(g).967 In a change from the proposed 

rules, the final rules exempt securities 

issued in a Tier 2 offering from the 

provisions of Section 12(g) for so long 

as the issuer remains subject to, and is 

current in, its periodic Regulation A 

reporting obligations as of its fiscal year 

end,968 engages the services of a transfer 

agent registered with the Commission 

pursuant to Section 17A of the 

Exchange Act, and had a public float of 

less than $75 million as of the last 

business day of its most recently 

completed semiannual period, or, in the 

absence of a public float, had annual 

revenues of less than $50 million as of 

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Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Rules and Regulations 21879 

969 Id. 

970 Issuers seeking to list on a national securities 

exchange will be required to register with the 

Commission under Section 12(b). 

971See IPO Task Force. Based on two surveys, 

regulatory compliance costs of IPOs average $2.5 

million initially, followed by an ongoing cost of 

$1.5 million per year. 

972We lack the information to provide a precise 

quantitative estimate of transfer agent costs for Tier 

2 issuers. However, we have some sources of 

information about transfer agent costs in analogous 

contexts. 

According to the Securities Transfer Association 

(STA), the registered transfer agent industry is 

highly competitive and many of its members can 

develop business models that will suit the needs of 

small issuers and at the same time provide adequate 

protection to investors. The STA further noted that 

it did not anticipate most small issuers to require 

some of the services, such as the processing of 

dividends, that raise the cost of recordkeeping 

services. See STA letter on JOBS Act regulatory 

initiatives, available at: http://www.sec.gov/

comments/jobs-title-i/general/general-207.pdf. STA 

estimated that monthly transfer agent fees would be 

$75-$300 for security-based crowdfunding issuers, 

which translates into annual fees of $900-$3600. 

See STA letter on proposed crowdfunding rules, 

available at: http://www.sec.gov/comments/s7-09- 

13/s70913-96.pdf. In 2014, average transfer agent 

and registrar fees amounted to approximately 

$9,000 in registered IPOs with offering sizes below 

$50 million, based on Thomson Reuters SDC data, 

excluding offerings from non-Canadian foreign 

issuers, blank-check companies, and investment 

companies. Offerings with proceeds below $1,000 

are excluded to minimize measurement error. While 

estimates for security-based crowdfunding issuers 

are likely to underestimate the cost for a typical 

Tier 2 issuer, estimates for IPOs are likely to 

overestimate the cost of transfer agent services for 

a typical Tier 2 issuer. Costs of transfer agent 

services for a typical Tier 2 issuer may be in the 

range between the two sets of estimates. 

973Based on the analysis by the staff of Division 

of Economic and Risk Analysis of 2013 data on 

registrants under Section 12(g), excluding issuers 

with a class of securities registered under Section 

12(b), approximately three-quarters of Section 12(g) 

registrants would have been below the issuer size 

limit (defined similarly to smaller reporting 

company (SRC) criteria). These figures may not be 

representative of the proportion of issuers that 

would be below the issuer size limit among future 

Regulation A issuers that would potentially exceed 

Section 12(g) thresholds for the number of 

shareholders of record. 

974For example, issuers may be more willing to 

raise capital publicly and become subject to some 

ongoing reporting requirements if such 

requirements are less costly to the issuer than the 

costs generally associated with the ongoing 

reporting requirements of the Exchange Act. 

its most recently completed fiscal 

year.969

The final rules are intended to 

provide sufficient disclosure to help 

investors make informed decisions 

while limiting the costs imposed on 

issuers. We believe that the initial and 

ongoing disclosures required for Tier 2 

offerings in the final rules accomplish 

this objective and that the final rules 

also provide an appropriate balance 

between providing investor protection 

and promoting capital formation. The 

size of Tier 2 offerings, combined with 

the investment limitation and the ability 

to offer Tier 2 securities to the general 

public, may result in the number of an 

issuer’s shareholders of record 

exceeding Section 12(g) thresholds. A 

conditional Section 12(g) exemption for 

small issuers of Tier 2 securities in such 

instances is expected to reduce the 

compliance cost for small issuers and 

facilitate capital formation and the 

creation of a broad investor base in 

offerings made pursuant to Regulation A 

by small Tier 2 issuers. This will benefit 

those small Regulation A issuers that are 

not seeking to list on a national 

securities exchange 970 and that may 

find the costs of Exchange Act reporting 

to be too high given their size. 

Regulation A offerings may be 

particularly attractive to small private 

companies whose shareholder bases are 

approaching the Section 12(g) 

registration threshold. The conditional 

Section 12(g) exemption may enable 

small private issuers of Tier 2 securities 

under amended Regulation A to expand 

their shareholder base over time, as a 

result of secondary market trading, to 

the extent that such a market develops, 

or through subsequent security 

issuances, without incurring the costs 

associated with reporting company 

status.971

While the additional requirement to 

use a registered transfer agent will 

impose costs on issuers,972 it should 

provide investor protection benefits by 

helping to ensure that securityholder 

records and secondary trades will be 

handled accurately. As it is a 

conditional exemption from Section 

12(g), however, issuers that are not 

concerned with registration under the 

Exchange Act, perhaps because they do 

not believe that Exchange Act 

registration will be required as a result 

of a Regulation A offering, would not be 

required to retain the services of a 

registered transfer agent in order to 

conduct a Tier 2 offering. 

The final rules also include an issuer 

size limit in the eligibility requirements 

for the Section 12(g) exemption for Tier 

2 offerings, consistent with providing a 

conditional exemption tailored to 

facilitate small company capital 

formation. The issuer size limit may 

make Regulation A less attractive for 

larger issuers and issuers anticipating 

growth or capital appreciation that 

expect to reach Section 12(g) thresholds 

after conducting a Tier 2 offering or 

subsequent secondary market trading. 

The two-year transition period before 

reporting must begin may partly 

mitigate some of these costs to issuers. 

Due to the uncertainty about the future 

composition of the issuer and investor 

base in Tier 2 offerings, we cannot 

determine the proportion of Tier 2 

issuers whose number of shareholders 

of record will exceed Section 12(g) 

thresholds or the proportion of those 

issuers that will not qualify for an 

exemption due to their size.973

Some issuers may be able to limit the 

number of shareholders of record by 

adopting a minimum investment size 

requirement. This may potentially limit 

the breadth of investor base and the 

availability of investment opportunities 

to some investors. We are not able to 

determine the extent to which the issuer 

size limit may affect overall capital 

formation and whether large or growth 

issuers will proceed with a Tier 2 

offering or pursue a registered offering, 

a Regulation D offering or another 

method of financing. In addition, the 

issuer size limit may place at a 

competitive disadvantage those 

potential issuers that exceed the size 

limit but for which the costs of 

registration remain high, relative to 

potential issuers that are close to the 

size limit but that qualify for the Section 

12(g) conditional exemption. 

We recognize that there are costs 

associated with the conditional 

exemption adopted today. Under this 

exemption, some issuers in Tier 2 

offerings with a large number of 

shareholders could avoid—potentially 

indefinitely—the comprehensive 

disclosure requirements of the Exchange 

Act, which may decrease the 

informational efficiency of prices and 

potentially result in less informed 

investment decisions by a larger number 

of investors than in the absence of a 

conditional Section 12(g) exemption. 

The issuer size limit partly mitigates 

this concern. For the same reasons, 

however, the inclusion of a conditional 

exemption from Section 12(g) may 

entice small issuers that would have 

otherwise generally preferred to raise 

capital in private offerings to enter the 

public markets through a Tier 2 offering 

pursuant to Regulation A.974 In this 

regard, the conditional exemption could 

increase the availability of information 

about companies that would otherwise 

remain relatively obscure in the private 

markets. On balance, we believe that 

provisions such as the initial and 

periodic disclosure requirements and 

the investment limit in Tier 2 offerings 

appropriately balance investor 

protections and issuer compliance costs 

while facilitating the creation of a broad 

investor base in Tier 2 offerings for 

small issuers. 

We have considered the alternative of 

providing a conditional exemption from 

Section 12(g) registration that does not 

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21880 Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Rules and Regulations 

975For the purposes of the Paperwork Reduction 

Act (‘‘PRA’’), we estimate that compliance with the 

requirements of amended Form 1–A will result in 

a burden of approximately 750 hours per response 

(compared to the current burden associated with 

Form 1–A of 608 hours per response). We estimate 

that compliance with the requirements of amended 

Form 1–A will result in an aggregate annual burden 

of 140,625 hours of in-house personnel time and an 

aggregate annual cost of $18,750,000 for the services 

of outside professionals. See Section IV below. 

976 In the case of reporting companies, one study 

found that EDGAR e-filing was associated with an 

increase in the speed with which information was 

incorporated into share prices (thus, increased 

informational efficiency of prices) and presented 

evidence of a larger market reaction to 10–K and 

10–Q filings in the EDGAR period relative to the 

pre-EDGAR period. See Griffin, P., 2003, Got 

information? Investor response to Form 10–K and 

Form 10–Q EDGAR filings, Review of Accounting 

Studies 8(4), pp. 433–460. 

977One study has examined the effect of the 

switch to EDGAR filing for annual reports on Form 

10–K on small versus large investors. See Asthana, 

S., S. Balsam, and S. Sankaraguruswam, 2004, 

Differential response of small versus large investors 

to 10–K filings on EDGAR, Accounting Review 

79(3), pp. 571–589. 

978See Part I (Notification) of Form 1–A. As 

discussed more fully in Section II.C.3.a., the cover 

page and Part I of current Form 1–A would be 

converted into, and form the basis of, the XMLbased fillable form. 

979For purposes of the PRA, Form ID is estimated 

to result in 0.15 burden hours per form, for an 

additional aggregate annual burden due to the rule 

amendments of 28.20 hours of in-house personnel 

time. See Section IV. 

980See Massachusetts Letter 2; NASAA Letter 2; 

WDFI Letter. 

981See Securities Offering Reform, Rel. No. 33– 

8591. 982See Section II.C.3.b for a more detailed 

description. 983See BIO Letter; Karr Tuttle Letter; NASAA 

Letter 2; Verrill Dana Letter 1; WDFI Letter. 

incorporate an issuer size limitation. 

Such an alternative would enable a 

broader class of potential Tier 2 issuers 

to remain exempt from Exchange Act 

registration. Larger Regulation A issuers 

could generate a more vibrant OTC 

trading market, providing enhanced 

liquidity to those issuers that may not 

otherwise be of sufficient size to make 

listing on a national market exchange 

cost-effective. Providing an exemption 

from Section 12(g) could provide 

incentive for these larger issuers to 

broaden their investor base while still 

providing the ongoing disclosure of the 

Tier 2 reporting regime. This could 

result in potentially beneficial effects on 

capital formation, competition, and 

informational efficiency of prices. 

However, such an alternative would 

potentially create a class of securities 

permanently exempt from Exchange Act 

registration regardless of issuer size and 

thus subject to less extensive disclosure 

requirements than public reporting 

companies, which may affect investor 

protection. 

D. Offering Statement 

1. Electronic Filing and Delivery 

The final rules preserve the current 

three-part structure of Form 1–A but 

make various revisions and updates to 

the form to streamline the information 

included in the form. Since most of this 

information is already contained in 

other offering materials, the additional 

reporting burden in Part I of the Form 

1–A should not entail significantly 

higher costs in terms of time or out-ofpocket expenses.975

Under existing Regulation A, offering 

materials are submitted to the 

Commission in paper form. The final 

rules require electronic submission of 

offering materials. Electronic 

submission is expected to offer benefits 

to issuers and investors. Paper 

documents are difficult to process both 

for the Commission and for investors. 

Electronic filing is therefore expected to 

reduce processing delays and costs 

associated with the current paper filing 

system, improve the overall efficiency of 

the filing process for issuers, benefit 

investors by providing them with faster 

access to the offering statement, and 

allow offering materials to be more 

easily accessed and analyzed by 

regulators and analysts. 

We anticipate that electronic access to 

offering materials may promote the 

informational efficiency of prices of 

Regulation A securities.976 Evidence, 

obtained from the adoption of EDGAR 

for 10–K filings by reporting companies, 

suggests that the use of EDGAR has 

favorably affected small investors.977

Moreover, the adoption of XML format 

for Part I of Form 1–A, which captures 

key information about the issuer and the 

offering, should allow more efficient 

access to information and more 

systematic tracking of offering details by 

investors, analysts, other market 

participants and regulators. The XML 

format for Part I will provide a 

convenient and efficient means of 

gathering information from issuers and 

transmitting it to EDGAR.978

At the same time, we recognize that 

an electronic filing requirement may 

impose compliance costs on issuers, 

particularly, issuers that have not 

previously used the EDGAR system, 

which include filing Form ID (the 

application form for access codes to 

permit EDGAR filing) 979 and converting 

filings into EDGAR format. Some of 

these compliance burdens will be 

mitigated by the savings of printing and 

mailing costs. 

Some commenters have expressed 

investor protection concerns in relation 

to the access equals delivery model 

(discussed in Section II.C.1) arising from 

the perceived challenge of finding these 

materials on EDGAR and not requiring 

delivery 48 hours in advance of sale in 

all circumstances.980 As discussed 

above, we do not believe that access to 

EDGAR generally has proven to be a 

challenge for investors in registered 

offerings since the adoption of 

Securities Offering Reform in 2005, nor 

do we believe that it will be a challenge 

for investors under Regulation A or raise 

investor protection concerns, 

particularly in light of our final delivery 

requirements (including, where 

applicable, the inclusion of hyperlinks 

to offering materials on EDGAR that 

must be provided to investors by issuers 

and intermediaries). Additionally, given 

that the final offering circular delivery 

obligations generally affect investors 

only after they have made their 

investment decisions and that, taking 

into account advancements in 

technology and expanded use of the 

Internet, investors will have access to 

the final offering circular upon its filing, 

we believe that using a means other 

than physical delivery to satisfy the 

final offering circular delivery 

obligation will not have an adverse 

effect on investor protection. Overall, 

we believe that there will be benefits to 

issuers of streamlining delivery 

requirements for the final offering 

circular, consistent with similar updates 

to delivery requirements for registered 

offerings.981

2. Disclosure Format and Content 

Under the existing Regulation A, 

issuers can choose among three models 

for providing narrative disclosure in 

Part II of the offering statement: Model 

A, Model B, and Part I of Form S–1. 

Similar to the proposal, the final rules 

eliminate Model A but preserve Model 

B, with certain changes to the contents, 

and Part I of Form S–1.982

We believe that eliminating Model A, 

which uses a question-and-answer 

format, may benefit investors by 

avoiding possible confusion that could 

result from the lack of uniformity of 

information presented in the questionand-answer format. Several commenters 

disagreed with the elimination of the 

Model A format, recommending that an 

updated version of the Model A 

disclosure format be retained.983 The 

Model A format may be easier to 

understand for non-accredited investors, 

who may lack the sophistication to 

analyze information presented in 

alternative disclosure formats. 

Compared to other formats, the Model A 

format might also result in lower costs 

of initial preparation of the offering 

statement, including, in some instances, 

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984See Karr Tuttle Letter and WDFI Letter. The 

Karr Tuttle Letter also refers to the experience of 

issuers in Rule 504 offerings, indicating that 

NASAA’s Form U–7, upon which Model A is based, 

has proved convenient for issuers in Rule 504 

offerings qualified by states without the use of 

securities counsel. 

985See Canaccord Letter; CFIRA Letter 1; E&Y 

Letter; Ladd Letter 2; McCarter & English Letter; WR 

Hambrecht + Co Letter. 

986See Campbell Letter. 

987See SVB Letter. 

988This estimate is based on Thomson Reuters 

SDC data on IPOs with issue dates in 2014, 

excluding offerings from non-Canadian foreign 

issuers, blank check companies, and investment 

companies. Offerings with proceeds below $1,000 

are excluded to minimize measurement error. 

Issuers of interests in claims on natural resources, 

which also would not be eligible for amended 

Regulation A, were not separately eliminated due 

to data constraints. Accounting fees include the cost 

of preparing accounting statements, in addition to 

the cost of an audit. We also note that costs 

incurred by issuers in registered IPOs may not be 

representative of costs incurred by issuers in Tier 

2 offerings. We lack the information to provide a 

quantitative estimate of audit costs that would be 

incurred by Regulation A issuers in Tier 2 offerings. 

989See ABA BLS Letter; BDO Letter; Canaccord 

Letter; Deloitte Letter; E&Y Letter; KPMG Letter; 

McGladrey Letter; MoFo Letter; WR Hambrecht + 

Co Letter. 

990See Section II.C.3. 

991See Public Startup Co. Letter 3 (also suggesting 

three tiers, where at least the first two would not 

require this) and Public Startup Co. Letter 11. 

992See Guzik Letter 1 and Milken Institute Letter. 

lessen the need to retain outside 

securities counsel.984 While a questionand-answer format may lower the cost 

of initial preparation, it often requires 

more substantive revisions after filing 

and before qualification, in order for the 

disclosure to sufficiently address the 

form requirements. We believe that most 

of the benefits associated with the lower 

cost of initial preparation are negated 

subsequently during the qualification 

process. Consequently, we are not 

persuaded that there are sufficient 

benefits to retaining the Model A 

format. 

The changes to Model B include 

updated disclosure requirements, 

including a new section containing 

management discussion and analysis of 

the issuer’s liquidity, capital resources 

and business operations. While these 

updates may impose costs on the issuer, 

they are expected to increase investor 

protection and informational efficiency 

of prices by providing important 

information to investors. The updated 

disclosure requirements are, however, 

generally designed to assist issuers with 

more guidance as to the required 

disclosures that, while they may 

increase the cost to issuers associated 

with the initial preparation of the 

offering circular, should lower the 

overall cost of, and time to, 

qualification, when the process is 

considered in its entirety. Overall, we 

believe that the availability of two 

alternative disclosure formats—a 

revised Model B format and Part I of 

Form S–1—provides sufficient 

flexibility to issuers in choosing their 

disclosure format while preserving the 

benefits of disclosure of relevant 

information to prospective investors. 

Some commenters suggested 

eliminating all three disclosure formats 

and instead creating a new disclosure 

format similar to Part I of Form S–1 that 

would reference Regulation S–K 

requirements (with reduced disclosure 

requirements in some instances).985

Another commenter recommended 

reducing the disclosure requirements for 

offerings of $2 million or less,986 while 

another suggested increasing disclosure 

requirements as an issuer grows in size 

and complexity.987 We recognize that 

scaling the disclosure requirements for 

Form 1–A, as suggested by commenters, 

could ease compliance costs for 

Regulation A issuers. However, 

additional scaling of disclosure 

requirements within tiers may reduce 

the comparability of disclosures within 

the same tier and result in pricing 

inefficiencies. 

3. Audited Financial Statements 

The final rules require issuers 

conducting Tier 2 offerings to include 

audited financial statements in their 

offering materials. Audited financial 

statements should provide investors in 

Tier 2 offerings with greater confidence 

in the accuracy and quality of the 

financial statements of issuers seeking 

to raise larger amounts of capital. This, 

in turn, could benefit issuers by 

lowering the cost of capital or increasing 

the amount of capital supplied by 

investors. 

We recognize that audited financial 

statements could also entail significant 

costs to issuers, and that the costs of an 

audit could discourage the use of Tier 

2 offerings. Based on data from 

registered IPOs below $50 million in 

2014 by issuers that would have been 

potentially eligible for amended 

Regulation A, average total accounting 

fees amounted to 1.65% of gross offering 

proceeds, where reported separately.988

The final rules require issuers in Tier 

2 offerings to include audited financial 

statements in their offering circulars 

that are audited in accordance with 

either the auditing standards of the 

American Institute of Certified Public 

Accountants (AICPA) (referred to as 

U.S. Generally Accepted Auditing 

Standards or GAAS) or the standards of 

the Public Company Accounting 

Oversight Board (PCAOB), as suggested 

by some commenters.989 We expect this 

provision in the final rules to provide 

issuers with flexibility that may help 

contain issuer compliance costs, 

compared to requiring financial 

statements that are audited in 

accordance with the standards of the 

PCAOB. As noted above,990 because 

AICPA rules would require an audit of 

a Regulation A issuer conducted in 

accordance with PCAOB standards to 

also comply with U.S. GAAS, an issuer 

who includes financial statements 

audited in accordance with PCAOB 

standards will likely incur additional 

incremental costs compared with an 

issuer who includes financial 

statements audited only in accordance 

with U.S. GAAS. However, we assume 

that an issuer would only elect to 

comply with both sets of auditing 

standards because it has concluded that 

the benefits of doing so (for example, to 

facilitate Exchange Act registration) 

justify these additional incremental 

costs. 

As an alternative, we could have not 

required the audited financial 

statements until after the first year of 

operation as a ‘‘public startup 

company’’ or indefinitely for issuers 

that are pre-revenue or that have paidin capital, assets and revenues below a 

modest threshold, as suggested by 

commenters.991 While this alternative 

may decrease issuer compliance costs, it 

may also lower the accuracy of 

information provided to investors in 

Tier 2 offerings, resulting in reduced 

investor protection. The large offering 

limit in Tier 2 offerings may make some 

of the fixed costs of an audit relatively 

less burdensome. In addition, we note 

that smaller issuers may opt to forgo the 

cost of an audit and elect a Tier 1 

offering or a Regulation D offering, 

which does not require audited 

financial statements. 

On the other hand, other commenters 

advised the Commission to require 

audited financial statements for Tier 1 

offerings.992 While we acknowledge that 

requiring audited statements is likely to 

result in stronger investor protections 

due to reduced likelihood of fraudulent 

financial statements being presented, 

this alternative would likely place a 

relatively greater burden on smaller 

issuers due to the fixed-cost nature of 

some of the audit costs. Also, given the 

relatively low maximum offering size 

for Tier 1, this could result in Tier 1 

offerings becoming not cost-effective. 

4. Other Accounting Requirements 

The final rules permit Canadian 

issuers to prepare financial statements 

in accordance with either U.S. GAAP or 

International Financial Reporting 

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21882 Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Rules and Regulations 

993See ABA BLS Letter; Canaccord Letter; 

NASAA Letter 2; MoFo Letter; PwC Letter. 

994Existing Regulation A allows for continuous or 

delayed offerings to the extent permitted by Rule 

415. Since Rule 415 only discusses ‘‘registered 

offerings,’’ the reference to it may have caused 

confusion as to the scope of its application in 

Regulation A offerings. 

995See Bayless, M., and S. Chaplinsky, 1996, Is 

there a window of opportunity for seasoned equity 

issuance? Journal of Finance 51(1), pp. 253–278. 

996See Bethel, J., and L. Krigman, 2008, Managing 

the cost of issuing common equity: The role of 

registration choice, Quarterly Journal of Finance 

and Accounting 47(4), pp. 57–85. We recognize that 

the evidence based on registered offerings may not 

be indicative of the effects on Regulation A 

offerings. 

997See OTC Markets Letter and Paul Hastings 

Letter. 

998As noted in Section II.H.3. above, some state 

securities laws may impose limitations on the use 

of testing the waters by Tier 1 issuers. 

Standards (IFRS) as issued by the 

International Accounting Standards 

Board (IASB). This is expected to 

benefit Canadian issuers that currently 

use IFRS as issued by the IASB by 

helping such issuers contain 

compliance costs associated with 

Regulation A offerings, compared to 

requiring Canadian issuers to prepare 

financial statements in accordance with 

U.S. GAAP. Several commenters 

specifically supported allowing 

Canadian issuers to prepare their 

financial statements in accordance with 

IFRS as issued by the IASB.993

5. Continuous and Delayed Offerings 

The final rules explicitly allow for 

continuous or delayed offerings.994 As a 

result, it is now clear that eligible 

issuers have greater flexibility to select 

the timing of their offerings. Such 

flexibility is expected to benefit issuers 

by allowing them to adjust their capital 

raising based on macro-economic factors 

or company conditions.995 These factors 

should facilitate financing decisions and 

capital market efficiency. For example, 

existing research on Rule 415 offerings 

in the registered offering market shows 

that costs of intermediation in shelf 

offerings, and consequently the cost of 

raising equity through shelf registration, 

are lower than through traditional 

registration.996 The final rules condition 

the ability to sell securities in a 

continuous or delayed Tier 2 offering on 

being current with ongoing reporting 

requirements at the time of sale. This 

should not impose incremental costs on 

eligible issuers as they already file 

periodic updates and amendments. 

The final rules restrict all ‘‘at the 

market’’ secondary offerings. Existing 

Regulation A prohibited primary ‘‘at the 

market’’ offerings, but did not 

necessarily restrict such offerings by 

selling securityholders. Some 

commenters suggested allowing such 

offerings, including primary offerings by 

the issuer.997 We recognize that not 

allowing secondary ‘‘at the market’’ 

offerings may limit flexibility for those 

issuers that are uncertain about the 

offering price that will attract sufficient 

investor demand. However, the benefit 

of the new restriction as it applies to 

secondary sales is that it helps ensure 

that issuers do not lose their Regulation 

A exemption due to unanticipated 

market factors by inadvertently offering 

securities in an amount that exceeds the 

offering limitation. Future offerings 

made in reliance on the final rules may 

provide more information to determine 

whether a robust market capable of 

supporting ‘‘at the market’’ offerings 

develops and whether the Regulation A 

exemption could be an appropriate 

method for such offerings in the future. 

6. Nonpublic Review of Draft Offering 

Statements 

Under the final rules, issuers whose 

securities have not been previously sold 

pursuant to a qualified offering 

statement under Regulation A or an 

effective registration statement under 

the Securities Act will be permitted to 

submit to the Commission a draft 

offering statement for non-public 

review, so long as all such documents 

are publicly filed not later than 21 

calendar days before qualification. The 

option of non-public submission of a 

draft offering statement is expected to 

reduce the barriers to entry for issuers 

using Regulation A. In this regard, a 

potential issuer could reduce the 

amount of time between disclosing 

possibly sensitive information to its 

competitors in its offering statement and 

the related sale of its securities. 

Furthermore, companies that are 

tentative about conducting an offering 

could start the qualification process and 

then abandon the offering any time 

before the initial public filing without 

receiving the related stigma in the 

market. To the extent that this 

accommodation lowers the barriers to 

entry, it may encourage capital 

formation and competition. Moreover, 

we do not believe that the option of 

draft offering statement submission will 

significantly affect investor protection. 

Disclosure requirements are unchanged 

for issuers that elect the option of nonpublic submission of draft offering 

statement. The initial non-public 

statement, all non-public statement 

amendments, and all correspondence 

with Commission staff regarding such 

submissions must be publicly filed and 

available on EDGAR as exhibits to the 

offering statement not less than 21 

calendar days before qualification of the 

offering statement. 

E. Solicitation of Interest (‘‘Testing the 

Waters’’) 

Under existing Regulation A, testing 

the waters is permitted only until the 

offering statement is filed with the 

Commission, and solicitation material is 

required to be filed prior to or 

concurrent with first use. The final rules 

permit issuers to test the waters and use 

solicitation materials both before and 

after the offering statement is filed, 

subject to issuer compliance with the 

rules on filing information and 

disclaimers.998 Under the final rules, 

testing the waters materials will be 

required to be included as an exhibit to 

the offering statement at the time of 

initial submission or filing with the 

Commission, and updated thereafter. 

In general, allowing issuers to gauge 

interest through expanded testing the 

waters will reduce uncertainty about 

whether an offering could be completed 

successfully. Allowing solicitation prior 

to filing enables issuers to determine 

market interest in their securities before 

incurring the costs of preparing and 

filing an offering statement. If after 

testing the waters, the issuer is not 

confident that it will attract sufficient 

investor interest, the issuer can consider 

alternate methods of raising capital and 

thereby avoid the costs of an 

unsubscribed or under-subscribed 

offering. Allowing testing the waters at 

any time prior to qualification of the 

offering statement, rather than only 

prior to filing of the offering statement 

with the Commission, may increase the 

likelihood that the issuer will raise the 

desired amount of capital. This option 

may be useful for smaller issuers, 

especially early-stage issuers, first-time 

issuers, issuers in lines of business 

characterized by a considerable degree 

of uncertainty, and other issuers with a 

high degree of information asymmetry. 

This provision may attract certain 

issuers—those that may be uncertain 

about the prospects of raising investor 

capital—to consider using amended 

Regulation A when they might not 

otherwise, thus potentially promoting 

competition for investor capital as well 

as capital formation in the Regulation A 

market. 

Expanding the permissible use of 

testing the waters communications 

could also increase the type and extent 

of information available to investors, 

which could lead to more efficient 

prices for the offered securities. The 

final rules permit testing the waters for 

an expanded period of time compared to 

the baseline. As a result, it may be easier 

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Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Rules and Regulations 21883 

999See Massachusetts Letter 2; NASAA Letter 2; 

WDFI Letter. 

1000See Massachusetts Letter 2; NASAA Letter 2; 

WDFI Letter. 

1001See Heritage Letter and Ladd Letter 2. 

1002See BIO Letter and MoFo Letter. 

1003See Diamond, D., and R. Verrecchia, 1991, 

Disclosure, liquidity, and the cost of capital, Journal 

of Finance 46(4), pp. 1325–1359; Easley, D., and M. 

O’Hara, 2004, Information and the cost of capital, 

Journal of Finance 59(4), 1553–1583; Easley, D., S. 

Hvidkjaer, and M. O’Hara, 2002, Is information risk 

a determinant of asset returns? Journal of Finance 

57(5), pp. 2185–2221. 

1004See Ang, A., A. Shtauber, and P. Tetlock, 

2013, Asset pricing in the dark: The cross section 

of OTC stocks, Review of Financial Studies 26(12), 

pp. 2985–3028. 

1005See Graham, J., C. Harvey, and S. Rajgopal, 

2005, The economic implications of corporate 

financial reporting, Journal of Accounting and 

Economics 40(1–3), pp. 3–73; Durnev, A., R. Morck, 

and B. Yeung, 2003, Value enhancing capital 

budgeting and firm-specific stock return variation, 

Journal of Finance 59(1), pp. 65–106. 

1006See IPA Letter. 

for investors to become aware of a larger 

and more diverse set of investment 

opportunities in private offerings, which 

may allow these investors to more 

efficiently allocate their capital. The net 

effect could be to enhance both capital 

formation and allocative efficiency. 

Further, requiring issuers using testing 

the waters solicitations after the offering 

statement is publicly filed to provide 

the offering statement with the testing 

the waters materials (or provide 

information about where it can be 

accessed), and to update it and 

redistribute updates in the event of 

material changes, will allow investors to 

make informed investment decisions. 

We recognize that there may also be 

potential costs associated with 

expanding the use of testing the waters 

communications. If the contents of the 

offering circular differ substantively 

from the material distributed through 

testing the waters communications, and 

if investors rely on testing the waters 

materials, this may lead investors to 

make less informed investment 

decisions. Some commenters were 

concerned that the expanded use of 

permissible testing the waters may 

facilitate misleading statements to 

investors and may lead to a heightened 

risk of fraud.999 We believe, however, 

that this potential investor protection 

concern is mitigated by the application 

of Section 12(a)(2) liability to Regulation 

A offerings and the general anti-fraud 

provisions of the federal securities laws. 

We considered the alternative, 

suggested by some commenters,1000 of 

requiring submission and review of 

testing the waters materials before or 

concurrent with first use, rather than at 

the time the offering statement is 

submitted for non-public review or 

filed, which could aid regulators in 

detecting fraudulent solicitation of 

interest communications, potentially 

resulting in investor protection benefits. 

However, requiring initial submission 

and review of testing the waters 

materials prior to their use could 

dissuade issuers, particularly smaller or 

less experienced issuers, from engaging 

in testing the waters communications, 

thereby undermining many of the 

benefits of permitting such 

communications discussed above. 

We also considered the views of other 

commenters who suggested we relax 

some of the proposed requirements for 

the use of testing the waters. For 

example, we could have treated the 

solicitation materials as non-public 

when filed with the Commission, at 

least until the offering statement is 

qualified,1001 or removed the 

requirement for public filing of 

solicitation materials for all Regulation 

A offerings or for Tier 2 offerings.1002

Issuers that have elected to use testing 

the waters communications have 

already incurred the cost of preparing 

the materials, so the incremental direct 

cost of the requirement to file the 

materials with the Commission will be 

low. We recognize that permitting 

issuers to file the solicitation materials 

non-publicly with the Commission 

could reduce the indirect costs of some 

issuers by limiting the ability of the 

issuer’s competitors to discover 

information about the issuer. 

However, we note that this 

information may become available to 

competitors in any event through the 

solicitation process and removing the 

requirement to publicly file the 

materials may result in adverse effects 

on the protection of investors to the 

extent that it may facilitate fraudulent 

statements by issuers to all or a selected 

group of investors that may fail to 

compare the statements in the 

solicitation materials against the 

offering circular. On balance, we believe 

that the final rule’s requirements 

governing the use of testing the waters 

communications appropriately balance 

the goals of providing flexibility to 

issuers and protection to investors. 

F. Ongoing Reporting 

Currently, Regulation A issuers do not 

have ongoing reporting obligations. The 

final rules prescribe an ongoing 

reporting regime for issuers that conduct 

Tier 2 offerings that requires, in 

addition to annual reports on Form 1– 

K, semiannual reports on Form 1–SA, 

current event reporting on Form 1–U, 

and notice to the Commission of the 

suspension of ongoing reporting 

obligations on Form 1–Z. 

These reporting requirements will 

have benefits and costs. These reporting 

requirements should strengthen investor 

protection and decrease the extent of 

information asymmetries between 

issuers and investors in the Regulation 

A market, relative to existing Regulation 

A. Requiring ongoing disclosures for 

Tier 2 offerings will provide investors 

with periodically updated information, 

allowing them to identify investment 

opportunities best suited for their level 

of risk tolerance and re-evaluate the 

issuer’s prospects through time, 

resulting in better informed investment 

decisions and improved allocative 

efficiency of capital. By standardizing 

the content, timing, and format of these 

disclosures, the amendments to 

Regulation A will make it easier for 

investors to compare information across 

issuers, both within and outside of the 

new Regulation A market. 

The additional reporting requirements 

for Tier 2 offerings increase the 

availability of public information that 

can be used for valuing securities. A 

reduction in information risk due to 

improvements in disclosure can lower 

the issuer’s cost of capital.1003 Because 

there are no resale restrictions, some 

securities issued in amended Regulation 

A offerings are likely to be quoted on 

the OTC market, and required ongoing 

disclosure requirements will provide 

investors with updated information 

about their underlying value, and as a 

result, lower the inherent asymmetric 

information risks associated with 

trading in this market.1004 The 

enhanced information environment 

should facilitate more informationally 

efficient pricing and better liquidity for 

amended Regulation A securities.1005

Tier 2 ongoing disclosure requirements 

should also provide timely and relevant 

issuer information at a lower cost to 

broker-dealers that initiate quotations 

and make markets in these securities. 

Increased secondary market liquidity 

can make securities more attractive to 

prospective investors, which can 

promote capital formation. Hence, there 

may be significant benefits for capital 

formation from the ongoing reporting 

requirements in the final rules. 

Although reporting obligations for 

Tier 2 issuers are less extensive than for 

reporting companies, we recognize that 

they will still result in a significant 

direct cost of compliance. One 

commenter estimated the qualification 

and reporting costs of a Tier 2 issuer to 

be approximately $400,000 in the first 

year and $200,000 annually thereafter 

(per issuer).1006 For the purposes of the 

PRA, we estimate that compliance with 

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1007See Section IV below. 

1008See Verrecchia, R., 2001, Essays on 

disclosure, Journal of Accounting and Economics 

32, pp. 97–180. 

1009See Massachusetts Letter 2; NASAA Letter 2; 

OTC Markets Letter; WDFI Letter. 

1010See OTC Markets Letter. 

1011See Heritage Letter and IPA Letter. 

1012See Heritage Letter. 

1013See Guzik Letter 1 (suggesting that Tier 1 

ongoing disclosure requirements could parallel Tier 

2’s requirements, but without the requirement for 

semiannual reports). 

1014See Ladd Letter 2. 

1015See SVB Letter. 

1016For the purposes of the PRA, we estimate that 

filing the Form 1–Z exit report will result in an 

aggregate annual burden of 235.5 hours of in-house 

personnel time. See Section IV below. 

the requirements of Forms 1–K, 1–SA, 

and 1–U for issuers with an ongoing 

reporting obligation under Regulation A 

will result in an aggregate annual 

burden of 115,351 hours of in-house 

personnel time and an aggregate annual 

cost of $13,450,272 for the services of 

outside professionals.1007

In addition to the direct costs of 

preparing the mandatory disclosures, 

issuers of securities in Tier 2 offerings 

will be subject to indirect disclosure 

costs of revealing to their competitors 

and other market participants 

information about their business not 

previously required to be disclosed.1008

These disclosures can inform the 

issuer’s competitors about the issuer’s 

strategic decisions regarding 

investment, financing, management and 

other aspects of business. For issuers 

seeking to reduce such costs of 

disclosure, Rule 506(c) of Regulation D 

could be more appealing. Based on the 

scope of disclosures required, an 

issuer’s combination of direct and 

indirect costs of disclosure is likely to 

be lowest for a Regulation D Rule 506 

offering, followed by a Tier 1 offering, 

a Tier 2 offering and, finally, a 

registered public offering. 

We evaluate below the different 

provisions of the ongoing reporting 

requirements and the alternatives we 

have considered. 

1. Periodic and Current Event Reporting 

Requirements 

Currently, Regulation A issuers do not 

have ongoing reporting obligations. Tier 

2 issuers in a Regulation A offering will 

have periodic and current event 

reporting obligations under the final 

rules. As noted above, these ongoing 

reporting requirements will result in 

both direct and indirect costs to Tier 2 

issuers. 

Commenters made various 

suggestions for expanding the ongoing 

disclosure requirements for Tier 2 

issuers. For example, several 

commenters suggested we require 

quarterly reporting instead of semiannual reporting.1009 Another 

commenter suggested we require 

officers, directors and controlling 

shareholders of issuers that offer 

securities under Regulation A to make 

ongoing disclosure of transactions in 

company securities, similar to reporting 

on Forms 3, 4 and 5 and Schedules 13D, 

13G and 13F in the registered securities 

context.1010 While additional 

requirements that would bring the Tier 

2 disclosure obligations closer to the 

reporting company disclosure 

obligations are likely to have 

informational efficiency and investor 

protection benefits, they are also likely 

to make Regulation A more costly and 

less attractive to prospective issuers and 

may not promote capital formation as 

much as the final rules. 

Other commenters recommended 

reducing the continuing disclosure 

burden on Tier 2 issuers 1011 or making 

continuing disclosure requirements 

contingent upon factors other than 

offering tier, such as whether the issuer 

has taken steps to foster a market in its 

securities.1012 These alternatives would 

likely reduce compliance costs for Tier 

2 issuers; however, they also may cause 

investors to have less information upon 

which to make investment decisions, 

resulting in weaker investor protections 

and less informationally efficient prices. 

Other commenters recommended 

requiring ongoing disclosures for issuers 

in Tier 1 offerings, including disclosures 

at a level lower than is required for Tier 

2,1013 ongoing disclosure with yearly 

audited financials,1014 or some 

unspecified continuous disclosure 

obligation.1015 Such alternatives, 

particularly if accompanied by the 

requirement of audited financial 

statements, would increase the 

availability and quality of financial 

information provided to investors in 

Tier 1 offerings and strengthen investor 

protection by enabling investors to make 

better informed decisions. However, due 

to the fixed component of disclosure 

costs, and the likely smaller size of Tier 

1 offerings relative to Tier 2 offerings, 

such requirements may limit capital 

formation and place Tier 1 issuers at a 

competitive disadvantage relative to 

Tier 2 issuers. We note that small 

issuers that value informational 

efficiency gains from ongoing 

disclosures above the cost of such 

disclosures have the option of 

conducting a Tier 2 offering. 

2. Termination and Suspension of 

Reporting and Exit Reports 

The final rules permit issuers in Tier 

2 offerings that have filed all periodic 

and current reports required by 

Regulation A for a specified period to 

suspend their ongoing reporting 

obligation under Regulation A at any 

time after completing reporting for the 

fiscal year in which the offering 

statement was qualified, if the securities 

of each class to which the offering 

statement relates are held of record by 

fewer than 300 persons and offers or 

sales made in reliance on a qualified 

Tier 2 offering statement are not 

ongoing. For banks or bank holding 

companies, the termination threshold is 

fewer than 1,200 persons, consistent 

with Title VI of the JOBS Act. The 

option to cease reporting could be 

beneficial, especially for issuers that do 

not seek secondary market liquidity and 

for smaller issuers that find the costs of 

compliance with the ongoing disclosure 

requirements to be a relatively greater 

burden. At the same time, the option 

might be costly for investors because it 

will decrease the amount of information 

available about the issuer, making it 

more difficult to monitor the issuer and 

accurately price its securities or to find 

a trading venue that will allow 

liquidation of the investment. The 

public availability of information in 

bank regulatory filings is expected to 

mitigate some of these effects for bank 

issuers undertaking Regulation A 

offerings. Termination of reporting also 

might make it easier for inside 

shareholders to use an informational 

advantage to the detriment of minority 

outside investors. 

The final rules require Tier 1 issuers 

to notify the Commission upon 

completion of their offerings by filing 

Form 1–Z (exit report). Issuers in Tier 2 

offerings will be required to provide this 

information on Form 1–Z at the time of 

filing the exit report, if they have not 

previously provided this information on 

Form 1–K as part of their annual report. 

Form 1–Z contains limited summary 

information about the issuer and the 

completed offering and, therefore, 

should not impose substantial 

additional compliance costs on the 

issuer.1016 The enhanced availability of 

Form 1–Z information is likely to 

benefit investors and facilitate 

evaluation of Regulation A market 

activity. For example, this information 

should allow the Commission and 

others to assess whether issuers have 

been able to raise the projected amount 

of capital in Regulation A offerings. We 

recognize, however, that, since 

information about the completed 

offering has value to an issuer’s 

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1017Ongoing compliance costs were estimated to 

be $1.5 million per year, following an IPO, 

according to two surveys cited in the IPO Task 

Force report. 1018See 17 CFR 230.506(d). 1019See Proposed Rule 262(b)(4). 

competitors, its disclosure may also 

impose an indirect cost on issuers. 

3. Exchange Act Registration 

Generally, an issuer of Regulation A 

securities would not be subject to 

Exchange Act reporting obligations 

unless it separately registers a class of 

securities under Section 12 of the 

Exchange Act or conducts a registered 

public offering. This results in 

significantly lower costs of periodic 

reporting for Regulation A issuers 

relative to reporting companies.1017

The final rules permit issuers seeking 

to register a class of Regulation A 

securities under the Exchange Act to do 

so by filing a Form 8–A in conjunction 

with the qualification of a Form 1–A 

that follows Part I of Form S–1 or the 

Form S–11 disclosure model in the 

offering circular. In some circumstances 

this option may provide more 

flexibility, for instance, with respect to 

testing the waters, to issuers seeking to 

register a class of securities. The 

obligation to file ongoing reports in a 

Tier 2 offering is automatically 

suspended upon registration of a class 

of securities under Section 12 of the 

Exchange Act or registration of an 

offering of securities under the 

Securities Act. Given that Exchange Act 

reporting obligations are more extensive 

than those of Regulation A, the entry of 

such issuers into the Exchange Act 

reporting system upon qualification of a 

Regulation A offering statement is 

expected to have a beneficial effect on 

investor protection and informational 

efficiency of prices. While registration 

pursuant to the Exchange Act is likely 

to impose additional costs on issuers, 

only issuers that opt into such 

registration are affected. As a result, we 

anticipate that only those issuers for 

whom the perceived benefits of 

registration justify the accompanying 

costs will elect to use this provision. 

G. Insignificant Deviations 

Under the final rules, offerings with 

‘‘certain insignificant deviations from a 

term, condition or requirement’’ of 

Regulation A remain exempt from 

registration. This is the same as the 

rules in existing Regulation A. As a 

result, the only change from the baseline 

is that these rules will likely apply to a 

greater number of offerings due to the 

expanded availability of amended 

Regulation A. Further, as in existing 

Regulation A, the final rules explicitly 

classify as significant those deviations 

that are related to issuer eligibility, 

aggregate offering price, offers and 

continuous or delayed offerings. This 

provision benefits investors by 

providing certainty about the provisions 

from which the issuer may not deviate 

without losing the exemption. At the 

same time, it enables issuers to continue 

to rely on the exemption and obtain its 

capital formation benefits even if they 

have an ‘‘insignificant deviation’’ from 

the final rules. This provision may be 

especially beneficial for issuers with 

limited experience with Regulation A 

offerings as their limited experience 

may make them more susceptible to an 

inadvertent error. In this way, the 

provision may encourage more issuers 

to engage in Regulation A transactions 

and thereby facilitate capital formation. 

H. Bad Actor Disqualification 

The final rules amend Rule 262 to 

include bad actor disqualification 

provisions in substantially the same 

form as adopted under Rule 506(d).1018

The final rules specify that the covered 

person’s status is tested at the time of 

filing of the offering statement. 

Consistent with the disqualification 

provisions of Rule 506(d), the final rules 

add two new disqualification triggers to 

those in existing Regulation A: 

Commission cease-and-desist orders 

relating to violations of scienter-based 

anti-fraud provisions of the federal 

securities laws or Section 5 of the 

Securities Act and the final orders and 

bars of certain state and other federal 

regulators. While these provisions may 

impose an incremental cost on issuers 

and other covered persons relative to 

the cost imposed by the disqualification 

provisions of existing Regulation A, 

they should strengthen investor 

protection from potential fraud. 

If one of these new triggering events 

occurred prior to the effective date of 

the final rules, the event will not cause 

disqualification, but instead must be 

disclosed on a basis consistent with 

Rule 506(e). This approach will not 

preclude the participation of bad actors 

whose disqualifying events occurred 

prior to the effective date of the final 

rules, which could expose investors to 

the risks that arise when bad actors are 

associated with an offering. These risks 

to investors may be partly mitigated 

since investors will have access to 

relevant information that could inform 

their investment decisions. Disclosure 

of triggering events may also make it 

more difficult for issuers to attract 

investors, and issuers may experience 

some or all of the impact of 

disqualification as a result. Some issuers 

may, accordingly, choose to exclude 

involvement by prior bad actors to avoid 

such disclosures. 

We expect that the bad actor 

disqualification provisions in the final 

rules will lead most issuers to restrict 

bad actor participation in Regulation A 

offerings, which could help reduce the 

potential for fraud in these types of 

offerings and thus strengthen investor 

protection compared with an alternative 

of not including bad actor 

disqualification provisions. If 

disqualification standards lower the risk 

premium associated with the risk of 

fraud due to the presence of bad actors 

in securities offerings, they could also 

reduce the cost of capital for issuers that 

rely on amended Regulation A. In 

addition, the requirement that issuers 

determine whether any covered persons 

are subject to disqualification might 

reduce the need for investors to do their 

own investigations and could therefore 

increase efficiency. 

The disqualification provisions also 

impose costs on issuers and covered 

persons. Issuers that are disqualified 

from using amended Regulation A may 

experience an increased cost of capital 

or a reduced availability of capital, 

which could have negative effects on 

capital formation. In addition, issuers 

may incur costs related to seeking 

disqualification waivers from the 

Commission and replacing personnel or 

avoiding the participation of covered 

persons who are subject to disqualifying 

events. Issuers also might incur costs to 

restructure their share ownership to 

avoid beneficial ownership of 20% or 

more of the issuer’s outstanding voting 

equity securities, calculated on the basis 

of voting power, by individuals subject 

to disqualifying events. 

As discussed above, the final rules 

also provide a reasonable care exception 

on a basis consistent with Rule 

506(d).1019 We anticipate that the 

reasonable care exception would result 

in benefits and costs, compared with an 

alternative of not providing a reasonable 

care exception. For example, a 

reasonable care exception could 

facilitate capital formation by 

encouraging issuers to proceed with 

Regulation A offerings in situations in 

which issuers otherwise might have 

been deterred from relying on 

Regulation A if they risked potential 

liability under Section 5 of the 

Securities Act for unknown 

disqualifying events. This exception 

also could increase the potential for 

fraud, compared with an alternative of 

not providing a reasonable care 

exception, by limiting issuers’ 

incentives to determine whether bad 

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21886 Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Rules and Regulations 

1020See KVCF Letter. 

1021See GAO Report. The GAO Report also cites 

other factors that may have discouraged issuer use 

of the Regulation A exemption, including a 

comparatively low $5 million offering limitation, a 

slow and costly filing process associated with 

Commission qualification, and the availability of 

other exemptions under the federal securities laws. 

A recent study performs a comparison of Rule 

506 offerings with Rule 505 and Rule 504 offerings 

that ‘‘suggests that the Blue Sky law preemption 

feature unique to Rule 506 offerings has greater 

value to issuers than the unique features of Rule 

504 or Rule 505 offerings.’’ See Ivanov, V., and S. 

Bauguess, 2013, Capital raising in the U.S.: An 

analysis of unregistered offerings using the 

Regulation D exemption, 2009–2012, available at: 

http://www.sec.gov/divisions/riskfin/whitepapers/

dera-unregistered-offerings-reg-d.pdf. 

See also Leading Biosciences Letter referencing 

recommendations supporting preemption from the 

SEC Government-Business Forum on Small 

Business Capital Formation in 2011 and 2012. 

Similar recommendations were made in the final 

report of the SEC Forum on Small Business Capital 

Formation in 2013, available at: http://

www.sec.gov/info/smallbus/gbfor32.pdf. 

1022See ABA BLS Letter; Andreessen/Cowen 

Letter; Almerico Letter; B. Riley Letter; BIO Letter; 

Campbell Letter; Canaccord Letter; CFIRA Letter 1; 

CFIRA Letter 2; Congressional Letter 3; DuMoulin 

Letter; Eng Letter; Fallbrook Technologies Letter; 

Gilman Law Letter; Guzik Letter 1; Hart Letter; 

Heritage Letter; Huynh Letter; IPA Letter; Edwards 

Wildman Letter; Kisel Letter; Kretz Letter; KVCF 

Letter; Ladd Letter 2; Leading Biosciences Letter; 

McCarter & English Letter; Methven Letter; Milken 

Institute Letter; MoFo Letter; Moloney Letter; New 

Food Letter; OTC Markets Letter; Paul Hastings 

Letter; Palomino Letter; Public Startup Co. (several 

letters); REISA Letter; Richardson Patel Letter; SBIA 

Letter; Staples Letter; Sugai Letter; SVB Letter; 

SVGS Letter; Unorthodocs Letter; U.S. Chamber of 

Commerce Letter; Verrill Dana Letter 2; Warren 

Letter; WR Hambrecht + Co Letter. 

1023See Groundfloor Letter. This commenter does 

not separately estimate the component of the cost 

due to state registration. 

1024See Letter from Paul Hastings, LLP, 

November 26, 2013. 

Another commenter referenced one issuer’s 

offering in the State of Washington in the amount 

of $750,000, with legal and accounting expenses 

estimated at $10,000 and the offering statement 

prepared without outside securities counsel and 

reviewed by the state within less than three months. 

See WDFI Letter. We do not believe that this cost 

estimate would be representative of costs for issuers 

registering in multiple states rather than a single 

state or for issuers involving outside securities 

counsel. 

1025See ABA BLS Letter. 

1026See ASD Letter; Cornell Clinic Letter; CFA 

Letter; CFA Institute Letter; Groundfloor Letter 

(arguing that the Commission should at least 

evaluate NASAA’s coordinated review program for 

12 months); Karr Tuttle Letter (acknowledging that 

state preemption may still be necessary for states 

not participating in NASAA’s new coordinated 

review program); MCS Letter; Congressional Letter 

2; Congressional Letter 4; NASAA Letter 1; NASAA 

Letter 2; NASAA Letter 3; NDBF Letter; NYIPB 

Letter; ODS Letter; PRCFI Letter; Scherber Letter; 

Secretaries of State Letter; Massachusetts Letter 1; 

Massachusetts Letter 2; Tavakoli Letter; TSSB 

Letter; WDFI Letter. One commenter stated its view 

that the Commission’s proposal to preempt state 

regulatory review contained little consideration of 

the adverse costs that come with preemption, 

particularly the potential harm to investors, 

including harm investors might incur in the 

absence of state review in the area of small and 

thinly traded company offerings. See NASAA Letter 

2. 

1027According to the 2014 NASAA enforcement 

report for 2013, securities violations related to 

unregistered securities sold by unlicensed 

individuals, including fraudulent offerings 

marketed through the Internet, remain an important 

enforcement concern. The report does not detail the 

number and category of violations by type of 

exemption from registration. See NASAA 

Enforcement Report, available at: http://

www.nasaa.org/wp-content/uploads/2011/08/2014- 

Enforcement-Report-on-2013-Data_110414.pdf. 

actors are involved with their offerings. 

We also recognize that some issuers 

might incur costs associated with 

conducting and documenting their 

factual inquiry into possible 

disqualifications. The rule’s flexibility 

with respect to the nature and extent of 

the factual inquiry required could allow 

an issuer to tailor its factual inquiry as 

appropriate to its particular 

circumstances, thereby potentially 

limiting costs. 

One commenter recommended 

revising the look-back periods for 

disqualifying events to run from the 

time of sale rather than the time of filing 

of the offering statement.1020 These 

changes would relax the bad actor 

disqualification standard, by allowing 

bad actors to participate in Regulation A 

offerings during the qualification 

process. We believe that timing 

application of the bad actor 

disqualification rules to the time of 

filing of the offering statement, as 

opposed to the time of qualification, is 

therefore more appropriate under the 

final rules. 

I. Relationship With State Securities 

Law 

The final rules preempt state 

registration and qualification 

requirements for Tier 2 offerings but 

preserve these requirements for Tier 1 

offerings, consistent with state 

registration of Regulation A offerings of 

up to $5 million under existing 

Regulation A. 

The GAO Report found that 

compliance with state securities review 

and qualification requirements was one 

of the factors that appeared to have 

influenced the infrequent use of 

Regulation A by small businesses.1021

Various commenters supporting 

preemption of state securities laws in 

the final rules noted that state review of 

offering statements is a significant 

impediment to the use of Regulation A 

and that the process of qualification in 

multiple states will remain inefficient 

despite NASAA’s implementation of a 

coordinated review program.1022 More 

broadly, commenters as well as the GAO 

Report indicated that the existing 

regime of federal and state qualification 

has been a significant disincentive to 

the use of Regulation A for capital 

raising. With respect to time and 

compliance costs associated with state 

qualification, we believe preemption 

will likely reduce issuers’ costs, 

although we lack comprehensive, 

independent data to estimate the precise 

amount. Only a few commenters 

provided specific monetary estimates of 

cost components. One commenter 

indicated that a revenue-generating 

business seeking to conduct a debt or 

equity offering under existing 

Regulation A can produce a conforming 

offering statement for state and federal 

review for approximately $50,000.1023

According to another commenter, an 

issuer seeking state registration in 50 

states would incur $80,000 to $100,000 

in legal fees.1024

As one commenter noted, ‘‘[t]he 

challenges posed by the necessity of 

responding to both federal and state 

reviews and coordinating overlapping 

but potentially inconsistent comments 

and approvals have helped to make the 

existing Regulation A scheme 

unworkable for most smaller 

companies.’’ 1025 Preemption of state 

securities review and qualification 

requirements for Tier 2 offerings will 

eliminate the burdens of responding to 

multiple reviews and thus provide for a 

more streamlined review process than 

exists under existing Regulation A. We 

expect that this, in turn, will make Tier 

2 a more attractive capital raising option 

for issuers than existing Regulation A. 

Accordingly, we believe that by 

eliminating the requirement for state 

qualification, the final rules’ preemption 

for Tier 2 offerings will result in greater 

use of amended Regulation A and 

thereby facilitate capital formation. 

We recognize that commenters were 

divided on the issue of preemption, and 

those who objected to preemption of 

state securities review and qualification 

requirements cited benefits of state 

review.1026 These include additional 

investor protection benefits arising from 

the localized knowledge and resources 

of state regulators that may aid in 

detecting fraud and facilitating issuer 

compliance.1027 Some of these 

commenters also noted that the launch 

of NASAA’s coordinated review 

program could streamline state review 

of offerings among participating states. 

We acknowledge that the preemption 

of state qualification for Tier 2 offerings 

may have an impact on investor 

protection by eliminating one level of 

government review. In addition, meritbased review of offerings undertaken by 

some states may, in some cases, provide 

a level of investor protections different 

from the disclosure-based review 

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Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Rules and Regulations 21887 

1028We believe that issuers conducting Tier 1 

offerings are more likely to be smaller companies 

whose businesses revolve around products, 

services, and a customer base that will more likely 

be located within a single state or region or a small 

number of geographically dispersed states. For 

example, based on our analysis, issuers of securities 

in the seven offering statements qualified by the 

Commission pursuant to Regulation A in 2014 

indicated, on average, that they were seeking 

qualification in approximately five states per 

offering. The financial statements provided by these 

issuers further indicated, on average, that issuers 

had approximately $1.2 million in assets. No issuer 

indicated assets greater than $3.6 million, while 

two issuers indicated assets of less than $20,000. 

We recognize, however, that the characteristics of 

Tier 1 issuers in Tier 1 offerings relying on 

amended Regulation A in the future may differ from 

the characteristics of issuers that rely on existing 

Regulation A (for example, due to the higher 

maximum offering size for Tier 1 offerings in the 

final rules, compared with the maximum offering 

size in existing Regulation A). 

1029See WDFI Letter and NASAA Letter 2. 

1030A description of NASAA’s coordinated 

review program can be found at: http://

www.nasaa.org/industry-resources/corporationfinance/coordinated-review/regulation-a-offerings/. 

1031See Groundfloor Letter. 

1032See WDFI Letter. 

undertaken by the Commission. State 

regulators may also have a better 

knowledge of local issuers, which could 

help in detecting fraud, especially in 

offerings by small, localized issuers. If 

investors require higher returns because 

of a perceived increase in the risk of 

fraud as a result of preemption, issuers 

may face a higher cost of capital. We are 

unable to predict how the amendments 

to Regulation A will affect the incidence 

of fraud that may arise in Regulation A 

offerings. 

Several factors could mitigate these 

potential impacts. First, under Section 

18(c), the states retain the ability to 

require the filing with them of any 

documents filed with the Commission 

and to investigate and bring 

enforcement actions with respect to 

fraudulent transactions. Second, we 

believe that amended Regulation A 

provides substantial protections to 

purchasers in Tier 2 offerings. Under the 

final rules, a Regulation A offering 

statement will continue to provide 

substantive narrative and financial 

disclosures about the issuer. Further, 

the final rules require offering 

statements to be qualified by the 

Commission before an issuer can 

conduct sales. Additional investor 

protections would be afforded by 

Regulation A’s limitations on eligible 

issuers and bad actor disqualification 

provisions. The final rules for Tier 2 

offerings provide further protection by 

requiring audited financial statements 

in the offering circular, ongoing 

reporting, and an investment limitation 

for purchasers who do not qualify as 

accredited investors. 

The anticipated costs and benefits of 

state preemption will depend on key 

offering characteristics and issuer 

disclosure requirements. In particular, 

smaller offerings with a narrow investor 

base, such as those expected to be 

conducted under Tier 1, are more likely 

to be concentrated in fewer states and to 

benefit from geographic-specific 

information of state regulators as part of 

the review process.1028 In contrast, 

larger offerings that seek a broader 

investor base, such as those expected to 

be conducted under Tier 2, are more 

likely to span multiple states. For Tier 

2 offerings, the additional disclosure, 

audited financial statements, and 

transactional requirements relative to 

Tier 1 offerings are expected to provide 

an additional layer of investor 

protection, thus reducing the need for, 

and the expected benefits of, state 

review. State preemption for Tier 2 

offerings should lower the compliance 

burdens imposed on issuers, and partly 

offset the costs of the increased 

disclosure and transactional 

requirements. 

In general, we expect that issuers in 

Tier 1 offerings will face significantly 

lower offering costs as a result of not 

being subjected to the requirements of 

audited financial statements and 

ongoing reporting in the final rules. For 

these offerings, the local knowledge of 

state regulators is anticipated to add 

value to the review process to the extent 

that the issuer and the investor base are 

more likely to be localized. Thus, state 

qualification is more likely to have 

incremental investor protection benefits 

in Tier 1 offerings relative to Tier 2 

offerings. Moreover, to the extent that 

Tier 1 offerings are more likely to be 

concentrated in fewer states, the cost of 

complying with state review procedures 

is likely to be diminished for these types 

of offerings. 

Some commenters also pointed to the 

increased burden on Commission 

resources as a cost of state 

preemption.1029 Compared with the 

baseline of the existing Regulation A, 

we anticipate a possible increase in the 

burden on Commission resources as a 

result of the increase in the Regulation 

A maximum offering size and other 

provisions intended to make Regulation 

A more attractive to prospective issuers. 

However, we believe this increase 

would also occur under the alternative 

of no state preemption for Tier 2 

offerings. While state review of Tier 2 

offerings could potentially confer 

incremental investor protection benefits 

to the extent a thorough Commission 

staff review is constrained by the 

increased burden on agency resources, 

overall we do not believe this effect will 

be substantial. 

As an alternative to preemption for 

Tier 2 offerings, we considered the 

option of state qualification by one state 

or a subset of states or the option of state 

review under NASAA’s coordinated 

review program.1030 According to one 

commenter, the coordinated review 

program creates value by defining 

concrete service standards regarding the 

timeliness of various steps of the 

qualification process and by introducing 

more legal certainty.1031 According to 

another commenter, the coordinated 

review program will eliminate costs of 

identifying and addressing individual 

state requirements and will provide an 

expedient registration process.1032 We 

recognize that the coordinated review 

process ultimately may reduce 

processing time and streamline certain 

state requirements for issuers registering 

in multiple states when compared to 

independent review conducted by 

individual states. To date, however, we 

are aware of only a few issuers that have 

utilized the coordinated review process, 

so currently there is limited evidence 

available to us to evaluate the 

effectiveness and timeliness of 

coordinated review, especially in the 

event that more potential Regulation A 

issuers seek state qualification under 

this process. While it is possible that the 

coordinated review process may reduce 

costs for issuers as compared to 

individual state review and 

qualification, it would add cost and 

complexity for issuers seeking an 

exemption under amended Regulation A 

when compared to Commission review 

and qualification alone. To the extent 

that disclosure or merit review (if 

applicable to one of the participating 

jurisdictions in which the issuer is 

seeking to offer securities) standards of 

participating jurisdictions impose more 

extensive requirements on the issuer 

than Commission rules, some issuers 

may incur additional compliance 

expense or require additional time to 

address comments. In light of the recent 

efforts of state securities regulators to 

address concerns about the cost of state 

review and qualification of Regulation A 

offerings, however, the ongoing 

implementation and development of the 

coordinated review program, 

particularly as it may operate within 

Tier 1 offerings, may, in the future, 

provide additional data that will aid our 

future evaluation of whether such a 

program could effectively operate 

within the context of larger, more 

national Tier 2 offerings. 

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21888 Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Rules and Regulations 

1033 44 U.S.C. 3501 et seq. 

1034 44 U.S.C. 3507(d) and 5 CFR 1320.11. 

1035Although the final rules do not amend Form 

F–X, the total burden hours associated with that 

form may increase minimally as a result of the 

increased number of issuers relying on Regulation 

A. The Commission submitted the revised burden 

estimate for Form F–X to OMB for review in 

accordance with the PRA, although the potential 

minimal increase in burden hours was not noted in 

the Proposing Release. 

1036See Section III. above for a discussion of the 

data regarding current market practices. 

1037From 2009 through 2014, there were 158 

Form 1–As filed with the Commission. 

1038See figures and graphs for registered offerings 

cited in Section III.B.b. above (citing approximately 

320 registered initial public offerings or follow-on 

offerings in calendar year 2014 that would have 

been potentially eligible to be conducted under 

amended Regulation A). 

1039See figures and graphs for registered and 

exempt offerings under Regulation D cited in 

Section III.B.1.a.ii. above (citing 11,228 issuances 

under Regulation D in calendar year 2014 that 

would have been potentially eligible to be 

conducted under amended Regulation A). 

1040See Form 1–A at 1; Form 2–A at 1. 

1041See discussion in Section II.E. above. 

1042See discussion in Section II.B.3. above. 

1043See Rule 252. 

1044See Rule 252(f). 

1045See discussion in Section II.C.1. above. 

1046See discussion in Section II.C.3.d. above. 

1047See Instruction 2 to Signatures in Form 1–A. 

We believe the final rules strike 

appropriate balance between mitigating 

cost and time demands on issuers and 

providing investor protections. 

IV. Paperwork Reduction Act 

A. Background 

Certain provisions of the final rules 

contain ‘‘collection of information’’ 

requirements within the meaning of the 

Paperwork Reduction Act of 1995 

(PRA).1033 We published a notice 

requesting comment on the collection of 

information requirements in the 

Proposing Release, and we submitted 

these requirements to the Office of 

Management and Budget (OMB) for 

review in accordance with the PRA and 

its implementing regulations.1034 While 

several commenters provided 

qualitative comments on the possible 

costs of the proposed rules and 

amendments, we did not receive 

comments on our PRA analysis and thus 

are adopting our estimates substantially 

as proposed, except as otherwise noted 

herein. The titles for the collections of 

information are: 

(1) ‘‘Regulation A (Form 1–A and 

Form 2–A)’’ (OMB Control Number 

3235–0286); 

(2) ‘‘Form 1–K’’ (OMB Control 

Number 3235–0720); 

(3) ‘‘Form 1–SA’’ (OMB Control 

Number 3235–0721); 

(4) ‘‘Form 1–U’’ (OMB Control 

Number 3235–0722); 

(5) ‘‘Form 1–Z’’ (OMB Control 

Number 3235–0723); 

(6) ‘‘Form 8–A’’ (OMB Control 

Number 3235–0056); 

(7) ‘‘Form ID’’ (OMB Control Number 

3235–0328); and 

(8) ‘‘Form F–X’’ (OMB Control 

Number 3235–0379).1035

An agency may not conduct or 

sponsor, and a person is not required to 

respond to, a collection of information 

unless it displays a currently valid OMB 

control number. We applied for OMB 

control numbers for the new collections 

of information in accordance with 44 

U.S.C. 3507(j) and 5 CFR 1320.13, and 

OMB assigned a control number to each 

new collection, as specified above. 

Responses to these new collections of 

information would be mandatory for 

issuers raising capital under Regulation 

A. 

The hours and costs associated with 

preparing disclosure, filing forms, and 

retaining records constitute reporting 

and cost burdens imposed by the 

collections of information. In deriving 

estimates of these hours and costs, we 

recognize that the burdens likely will 

vary among individual issuers based on 

a number of factors, including the stage 

of development of the business, the 

amount of capital an issuer seeks to 

raise, and the number of years since 

inception of the business. We believe 

that some issuers will experience costs 

in excess of the average and some 

issuers may experience less than the 

average costs. 

B. Estimated Number of Regulation A 

Offerings 

Data regarding current market 

practices may help identify the potential 

number of offerings that will be 

conducted in reliance on the final 

rules.1036 We estimate that there are 

currently approximately 26 Regulation 

A offering statements filed by issuers 

per year.1037 While it is not possible to 

predict with certainty the number of 

offering statements that will be filed by 

issuers relating to offerings made in 

reliance on amended Regulation A, for 

purposes of this PRA analysis, we 

estimate that the number will be 250 

offerings statements per year. We base 

this estimate on (i) the current 

approximate number of annual Form 1– 

A filings under the existing rules, plus 

(ii) 65 percent of the estimated number 

of registered offering of securities that 

would have been eligible to be 

conducted under Regulation A,1038 plus 

(iii) an additional 16 offerings that 

either would not otherwise occur or 

would have been conducted in reliance 

on another exemption from Securities 

Act registration, such as Regulation 

D.1039 For purposes of this PRA 

analysis, we assume that each offering 

statement for a unique Regulation A 

offering that is filed represents a unique 

issuer, such that approximately 250 

issuers are estimated to conduct 

Regulation A offerings each year under 

the final rules. 

C. PRA Reporting and Cost Burden 

Estimates 

1. Regulation A (Form 1–A and Form 2– 

A) 

Currently, Regulation A requires 

issuers to file a Form 1–A: Offering 

Statement and a Form 2–A: Report of 

Sales and Uses of Proceeds with the 

Commission. Regulation A has one 

administrative burden hour associated 

with it, while current Form 1–A is 

estimated to take approximately 608 

hours to prepare and Form 2–A is 

estimated to take approximately 12 

hours to prepare.1040 We do not 

anticipate that the one administrative 

burden hour associated with Regulation 

A will change as a result of the final 

rules. As discussed more fully below, 

we believe the burden hours associated 

with Form 1–A will change, while Form 

2–A and the associated burden hours 

are eliminated as a result of today’s 

proposal.1041

Under the final rules, an issuer 

conducting a transaction in reliance on 

Regulation A will be able to conduct 

either a Tier 1 offering or a Tier 2 

offering.1042 In either case, a Regulation 

A issuer will continue to be required to 

file with the Commission specified 

disclosures on a Form 1–A: Offering 

Statement.1043 An issuer will also be 

required to file amendments to Form 1– 

A to address comments from 

Commission staff and to disclose 

material changes in the disclosure 

previously provided to the Commission 

or investors.1044 In light of the 

electronic filing requirements for 

Regulation A offering materials 

discussed above,1045 issuers are no 

longer required to file a manually signed 

copy of Form 1–A with the 

Commission.1046 Issuers are, however, 

required to manually sign a copy of the 

offering statement before or at the time 

of non-public submission or filing that 

must be retained by the issuer for a 

period of five years and produced to the 

Commission, upon request.1047 As 

issuers are currently required to 

manually sign the Form 1–A and file it 

with the Commission, we do not 

anticipate that the Form 1–A retention 

requirement adopted in the final rules 

will alter an issuer’s compliance 

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Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Rules and Regulations 21889 

1048See discussion at Section II.C.3.b. above. 

1049See discussion in Section II.C.3.b(2). above. 

1050By comparison, we estimate the burden per 

response for preparing Form S–1 to be 972.32 

hours. See Form S–1, at 1. 

1051The costs of retaining outside professionals 

may vary depending on the nature of the 

professional services. For purposes of this PRA 

analysis, however, we estimate that such costs will 

be an average of $400/hour, which is consistent 

with the rate we typically estimate for outside legal 

services used in connection with public company 

reporting. 

1052See Rule 257(b)(1). 

1053See General Instruction C to Form 1–K and 

related discussion in Section II.E.1.c. above. 

1054 Id. 

1055We estimate that the burden of preparing the 

information required by Form 1–K will be 

approximately 3⁄4 of the burden for filing Form 1– 

A due to the lack of offering-specific disclosure and 

an issuer’s ability to update previously provided 

disclosure. 

1056This estimate includes any special financial 

reports required to be filed on Form 1–K. 

burden. As adopted, Form 1–A is 

similar to existing Form 1–A. In some 

instances, Form 1–A, contains fewer 

disclosure items than existing Form 1– 

A (e.g., Part I (Notification) of Form 1– 

A does not require disclosure of 

‘‘Affiliate Sales’’; Part II (Offering 

Circular) of Form 1–A requires a 

description of the issuer’s business for 

a period of three years, rather than five 

years). Part II of Form 1–A no longer 

permits disclosure in reliance on the 

Model A disclosure format, but directs 

issuers to follow the provisions of 

Model B (renamed ‘‘Offering Circular’’), 

Part I of Form S–1, or, where applicable, 

Part I of Form S–11.1048 In other 

instances, Form 1–A contains more 

disclosure items than existing Form 1– 

A (e.g., Part I of Form 1–A requires 

additional disclosure of certain 

summary information regarding the 

issuer and the offering; Part II of Form 

1–A requires more detailed management 

discussion and analysis of the issuer’s 

liquidity and capital resources and 

results of operations). Form 1–A 

requires disclosure similar to that 

required in a Form S–1 registration 

statement for registered offerings under 

the Securities Act, but with fewer 

disclosure items (e.g., it requires less 

disclosure about the compensation of 

officers and directors, and less detailed 

management discussion and analysis of 

the issuer’s liquidity and capital 

resources and results of operations) and, 

under certain circumstances, Form 1–A 

does not require issuers to file audited 

financial statements.1049

We expect that issuers relying on 

Regulation A for Tier 1 offerings of up 

to $20 million in a 12-month period will 

largely be at a similar stage of 

development to issuers relying on 

existing Regulation A and will therefore 

not experience an increased compliance 

burden with Form 1–A. Given the 

increased annual offering amount limit 

of $50 million for Tier 2 offerings, 

however, we expect that issuers 

conducting such offerings pursuant to 

Regulation A may be at a more 

advanced stage of development than 

issuers offering securities under Tier 1. 

In such cases, the complexity of the 

required disclosure and, in turn, the 

burden of compliance with the 

requirements of Form 1–A may be 

greater for some issuers than for issuers 

relying on existing Form 1–A. We 

believe that the burden hours associated 

with amended Form 1–A will be greater 

than the current estimated 608 burden 

hours per response but will not be as 

great as the current estimated 972.32 

burden hours per response for Form S– 

1. We therefore estimate that the total 

burden to prepare and file Form 1–A, as 

adopted today, including any 

amendments to the form, will increase 

on average across all issuers in 

comparison to existing Form 1–A to 

approximately 750 hours.1050 We 

estimate that the issuer will internally 

carry 75 percent of the burden of 

preparation and that outside 

professionals retained by the issuer at 

an average cost of $400 per hour will 

carry 25 percent.1051

We estimate that compliance with the 

requirements of a Form 1–A will require 

187,500 burden hours (250 offering 

statements × 750 hours/offering 

statement) in aggregate each year, which 

corresponds to 140,625 aggregated hours 

carried by the issuer internally (250 

offering statements × 750 hours/offering 

statement × 0.75) and aggregated costs of 

$18,750,000 (250 offering statements × 

750 hours/offering statement × 0.25 × 

$400) for the services of outside 

professionals. As stated above, we 

estimate that the proposed amendments 

to Regulation A will not change the one 

administrative burden hour associated 

with the review of Regulation A and 

will require 250 burden hours (250 

offering statements × one hour/offering 

statement) in aggregate each year, which 

corresponds to 187 aggregated hours 

carried by the issuer internally (250 

offering statements × 0.75) and 

aggregated costs of $25,000 (250 offering 

statements × one hour/offering 

statement × 0.25 × $400) for services of 

outside professionals. When combined 

with the estimates for Form 1–A, the 

administrative burden hour results in an 

estimated total compliance burden of 

751 hours per offering statement and an 

estimated annual compliance burden of 

187,750 hours (250 offering statements × 

751 hours/offering statement) and 

aggregated costs of $18,775,000 (250 

offering statements × 751 hours/offering 

statement × 0.25 × $400). 

2. Form 1–K: Annual Report 

Under the final rules, any issuer that 

conducts a Tier 2 offering pursuant to 

Regulation A is required to file an 

annual report with the Commission on 

Form 1–K: Annual Report.1052 A 

manually signed copy of Form 1–K must 

be executed by the issuer and related 

signatories before or at the time of 

electronic filing, retained by the issuer 

for a period of five years and, if 

requested, produced to the 

Commission.1053 We do not anticipate 

that the requirement to retain a 

manually signed copy of Form 1–K will 

affect an issuer’s compliance burden. 

We believe the compliance burden 

associated with disclosure provided in 

Form 1–K will be less than the 

compliance burden associated with 

reporting required under Exchange Act 

Sections 13 or 15(d). We also believe the 

burden is more analogous to the 

compliance burden attendant to Form 

1–A. Unlike the disclosure required in 

Form 1–A, however, offering-specific 

disclosure in Form 1–K is not required. 

Additionally, under certain 

circumstances, an issuer will be 

required to disclose information similar 

to the information previously required 

of issuers on Form 2–A.1054 Unlike the 

disclosure previously required on Form 

2–A, however, an issuer is not required 

to provide disclosure about the use of 

proceeds. We estimate that the burden 

to prepare and file a Form 1–K will be 

less than that required to prepare and 

file a Form 1–A. We estimate that 

compliance with Form 1–K will result 

in a burden of 600 hours per 

response.1055 We further estimate that 

75 percent of the burden of preparation 

will be carried by the issuer internally 

and that 25 percent will be carried by 

outside professionals retained by the 

issuer at an average cost of $400 per 

hour. While we do not know the exact 

number of issuers that will conduct Tier 

2 offerings in reliance on amended 

Regulation A, we estimate 75 percent of 

all issuers filing a Form 1–A (or 188 

issuers, 250 issuers × .75) will conduct 

Tier 2 offerings, enter the Regulation A 

ongoing reporting regime and therefore 

be required to file Form 1–K.1056

We estimate that compliance with the 

requirements of Form 1–K for issuers 

with an ongoing reporting obligation 

under Regulation A will require 112,800 

burden hours (188 issuers × 600 hours/ 

issuer) in the aggregate each year, which 

corresponds to 84,600 hours carried by 

the issuer internally (188 issuers × 600 

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21890 Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Rules and Regulations 

1057See Rule 257(b)(3). 

1058See General Instruction C to Form 1–SA and 

related discussion in Section II.E.1.c(2). above. 

1059 17 CFR 249.308a. 

1060See discussion in Section II.E.1.c(2). above. 

1061 Issuers will, however, have to file Form 1– 

SA, a semiannual report, less frequently than Form 

10–Q, a quarterly report. 

1062See Form 10–Q, at 1. 

1063This estimate includes any special financial 

reports required to be filed on Form 1–SA. 

1064See Rule 257(b)(4). 

1065See General Instruction C to Form 1–U and 

related discussion in Section II.E.1.c(3). above. 

1066We estimate the burden per response for 

preparing a Form 8–K to be 5.71 hours. See Form 

8–K, at 1. 

1067See discussion at Section II.E.1.c(3). above. 

1068We have previously estimated that on average 

issuers file one current report on Form 8–K 

annually. Although we believe that the frequency 

of filing a Form 1–U will be considerably less than 

a Form 8–K, we are estimating that each issuer will 

be required to file one Form 1–U per year. 

1069See discussion in Section II.E.4.b. above. 

1070See Rule 257(d). 

1071See Rule 252(f)(2). 

hours/issuer × 0.75) and costs of 

$11,280,000 (188 issuers × 600 hours/

issuer × 0.25 × $400) for the services of 

outside professionals. 

3. Form 1–SA: Semiannual Report 

Under the final rules, any issuer that 

conducts a Tier 2 offering in reliance on 

Regulation A will be required to file a 

semiannual report with the Commission 

on Form 1–SA: Semiannual Report.1057

A manually signed copy of the Form 1– 

SA must be executed by the issuer and 

related signatories before or at the time 

of electronic filing, retained by the 

issuer for a period of five years and, if 

requested, produced to the 

Commission.1058 We do not anticipate 

that the requirement to retain a 

manually signed copy of the Form 1–SA 

will affect an issuer’s compliance 

burden. Issuers must provide 

semiannual updates on Form 1–SA, 

which, like a Form 10–Q,1059 consists 

primarily of financial statements and 

MD&A. Unlike Form 10–Q, Form 1–SA 

does not require disclosure regarding 

quantitative and qualitative market risk 

or controls and procedures.1060 We 

estimate, however, that on balance the 

reduction in burden attributable to 

eliminating these two items in Form 1– 

SA will be offset by the increased 

burden associated with requiring 

financial statement disclosure covering 

six months, rather than three months. 

We therefore believe the per response 

compliance burden of Form 1–SA will 

be similar to the compliance burden for 

issuers filing a Form 10–Q under the 

Exchange Act.1061 Therefore, for 

purposes of this PRA analysis, we 

estimate that the burden to prepare and 

file a Form 1–SA will equal the burden 

to prepare and file Form 10–Q, which 

we have previously estimated as 187.43 

hours per response.1062 Unlike Form 1– 

K, Form 1–SA does not require the 

provision of audited financial 

statements. We therefore believe, in 

comparison to Form 1–K, issuers filing 

a Form 1–SA will be able to prepare 

more of the required disclosures 

internally. Accordingly, we estimate 

that 85 percent of the burden of 

preparation will be carried by the issuer 

internally and that 15 percent will be 

carried by outside professionals retained 

by the issuer at an average cost of $400 

per hour. 

We estimate that compliance with the 

requirements of Form 1–SA for issuers 

with an ongoing reporting obligation 

under Regulation A will require 35,237 

burden hours (188 issuers × 187 hours/ 

issuer/filing × 1 filing/year) in the 

aggregate each year, which corresponds 

to 29,952 hours carried by the issuer 

internally (188 issuers × 187 hours/

issuer/filing × 1 filing/year × 0.85) and 

costs of $2,113,872 (188 issuers × 187 

hours/issuer/filing × 1 filing/year × 0.15 

× $400) for the services of outside 

professionals.1063

4. Form 1–U: Current Reporting 

Under the final rules, any issuer that 

conducts a Tier 2 offering in reliance on 

Regulation A is required to promptly 

file current reports on Form 1–U with 

the Commission.1064 A manually signed 

copy of the Form 1–U must be executed 

by the issuer and related signatories 

before or at the time of electronic filing, 

retained by the issuer for a period of five 

years and, if requested, produced to 

Commission.1065 We do not anticipate 

that the requirement to retain a 

manually signed copy of the Form 1–U 

will affect an issuer’s compliance 

burden. Issuers are required to file such 

reports in the event they experience 

certain corporate events, much the same 

way as issuers subject to an ongoing 

reporting obligation under the Exchange 

Act file current reports on Form 8– 

K.1066 The requirement to file a Form 1– 

U, however, will be triggered by 

significantly fewer corporate events 

than those that trigger a reporting 

requirement on a Form 8–K, and the 

form itself will be slightly less 

burdensome for issuers to fill out.1067

Thus, the frequency of filing the 

required disclosure and the burden to 

prepare and file a Form 1–U will be 

considerably less than for Form 8–K. We 

estimate that the burden to prepare and 

file each current report will be 5 hours. 

While we do not know for certain how 

often an issuer would experience a 

corporate event that would trigger a 

current report filing on Form 1–U, we 

estimate that many issuers may not 

experience a corporate event that 

triggers reporting, while others may 

experience multiple events that trigger 

reporting. On average, we estimate that 

an issuer will be required to file one 

current report annually.1068 Therefore, 

we estimate that an issuer’s compliance 

with Form 1–U will result in an annual 

aggregate burden of 5 hours (1 current 

report annually × 5 hours per current 

report) per issuer. 

As with Form 1–SA, we estimate that 

85 percent of the burden of preparation 

will be carried by the issuer internally 

and that 15 percent will be carried by 

outside professionals retained by the 

issuer at an average cost of $400 per 

hour. We estimate that compliance with 

the requirements of Form 1–U will 

require 940 burden hours (188 issuers × 

1 current report annually × 5 hours per 

current report) in aggregate each year, 

which corresponds to 799 hours carried 

by the issuer internally (188 issuers × 5 

hours/issuer/year × 0.85) and costs of 

$56,400 (188 issuers × 5 hours/issuer/

year × 0.15 × $400) for the services of 

outside professionals. 

5. Form 1–Z: Exit Report 

Under the final rules, all Regulation A 

issuers are required to file a notice 

under cover of Form 1–Z: Exit Report. 

Issuers conducting Tier 1 offerings will 

be required to file Part I of Form 1–Z 

that discloses information similar to the 

information previously required of 

issuers on Form 2–A.1069 Issuers 

conducting Tier 2 offerings will also be 

required to disclose the same 

information as issuers conducting Tier 1 

offerings in Part I of Form 1–Z, unless 

previously reported by the issuer on 

Form 1–K. Issuers conducting Tier 2 

offerings will also be required to 

complete Part II of Form 1–Z in order 

to notify investors and the Commission 

that it will no longer file and provide 

annual reports pursuant to the 

requirements of Regulation A.1070 In 

Tier 2 offerings, an issuer’s obligations 

to file ongoing reports could be 

terminated at any time after completion 

of reporting for the fiscal year in which 

the offering statement was qualified, if 

the securities of each class to which the 

offering statement relates are held of 

record by fewer than 300 persons and 

offers and sales made in reliance on a 

qualified offering statement are not 

ongoing.1071 A manually signed copy of 

the Form 1–Z must be executed by the 

issuer and related signatories before or 

at the time of electronic filing, retained 

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Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Rules and Regulations 21891 

1072See Instruction to Form 1–Z and related 

discussion in Section II.E.4.b. above. 

1073See discussion in Section II.E.2. above. 

1074We currently estimate the burden per 

response for preparing a Form 15 to be 1.50 hours. 

See Form 15 at 1. 

1075See discussion in Section II.E.3. above. 

1076 17 CFR 249.208a. 

1077See Rules 252 and 257. 

1078We currently estimate the burden associated 

with Form ID is 0.15 hours per response. See Form 

ID at 1. 

1079 In this regard, we note that no Canadian 

issuers filed a Form 1–A in 2013. 

1080See Commission Rule 83, 17 CFR 200.83, and 

Securities Act Rule 406, 17 CFR 230.406. 

by the issuer for a period of five years 

and, if requested, produced to 

Commission.1072 We do not anticipate 

that the requirement to retain a 

manually signed copy of the Form 1–Z 

will affect an issuer’s compliance 

burden. We estimate that all of the 

issuers conducting Tier 1 offerings (63 

issuers, 250 total estimated issuers × 

0.25) and 50 percent of issuers 

conducting Tier 2 offerings (94 issuers, 

188 issuers with an ongoing reporting 

obligation × 0.50) will file a Form 1–Z 

in the second fiscal year after 

qualification of the offering statement 

(157 total issuers, 63 + 94). Although we 

believe that the vast majority of issuers 

subject to ongoing reporting under 

Regulation A will qualify for 

termination in the second fiscal year 

after qualification, we believe that only 

half or 50 percent of such issuers will 

actually choose to terminate their 

reporting obligations. An issuer may 

have many reasons for continuing its 

reporting obligations, such as a desire to 

facilitate continued quotations in the 

over-the-counter (OTC) markets 

pursuant to revisions to Exchange Act 

Rule 15c2–11.1073

The Form 1–Z is similar to the Form 

15 that issuers file to provide notice of 

termination of the registration of a class 

of securities under Exchange Act 

Section 12(g) or to provide notice of the 

suspension of the duty to file reports 

required by Exchange Act Sections 13(a) 

or 15(d).1074 Therefore, we estimate that 

compliance with the Form 1–Z will 

result in a similar burden as compliance 

with Form 15 that is, a burden of 1.50 

hours per response. We estimate that 

100% of the burden will be carried by 

the issuer internally. We estimate that 

compliance with Form 1–Z will result 

in a burden of 235.5 hours (157 issuers 

filing Form 1–Z × 1.50 hours/issuer) in 

the aggregate. 

6. Form 8–A: Short Form Registration 

Under the Exchange Act 

Under the final rules, Regulation A 

issuers in Tier 2 offerings that elect to 

list securities offered pursuant to a 

qualified offering statement on a 

national securities exchange or that seek 

to register the class of securities offered 

pursuant to a qualified offering 

statement under the Exchange Act may 

do so by filing a Form 8–A (short form) 

registration statement with the 

Commission.1075 In such circumstances, 

an issuer will be required to comply 

with the form requirements of Form 8– 

A, which will generally allow issuers to 

incorporate by reference in the form 

information provided in the related 

Form 1–A. While we do not know the 

exact number of issuers conducting Tier 

2 offerings that will seek to register a 

class of securities under the Exchange 

Act at or near the time of qualification 

of an offering statement, for purpose of 

this PRA analysis, we estimate 2 percent 

of all issuers filing a Form 1–A (or 5 

issuers, 250 issuers × .02) will elect to 

register a class of securities under the 

Exchange Act and file a Form 8–A. 

The final rules do not alter the burden 

hour per response of Form 8–A, but 

rather amend the existing Form 8–A to 

permit issuers in Tier 2 offerings to rely 

on the form. Therefore, we estimate that 

compliance with the Form 8–A will not 

change as a result of the final rules, a 

burden of 3 hours per response.1076 We 

estimate that compliance with Form 8– 

A by issuers conducting a Tier 2 offering 

will result in a burden of 15 hours (5 

issuers filing Form 8–A × 3 hours/

issuer) in aggregate each year. We 

estimate that 100% of the burden will 

be carried by the issuer internally. 

7. Form ID Filings 

Under the final rules, an issuer will be 

required to file specified disclosures 

with the Commission on EDGAR.1077

We anticipate that many issuers relying 

on Regulation A for the first time will 

not have previously filed an electronic 

submission with the Commission and so 

will need to file a Form ID. Form ID is 

the application form for access codes to 

permit filing on EDGAR. The final rules 

will not change the form itself, but we 

anticipate that the number of Form ID 

filings will increase due to an increase 

in issuers relying on Regulation A. For 

purposes of this PRA analysis, we 

estimate that 75 percent of the issuers 

who seek to offer and sell securities in 

reliance on amended Regulation A will 

not have previously filed an electronic 

submission with the Commission and 

will, therefore, be required to file a 

Form ID. As noted above, we estimate 

that approximately 250 issuers per year 

will seek to offer and sell securities in 

reliance on Regulation A, which 

corresponds to approximately 188 

additional Form ID filings. We estimate 

that 100% of the burden will be carried 

by the issuer internally. As a result, we 

estimate the additional annual burden 

will be approximately 28.20 hours (188 

filings × 0.15 hours/filing).1078

8. Form F–X 

Under the final rules, Canadian 

issuers are required to file a Form F–X, 

which furnishes to the Commission a 

written irrevocable consent and power 

of attorney at the time of filing the 

offering statement required by Rule 252. 

It is used to appoint an agent for service 

of process by Canadian issuers eligible 

to use Regulation A, issuers registering 

securities on Forms F–8 or F–10 under 

the Securities Act or filing periodic 

reports on Form 40–F under the 

Exchange Act, as well as in certain other 

circumstances. 

The final rules will not change Form 

F–X itself, but will amend the rules to 

allow for the form to be filed 

electronically for offerings under 

Regulation A. Canadian companies are 

the only type of issuer that will be 

required to use this form under the final 

rules and we estimate that 100% of the 

burden will be carried by the issuer 

internally. We estimate that 

approximately 2 percent of issuers 

utilizing amended Regulation A will be 

Canadian companies (or 5 responses, 

250 issuers × 0.02) resulting in an 

annual burden of approximately 10 

hours (2 hours per response × 5 

responses).1079

D. Collections of Information Are 

Mandatory 

The collections of information 

required under Rules 251 through 263 

will be mandatory for all issuers seeking 

to rely on the Regulation A exemption. 

Responses on Form 1–A, Form 1–K, 

Form 1–SA, Form 1–U and Form 1–Z 

will not be kept confidential, although 

an issuer may request confidential 

treatment for non-publicly submitted 

offering materials, or any portion 

thereof, for which it believes an 

exemption from the FOIA exists.1080 It 

is anticipated that most material not 

subject to a confidential treatment 

request will be made public when the 

offering is qualified. A Form 1–A that is 

non-publicly submitted by an issuer and 

later abandoned before being publicly 

filed with the Commission and 

responses on Form ID will, however, 

remain non-public, absent a request for 

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1081 5 U.S.C. 552. The Commission’s regulations 

that implement the Freedom of Information Act are 

at 17 CFR 200.80 et seq. 

1082The distinction between a Tier 1 offering and 

Tier 2 offering is discussed in Section II. above. 

1083For a more comprehensive discussion of 

commenter suggestions as to the proposed rules for 

both Tier 1 and Tier 2 that could potentially impact 

small entities, see Section II. above. 

1084Andreessen/Cowen Letter; BDO Letter; 

Bernard Letter; Campbell Letter; CAQ Letter; Public 

Startup Co. Letter 1; Deloitte Letter; E&Y Letter; 

Guzik Letter 1; Heritage Letter; ICBA Letter; KPMG 

Letter; McGladrey Letter; Milken Institute Letter; 

Ladd Letter 2; SVB Financial Letter; Verrill Dana 

Letter 1; WR Hambrecht + Co Letter. 

1085Andreessen/Cowen Letter; Bernard Letter; 

Campbell Letter; Public Startup Co. Letter 1; Guzik 

Letter 1; Heritage Letter; Milken Institute Letter; 

Ladd Letter 2; SVB Financial Letter. 

1086See fn. 772 above. 

1087See, e.g., Public Startup Co. Letter 1. 

1088 Guzik Letter 1; ICBA Letter. 

1089 Guzik Letter 1 (suggesting that Tier 1 ongoing 

disclosure requirements could parallel Tier 2’s 

requirements, but without the requirement for 

semiannual reports); Ladd Letter 2; Public Startup 

Co. Letters 1 and 5; SVB Financial Letter. 

1090Campbell Letter. 

1091BDO Letter; CAQ Letter; Deloitte Letter; E&Y 

Letter; KPMG Letter; McGladrey Letter. 

1092See Section II.C.3.b(1). above. 

1093See Section II.H.3. above. 

such information under the Freedom of 

Information Act.1081

V. Final Regulatory Flexibility Act 

Analysis 

This Final Regulatory Flexibility 

Analysis has been prepared in 

accordance with the Regulatory 

Flexibility Act, 5 U.S.C. 603. It relates 

to the following: 

• Amendments to Rule 157(a), Rules 

251 through 263 of Regulation A, Rule 

505 of Regulation D, Form 1–A, Form 8– 

A, Rule 30–1 of the Commission’s 

organizational rules, Rule 4a–1 under 

the Trust Indenture Act, Rule 12g5–1 

and Rule 15c2–11 under the Exchange 

Act, and Item 101 of Regulation S–T; 

• new Forms 1–K, 1–SA, 1–U, and 1– 

Z; and 

• the rescission of Form 2–A. 

An Initial Regulatory Flexibility 

Analysis (IRFA) was prepared in 

accordance with the Regulatory 

Flexibility Act and included in the 

Proposing Release. 

A. Need for the Rules 

The rule amendments, new forms, 

and rescission of Form 2–A are designed 

to implement the requirements of 

Section 3(b)(2) of the Securities Act and 

to make certain conforming changes 

based on our amendments to Regulation 

A. Section 3(b)(2) directs the 

Commission to adopt rules adding a 

class of securities exempt from the 

registration requirements of the 

Securities Act for offerings of up to $50 

million of securities within a 12-month 

period, subject to various additional 

terms and conditions set forth in 

Section 3(b)(2) or as provided for by the 

Commission as part of the rulemaking 

process. 

Our primary objective is to implement 

Section 401 of the JOBS Act by 

expanding and updating Regulation A 

in a manner that makes public offerings 

of up to $50 million less costly and 

more flexible while providing a 

framework for regulatory oversight to 

protect investors. In so doing, we have 

crafted a revision of Regulation A that 

both promotes small company capital 

formation and provides for meaningful 

investor protection. We believe that 

issuers, particularly small businesses, 

benefit from having a wide range of 

capital-raising strategies available to 

them, and that an expanded and 

updated Regulation A could serve as a 

valuable option that augments the 

exemptions from registration more 

frequently relied upon, thereby 

facilitating capital formation for small 

businesses. 

B. Significant Issues Raised by Public 

Comments 

In the Proposing Release, we 

requested comment on every aspect of 

the IRFA, including the number of small 

entities that would be affected by the 

proposed amendments, the existence or 

nature of the potential impact of the 

proposals on small entities discussed in 

the analysis, and how to quantify the 

impact of the proposed rules. We did 

not receive any comments specifically 

addressing the IRFA. We did, however, 

receive comments from members of the 

public on matters that could potentially 

impact small entities. These comments 

are discussed at length by topic in the 

corresponding subsections of Section II. 

above. 

While the proposed rules 

contemplated that small entities would 

be able to elect to proceed under the 

requirements of either Tier 1 or Tier 2, 

as discussed more fully below, an entity 

considered a small business under our 

rules would only be required to file 

ongoing reports under Regulation A if it 

elected to conduct a Tier 2 offering.1082

The following discussion therefore 

focuses on the suggestions of 

commenters, as they relate to the 

proposed and final requirements for 

Tier 1 offerings, which is the tier most 

likely to be relied upon by small 

entities.1083

Many commenters recommended 

making changes to proposed rules that, 

in their view, would make Regulation A 

a more viable capital raising option for 

smaller issuers.1084 Some commenters 

recommended improving the utility of 

Regulation A for smaller issuers by 

preempting state regulation of Tier 1 

offerings.1085 Others, however, opposed 

preemption for all Regulation A 

offerings.1086 Some commenters 

recommended that we adopt a third tier, 

either expressly or through fleixble 

applicability of the proposed tier 

requirements.1087 Some commenters 

suggested that raising the offering limit 

of Tier 1 from $5 million to $10 million 

or more would make Tier 1 more 

useful,1088 while others recommended 

including various forms of ongoing 

disclosure at a level lower than what 

was proposed to be required for Tier 

2.1089 One commenter suggested 

reducing the Tier 1 narrative disclosure 

obligations, particularly for offerings of 

$2 million or less, so that such 

requirements would be more 

appropriately tailored for smaller 

issuers.1090 Several commenters made 

recommendations with respect to the 

financial statement and auditing 

requirements in Form 1–A, as they 

relate to the requirements for Tier 1.1091

The final rules for Regulation A take 

into account some of the suggestions by 

commenters on ways to make Tier 1 

more useful for small entities. For 

example, the final rules raise the 

offering limit of Tier 1 to $20 million. 

Also, with respect to the offering 

circular narrative disclosure 

requirements,1092 we have adopted 

certain additional scaled disclosure 

requirements for Tier 1 that are 

intended to lessen the compliance 

obligations for smaller issuers. We are 

further providing issuers under both 

tiers with the accommodation provided 

to emerging growth companies in 

Securities Act Section 7(a) to use the 

extended transition periods applicable 

to private companies for complying 

with new or revised accounting 

standards under U.S. GAAP. 

Additionally, we have provided Tier 1 

issuers with additional flexibility with 

respect to auditor independence 

standards. 

As noted in Section II.H.3. above, 

however, we do not agree with the 

position of some commenters that 

preemption of state securities laws 

registration and qualification 

requirements is necessary or appropriate 

for Tier 1 offerings.1093 We note that 

some commenters who suggested that 

preemption of state securities laws may 

improve the attractiveness of Tier 1 

offerings did so on the condition that 

other aspects of the tier should change 

accordingly, namely requiring Tier 1 

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1094Securities Act Rule 157 [17 CFR 230.157]. We 

note that currently this rule refers to ‘‘the dollar 

limitation prescribed by Section 3(b) of the 

Securities Act.’’ The JOBS Act amended Section 

3(b) of the Securities Act. The former Section 3(b) 

is now Section 3(b)(1), and a new Section 3(b)(2) 

was added. To retain the meaning of Rule 157, we 

are adopting a technical correction to replace the 

reference to ‘‘Section 3(b)’’ with a reference to 

‘‘Section 3(b)(1).’’ 

1095As explained in Section II.B.3. above, 

aggregate sales under Regulation A include prior 

sales generated from Regulation A offerings that 

occurred in the 12 months preceding the current 

offering. 1096See discussion in Section II.C.3.b. above. 

issuers to provide audited financial 

statements in the offering statement and 

possibly on an ongoing basis. For the 

reasons discussed in Section 

II.D.3.b(2)(c). above, we have not 

adopted such changes in Tier 1. 

Additionally, as noted in Section II.I. 

above, we do not believe that the 

creation of a third tier, as suggested by 

some commenters, would meaningfully 

alter a smaller entity’s options for 

capital formation under Regulation A. 

While a third tier may provide issuers 

with some additional flexibility for 

capital formation under Regulation A, 

this additional flexibility would have 

potential costs. For example, a third tier 

may unnecessarily complicate 

compliance with Regulation A for 

smaller entities, and could potentially 

confuse investors as to the type of 

Regulation A offering an issuer was 

undertaking and the type of information 

such investor could expect to receive as 

a result, thereby lessening the viability 

of the exemption as a whole. For this 

reason, we are not adopting a third or 

intermediate tier in Regulation A. 

In the light of the changes discussed 

above, we believe that the final rules we 

are adopting today provide smaller 

issuers with an appropriately tailored 

regulatory regime that takes into 

account the needs of small entities to 

have a viable capital formation option in 

Regulation A, while maintaining 

appropriate investor protections. 

C. Small Entities Subject to the Rules 

For purposes of the Regulatory 

Flexibility Act, under our rules, an 

issuer (other than an investment 

company) is a ‘‘small business’’ or 

‘‘small organization’’ if it has total assets 

of $5 million or less as of the end of its 

most recent fiscal year and is engaged or 

proposing to engage in an offering of 

securities which does not exceed $5 

million.1094

While Regulation A is available for 

offerings of up to $50 million in 

securities in a 12-month period, only 

offerings up to $5 million in securities 

in a 12-month period will constitute 

offerings by small entities under the 

definition set forth above. It is difficult 

to predict the number of small entities 

that will use Regulation A due to the 

many variables included in the 

amendments. Nevertheless, we believe 

that the final rules for Regulation A will 

increase the overall number of 

Regulation A offerings of $5 million or 

less due to the ability to non-publicly 

submit draft offering statements for 

review by the Commission’s staff, the 

expanded use of solicitation of interest 

materials, the ability to electronically 

file and transmit offering statements and 

offering circulars, the potential for 

preemption of state regulatory review if 

the issuer elects to conduct a Tier 2 

offering, and other significant changes 

summarized in Section II. above. 

Regulation A is currently limited to 

offerings with an aggregate offering 

price and aggregate sales of $5 million 

or less.1095 From 2009 through 2014, 

158 issuers filed offering statements and 

36 offering statements were qualified by 

the Commission, or an average of 

approximately six qualified offering 

statements per year. Of the 36 offering 

statements that were qualified, 28 

included financial statements indicating 

that the issuer had total assets of $5 

million or less (as of the most recent 

balance sheet included in such issuer’s 

offering statement at the time of 

qualification), or an average of 

approximately five qualified offering 

statements per year in which the issuer 

indicated it had total assets of $5 

million or less. Based on these data, and 

for the reasons discussed above, we 

believe that at least five small 

businesses will conduct offerings under 

Regulation A per year. 

D. Reporting, Recordkeeping, and Other 

Compliance Requirements 

As discussed above in Section II., the 

final rules include reporting, 

recordkeeping and other compliance 

requirements. In particular, the final 

rules impose certain reporting 

requirements on issuers offering and 

selling securities in a transaction relying 

on the exemption provided by Section 

3(b) and Regulation A. The final rules 

require that issuers relying on the 

exemption file with the Commission 

certain information specified in Form 1– 

A about the issuer and the offering, 

including the issuer’s contact 

information; use of proceeds from the 

offering; price or method for calculating 

the price of the securities being offered; 

business and business plan; property; 

financial condition and results of 

operations; directors, officers, 

significant employees and certain 

beneficial owners; material agreements 

and contracts; and past securities 

sales.1096 Such issuers are also required 

to provide information on the material 

factors that make an investment in the 

issuer speculative or risky; dilution; the 

plan of distribution for the offering; 

executive and director compensation; 

conflicts of interest and related party 

transactions; and financial statements. 

Similar to existing Regulation A, for 

Tier 1 offerings, Form 1–A does not 

require the financial statements to be 

audited unless the issuer has already 

had them audited for another purpose. 

As discussed above in Section 

II.E.1.c., issuers conducting Tier 2 

offerings are also required to file annual 

reports on new Form 1–K, semiannual 

updates on new Form 1–SA, current 

event reporting on new Form 1–U, and 

to provide notice to the Commission of 

the termination of their ongoing 

reporting obligations on new Form 1–Z. 

An issuer subject to the Tier 2 

periodic and current event reporting 

described above is required to provide 

information annually on Form 1–K, 

including the issuer’s business and 

business plan; conflicts of interest and 

related party transactions; executive and 

director compensation; financial 

condition and results of operations; and 

audited financial statements. The 

semiannual update on Form 1–SA 

consists primarily of unaudited, interim 

financial statements for the issuer’s first 

two fiscal quarters and information 

regarding the issuer’s financial 

condition and results of operations. The 

current event reporting on Form 1–U 

requires issuers to disclose certain major 

developments, including changes of 

control; changes in the principal 

executive officer and principal financial 

officer; fundamental changes in the 

nature of business; material transactions 

or corporate events; unregistered sales 

of five percent or more of outstanding 

equity securities; changes in the issuer’s 

certifying accountant; and non-reliance 

on previous financial statements. 

Form 1–Z is required for issuers in 

both Tier 1 and Tier 2 offerings to report 

summary information about a 

completed or terminated Regulation A 

offering. Issuers conducting Tier 2 

offerings also will be subject to the 

additional provision in Form 1–Z that 

relates to the voluntary termination of 

an issuer’s continuous reporting 

obligations under Tier 2; however, we 

expect its use by small entities will be 

limited. 

Although we estimated in the 

Proposing Release that approximately 

188 issuers would enter the proposed 

Tier 2 ongoing reporting regime every 

year, we believe that very few small 

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1097See Section II.C.3.b. above. 1098See discussion in Section IV.A.1. above. 

businesses will do so. A small business 

under our rules will only be required to 

file ongoing reports under Regulation A 

if it elects to conduct a Tier 2 offering. 

E. Agency Action To Minimize Effect on 

Small Entities 

The Regulatory Flexibility Act directs 

us to consider significant alternatives 

that would accomplish the stated 

objective of our proposals, while 

minimizing any significant adverse 

impact on small entities. In connection 

with the final amendments and rules, 

we considered the following 

alternatives: (1) The establishment of 

differing compliance or reporting 

requirements or timetables that take into 

account the resources available to small 

entities; (2) the clarification, 

consolidation or simplification of 

compliance and reporting requirements 

under the rule for small entities; (3) the 

use of performance rather than design 

standards; and (4) an exemption from 

coverage of the rules, or any parts of the 

rules, for small entities. 

We considered whether it is necessary 

or appropriate to establish different 

compliance or reporting requirements, 

timetables, or to clarify, consolidate, or 

simplify compliance and reporting 

requirements under the final rules for 

small entities. We have made several 

changes from the proposal that may 

reduce compliance burdens on small 

entities. For example, in response to 

public comment, the final rules provide 

for the further scaling of disclosure 

items pertaining to executive 

compensation and related party 

transactions for entities offering 

securities pursuant to Tier 1, which are 

likely to be smaller entities. 

With respect to using performance 

rather than design standards, we used 

performance standards to the extent 

appropriate under the statute. For 

example, issuers have the flexibility to 

customize the presentation of certain 

disclosures in their offering 

statements.1097

We also considered whether there 

should be an exemption from coverage 

of the rules, or any parts of the rules, for 

small entities. As discussed above, we 

are adopting different compliance 

reporting requirements for issuers that 

qualify $20 million or less in securities 

annually under Tier 1. Those issuers, 

which are more likely to be small 

entities, are not subject to ongoing 

reporting requirements and the 

requirement to provide audited 

financial statements, although such 

entities retain the flexibility to comply 

with more rigorous initial and ongoing 

compliance obligations if they so 

choose. While audited financial 

statements are not a Tier 1 requirement, 

in comparison to the proposed rules, the 

final rules provide certain additional 

flexibility as to the independence 

standards required to be followed by 

auditors of financial statements for 

issuers of less than $20 million that 

conduct Tier 1 offerings—to the extent 

an issuer elects to provide audited 

financial statements—by allowing such 

auditors to comply with the 

independence standards of either the 

AICPA or Article 2 of Regulation S–X. 

We believe that further distinctions in 

compliance requirements for Form 1–A 

users beyond the different sets of 

requirements for Tier 1 and Tier 2 

issuers may lead to investor confusion 

or reduced investor confidence in 

Regulation A offerings, especially 

considering that the disclosure 

requirements are already less than what 

is required by Form S–1 for registered 

offerings. Further, we anticipate that the 

burden for preparing a Form 1–A should 

be less for companies at an earlier stage 

of development and with less extensive 

operations that are likely to be small 

entities.1098 For these reasons, we 

believe that small entities should be 

covered by the final rules to the extent 

specified above. 

VI. Statutory Basis and Text of 

Amendments 

The amendments and forms contained 

in this document are being adopted 

under the authority set forth in Sections 

3(b), 19 and 28 of the Securities Act of 

1933, as amended, Sections 12, 15, 23(a) 

and 36 of the Securities Exchange Act 

of 1934, as amended, and Section 304 of 

the Trust Indenture Act of 1939, as 

amended. 

List of Subjects 

17 CFR Part 200 

Administrative practice and 

procedure, Authority delegations 

(Government agencies), Organization 

and functions (Government agencies). 

17 CFR Parts 230, 232, 239, 240, 249, 

and 260 

Reporting and recordkeeping 

requirements, Securities. 

In accordance with the foregoing, title 

17, chapter II of the Code of Federal 

Regulations is amended as follows: 

PART 200—ORGANIZATION; 

CONDUCT AND ETHICS; AND 

INFORMATION AND REQUESTS 

■ 1. The authority citation for part 200 

is revised to read in part as follows: 

Authority: 15 U.S.C. 77c, 77o, 77s, 77z– 

3, 77sss, 78d, 78d–1, 78d–2, 78o–4, 78w, 

78ll(d), 78mm, 80a–37, 80b–11, 7202, and 

7211 et seq., unless otherwise noted. 

* * * * * 

■ 2. Section 200.30–1 is amended by: 

■ a. Revise paragraphs (b)(2) and (3); 

and 

■ b. Add paragraph (b)(4). 

The revisions and addition read as 

follows: 

§ 200.30–1 Delegation of authority to 

Director of Division of Corporation Finance. 

* * * * * 

(b) * * * 

(2) To determine the date and time of 

qualification for offering statements and 

amendments to offering statements 

pursuant to Rule 252(e) (§ 230.252(e) of 

this chapter); 

(3) To consent to the withdrawal of an 

offering statement or to declare an 

offering statement abandoned pursuant 

to Rule 259 (§ 230.259 of this chapter); 

and 

(4) To deny a Form 1–Z filing 

pursuant to Rule 257 (§ 230.257 of this 

chapter). 

* * * * * 

PART 230—GENERAL RULES AND 

REGULATIONS, SECURITIES ACT OF 

1933 

■ 3. The authority citation for part 230 

is revised to read in part as follows: 

Authority: 15 U.S.C. 77b, 77b note, 77c, 

77d, 77f, 77g, 77h, 77j, 77r, 77s, 77z–3, 77sss, 

78c, 78d, 78j, 78l, 78m, 78n, 78o, 78o–7 note, 

78t, 78w, 78ll(d), 78mm, 80a–8, 80a–24, 80a– 

28, 80a–29, 80a–30, and 80a–37, and Pub. L. 

112–106, sec. 201(a), sec. 401, 126 Stat. 313 

(2012), unless otherwise noted. 

* * * * * 

■ 4. In § 230.157, paragraph (a) is 

revised to read as follows: 

§ 230.157 Small entities under the 

Securities Act for purposes of the 

Regulatory Flexibility Act. 

* * * * * 

(a) When used with reference to an 

issuer, other than an investment 

company, for purposes of the Securities 

Act of 1933, mean an issuer whose total 

assets on the last day of its most recent 

fiscal year were $5 million or less and 

that is engaged or proposing to engage 

in small business financing. An issuer is 

considered to be engaged or proposing 

to engage in small business financing 

under this section if it is conducting or 

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Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Rules and Regulations 21895 

proposes to conduct an offering of 

securities which does not exceed the 

dollar limitation prescribed by section 

3(b)(1) of the Securities Act. 

* * * * * 

■ 5. Sections 230.251 through 230.263 

are revised to read as follows: 

Sec. 

230.251 Scope of exemption. 

230.252 Offering statement. 

230.253 Offering circular. 

230.254 Preliminary offering circular. 

230.255 Solicitations of interest and other 

communications. 

230.256 Definition of ‘‘qualified 

purchaser’’. 

230.257 Periodic and current reporting; exit 

report. 

230.258 Suspension of the exemption. 

230.259 Withdrawal or abandonment of 

offering statements. 

230.260 Insignificant deviations from a term, 

condition or requirement of Regulation 

A. 

230.261 Definitions. 

230.262 Disqualification provisions. 

230.263 Consent to service of process. 

§ 230.251 Scope of exemption. 

(a) Tier 1 and Tier 2. A public offer 

or sale of eligible securities, as defined 

in Rule 261 (§ 230.261), pursuant to 

Regulation A shall be exempt under 

section 3(b) from the registration 

requirements of the Securities Act of 

1933 (the ‘‘Securities Act’’) (15 U.S.C. 

77a et seq.). 

(1) Tier 1. Offerings pursuant to 

Regulation A in which the sum of all 

cash and other consideration to be 

received for the securities being offered 

(‘‘aggregate offering price’’) plus the 

gross proceeds for all securities sold 

pursuant to other offering statements 

within the 12 months before the start of 

and during the current offering of 

securities (‘‘aggregate sales’’) does not 

exceed $20,000,000, including not more 

than $6,000,000 offered by all selling 

securityholders that are affiliates of the 

issuer (‘‘Tier 1 offerings’’). 

(2) Tier 2. Offerings pursuant to 

Regulation A in which the sum of the 

aggregate offering price and aggregate 

sales does not exceed $50,000,000, 

including not more than $15,000,000 

offered by all selling securityholders 

that are affiliates of the issuer (‘‘Tier 2 

offerings’’). 

(3) Additional limitation on 

secondary sales in first year. The 

portion of the aggregate offering price 

attributable to the securities of selling 

securityholders shall not exceed 30% of 

the aggregate offering price of a 

particular offering in: 

(i) The issuer’s first offering pursuant 

to Regulation A; or 

(ii) Any subsequent Regulation A 

offering that is qualified within one year 

of the qualification date of the issuer’s 

first offering. 

Note to paragraph (a). Where a mixture of 

cash and non-cash consideration is to be 

received, the aggregate offering price must be 

based on the price at which the securities are 

offered for cash. Any portion of the aggregate 

offering price or aggregate sales attributable 

to cash received in a foreign currency must 

be translated into United States currency at 

a currency exchange rate in effect on, or at 

a reasonable time before, the date of the sale 

of the securities. If securities are not offered 

for cash, the aggregate offering price or 

aggregate sales must be based on the value of 

the consideration as established by bona fide 

sales of that consideration made within a 

reasonable time, or, in the absence of sales, 

on the fair value as determined by an 

accepted standard. Valuations of non-cash 

consideration must be reasonable at the time 

made. If convertible securities or warrants are 

being offered and such securities are 

convertible, exercisable, or exchangeable 

within one year of the offering statement’s 

qualification or at the discretion of the issuer, 

the underlying securities must also be 

qualified and the aggregate offering price 

must include the actual or maximum 

estimated conversion, exercise, or exchange 

price of such securities. 

(b) Issuer. The issuer of the securities: 

(1) Is an entity organized under the 

laws of the United States or Canada, or 

any State, Province, Territory or 

possession thereof, or the District of 

Columbia, with its principal place of 

business in the United States or Canada; 

(2) Is not subject to section 13 or 15(d) 

of the Securities Exchange Act of 1934 

(the ‘‘Exchange Act’’) (15 U.S.C. 78a et 

seq.) immediately before the offering; 

(3) Is not a development stage 

company that either has no specific 

business plan or purpose, or has 

indicated that its business plan is to 

merge with or acquire an unidentified 

company or companies; 

(4) Is not an investment company 

registered or required to be registered 

under the Investment Company Act of 

1940 (15 U.S.C. 80a–1 et seq.) or a 

business development company as 

defined in section 2(a)(48) of the 

Investment Company Act of 1940 (15 

U.S.C. 80a–2(a)(48)); 

(5) Is not issuing fractional undivided 

interests in oil or gas rights, or a similar 

interest in other mineral rights; 

(6) Is not, and has not been, subject to 

any order of the Commission entered 

pursuant to Section 12(j) of the 

Exchange Act (15 U.S.C. 78l(j)) within 

five years before the filing of the offering 

statement; 

(7) Has filed with the Commission all 

reports required to be filed, if any, 

pursuant to Rule 257 (§ 230.257) during 

the two years before the filing of the 

offering statement (or for such shorter 

period that the issuer was required to 

file such reports); and 

(8) Is not disqualified under Rule 262 

(§ 230.262). 

(c) Integration with other offerings. 

Offers or sales made in reliance on this 

Regulation A will not be integrated 

with: 

(1) Prior offers or sales of securities; 

or 

(2) Subsequent offers or sales of 

securities that are: 

(i) Registered under the Securities 

Act, except as provided in Rule 255(e) 

(§ 230.255(e)); 

(ii) Exempt from registration under 

Rule 701 (§ 230.701); 

(iii) Made pursuant to an employee 

benefit plan; 

(iv) Exempt from registration under 

Regulation S (§§ 230.901 through 

203.905); 

(v) Made more than six months after 

the completion of the Regulation A 

offering; or 

(vi) Exempt from registration under 

Section 4(a)(6) of the Securities Act (15 

U.S.C. 77d(a)(6)). 

Note to paragraph (c). If these safe harbors 

do not apply, whether subsequent offers and 

sales of securities will be integrated with the 

Regulation A offering will depend on the 

particular facts and circumstances. 

(d) Offering conditions—(1) Offers. (i) 

Except as allowed by Rule 255 

(§ 230.255), no offer of securities may be 

made unless an offering statement has 

been filed with the Commission. 

(ii) After the offering statement has 

been filed, but before it is qualified: 

(A) Oral offers may be made; 

(B) Written offers pursuant to Rule 

254 (§ 230.254) may be made; and 

(C) Solicitations of interest and other 

communications pursuant to Rule 255 

(§ 230.255) may be made. 

(iii) Offers may be made after the 

offering statement has been qualified, 

but any written offers must be 

accompanied with or preceded by the 

most recent offering circular filed with 

the Commission for such offering. 

(2) Sales. (i) No sale of securities may 

be made: 

(A) Until the offering statement has 

been qualified; 

(B) By issuers that are not currently 

required to file reports pursuant to Rule 

257(b) (§ 230.257(b)), until a Preliminary 

Offering Circular is delivered at least 48 

hours before the sale to any person that 

before qualification of the offering 

statement had indicated an interest in 

purchasing securities in the offering, 

including those persons that responded 

to an issuer’s solicitation of interest 

materials; and 

(C) In a Tier 2 offering of securities 

that are not listed on a registered 

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21896 Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Rules and Regulations 

national securities exchange upon 

qualification, unless the purchaser is 

either an accredited investor (as defined 

in Rule 501 (§ 230.501)) or the aggregate 

purchase price to be paid by the 

purchaser for the securities (including 

the actual or maximum estimated 

conversion, exercise, or exchange price 

for any underlying securities that have 

been qualified) is no more than ten 

percent (10%) of the greater of such 

purchaser’s: 

(1) Annual income or net worth if a 

natural person (with annual income and 

net worth for such natural person 

purchasers determined as provided in 

Rule 501 (§ 230.501)); or 

(2) Revenue or net assets for such 

purchaser’s most recently completed 

fiscal year end if a non-natural person. 

Note to paragraph (d)(2)(i)(C). When 

securities underlying warrants or convertible 

securities are being qualified pursuant to Tier 

2 of Regulation A one year or more after the 

qualification of an offering for which 

investment limitations previously applied, 

purchasers of the underlying securities for 

which investment limitations would apply at 

that later date may determine compliance 

with the ten percent (10%) investment 

limitation using the conversion, exercise, or 

exchange price to acquire the underlying 

securities at that later time without 

aggregating such price with the price of the 

overlying warrants or convertible securities. 

(D) The issuer may rely on a 

representation of the purchaser when 

determining compliance with the ten 

percent (10%) investment limitation in 

this paragraph (d)(2)(i)(C), provided that 

the issuer does not know at the time of 

sale that any such representation is 

untrue. 

(ii) In a transaction that represents a 

sale by the issuer or an underwriter, or 

a sale by a dealer within 90 calendar 

days after qualification of the offering 

statement, each underwriter or dealer 

selling in such transaction must deliver 

to each purchaser from it, not later than 

two business days following the 

completion of such sale, a copy of the 

Final Offering Circular, subject to the 

following provisions: 

(A) If the sale was by the issuer and 

was not effected by or through an 

underwriter or dealer, the issuer is 

responsible for delivering the Final 

Offering Circular as if the issuer were an 

underwriter; 

(B) For continuous or delayed 

offerings pursuant to paragraph (d)(3) of 

this section, the 90 calendar day period 

for dealers shall commence on the day 

of the first bona fide offering of 

securities under such offering statement; 

(C) If the security is listed on a 

registered national securities exchange, 

no offering circular need be delivered by 

a dealer more than 25 calendar days 

after the later of the qualification date of 

the offering statement or the first date 

on which the security was bona fide 

offered to the public; 

(D) No offering circular need be 

delivered by a dealer if the issuer is 

subject, immediately prior to the time of 

the filing of the offering statement, to 

the reporting requirements of Rule 

257(b) (§ 230.257(b)); and 

(E) The Final Offering Circular 

delivery requirements set forth in 

paragraph (d)(2)(ii) of this section may 

be satisfied by delivering a notice to the 

effect that the sale was made pursuant 

to a qualified offering statement that 

includes the uniform resource locator 

(‘‘URL’’), which, in the case of an 

electronic-only offering, must be an 

active hyperlink, where the Final 

Offering Circular, or the offering 

statement of which such Final Offering 

Circular is part, may be obtained on the 

Commission’s Electronic Data 

Gathering, Analysis and Retrieval 

System (‘‘EDGAR’’) and contact 

information sufficient to notify a 

purchaser where a request for a Final 

Offering Circular can be sent and 

received in response. 

(3) Continuous or delayed offerings. 

(i) Continuous or delayed offerings may 

be made under this Regulation A, so 

long as the offering statement pertains 

only to: 

(A) Securities that are to be offered or 

sold solely by or on behalf of a person 

or persons other than the issuer, a 

subsidiary of the issuer, or a person of 

which the issuer is a subsidiary; 

(B) Securities that are to be offered 

and sold pursuant to a dividend or 

interest reinvestment plan or an 

employee benefit plan of the issuer; 

(C) Securities that are to be issued 

upon the exercise of outstanding 

options, warrants, or rights; 

(D) Securities that are to be issued 

upon conversion of other outstanding 

securities; 

(E) Securities that are pledged as 

collateral; or 

(F) Securities the offering of which 

will be commenced within two calendar 

days after the qualification date, will be 

made on a continuous basis, may 

continue for a period in excess of 30 

calendar days from the date of initial 

qualification, and will be offered in an 

amount that, at the time the offering 

statement is qualified, is reasonably 

expected to be offered and sold within 

two years from the initial qualification 

date. These securities may be offered 

and sold only if not more than three 

years have elapsed since the initial 

qualification date of the offering 

statement under which they are being 

offered and sold; provided, however, 

that if a new offering statement has been 

filed pursuant to this paragraph 

(d)(3)(i)(F), securities covered by the 

prior offering statement may continue to 

be offered and sold until the earlier of 

the qualification date of the new 

offering statement or 180 calendar days 

after the third anniversary of the initial 

qualification date of the prior offering 

statement. Before the end of such threeyear period, an issuer may file a new 

offering statement covering the 

securities. The new offering statement 

must include all the information that 

would be required at that time in an 

offering statement relating to all 

offerings that it covers. Before the 

qualification date of the new offering 

statement, the issuer may include as 

part of such new offering statement any 

unsold securities covered by the earlier 

offering statement by identifying on the 

cover page of the new offering circular, 

or the latest amendment, the amount of 

such unsold securities being included. 

The offering of securities on the earlier 

offering statement will be deemed 

terminated as of the date of qualification 

of the new offering statement. Securities 

may be sold pursuant to this paragraph 

(d)(3)(i)(F) only if the issuer is current 

in its annual and semiannual filings 

pursuant to Rule 257(b) (§ 230.257(b)), 

at the time of such sale. 

(ii) At the market offerings, by or on 

behalf of the issuer or otherwise, are not 

permitted under this Regulation A. As 

used in this paragraph (d)(3)(ii), the 

term at the market offering means an 

offering of equity securities into an 

existing trading market for outstanding 

shares of the same class at other than a 

fixed price. 

(e) Confidential treatment. A request 

for confidential treatment may be made 

under Rule 406 (§ 230.406) for 

information required to be filed, and 

Rule 83 (§ 200.83) for information not 

required to be filed. 

(f) Electronic filing. Documents filed 

or otherwise provided to the 

Commission pursuant to this Regulation 

A must be submitted in electronic 

format by means of EDGAR in 

accordance with the EDGAR rules set 

forth in Regulation S–T (17 CFR part 

232). 

§ 230.252 Offering statement. 

(a) Documents to be included. The 

offering statement consists of the 

contents required by Form 1–A 

(§ 239.90 of this chapter) and any other 

material information necessary to make 

the required statements, in light of the 

circumstances under which they are 

made, not misleading. 

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(b) Paper, printing, language and 

pagination. Except as otherwise 

specified in this rule, the requirements 

for offering statements are the same as 

those specified in Rule 403 (§ 230.403) 

for registration statements under the 

Act. No fee is payable to the 

Commission upon either the submission 

or filing of an offering statement on 

Form 1–A, or any amendment to an 

offering statement. 

(c) Signatures. The issuer, its 

principal executive officer, principal 

financial officer, principal accounting 

officer, and a majority of the members 

of its board of directors or other 

governing body, must sign the offering 

statement in the manner prescribed by 

Form 1–A. If a signature is by a person 

on behalf of any other person, evidence 

of authority to sign must be filed, except 

where an executive officer signs for the 

issuer. 

(d) Non-public submission. An issuer 

whose securities have not been 

previously sold pursuant to a qualified 

offering statement under this Regulation 

A or an effective registration statement 

under the Securities Act may submit a 

draft offering statement to the 

Commission for non-public review by 

the staff of the Commission before 

public filing, provided that the offering 

statement shall not be qualified less 

than 21 calendar days after the public 

filing with the Commission of: 

(1) The initial non-public submission; 

(2) All non-public amendments; and 

(3) All non-public correspondence 

submitted by or on behalf of the issuer 

to the Commission staff regarding such 

submissions (subject to any separately 

approved confidential treatment request 

under Rule 251(e) (§ 230.251(e)). 

(e) Qualification. An offering 

statement and any amendment thereto 

can be qualified only at such date and 

time as the Commission may determine. 

(f) Amendments. (1)(i) Amendments 

to an offering statement must be signed 

and filed with the Commission in the 

same manner as the initial filing. 

Amendments to an offering statement 

must be filed under cover of Form 1–A 

and must be numbered consecutively in 

the order in which filed. 

(ii) Every amendment that includes 

amended audited financial statements 

must include the consent of the 

certifying accountant to the use of such 

accountant’s certification in connection 

with the amended financial statements 

in the offering statement or offering 

circular and to being named as having 

audited such financial statements. 

(iii) Amendments solely relating to 

Part III of Form 1–A must comply with 

the requirements of paragraph (f)(1)(i) of 

this section, except that such 

amendments may be limited to Part I of 

Form 1–A, an explanatory note, and all 

of the information required by Part III of 

Form 1–A. 

(2) Post-qualification amendments 

must be filed in the following 

circumstances for ongoing offerings: 

(i) At least every 12 months after the 

qualification date to include the 

financial statements that would be 

required by Form 1–A as of such date; 

or 

(ii) To reflect any facts or events 

arising after the qualification date of the 

offering statement (or the most recent 

post-qualification amendment thereof) 

which, individually or in the aggregate, 

represent a fundamental change in the 

information set forth in the offering 

statement. 

§ 230.253 Offering circular. 

(a) Contents. An offering circular must 

include the information required by 

Form 1–A for offering circulars. 

(b) Information that may be omitted. 

Notwithstanding paragraph (a) of this 

section, a qualified offering circular may 

omit information with respect to the 

public offering price, underwriting 

syndicate (including any material 

relationships between the issuer or 

selling securityholders and the 

unnamed underwriters, brokers or 

dealers), underwriting discounts or 

commissions, discounts or commissions 

to dealers, amount of proceeds, 

conversion rates, call prices and other 

items dependent upon the offering 

price, delivery dates, and terms of the 

securities dependent upon the offering 

date; provided, that the following 

conditions are met: 

(1) The securities to be qualified are 

offered for cash. 

(2) The outside front cover page of the 

offering circular includes a bona fide 

estimate of the range of the maximum 

offering price and the maximum number 

of shares or other units of securities to 

be offered or a bona fide estimate of the 

principal amount of debt securities 

offered, subject to the following 

conditions: 

(i) The range must not exceed $2 for 

offerings where the upper end of the 

range is $10 or less or 20% if the upper 

end of the price range is over $10; and 

(ii) The upper end of the range must 

be used in determining the aggregate 

offering price under Rule 251(a) 

(§ 230.251(a)). 

(3) The offering statement does not 

relate to securities to be offered by 

competitive bidding. 

(4) The volume of securities (the 

number of equity securities or aggregate 

principal amount of debt securities) to 

be offered may not be omitted in 

reliance on this paragraph (b). 

Note to paragraph (b). A decrease in the 

volume of securities offered or a change in 

the bona fide estimate of the offering price 

range from that indicated in the offering 

circular filed as part of a qualified offering 

statement may be disclosed in the offering 

circular filed with the Commission pursuant 

to Rule 253(g) (§ 230.253(g)), so long as the 

decrease in the volume of securities offered 

or change in the price range would not 

materially change the disclosure contained in 

the offering statement at qualification. 

Notwithstanding the foregoing, any decrease 

in the volume of securities offered and any 

deviation from the low or high end of the 

price range may be reflected in the offering 

circular supplement filed with the 

Commission pursuant to Rule 253(g)(1) or (3) 

(§ 230.253(g)(1) or (3)) if, in the aggregate, the 

decrease in volume and/or change in price 

represent no more than a 20% change from 

the maximum aggregate offering price 

calculable using the information in the 

qualified offering statement. In no 

circumstances may this paragraph be used to 

offer securities where the maximum 

aggregate offering price would result in the 

offering exceeding the limit set forth in Rule 

251(a) (§ 230.251(a)) or if the change would 

result in a Tier 1 offering becoming a Tier 2 

offering. An offering circular supplement 

may not be used to increase the volume of 

securities being offered. Additional securities 

may only be offered pursuant to a new 

offering statement or post-qualification 

amendment qualified by the Commission. 

(c) Filing of omitted information. The 

information omitted from the offering 

circular in reliance upon paragraph (b) 

of this section must be contained in an 

offering circular filed with the 

Commission pursuant to paragraph (g) 

of this section; except that if such 

offering circular is not so filed by the 

later of 15 business days after the 

qualification date of the offering 

statement or 15 business days after the 

qualification of a post-qualification 

amendment thereto that contains an 

offering circular, the information 

omitted in reliance upon paragraph (b) 

of this section must be contained in a 

qualified post-qualification amendment 

to the offering statement. 

(d) Presentation of information. (1) 

Information in the offering circular must 

be presented in a clear, concise and 

understandable manner and in a type 

size that is easily readable. Repetition of 

information should be avoided; crossreferencing of information within the 

document is permitted. 

(2) Where an offering circular is 

distributed through an electronic 

medium, issuers may satisfy legibility 

requirements applicable to printed 

documents by presenting all required 

information in a format readily 

communicated to investors. 

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21898 Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Rules and Regulations 

(e) Date. An offering circular must be 

dated approximately as of the date it 

was filed with the Commission. 

(f) Cover page legend. The cover page 

of every offering circular must display 

the following statement highlighted by 

prominent type or in another manner: 

The United States Securities and 

Exchange Commission does not pass 

upon the merits of or give its approval 

to any securities offered or the terms of 

the offering, nor does it pass upon the 

accuracy or completeness of any 

offering circular or other solicitation 

materials. These securities are offered 

pursuant to an exemption from 

registration with the Commission; 

however, the Commission has not made 

an independent determination that the 

securities offered are exempt from 

registration. 

(g) Offering circular supplements. (1) 

An offering circular that discloses 

information previously omitted from the 

offering circular in reliance upon Rule 

253(b) (§ 230.253(b)) must be filed with 

the Commission no later than two 

business days following the earlier of 

the date of determination of the offering 

price or the date such offering circular 

is first used after qualification in 

connection with a public offering or 

sale. 

(2) An offering circular that reflects 

information other than that covered in 

paragraph (g)(1) of this section that 

constitutes a substantive change from or 

addition to the information set forth in 

the last offering circular filed with the 

Commission must be filed with the 

Commission no later than five business 

days after the date it is first used after 

qualification in connection with a 

public offering or sale. If an offering 

circular filed pursuant to this paragraph 

(g)(2) consists of an offering circular 

supplement attached to an offering 

circular that previously had been filed 

or was not required to be filed pursuant 

to paragraph (g) of this section because 

it did not contain substantive changes 

from an offering circular that previously 

was filed, only the offering circular 

supplement need be filed under 

paragraph (g) of this section, provided 

that the cover page of the offering 

circular supplement identifies the 

date(s) of the related offering circular 

and any offering circular supplements 

thereto that together constitute the 

offering circular with respect to the 

securities currently being offered or 

sold. 

(3) An offering circular that discloses 

information, facts or events covered in 

both paragraphs (g)(1) and (2) of this 

section must be filed with the 

Commission no later than two business 

days following the earlier of the date of 

the determination of the offering price 

or the date it is first used after 

qualification in connection with a 

public offering or sale. 

(4) An offering circular required to be 

filed pursuant to paragraph (g) of this 

section that is not filed within the time 

frames specified in paragraphs (g)(1) 

through (3) of this section, as applicable, 

must be filed pursuant to this paragraph 

(g)(4) as soon as practicable after the 

discovery of such failure to file. 

(5) Each offering circular filed under 

this section must contain in the upper 

right corner of the cover page the 

paragraphs of paragraphs (g)(1) through 

(4) of this section under which the filing 

is made, and the file number of the 

offering statement to which the offering 

circular relates. 

§ 230.254 Preliminary offering circular. 

After the filing of an offering 

statement, but before its qualification, 

written offers of securities may be made 

if they meet the following requirements: 

(a) Outside front cover page. The 

outside front cover page of the material 

bears the caption Preliminary Offering 

Circular, the date of issuance, and the 

following legend, which must be 

highlighted by prominent type or in 

another manner: 

An offering statement pursuant to 

Regulation A relating to these securities 

has been filed with the Securities and 

Exchange Commission. Information 

contained in this Preliminary Offering 

Circular is subject to completion or 

amendment. These securities may not 

be sold nor may offers to buy be 

accepted before the offering statement 

filed with the Commission is qualified. 

This Preliminary Offering Circular shall 

not constitute an offer to sell or the 

solicitation of an offer to buy nor may 

there be any sales of these securities in 

any state in which such offer, 

solicitation or sale would be unlawful 

before registration or qualification under 

the laws of any such state. We may elect 

to satisfy our obligation to deliver a 

Final Offering Circular by sending you 

a notice within two business days after 

the completion of our sale to you that 

contains the URL where the Final 

Offering Circular or the offering 

statement in which such Final Offering 

Circular was filed may be obtained. 

(b) Other contents. The Preliminary 

Offering Circular contains substantially 

the information required to be in an 

offering circular by Form 1–A (§ 239.90 

of this chapter), except that certain 

information may be omitted under Rule 

253(b) (§ 230.253(b)) subject to the 

conditions set forth in such rule. 

(c) Filing. The Preliminary Offering 

Circular is filed as a part of the offering 

statement. 

§ 230.255 Solicitations of interest and 

other communications. 

(a) Solicitation of interest. At any time 

before the qualification of an offering 

statement, including before the nonpublic submission or public filing of 

such offering statement, an issuer or any 

person authorized to act on behalf of an 

issuer may communicate orally or in 

writing to determine whether there is 

any interest in a contemplated securities 

offering. Such communications are 

deemed to be an offer of a security for 

sale for purposes of the antifraud 

provisions of the federal securities laws. 

No solicitation or acceptance of money 

or other consideration, nor of any 

commitment, binding or otherwise, from 

any person is permitted until 

qualification of the offering statement. 

(b) Conditions. The communications 

must: 

(1) State that no money or other 

consideration is being solicited, and if 

sent in response, will not be accepted; 

(2) State that no offer to buy the 

securities can be accepted and no part 

of the purchase price can be received 

until the offering statement is qualified, 

and any such offer may be withdrawn 

or revoked, without obligation or 

commitment of any kind, at any time 

before notice of its acceptance given 

after the qualification date; 

(3) State that a person’s indication of 

interest involves no obligation or 

commitment of any kind; and 

(4) After the public filing of the 

offering statement: 

(i) State from whom a copy of the 

most recent version of the Preliminary 

Offering Circular may be obtained, 

including a phone number and address 

of such person; 

(ii) Provide the URL where such 

Preliminary Offering Circular, or the 

offering statement in which such 

Preliminary Offering Circular was filed, 

may be obtained; or 

(iii) Include a complete copy of the 

Preliminary Offering Circular. 

(c) Indications of interest. Any written 

communication under this rule may 

include a means by which a person may 

indicate to the issuer that such person 

is interested in a potential offering. This 

issuer may require the name, address, 

telephone number, and/or email address 

in any response form included pursuant 

to this paragraph (c). 

(d) Revised solicitations of interest. If 

solicitation of interest materials are used 

after the public filing of the offering 

statement and such solicitation of 

interest materials contain information 

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that is inaccurate or inadequate in any 

material respect, revised solicitation of 

interest materials must be redistributed 

in a substantially similar manner as 

such materials were originally 

distributed. Notwithstanding the 

foregoing in this paragraph (d), if the 

only information that is inaccurate or 

inadequate is contained in a Preliminary 

Offering Circular provided with the 

solicitation of interest materials 

pursuant to paragraphs (b)(4)(i) or (ii) of 

this section, no such redistribution is 

required in the following circumstances: 

(1) in the case of paragraph (b)(4)(i) of 

this section, the revised Preliminary 

Offering Circular will be provided to 

any persons making new inquiries and 

will be recirculated to any persons 

making any previous inquiries; or 

(2) in the case of paragraph (b)(4)(ii) 

of this section, the URL continues to 

link directly to the most recent 

Preliminary Offering Circular or to the 

offering statement in which such 

revised Preliminary Offering Circular 

was filed. 

(e) Abandoned offerings. Where an 

issuer decides to register an offering 

under the Securities Act after soliciting 

interest in a contemplated, but 

subsequently abandoned, Regulation A 

offering, the abandoned Regulation A 

offering would not be subject to 

integration with the registered offering if 

the issuer engaged in solicitations of 

interest pursuant to this rule only to 

qualified institutional buyers and 

institutional accredited investors 

permitted by Section 5(d) of the 

Securities Act. If the issuer engaged in 

solicitations of interest to persons other 

than qualified institutional buyers and 

institutional accredited investors, an 

abandoned Regulation A offering would 

not be subject to integration if the issuer 

(and any underwriter, broker, dealer, or 

agent used by the issuer in connection 

with the proposed offering) waits at 

least 30 calendar days between the last 

such solicitation of interest in the 

Regulation A offering and the filing of 

the registration statement with the 

Commission. 

§ 230.256 Definition of ‘‘qualified 

purchaser’’. 

For purposes of Section 18(b)(3) of the 

Securities Act [15 U.S.C. 77r(b)(3)], a 

‘‘qualified purchaser’’ means any person 

to whom securities are offered or sold 

pursuant to a Tier 2 offering of this 

Regulation A. 

§ 230.257 Periodic and current reporting; 

exit report. 

(a) Tier 1: Exit report. Each issuer that 

has filed an offering statement for a Tier 

1 offering that has been qualified 

pursuant to this Regulation A must file 

an exit report on Form 1–Z (§ 239.94 of 

this chapter) not later than 30 calendar 

days after the termination or completion 

of the offering. 

(b) Tier 2: Periodic and current 

reporting. Each issuer that has filed an 

offering statement for a Tier 2 offering 

that has been qualified pursuant to this 

Regulation A must file with the 

Commission the following periodic and 

current reports: 

(1) Annual reports. An annual report 

on Form 1–K (§ 239.91 of this chapter) 

for the fiscal year in which the offering 

statement became qualified and for any 

fiscal year thereafter, unless the issuer’s 

obligation to file such annual report is 

suspended under paragraph (d) of this 

section. Annual reports must be filed 

within the period specified in Form 1– 

K. 

(2) Special financial report. (i) A 

special financial report on Form 1–K or 

Form 1–SA if the offering statement did 

not contain the following: 

(A) Audited financial statements for 

the issuer’s most recent fiscal year (or 

for the life of the issuer if less than a full 

fiscal year) preceding the fiscal year in 

which the issuer’s offering statement 

became qualified; or 

(B) unaudited financial statements 

covering the first six months of the 

issuer’s current fiscal year if the offering 

statement was qualified during the last 

six months of that fiscal year. 

(ii) The special financial report 

described in paragraph (b)(2)(i)(A) of 

this section must be filed under cover of 

Form 1–K within 120 calendar days 

after the qualification date of the 

offering statement and must include 

audited financial statements for such 

fiscal year or other period specified in 

that paragraph, as the case may be. The 

special financial report described in 

paragraph (b)(2)(i)(B) of this section 

must be filed under cover of Form 1–SA 

within 90 calendar days after the 

qualification date of the offering 

statement and must include the 

semiannual financial statements for the 

first six months of the issuer’s fiscal 

year, which may be unaudited. 

(iii) A special financial report must be 

signed in accordance with the 

requirements of the form on which it is 

filed. 

(3) Semiannual report. A semiannual 

report on Form 1–SA (§ 239.92 of this 

chapter) within the period specified in 

Form 1–SA. Semiannual reports must 

cover the first six months of each fiscal 

year of the issuer, commencing with the 

first six months of the fiscal year 

immediately following the most recent 

fiscal year for which full financial 

statements were included in the offering 

statement, or, if the offering statement 

included financial statements for the 

first six months of the fiscal year 

following the most recent full fiscal 

year, for the first six months of the 

following fiscal year. 

(4) Current reports. Current reports on 

Form 1–U (§ 239.93 of this chapter) with 

respect to the matters and within the 

period specified in that form, unless 

substantially the same information has 

been previously reported to the 

Commission by the issuer under cover 

of Form 1–K or Form 1–SA. 

(5) Reporting by successor issuers. 

Where in connection with a succession 

by merger, consolidation, exchange of 

securities, acquisition of assets or 

otherwise, securities of any issuer that 

is not required to file reports pursuant 

to paragraph (b) of this section are 

issued to the holders of any class of 

securities of another issuer that is 

required to file such reports, the duty to 

file reports pursuant to paragraph (b) of 

this section shall be deemed to have 

been assumed by the issuer of the class 

of securities so issued. The successor 

issuer must, after the consummation of 

the succession, file reports in 

accordance with paragraph (b) of this 

section, unless that issuer is exempt 

from filing such reports or the duty to 

file such reports is terminated or 

suspended under paragraph (d) of this 

section. 

(c) Amendments. All amendments to 

the reports described in paragraphs (a) 

and (b) of this section must be filed 

under cover of the form amended, 

marked with the letter A to designate 

the document as an amendment, e.g., 

‘‘1–K/A,’’ and in compliance with 

pertinent requirements applicable to 

such reports. Amendments filed 

pursuant to this paragraph (c) must set 

forth the complete text of each item as 

amended, but need not include any 

items that were not amended. 

Amendments must be numbered 

sequentially and be filed separately for 

each report amended. Amendments 

must be signed on behalf of the issuer 

by a duly authorized representative of 

the issuer. An amendment to any report 

required to include certifications as 

specified in the applicable form must 

include new certifications by the 

appropriate persons. 

(d) Suspension of duty to file reports. 

(1) The duty to file reports under this 

rule shall be automatically suspended if 

and so long as the issuer is subject to the 

duty to file reports required by section 

13 or 15(d) of the Exchange Act (15 

U.S.C. 78m or 15 U.S.C. 78o). 

(2) The duty to file reports under 

paragraph (b) of this section with 

respect to a class of securities held of 

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record (as defined in Rule 12g5–1 

(§ 240.12g5–1 of this chapter)) by less 

than 300 persons, or less than 1,200 

persons for a bank (as defined in Section 

3(a)(6) of the Exchange Act (15 U.S.C. 

78c(a)(6)), or a bank holding company 

(as defined in section 2 of the Bank 

Holding Company Act of 1956 (12 

U.S.C. 1841)), shall be suspended for 

such class of securities immediately 

upon filing with the Commission an exit 

report on Form 1–Z (§ 239.94 of this 

chapter) if the issuer of such class has 

filed all reports due pursuant to this 

rule before the date of such Form 1–Z 

filing for the shorter of: 

(i) The period since the issuer became 

subject to such reporting obligation; or 

(ii) Its most recent three fiscal years 

and the portion of the current year 

preceding the date of filing Form 1–Z. 

(3) For the purposes of paragraph 

(d)(2) of this section, the term class shall 

be construed to include all securities of 

an issuer that are of substantially similar 

character and the holders of which 

enjoy substantially similar rights and 

privileges. If the Form 1–Z is 

subsequently withdrawn or if it is 

denied because the issuer was ineligible 

to use the form, the issuer must, within 

60 calendar days, file with the 

Commission all reports which would 

have been required if such exit report 

had not been filed. If the suspension 

resulted from the issuer’s merger into, or 

consolidation with, another issuer or 

issuers, the notice must be filed by the 

successor issuer. 

(4) The ability to suspend reporting, 

as described in paragraph (d)(2) of this 

section, is not available for any class of 

securities if: 

(i) During that fiscal year a Tier 2 

offering statement was qualified; 

(ii) The issuer has not filed an annual 

report under this rule or the Exchange 

Act for the fiscal year in which a Tier 

2 offering statement was qualified; or 

(iii) Offers or sales of securities of that 

class are being made pursuant to a Tier 

2 Regulation A offering. 

(e) Termination of duty to file reports. 

If the duty to file reports is suspended 

pursuant to paragraph (d)(1) of this 

section and such suspension ends 

because the issuer terminates or 

suspends its duty to file reports under 

the Exchange Act, the issuer’s obligation 

to file reports under paragraph (b) of 

this section shall: 

(1) Automatically terminate if the 

issuer is eligible to suspend its duty to 

file reports under paragraphs (d)(2) and 

(3) of this section; or 

(2) Recommence with the report 

covering the most recent financial 

period after that included in any 

effective registration statement or filed 

Exchange Act report. 

§ 230.258 Suspension of the exemption. 

(a) Suspension. The Commission may 

at any time enter an order temporarily 

suspending a Regulation A exemption if 

it has reason to believe that: 

(1) No exemption is available or any 

of the terms, conditions or requirements 

of Regulation A have not been complied 

with; 

(2) The offering statement, any sales 

or solicitation of interest material, or 

any report filed pursuant to Rule 257 

(§ 230.257) contains any untrue 

statement of a material fact or omits to 

state a material fact necessary in order 

to make the statements made, in light of 

the circumstances under which they are 

made, not misleading; 

(3) The offering is being made or 

would be made in violation of section 

17 of the Securities Act; 

(4) An event has occurred after the 

filing of the offering statement that 

would have rendered the exemption 

hereunder unavailable if it had occurred 

before such filing; 

(5) Any person specified in Rule 

262(a) (§ 230.262(a)) has been indicted 

for any crime or offense of the character 

specified in Rule 262(a)(1) 

(§ 230.262(a)(1)), or any proceeding has 

been initiated for the purpose of 

enjoining any such person from 

engaging in or continuing any conduct 

or practice of the character specified in 

Rule 262(a)(2) (§ 230.262(a)(2)), or any 

proceeding has been initiated for the 

purposes of Rule 262(a)(3)–(8) 

(§ 230.262(a)(3) through (8)); or 

(6) The issuer or any promoter, 

officer, director, or underwriter has 

failed to cooperate, or has obstructed or 

refused to permit the making of an 

investigation by the Commission in 

connection with any offering made or 

proposed to be made in reliance on 

Regulation A. 

(b) Notice and hearing. Upon the 

entry of an order under paragraph (a) of 

this section, the Commission will 

promptly give notice to the issuer, any 

underwriter, and any selling 

securityholder: 

(1) That such order has been entered, 

together with a brief statement of the 

reasons for the entry of the order; and 

(2) That the Commission, upon 

receipt of a written request within 30 

calendar days after the entry of the 

order, will, within 20 calendar days 

after receiving the request, order a 

hearing at a place to be designated by 

the Commission. 

(c) Suspension order. If no hearing is 

requested and none is ordered by the 

Commission, an order entered under 

paragraph (a) of this section shall 

become permanent on the 30th calendar 

day after its entry and shall remain in 

effect unless or until it is modified or 

vacated by the Commission. Where a 

hearing is requested or is ordered by the 

Commission, the Commission will, after 

notice of and opportunity for such 

hearing, either vacate the order or enter 

an order permanently suspending the 

exemption. 

(d) Permanent suspension. The 

Commission may, at any time after 

notice of and opportunity for hearing, 

enter an order permanently suspending 

the exemption for any reason upon 

which it could have entered a temporary 

suspension order under paragraph (a) of 

this section. Any such order shall 

remain in effect until vacated by the 

Commission. 

(e) Notice procedures. All notices 

required by this rule must be given by 

personal service, registered or certified 

mail to the addresses given by the 

issuer, any underwriter and any selling 

securityholder in the offering statement. 

§ 230.259 Withdrawal or abandonment of 

offering statements. 

(a) Withdrawal. If none of the 

securities that are the subject of an 

offering statement has been sold and 

such offering statement is not the 

subject of a proceeding under Rule 258 

(§ 230.258), the offering statement may 

be withdrawn with the Commission’s 

consent. The application for withdrawal 

must state the reason the offering 

statement is to be withdrawn and must 

be signed by an authorized 

representative of the issuer. Any 

withdrawn document will remain in the 

Commission’s files, as well as the 

related request for withdrawal. 

(b) Abandonment. When an offering 

statement has been on file with the 

Commission for nine months without 

amendment and has not become 

qualified, the Commission may, in its 

discretion, declare the offering 

statement abandoned. If the offering 

statement has been amended, the ninemonth period shall be computed from 

the date of the latest amendment. 

§ 230.260 Insignificant deviations from a 

term, condition or requirement of 

Regulation A. 

(a) Failure to comply. A failure to 

comply with a term, condition or 

requirement of Regulation A will not 

result in the loss of the exemption from 

the requirements of section 5 of the 

Securities Act for any offer or sale to a 

particular individual or entity, if the 

person relying on the exemption 

establishes that: 

(1) The failure to comply did not 

pertain to a term, condition or 

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requirement directly intended to protect 

that particular individual or entity; 

(2) The failure to comply was 

insignificant with respect to the offering 

as a whole, provided that any failure to 

comply with Rule 251(a), (b), and (d)(1) 

and (3) (§ 230.251(a), (b), and (d)(1) and 

(3)) shall be deemed to be significant to 

the offering as a whole; and 

(3) A good faith and reasonable 

attempt was made to comply with all 

applicable terms, conditions and 

requirements of Regulation A. 

(b) Action by Commission. A 

transaction made in reliance upon 

Regulation A must comply with all 

applicable terms, conditions and 

requirements of the regulation. Where 

an exemption is established only 

through reliance upon paragraph (a) of 

this section, the failure to comply shall 

nonetheless be actionable by the 

Commission under section 20 of the 

Securities Act. 

(c) Suspension. This provision 

provides no relief or protection from a 

proceeding under Rule 258 (§ 230.258). 

§ 230.261 Definitions. 

As used in this Regulation A, all 

terms have the same meanings as in 

Rule 405 (§ 230.405), except that all 

references to registrant in those 

definitions shall refer to the issuer of the 

securities to be offered and sold under 

Regulation A. In addition, these terms 

have the following meanings: 

(a) Affiliated issuer. An affiliate (as 

defined in Rule 501 (§ 230.501)) of the 

issuer that is issuing securities in the 

same offering. 

(b) Business day. Any day except 

Saturdays, Sundays or United States 

federal holidays. 

(c) Eligible securities. Equity 

securities, debt securities, and securities 

convertible or exchangeable to equity 

interests, including any guarantees of 

such securities, but not including assetbacked securities as such term is 

defined in Item 1101(c) of Regulation 

AB. 

(d) Final order. A written directive or 

declaratory statement issued by a 

federal or state agency described in Rule 

262(a)(3) (§ 230.262(a)(3)) under 

applicable statutory authority that 

provides for notice and an opportunity 

for hearing, which constitutes a final 

disposition or action by that federal or 

state agency. 

(e) Final offering circular. The more 

recent of: the current offering circular 

contained in a qualified offering 

statement; and any offering circular 

filed pursuant to Rule 253(g) 

(§ 230.253(g)). If, however, the issuer is 

relying on Rule 253(b) ((§ 230.253(b)), 

the Final Offering Circular is the most 

recent of the offering circular filed 

pursuant to Rule 253(g)(1) or (3) 

(§ 230.253(g)(1) or (3)) and any 

subsequent offering circular filed 

pursuant to Rule 253(g) (§ 230.253(g)). 

(f) Offering statement. An offering 

statement prepared pursuant to 

Regulation A. 

(g) Preliminary offering circular. The 

offering circular described in Rule 254 

(§ 230.254). 

§ 230.262 Disqualification provisions. 

(a) Disqualification events. No 

exemption under this Regulation A shall 

be available for a sale of securities if the 

issuer; any predecessor of the issuer; 

any affiliated issuer; any director, 

executive officer, other officer 

participating in the offering, general 

partner or managing member of the 

issuer; any beneficial owner of 20% or 

more of the issuer’s outstanding voting 

equity securities, calculated on the basis 

of voting power; any promoter 

connected with the issuer in any 

capacity at the time of filing, any offer 

after qualification, or such sale; any 

person that has been or will be paid 

(directly or indirectly) remuneration for 

solicitation of purchasers in connection 

with such sale of securities; any general 

partner or managing member of any 

such solicitor; or any director, executive 

officer or other officer participating in 

the offering of any such solicitor or 

general partner or managing member of 

such solicitor: 

(1) Has been convicted, within ten 

years before the filing of the offering 

statement (or five years, in the case of 

issuers, their predecessors and affiliated 

issuers), of any felony or misdemeanor: 

(i) In connection with the purchase or 

sale of any security; 

(ii) Involving the making of any false 

filing with the Commission; or 

(iii) Arising out of the conduct of the 

business of an underwriter, broker, 

dealer, municipal securities dealer, 

investment adviser or paid solicitor of 

purchasers of securities; 

(2) Is subject to any order, judgment 

or decree of any court of competent 

jurisdiction, entered within five years 

before the filing of the offering 

statement, that, at the time of such 

filing, restrains or enjoins such person 

from engaging or continuing to engage 

in any conduct or practice: 

(i) In connection with the purchase or 

sale of any security; 

(ii) Involving the making of any false 

filing with the Commission; or 

(iii) Arising out of the conduct of the 

business of an underwriter, broker, 

dealer, municipal securities dealer, 

investment adviser or paid solicitor of 

purchasers of securities; 

(3) Is subject to a final order (as 

defined in Rule 261 (§ 230.261)) of a 

state securities commission (or an 

agency or officer of a state performing 

like functions); a state authority that 

supervises or examines banks, savings 

associations, or credit unions; a state 

insurance commission (or an agency or 

officer of a state performing like 

functions); an appropriate federal 

banking agency; the U.S. Commodity 

Futures Trading Commission; or the 

National Credit Union Administration 

that: 

(i) At the time of the filing of the 

offering statement, bars the person from: 

(A) Association with an entity 

regulated by such commission, 

authority, agency, or officer; 

(B) Engaging in the business of 

securities, insurance or banking; or 

(C) Engaging in savings association or 

credit union activities; or 

(ii) Constitutes a final order based on 

a violation of any law or regulation that 

prohibits fraudulent, manipulative, or 

deceptive conduct entered within ten 

years before such filing of the offering 

statement; 

(4) Is subject to an order of the 

Commission entered pursuant to section 

15(b) or 15B(c) of the Securities 

Exchange Act of 1934 (15 U.S.C. 78o(b) 

or 78o–4(c)) or section 203(e) or (f) of 

the Investment Advisers Act of 1940 (15 

U.S.C. 80b–3(e) or (f)) that, at the time 

of the filing of the offering statement: 

(i) Suspends or revokes such person’s 

registration as a broker, dealer, 

municipal securities dealer or 

investment adviser; 

(ii) Places limitations on the activities, 

functions or operations of such person; 

or 

(iii) Bars such person from being 

associated with any entity or from 

participating in the offering of any 

penny stock; 

(5) Is subject to any order of the 

Commission entered within five years 

before the filing of the offering 

statement that, at the time of such filing, 

orders the person to cease and desist 

from committing or causing a violation 

or future violation of: 

(i) Any scienter-based anti-fraud 

provision of the federal securities laws, 

including without limitation section 

17(a)(1) of the Securities Act of 1933 (15 

U.S.C. 77q(a)(1)), section 10(b) of the 

Securities Exchange Act of 1934 (15 

U.S.C. 78j(b)) and 17 CFR 240.10b–5, 

section 15(c)(1) of the Securities 

Exchange Act of 1934 (15 U.S.C. 

78o(c)(1)) and section 206(1) of the 

Investment Advisers Act of 1940 (15 

U.S.C. 80b–6(1)), or any other rule or 

regulation thereunder; or 

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(ii) Section 5 of the Securities Act of 

1933 (15 U.S.C. 77e). 

(6) Is suspended or expelled from 

membership in, or suspended or barred 

from association with a member of, a 

registered national securities exchange 

or a registered national or affiliated 

securities association for any act or 

omission to act constituting conduct 

inconsistent with just and equitable 

principles of trade; 

(7) Has filed (as a registrant or issuer), 

or was or was named as an underwriter 

in, any registration statement or offering 

statement filed with the Commission 

that, within five years before the filing 

of the offering statement, was the 

subject of a refusal order, stop order, or 

order suspending the Regulation A 

exemption, or is, at the time of such 

filing, the subject of an investigation or 

proceeding to determine whether a stop 

order or suspension order should be 

issued; or 

(8) Is subject to a United States Postal 

Service false representation order 

entered within five years before the 

filing of the offering statement, or is, at 

the time of such filing, subject to a 

temporary restraining order or 

preliminary injunction with respect to 

conduct alleged by the United States 

Postal Service to constitute a scheme or 

device for obtaining money or property 

through the mail by means of false 

representations. 

(b) Transition, waivers, reasonable 

care exception. Paragraph (a) of this 

section shall not apply: 

(1) With respect to any order under 

§ 230.262(a)(3) or (5) that occurred or 

was issued before June 19, 2015; 

(2) Upon a showing of good cause and 

without prejudice to any other action by 

the Commission, if the Commission 

determines that it is not necessary under 

the circumstances that an exemption be 

denied; 

(3) If, before the filing of the offering 

statement, the court or regulatory 

authority that entered the relevant 

order, judgment or decree advises in 

writing (whether contained in the 

relevant judgment, order or decree or 

separately to the Commission or its 

staff) that disqualification under 

paragraph (a) of this section should not 

arise as a consequence of such order, 

judgment or decree; or 

(4) If the issuer establishes that it did 

not know and, in the exercise of 

reasonable care, could not have known 

that a disqualification existed under 

paragraph (a) of this section. 

Note to paragraph (b)(4). An issuer will 

not be able to establish that it has exercised 

reasonable care unless it has made, in light 

of the circumstances, factual inquiry into 

whether any disqualifications exist. The 

nature and scope of the factual inquiry will 

vary based on the facts and circumstances 

concerning, among other things, the issuer 

and the other offering participants. 

(c) Affiliated issuers. For purposes of 

paragraph (a) of this section, events 

relating to any affiliated issuer that 

occurred before the affiliation arose will 

be not considered disqualifying if the 

affiliated entity is not: 

(1) In control of the issuer; or 

(2) Under common control with the 

issuer by a third party that was in 

control of the affiliated entity at the time 

of such events. 

(d) Disclosure of prior ‘‘bad actor’’ 

events. The issuer must include in the 

offering circular a description of any 

matters that would have triggered 

disqualification under paragraphs (a)(3) 

and (5) of this section but occurred 

before June 19, 2015. The failure to 

provide such information shall not 

prevent an issuer from relying on 

Regulation A if the issuer establishes 

that it did not know and, in the exercise 

of reasonable care, could not have 

known of the existence of the 

undisclosed matter or matters. 

§ 230.263 Consent to service of process. 

(a) If the issuer is not organized under 

the laws of any of the states or territories 

of the United States of America, it shall 

furnish to the Commission a written 

irrevocable consent and power of 

attorney on Form F–X (§ 239.42 of this 

chapter) at the time of filing the offering 

statement required by Rule 252 

(§ 230.252). 

(b) Any change to the name or address 

of the agent for service of the issuer 

shall be communicated promptly to the 

Commission through amendment of the 

requisite form and referencing the file 

number of the relevant offering 

statement. 

■ 6. Section 230.505(b)(2)(iii)(A) and (B) 

are revised to read as follows: 

§ 230.505 Exemption for limited offers and 

sales of securities not exceeding 

$5,000,000. 

* * * * * 

(b) * * * 

(2) * * * 

(iii) * * * 

(A) The term filing of the offering 

statement as used in § 230.262 shall 

mean the first sale of securities under 

this section; 

(B) The term underwriter as used in 

§ 230.262(a) shall mean a person that 

has been or will be paid directly or 

indirectly remuneration for solicitation 

of purchasers in connection with sales 

of securities under this section; and 

* * * * * 

PART 232—REGULATION S–T— 

GENERAL RULES AND REGULATIONS 

FOR ELECTRONIC FILINGS 

■ 7. The authority citation for part 232 

is revised to read in part as follows: 

Authority: 15 U.S.C. 77c, 77f, 77g, 77h, 

77j, 77s(a), 77z–3, 77sss(a), 78c(b), 78l, 78m, 

78n, 78o(d), 78w(a), 78ll, 80a–6(c), 80a–8, 

80a–29, 80a–30, 80a–37, 7201 et seq.; and 18 

U.S.C. 1350, unless otherwise noted. 

* * * * * 

■ 8. Section 232.101 is amended by: 

■ a. Revising paragraph (a)(1)(vii), (xv), 

and (xvi), and (c)(6); 

■ b. Adding paragraph (a)(1)(xvii); and 

■ c. Removing and reserving paragraph 

(b)(8). 

The revisions and addition read as 

follows: 

§ 232.101 Mandated electronic 

submissions and exceptions. 

(a) * * * 

(1) * * * 

(vii) Form F–X (§ 239.42 of this 

chapter) when filed in connection with 

a Form CB (§§ 239.800 and 249.480 of 

this chapter) or a Form 1–A (§ 239.90 of 

this chapter); 

* * * * * 

(xv) Form ABS–EE (§ 249.1401 of this 

chapter); 

(xvi) Form ABS–15G (as defined in 

§ 249.1400 of this chapter); and 

(xvii) Filings made pursuant to 

Regulation A (§§ 230.251–230.263 of 

this chapter). 

* * * * * 

(c) * * * 

(6) Filings on Form 144 (§ 239.144 of 

this chapter) where the issuer of the 

securities is not subject to the reporting 

requirements of section 13 or 15(d) of 

the Exchange Act (15 U.S.C. 78m or 

78o(d), respectively). 

* * * * * 

PART 239—FORMS PRESCRIBED 

UNDER THE SECURITIES ACT OF 1933 

■ 9. The authority citation for part 239 

is revised to read in part as follows: 

Authority: 15 U.S.C. 77c, 77f, 77g, 77h, 77j, 

77s, 77z–2, 77z–3, 77sss, 78c, 78l, 78m, 78n, 

78o(d), 78o–7 note, 78u–5, 78w(a), 78ll, 

78mm, 80a–2(a), 80a–3, 80a–8, 80a–9, 80a– 

10, 80a–13, 80a–24, 80a–26, 80a–29, 80a–30, 

and 80a–37, unless otherwise noted. 

* * * * * 

■ 10. Amend Form 1–A (referenced in 

§ 239.90) by revising it to read as 

follows: 

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UNITED STATES SECURITIES AND 

EXCHANGE COMMISSION 

Washington, DC 20549 

FORM 1–A 

REGULATION A OFFERING 

STATEMENT UNDER THE 

SECURITIES ACT OF 1933 

GENERAL INSTRUCTIONS 

I. Eligibility Requirements for Use of 

Form 1–A. 

This Form is to be used for securities 

offerings made pursuant to Regulation A 

(17 CFR 230.251 et seq.). Careful 

attention should be directed to the 

terms, conditions and requirements of 

Regulation A, especially Rule 251, 

because the exemption is not available 

to all issuers or for every type of 

securities transaction. Further, the 

aggregate offering price and aggregate 

sales of securities in any 12-month 

period is strictly limited to $20 million 

for Tier 1 offerings and $50 million for 

Tier 2 offerings, including no more than 

$6 million offered by all selling 

securityholders that are affiliates of the 

issuer for Tier 1 offerings and $15 

million by all selling securityholders 

that are affiliates of the issuer for Tier 

2 offerings. Please refer to Rule 251 of 

Regulation A for more details. 

II. Preparation, Submission and Filing 

of the Offering Statement. 

An offering statement must be 

prepared by all persons seeking 

exemption under the provisions of 

Regulation A. Parts I, II and III must be 

addressed by all issuers. Part II, which 

relates to the content of the required 

offering circular, provides alternative 

formats, of which the issuer must 

choose one. General information 

regarding the preparation, format, 

content, and submission or filing of the 

offering statement is contained in Rule 

252. Information regarding non-public 

submission of the offering statement is 

contained in Rule 252(d). Requirements 

relating to the offering circular are 

contained in Rules 253 and 254. The 

offering statement must be submitted or 

filed with the Securities and Exchange 

Commission in electronic format by 

means of the Commission’s Electronic 

Data Gathering, Analysis and Retrieval 

System (EDGAR) in accordance with the 

EDGAR rules set forth in Regulation S– 

T (17 CFR part 232) for such submission 

or filing. 

III. Incorporation by Reference and 

Cross-Referencing. 

An issuer may incorporate by 

reference to other documents previously 

submitted or filed on EDGAR. Crossreferencing within the offering 

statement is also encouraged to avoid 

repetition of information. For example, 

you may respond to an item of this 

Form by providing a cross-reference to 

the location of the information in the 

financial statements, instead of 

repeating such information. 

Incorporation by reference and crossreferencing are subject to the following 

additional conditions: 

(a) The use of incorporation by 

reference and cross-referencing in Part II 

of this Form is limited to the following 

items: 

(1) Items 2–14 of Part II if following 

the Offering Circular format; 

(2) Items 3–11 (other than Item 11(e)) 

of Form S–1 if following the Part I of 

Form S–1 format; or 

(3) Items 3–26, 28, and 30 of Form S– 

11 if following the Part I of Form S–11 

format. 

(b) Descriptions of where the 

information incorporated by reference 

or cross-referenced can be found must 

be specific and must clearly identify the 

relevant document and portion thereof 

where such information can be found. 

For exhibits incorporated by reference, 

this description must be noted in the 

exhibits index for each relevant exhibit. 

All descriptions of where information 

incorporated by reference can be found 

must be accompanied by a hyperlink to 

the incorporated document on EDGAR, 

which hyperlink need not remain active 

after the filing of the offering statement. 

Inactive hyperlinks must be updated in 

any amendment to the offering 

statement otherwise required. 

(c) Reference may not be made to any 

document if the portion of such 

document containing the pertinent 

information includes an incorporation 

by reference to another document. 

Incorporation by reference to documents 

not available on EDGAR is not 

permitted. Incorporating information 

into the financial statements from 

elsewhere is not permitted. Information 

shall not be incorporated by reference or 

cross-referenced in any case where such 

incorporation would render the 

statement or report incomplete, unclear, 

or confusing. 

(d) If any substantive modification has 

occurred in the text of any document 

incorporated by reference since such 

document was filed, the issuer must file 

with the reference a statement 

containing the text and date of such 

modification. 

IV. Supplemental Information. 

The information specified below must 

be furnished to the Commission as 

supplemental information, if applicable. 

Supplemental information shall not be 

required to be filed with or deemed part 

of the offering statement, unless 

otherwise required. The information 

shall be returned to the issuer upon 

request made in writing at the time of 

submission, provided that the return of 

such information is consistent with the 

protection of investors and the 

provisions of the Freedom of 

Information Act [5 U.S.C. 552] and the 

information was not filed in electronic 

format. 

(a) A statement as to whether or not 

the amount of compensation to be 

allowed or paid to the underwriter has 

been cleared with the Financial Industry 

Regulatory Authority (FINRA). 

(b) Any engineering, management, 

market, or similar report referenced in 

the offering circular or provided for 

external use by the issuer or by a 

principal underwriter in connection 

with the proposed offering. There must 

also be furnished at the same time a 

statement as to the actual or proposed 

use and distribution of such report or 

memorandum. Such statement must 

identify each class of persons who have 

received or will receive the report or 

memorandum, and state the number of 

copies distributed to each such class 

along with a statement as to the actual 

or proposed use and distribution of such 

report or memorandum. 

(c) Such other information as 

requested by the staff in support of 

statements, representations and other 

assertions contained in the offering 

statement or any correspondence to the 

staff. 

Correspondence appropriately 

responding to any staff comments made 

on the offering statement must also be 

furnished electronically. When 

applicable, such correspondence must 

clearly indicate where changes 

responsive to the staff’s comments may 

be found in the offering statement. 

PART I—NOTIFICATION 

The following information must be 

provided in the XML-based portion of 

Form 1–A available through the EDGAR 

portal and must be completed or 

updated before uploading each offering 

statement or amendment thereto. The 

format of Part I shown below may differ 

from the electronic version available on 

EDGAR. The electronic version of Part 

I will allow issuers to attach Part II and 

Part III for filing by means of EDGAR. 

All items must be addressed, unless 

otherwise indicated. 

* * * * * 

b No changes to the information 

required by Part I have occurred since 

the last filing of this offering statement. 

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21904 Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Rules and Regulations 

ITEM 1. Issuer Information 

Exact name of issuer as specified in the 

issuer’s charter: lllllllllllll

Jurisdiction of incorporation/organization: 

lllllllllllllllllllll

Year of incorporation: llllllllll

CIK: llllllllllllllllll

Primary Standard Industrial Classification 

Code: llllllllllllllllll

I.R.S. Employer Identification Number: 

lllllllllllllllllllll

Total number of full-time employees: 

llllllllllllllll

Total number of part-time employees: lll

Contact Information 

Address of Principal Executive Offices: 

lllllllllllllllllllll

Telephone:(ll) llllllllllll

Provide the following information for the 

person the Securities and Exchange Commission’s staff should call in connection with 

any pre-qualification review of the offering 

statement: llllllllllllllll

lllllllllllllllllllll

Name: lllllllllllllllll

Address: llllllllllllllll

Telephone: (ll) llllllllllll

Provide up to two email addresses to which 

the Securities and Exchange Commission’s 

staff may send any comment letters relating 

to the offering statement. After qualification 

of the offering statement, such email addresses are not required to remain active: llll

lllllllllllllllllllll

Financial Statements 

Industry Group (select one): b Banking 

b Insurance b Other 

Use the financial statements for the 

most recent fiscal period contained in 

this offering statement to provide the 

following information about the issuer. 

The following table does not include all 

of the line items from the financial 

statements. Long Term Debt would 

include notes payable, bonds, 

mortgages, and similar obligations. To 

determine ‘‘Total Revenues’’ for all 

companies selecting ‘‘Other’’ for their 

industry group, refer to Article 5– 

03(b)(1) of Regulation S–X. For 

companies selecting ‘‘Insurance,’’ refer 

to Article 7–04 of Regulation S–X for 

calculation of ‘‘Total Revenues’’ and 

paragraphs 5 and 7(a) for ‘‘Costs and 

Expenses Applicable to Revenues’’. 

[If ‘‘Other’’ is selected, display the 

following options in the Financial 

Statements table:] 

Balance Sheet Information 

Cash and Cash Equivalents: llllllll

Investment Securities: llllllllll

Accounts and Notes Receivable: llllll

Property, Plant and Equipment (PP&E): ll

Total Assets: llllllllllllll

Accounts Payable and Accrued Liabilities: l

Long Term Debt: lllllllllllll

Total Liabilities: lllllllllllll

Total Stockholders’ Equity: llllllll

Total Liabilities and Equity: lllllll

Income Statement Information 

Total Revenues: lllllllllllll

Costs and Expenses Applicable to Revenues: 

lllllllllllllllllllll

Depreciation and Amortization: llllll

Net Income: lllllllllllllll

Earnings Per Share—Basic: llllllll

Earnings Per Share—Diluted: lllllll

[If ‘‘Banking’’ is selected, display the 

following options in the Financial 

Statements table:] 

Balance Sheet Information 

Cash and Cash Equivalents: llllllll

Investment Securities: llllllllll

Loans: lllllllllllllllll

Property and Equipment: lllllllll

Total Assets: llllllllllllll

Accounts Payable and Accrued Liabilities: l

Deposits: llllllllllllllll

Long Term Debt: lllllllllllll

Total Liabilities: lllllllllllll

Total Stockholders’ Equity: llllllll

Total Liabilities and Equity: lllllll

Income Statement Information 

Total Interest Income: llllllllll

Total Interest Expense: llllllllll

Depreciation and Amortization: llllll

Net Income: lllllllllllllll

Earnings Per Share—Basic: llllllll

Earnings Per Share—Diluted: lllllll

[If ‘‘Insurance’’ is selected, display the 

following options in the Financial 

Statements table:] 

Balance Sheet Information 

Cash and Cash Equivalents: llllllll

Total Investments: llllllllllll

Accounts and Notes Receivable: llllll

Property and Equipment: lllllllll

Total Assets: llllllllllllll

Accounts Payable and Accrued Liabilities: l

Policy Liabilities and Accruals: llllll

Long Term Debt: lllllllllllll

Total Liabilities: lllllllllllll

Total Stockholders’ Equity: llllllll

Total Liabilities and Equity: lllllll

Income Statement Information 

Total Revenues: lllllllllllll

Costs and Expenses Applicable to Revenues: 

Depreciation and Amortization: llllll

Net Income: lllllllllllllll

Earnings Per Share—Basic: llllllll

Earnings Per Share—Diluted: lllllll

[End of section that varies based on the 

selection of Industry Group] 

Name of Auditor (if any): lllllllll

Outstanding Securities 

Name of class 

(if any) 

Units 

outstanding CUSIP (if any) Name of trading center or quotation medium (if any) 

Common Equity 

Preferred Equity 

Debt Securities 

ITEM 2. Issuer Eligibility 

b Check this box to certify that all of the 

following statements are true for the 

issuer(s): 

• Organized under the laws of the 

United States or Canada, or any State, 

Province, Territory or possession 

thereof, or the District of Columbia. 

• Principal place of business is in the 

United States or Canada. 

• Not subject to section 13 or 15(d) of 

the Securities Exchange Act of 1934. 

• Not a development stage company 

that either (a) has no specific business 

plan or purpose, or (b) has indicated 

that its business plan is to merge with 

an unidentified company or companies. 

• Not an investment company 

registered or required to be registered 

under the Investment Company Act of 

1940. 

• Not issuing fractional undivided 

interests in oil or gas rights, or a similar 

interest in other mineral rights. 

• Not issuing asset-backed securities 

as defined in Item 1101(c) of Regulation 

AB. 

• Not, and has not been, subject to 

any order of the Commission entered 

pursuant to Section 12(j) of the 

Exchange Act (15 U.S.C. 78l(j)) within 

five years before the filing of this 

offering statement. 

• Has filed with the Commission all 

the reports it was required to file, if any, 

pursuant to Rule 257 during the two 

years immediately before the filing of 

the offering statement (or for such 

shorter period that the issuer was 

required to file such reports). 

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ITEM 3. Application of Rule 262 

b Check this box to certify that, as of 

the time of this filing, each person 

described in Rule 262 of Regulation A 

is either not disqualified under that rule 

or is disqualified but has received a 

waiver of such disqualification. 

b Check this box if ‘‘bad actor’’ 

disclosure under Rule 262(d) is 

provided in Part II of the offering 

statement. 

ITEM 4. Summary Information 

Regarding the Offering and Other 

Current or Proposed Offerings 

Check the appropriate box to indicate 

whether you are conducting a Tier 1 or 

Tier 2 offering: 

b Tier 1 b Tier 2 

Check the appropriate box to indicate 

whether the annual financial statements 

have been audited: 

b Unaudited b Audited 

Types of Securities Offered in this 

Offering Statement (select all that 

apply): 

b Equity (common or preferred stock) 

b Debt 

b Option, warrant or other right to 

acquire another security 

b Security to be acquired upon 

exercise of option, warrant or other right 

to acquire security 

b Tenant-in-common securities 

b Other (describe)llllll 

Does the issuer intend to offer the 

securities on a delayed or continuous 

basis pursuant to Rule 251(d)(3)? 

Yes b No b 

Does the issuer intend this offering to 

last more than one year? 

Yes b No b 

Does the issuer intend to price this 

offering after qualification pursuant to 

Rule 253(b)? 

Yes b No b 

Will the issuer be conducting a best 

efforts offering? 

Yes b No b 

Has the issuer used solicitation of 

interest communications in connection 

with the proposed offering? 

Yes b No b 

Does the proposed offering involve 

the resale of securities by affiliates of 

the issuer? 

Yes b No b 

Number of securities 

offered:llllll 

Number of securities of that class 

already outstanding:llllll 

The information called for by this 

item below may be omitted if 

undetermined at the time of filing or 

submission, except that if a price range 

has been included in the offering 

statement, the midpoint of that range 

must be used to respond. Please refer to 

Rule 251(a) for the definition of 

‘‘aggregate offering price’’ or ‘‘aggregate 

sales’’ as used in this item. Please leave 

the field blank if undetermined at this 

time and include a zero if a particular 

item is not applicable to the offering. 

Price per security: $llllll 

The portion of the aggregate offering 

price attributable to securities being 

offered on behalf of the issuer: 

$llllll 

The portion of the aggregate offering 

price attributable to securities being 

offered on behalf of selling 

securityholders: 

$llllll 

The portion of aggregate offering 

attributable to all the securities of the 

issuer sold pursuant to a qualified 

offering statement within the 12 months 

before the qualification of this offering 

statement: 

$llllll 

The estimated portion of aggregate 

sales attributable to securities that may 

be sold pursuant to any other qualified 

offering statement concurrently with 

securities being sold under this offering 

statement: 

$llllll 

Total: $llllll (the sum of the 

aggregate offering price and aggregate 

sales in the four preceding paragraphs). 

Anticipated fees in connection with 

this offering and names of service 

providers: 

Name of Service 

Provider Fees 

Underwriters: ..................................................................................................................................................... llllllll $lllll 

Sales Commissions: .......................................................................................................................................... llllllll $lllll 

Finders’ Fees: ................................................................................................................................................... llllllll $lllll 

Audit: ................................................................................................................................................................. llllllll $lllll 

Legal: ................................................................................................................................................................. llllllll $lllll 

Promoters: ......................................................................................................................................................... llllllll $lllll 

Blue Sky Compliance: ....................................................................................................................................... llllllll $lllll 

CRD Number of any broker or dealer 

listed:llllll 

Estimated net proceeds to the issuer: 

$llllll 

Clarification of responses (if 

necessary):llllll 

ITEM 5. Jurisdictions in Which 

Securities are to be Offered 

Using the list below, select the 

jurisdictions in which the issuer intends 

to offer the securities: 

[List will include all U.S. and Canadian 

jurisdictions, with an option to add and 

remove them individually, add all and 

remove all.] 

Using the list below, select the 

jurisdictions in which the securities are 

to be offered by underwriters, dealers or 

sales persons or check the appropriate 

box: 

b None 

b Same as the jurisdictions in which the 

issuer intends to offer the securities. 

[List will include all U.S. and Canadian 

jurisdictions, with an option to add and 

remove them individually, add all and 

remove all.] 

ITEM 6. Unregistered Securities Issued 

or Sold Within One Year 

b None 

As to any unregistered securities 

issued by the issuer or any of its 

predecessors or affiliated issuers within 

one year before the filing of this Form 

1–A, state: 

(a) Name of such issuer. 

(b) (1) Title of securities issued 

(2) Total amount of such securities 

issued 

(3) Amount of such securities sold by 

or for the account of any person who at 

the time was a director, officer, 

promoter or principal securityholder of 

the issuer of such securities, or was an 

underwriter of any securities of such 

issuer 

(c)(1) Aggregate consideration for 

which the securities were issued and 

basis for computing the amount thereof. 

lllllllllllllllllllll

lllllllllllllllllllll

lllllllllllllllllllll

(2) Aggregate consideration for which 

the securities listed in (b)(3) of this item 

(if any) were issued and the basis for 

computing the amount thereof (if 

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21906 Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Rules and Regulations 

different from the basis described in 

(c)(1)). 

(e) Indicate the section of the Securities 

Act or Commission rule or regulation 

relied upon for exemption from the 

registration requirements of such Act 

and state briefly the facts relied upon for 

such exemption:lllllllll 

lllllllllllllllllllll

PART II — INFORMATION REQUIRED 

IN OFFERING CIRCULAR 

(a) Financial statement requirements 

regardless of the applicable disclosure 

format are specified in Part F/S of this 

Form 1–A. The narrative disclosure 

contents of offering circulars are 

specified as follows: 

(1) The information required by: 

(i) the Offering Circular format 

described below; or 

(ii) The information required by Part 

I of Form S–1 (17 CFR 239.11) or Part 

I of Form S–11 (17 CFR 239.18), except 

for the financial statements, selected 

financial data, and supplementary 

financial information called for by those 

forms. An issuer choosing to follow the 

Form S–1 or Form S–11 format may 

follow the requirements for smaller 

reporting companies if it meets the 

definition of that term in Rule 405 (17 

CFR 230.405). An issuer may only use 

the Form S–11 format if the offering is 

eligible to be registered on that form; 

The cover page of the offering circular 

must identify which disclosure format is 

being followed. 

(2) The offering circular must describe 

any matters that would have triggered 

disqualification under Rule 262(a)(3) or 

(a)(5) but for the provisions set forth in 

Rule 262(b)(1); 

(3) The legend required by Rule 253(f) 

of Regulation A must be included on the 

offering circular cover page (for issuers 

following the S–1 or S–11 disclosure 

models this legend must be included 

instead of the legend required by Item 

501(b)(7) of Regulation S–K); 

(4) For preliminary offering circulars, 

the legend required by Rule 254(a) must 

be included on the offering circular 

cover page (for issuers following the S– 

1 or S–11 disclosure models, this legend 

must be included instead of the legend 

required by Item 501(b)(10) of 

Regulation S–K); and 

(5) For Tier 2 offerings where the 

securities will not be listed on a 

registered national securities exchange 

upon qualification, the offering circular 

cover page must include the following 

legend highlighted by prominent type or 

in another manner: 

Generally, no sale may be made to 

you in this offering if the aggregate 

purchase price you pay is more than 

10% of the greater of your annual 

income or net worth. Different rules 

apply to accredited investors and nonnatural persons. Before making any 

representation that your investment 

does not exceed applicable thresholds, 

we encourage you to review Rule 

251(d)(2)(i)(C) of Regulation A. For 

general information on investing, we 

encourage you to refer to 

www.investor.gov. 

(b) The Commission encourages the 

use of management’s projections of 

future economic performance that have 

a reasonable basis and are presented in 

an appropriate format. See Rule 175, 17 

CFR 230.175. 

(c) Offering circulars need not follow 

the order of the items or the order of 

other requirements of the disclosure 

form except to the extent otherwise 

specifically provided. Such information 

may not, however, be set forth in such 

a fashion as to obscure any of the 

required information or any information 

necessary to keep the required 

information from being incomplete or 

misleading. Information requested to be 

presented in a specified tabular format 

must be given in substantially the 

tabular format specified. For 

incorporation by reference, please refer 

to General Instruction III of this Form. 

OFFERING CIRCULAR 

Item 1. Cover Page of Offering Circular 

The cover page of the offering circular 

must be limited to one page and must 

include the information specified in this 

item. 

(a) Name of the issuer. 

Instruction to Item 1(a): 

If your name is the same as, or 

confusingly similar to, that of a 

company that is well known, include 

information to eliminate any possible 

confusion with the other company. If 

your name indicates a line of business 

in which you are not engaged or you are 

engaged only to a limited extent, 

include information to eliminate any 

misleading inference as to your 

business. In some circumstances, 

disclosure may not be sufficient and you 

may be required to change your name. 

You will not be required to change your 

name if you are an established 

company, the character of your business 

has changed, and the investing public is 

generally aware of the change and the 

character of your current business. 

(b) Full mailing address of the issuer’s 

principal executive offices and the 

issuer’s telephone number (including 

the area code) and, if applicable, Web 

site address. 

(c) Date of the offering circular. 

(d) Title and amount of securities 

offered. Separately state the amount of 

securities offered by selling 

securityholders, if any. Include a crossreference to the section where the 

disclosure required by Item 14 of Part II 

of this Form 1–A has been provided; 

(e) The information called for by the 

applicable table below as to all the 

securities being offered, in substantially 

the tabular format indicated. If 

necessary, you may estimate any 

underwriting discounts and 

commissions and the proceeds to the 

issuer or other persons. 

Price to public Underwriting discount and 

commissions Proceeds to issuer Proceeds to other persons 

Per share/unit: ........................ llllllllllll llllllllllll llllllllllll llllll 

Total: ....................................... llllllllllll llllllllllll llllllllllll llllll 

If the securities are to be offered on 

a best efforts basis, the cover page must 

set forth the termination date, if any, of 

the offering, any minimum required sale 

and any arrangements to place the funds 

received in an escrow, trust, or similar 

arrangement. The following table must 

be used instead of the preceding table. 

Price to public Underwriting discount and 

commissions Proceeds to issuer Proceeds to other persons 

Per share/unit: ........................ llllllllllll llllllllllll llllllllllll llllll 

Total Minimum: ....................... llllllllllll llllllllllll llllllllllll llllll 

Total Maximum: ...................... llllllllllll llllllllllll llllllllllll llllll 

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Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Rules and Regulations 21907 

Instructions to Item 1(e): 

1. The term ‘‘commissions’’ includes 

all cash, securities, contracts, or 

anything else of value, paid, to be set 

aside, disposed of, or understandings 

with or for the benefit of any other 

persons in which any underwriter is 

interested, made in connection with the 

sale of such security. 

2. Only commissions paid by the 

issuer in cash are to be indicated in the 

table. Commissions paid by other 

persons or any form of non-cash 

compensation must be briefly identified 

in a footnote to the table with a crossreference to a more complete 

description elsewhere in the offering 

circular. 

3. Before the commencement of sales 

pursuant to Regulation A, the issuer 

must inform the Commission whether or 

not the amount of compensation to be 

allowed or paid to the underwriters, as 

described in the offering statement, has 

been cleared with FINRA. 

4. If the securities are not to be offered 

for cash, state the basis upon which the 

offering is to be made. 

5. Any finder’s fees or similar 

payments must be disclosed on the 

cover page with a reference to a more 

complete discussion in the offering 

circular. Such disclosure must identify 

the finder, the nature of the services 

rendered and the nature of any 

relationship between the finder and the 

issuer, its officers, directors, promoters, 

principal stockholders and underwriters 

(including any affiliates of such 

persons). 

6. The amount of the expenses of the 

offering borne by the issuer, including 

underwriting expenses to be borne by 

the issuer, must be disclosed in a 

footnote to the table. 

(f) The name of the underwriter or 

underwriters. 

(g) Any legend or information 

required by the law of any state in 

which the securities are to be offered. 

(h) A cross-reference to the risk 

factors section, including the page 

number where it appears in the offering 

circular. Highlight this cross-reference 

by prominent type or in another 

manner. 

(i) Approximate date of 

commencement of proposed sale to the 

public. 

(j) If the issuer intends to rely on Rule 

253(b) and a preliminary offering 

circular is circulated, provide (1) a bona 

fide estimate of the range of the 

maximum offering price and the 

maximum number of securities offered 

or (2) a bona fide estimate of the 

principal amount of the debt securities 

offered. The range must not exceed $2 

for offerings where the upper end of the 

range is $10 or less and 20% if the 

upper end of the price range is over $10. 

Instruction to Item 1(j): 

The upper limit of the price range 

must be used in determining the 

aggregate offering price for purposes of 

Rule 251(a). 

Item 2. Table of Contents 

On the page immediately following 

the cover page of the offering circular, 

provide a reasonably detailed table of 

contents. It must show the page 

numbers of the various sections or 

subdivisions of the offering circular. 

Include a specific listing of the risk 

factors section required by Item 3 of Part 

II of this Form 1–A. 

Item 3. Summary and Risk Factors 

(a) An issuer may provide a summary 

of the information in the offering 

circular where the length or complexity 

of the offering circular makes a 

summary useful. The summary should 

be brief and must not contain all of the 

detailed information in the offering 

circular. 

(b) Immediately following the Table of 

Contents required by Item 2 or the 

Summary, there must be set forth under 

an appropriate caption, a carefully 

organized series of short, concise 

paragraphs, summarizing the most 

significant factors that make the offering 

speculative or substantially risky. 

Issuers should avoid generalized 

statements and include only factors that 

are specific to the issuer. 

Item 4. Dilution 

Where there is a material disparity 

between the public offering price and 

the effective cash cost to officers, 

directors, promoters and affiliated 

persons for shares acquired by them in 

a transaction during the past year, or 

that they have a right to acquire, there 

must be included a comparison of the 

public contribution under the proposed 

public offering and the average effective 

cash contribution of such persons. 

Item 5. Plan of Distribution and Selling 

Securityholders 

(a) If the securities are to be offered 

through underwriters, give the names of 

the principal underwriters, and state the 

respective amounts underwritten. 

Identify each such underwriter having a 

material relationship to the issuer and 

state the nature of the relationship. State 

briefly the nature of the underwriters’ 

obligation to take the securities. 

Instructions to Item 5(a): 

1. All that is required as to the nature 

of the underwriters’ obligation is 

whether the underwriters are or will be 

committed to take and to pay for all of 

the securities if any are taken, or 

whether it is merely an agency or the 

type of best efforts arrangement under 

which the underwriters are required to 

take and to pay for only such securities 

as they may sell to the public. 

Conditions precedent to the 

underwriters’ taking the securities, 

including market outs, need not be 

described except in the case of an 

agency or best efforts arrangement. 

2. It is not necessary to disclose each 

member of a selling group. Disclosure 

may be limited to those underwriters 

who are in privity of contract with the 

issuer with respect to the offering. 

(b) State briefly the discounts and 

commissions to be allowed or paid to 

dealers, including all cash, securities, 

contracts or other consideration to be 

received by any dealer in connection 

with the sale of the securities. 

(c) Outline briefly the plan of 

distribution of any securities being 

issued that are to be offered through the 

selling efforts of brokers or dealers or 

otherwise than through underwriters. 

(d) If any of the securities are to be 

offered for the account of 

securityholders, identify each selling 

securityholder, state the amount owned 

by the securityholder prior to the 

offering, the amount offered for his or 

her account and the amount to be 

owned after the offering. Provide such 

disclosure in a tabular format. At the 

bottom of the table, provide the total 

number of securities being offered for 

the account of all securityholders and 

describe what percent of the pre-offering 

outstanding securities of such class the 

offering represents. 

Instruction to Item 5(d): 

The term ‘‘securityholder’’ in this 

paragraph refers to beneficial holders, 

not nominee holders or other such 

holders of record. If the selling 

securityholder is an entity, disclosure of 

the persons who have sole or shared 

voting or investment power must be 

included. 

(e) Describe any arrangements for the 

return of funds to subscribers if all of 

the securities to be offered are not sold. 

If there are no such arrangements, so 

state. 

(f) If there will be a material delay in 

the payment of the proceeds of the 

offering by the underwriter to the issuer, 

the salient provisions in this regard and 

the effects on the issuer must be stated. 

(g) Describe any arrangement to (1) 

limit or restrict the sale of other 

securities of the same class as those to 

be offered for the period of distribution, 

(2) stabilize the market for any of the 

securities to be offered, or (3) withhold 

commissions, or otherwise to hold each 

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21908 Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Rules and Regulations 

underwriter or dealer responsible for the 

distribution of its participation. 

(h) Identify any underwriter that 

intends to confirm sales to any accounts 

over which it exercises discretionary 

authority and include an estimate of the 

amount of securities so intended to be 

confirmed. 

Instruction to Item 5: 

Attention is directed to the provisions 

of Rules 10b 9 [17 CFR 240.10b–9] and 

15c2–4 [17 CFR 240.15c2–4] under the 

Securities Exchange Act of 1934. These 

rules outline, among other things, 

antifraud provisions concerning the 

return of funds to subscribers and the 

transmission of proceeds of an offering 

to a seller. 

Item 6. Use of Proceeds to Issuer 

State the principal purposes for which 

the net proceeds to the issuer from the 

securities to be offered are intended to 

be used and the approximate amount 

intended to be used for each such 

purpose. If the issuer will not receive 

any of proceeds from the offering, so 

state. 

Instructions to Item 6: 

1. If any substantial portion of the 

proceeds has not been allocated for 

particular purposes, a statement to that 

effect must be made together with a 

statement of the amount of proceeds not 

so allocated. 

2. State whether or not the proceeds 

will be used to compensate or otherwise 

make payments to officers or directors 

of the issuer or any of its subsidiaries. 

3. For best efforts offerings, describe 

any anticipated material changes in the 

use of proceeds if all of the securities 

being qualified on the offering statement 

are not sold. 

4. If an issuer must provide the 

disclosure described in Item 9(c) the use 

of proceeds and plan of operations 

should be consistent. 

5. If any material amounts of other 

funds are to be used in conjunction with 

the proceeds, state the amounts and 

sources of such other funds and whether 

such funds are firm or contingent. 

6. If any material part of the proceeds 

is to be used to discharge indebtedness, 

describe the material terms of such 

indebtedness. If the indebtedness to be 

discharged was incurred within one 

year, describe the use of the proceeds 

arising from such indebtedness. 

7. If any material amount of the 

proceeds is to be used to acquire assets, 

otherwise than in the ordinary course of 

business, briefly describe and state the 

cost of the assets. If the assets are to be 

acquired from affiliates of the issuer or 

their associates, give the names of the 

persons from whom they are to be 

acquired and set forth the basis used in 

determining the purchase price to the 

issuer. 

8. The issuer may reserve the right to 

change the use of proceeds, so long as 

the reservation is prominently disclosed 

in the section where the use of proceeds 

is discussed. It is not necessary to 

describe the possible alternative uses of 

proceeds unless the issuer believes that 

a change in circumstances leading to an 

alternative use of proceeds is likely to 

occur. 

Item 7. Description of Business 

(a) Narrative description of business. 

(1) Describe the business done and 

intended to be done by the issuer and 

its subsidiaries and the general 

development of the business during the 

past three years or such shorter period 

as the issuer may have been in business. 

Such description must include, but not 

be limited to, a discussion of the 

following factors if such factors are 

material to an understanding of the 

issuer’s business: 

(i) The principal products and 

services of the issuer and the principal 

market for and method of distribution of 

such products and services. 

(ii) The status of a product or service 

if the issuer has made public 

information about a new product or 

service that would require the 

investment of a material amount of the 

assets of the issuer or is otherwise 

material. 

(iii) If material, the estimated amount 

spent during each of the last two fiscal 

years on company-sponsored research 

and development activities determined 

in accordance with generally accepted 

accounting principles. In addition, state, 

if material, the estimated dollar amount 

spent during each of such years on 

material customer-sponsored research 

activities relating to the development of 

new products, services or techniques or 

the improvement of existing products, 

services or techniques. 

(iv) The total number of persons 

employed by the issuer, indicating the 

number employed full time. 

(v) Any bankruptcy, receivership or 

similar proceeding. 

(vi) Any legal proceedings material to 

the business or financial condition of 

the issuer. 

(vii) Any material reclassification, 

merger, consolidation, or purchase or 

sale of a significant amount of assets not 

in the ordinary course of business. 

(2) The issuer must also describe 

those distinctive or special 

characteristics of the issuer’s operation 

or industry that are reasonably likely to 

have a material impact upon the issuer’s 

future financial performance. Examples 

of factors that might be discussed 

include dependence on one or a few 

major customers or suppliers (including 

suppliers of raw materials or financing), 

effect of existing or probable 

governmental regulation (including 

environmental regulation), material 

terms of and/or expiration of material 

labor contracts or patents, trademarks, 

licenses, franchises, concessions or 

royalty agreements, unusual competitive 

conditions in the industry, cyclicality of 

the industry and anticipated raw 

material or energy shortages to the 

extent management may not be able to 

secure a continuing source of supply. 

(b) Segment Data. If the issuer is 

required by generally accepted 

accounting principles to include 

segment information in its financial 

statements, an appropriate crossreference must be included in the 

description of business. 

(c) Industry Guides. The disclosure 

guidelines in all Securities Act Industry 

Guides must be followed. To the extent 

that the industry guides are codified 

into Regulation S–K, the Regulation S– 

K industry disclosure items must be 

followed. 

(d) For offerings of limited 

partnership or limited liability company 

interests, an issuer must comply with 

the Commission’s interpretive views on 

substantive disclosure requirements set 

forth in Securities Act Release No. 6900 

(June 17, 1991). 

Item 8. Description of Property 

State briefly the location and general 

character of any principal plants or 

other material physical properties of the 

issuer and its subsidiaries. If any such 

property is not held in fee or is held 

subject to any major encumbrance, so 

state and briefly describe how held. 

Include information regarding the 

suitability, adequacy, productive 

capacity and extent of utilization of the 

properties and facilities used in the 

issuer’s business. 

Instruction to Item 8: 

Detailed descriptions of the physical 

characteristics of individual properties 

or legal descriptions by metes and 

bounds are not required and should not 

be given. 

Item 9. Management’s Discussion and 

Analysis of Financial Condition and 

Results of Operations 

Discuss the issuer’s financial 

condition, changes in financial 

condition and results of operations for 

each year and interim period for which 

financial statements are required, 

including the causes of material changes 

from year to year or period to period in 

financial statement line items, to the 

extent necessary for an understanding of 

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Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Rules and Regulations 21909 

the issuer’s business as a whole. 

Information provided also must relate to 

the segment information of the issuer. 

Provide the information specified below 

as well as such other information that is 

necessary for an investor’s 

understanding of the issuer’s financial 

condition, changes in financial 

condition and results of operations. 

(a) Operating results. Provide 

information regarding significant 

factors, including unusual or infrequent 

events or transactions or new 

developments, materially affecting the 

issuer’s income from operations, and, in 

each case, indicating the extent to 

which income was so affected. Describe 

any other significant component of 

revenue or expenses necessary to 

understand the issuer’s results of 

operations. To the extent that the 

financial statements disclose material 

changes in net sales or revenues, 

provide a narrative discussion of the 

extent to which such changes are 

attributable to changes in prices or to 

changes in the volume or amount of 

products or services being sold or to the 

introduction of new products or 

services. 

Instruction to Item 9(a): 

1. The discussion and analysis shall 

focus specifically on material events 

and uncertainties known to 

management that would cause reported 

financial information not to be 

necessarily indicative of future 

operating results or of future financial 

condition. This would include 

descriptions and amounts of (A) matters 

that would have an impact on future 

operations that have not had an impact 

in the past, and (B) matters that have 

had an impact on reported operations 

that are not expected to have an impact 

upon future operations. 

2. Where the consolidated financial 

statements reveal material changes from 

year to year in one or more line items, 

the causes for the changes shall be 

described to the extent necessary to an 

understanding of the issuer’s businesses 

as a whole. If the causes for a change 

in one line item also relate to other line 

items, no repetition is required and a 

line-by-line analysis of the financial 

statements as a whole is not required or 

generally appropriate. Issuers need not 

recite the amounts of changes from year 

to year which are readily computable 

from the financial statements. The 

discussion must not merely repeat 

numerical data contained in the 

consolidated financial statements. 

3. When interim period financial 

statements are included, discuss any 

material changes in financial condition 

from the end of the preceding fiscal year 

to the date of the most recent interim 

balance sheet provided. Discuss any 

material changes in the issuer’s results 

of operations with respect to the most 

recent fiscal year-to-date period for 

which an income statement is provided 

and the corresponding year-to-date 

period of the preceding fiscal year. 

(b) Liquidity and capital resources. 

Provide information regarding the 

following: 

(1) the issuer’s liquidity (both short 

and long term), including a description 

and evaluation of the internal and 

external sources of liquidity and a brief 

discussion of any material unused 

sources of liquidity. If a material 

deficiency in liquidity is identified, 

indicate the course of action that the 

issuer has taken or proposes to take to 

remedy the deficiency. 

(2) the issuer’s material commitments 

for capital expenditures as of the end of 

the latest fiscal year and any subsequent 

interim period and an indication of the 

general purpose of such commitments 

and the anticipated sources of funds 

needed to fulfill such commitments. 

(c) Plan of Operations. Issuers 

(including predecessors) that have not 

received revenue from operations 

during each of the three fiscal years 

immediately before the filing of the 

offering statement (or since inception, 

whichever is shorter) must describe, if 

formulated, their plan of operation for 

the 12 months following the 

commencement of the proposed 

offering. If such information is not 

available, the reasons for its 

unavailability must be stated. Disclosure 

relating to any plan must include, 

among other things, a statement 

indicating whether, in the issuer’s 

opinion, the proceeds from the offering 

will satisfy its cash requirements or 

whether it anticipates it will be 

necessary to raise additional funds in 

the next six months to implement the 

plan of operations. 

(d) Trend information. The issuer 

must identify the most significant recent 

trends in production, sales and 

inventory, the state of the order book 

and costs and selling prices since the 

latest financial year. The issuer also 

must discuss, for at least the current 

financial year, any known trends, 

uncertainties, demands, commitments 

or events that are reasonably likely to 

have a material effect on the issuer’s net 

sales or revenues, income from 

continuing operations, profitability, 

liquidity or capital resources, or that 

would cause reported financial 

information not necessarily to be 

indicative of future operating results or 

financial condition. 

Item 10. Directors, Executive Officers 

and Significant Employees 

(a) For each of the directors, persons 

nominated or chosen to become 

directors, executive officers, persons 

chosen to become executive officers, 

and significant employees, provide the 

information specified below in 

substantially the following tabular 

format: 

Name Position Age Term of Office (1) Approximate hours per week for part-time 

employees (2)

Executive Officers: 

Directors: 

Significant Employees: 

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(1) Provide the month and year of the 

start date and, if applicable, the end 

date. To the extent you are unable to 

provide specific dates, provide such 

other description in the table or in an 

appropriate footnote clarifying the term 

of office. If the person is a nominee or 

chosen to become a director or 

executive officer, it must be indicated in 

this column or by footnote. 

(2) For executive officers and 

significant employees that are working 

part-time, indicate approximately the 

average number of hours per week or 

month such person works or is 

anticipated to work. This column may 

be left blank for directors. The entire 

column may be omitted if all those 

listed in the table work full time for the 

issuer. 

In a footnote to the table, briefly 

describe any arrangement or 

understanding between the persons 

described above and any other persons 

(naming such persons) pursuant to 

which the person was or is to be 

selected to his or her office or position. 

Instructions to Item 10(a): 

1. No nominee or person chosen to 

become a director or person chosen to 

be an executive officer who has not 

consented to act as such may be named 

in response to this item. 

2. The term ‘‘executive officer’’ means 

the president, secretary, treasurer, any 

vice president in charge of a principal 

business function (such as sales, 

administration, or finance) and any 

other person who performs similar 

policy making functions for the issuer. 

3. The term ‘‘significant employee’’ 

means persons such as production 

managers, sales managers, or research 

scientists, who are not executive 

officers, but who make or are expected 

to make significant contributions to the 

business of the issuer. 

(b) Family relationships. State the 

nature of any family relationship 

between any director, executive officer, 

person nominated or chosen by the 

issuer to become a director or executive 

officer or any significant employee. 

Instruction to Item 10(b): 

The term ‘‘family relationship’’ means 

any relationship by blood, marriage, or 

adoption, not more remote than first 

cousin. 

(c) Business experience. Give a brief 

account of the business experience 

during the past five years of each 

director, executive officer, person 

nominated or chosen to become a 

director or executive officer, and each 

significant employee, including his or 

her principal occupations and 

employment during that period and the 

name and principal business of any 

corporation or other organization in 

which such occupations and 

employment were carried on. When an 

executive officer or significant employee 

has been employed by the issuer for less 

than five years, a brief explanation must 

be included as to the nature of the 

responsibilities undertaken by the 

individual in prior positions to provide 

adequate disclosure of this prior 

business experience. What is required is 

information relating to the level of the 

employee’s professional competence, 

which may include, depending upon 

the circumstances, such specific 

information as the size of the operation 

supervised. 

(d) Involvement in certain legal 

proceedings. Describe any of the 

following events which occurred during 

the past five years and which are 

material to an evaluation of the ability 

or integrity of any director, person 

nominated to become a director or 

executive officer of the issuer: 

(1) A petition under the federal 

bankruptcy laws or any state insolvency 

law was filed by or against, or a 

receiver, fiscal agent or similar officer 

was appointed by a court for the 

business or property of such person, or 

any partnership in which he was 

general partner at or within two years 

before the time of such filing, or any 

corporation or business association of 

which he was an executive officer at or 

within two years before the time of such 

filing; or 

(2) Such person was convicted in a 

criminal proceeding (excluding traffic 

violations and other minor offenses). 

Item 11. Compensation of Directors and 

Executive Officers 

(a) Provide, in substantially the 

tabular format indicated, the annual 

compensation of each of the three 

highest paid persons who were 

executive officers or directors during the 

issuer’s last completed fiscal year. 

Name Capacities in which compensation was received 

(e.g., Chief Executive Officer, director, etc.) 

Cash 

compensation 

($) 

Other 

compensation 

($) 

Total 

compensation 

($) 

....................................................................................................

....................................................................................................

....................................................................................................

(b) Provide the aggregate annual 

compensation of the issuer’s directors as 

a group for the issuer’s last completed 

fiscal year. Specify the total number of 

directors in the group. 

(c) For Tier 1 offerings, the annual 

compensation of the three highest paid 

persons who were executive officers or 

directors and the aggregate annual 

compensation of the issuer’s directors 

may be provided as a group, rather than 

as specified in paragraphs (a) and (b) of 

this item. In such case, issuers must 

specify the total number of persons in 

the group. 

(d) Briefly describe all proposed 

compensation to be made in the future 

pursuant to any ongoing plan or 

arrangement to the individuals specified 

in paragraphs (a) and (b) of this item. 

The description must include a 

summary of how each plan operates, 

any performance formula or measure in 

effect (or the criteria used to determine 

payment amounts), the time periods 

over which the measurements of 

benefits will be determined, payment 

schedules, and any recent material 

amendments to the plan. Information 

need not be included with respect to 

any group life, health, hospitalization, 

or medical reimbursement plans that do 

not discriminate in scope, terms or 

operation in favor of executive officers 

or directors of the issuer and that are 

available generally to all salaried 

employees. 

Instructions to Item 11: 

1. In case of compensation paid or to 

be paid otherwise than in cash, if it is 

impracticable to determine the cash 

value thereof, state in a note to the table 

the nature and amount thereof. 

2. This item is to be answered on an 

accrual basis if practicable; if not so 

answered, state the basis used. 

Item 12. Security Ownership of 

Management and Certain 

Securityholders 

(a) Include the information specified 

in paragraph (b) of this item as of the 

most recent practicable date (stating the 

date used), in substantially the tabular 

format indicated, with respect to voting 

securities beneficially owned by: 

(1) all executive officers and directors 

as a group, individually naming each 

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director or executive officer who 

beneficially owns more than 10% of any 

class of the issuer’s voting securities; 

(2) any other securityholder who 

beneficially owns more than 10% of any 

class of the issuer’s voting securities as 

such beneficial ownership would be 

calculated if the issuer were subject to 

Rule 13d–3(d)(1) of the Securities 

Exchange Act of 1934. 

(b) Beneficial Ownership Table: 

Title of class Name and address of 

beneficial owner(1)

Amount and nature of 

beneficial ownership 

Amount and nature of 

beneficial ownership 

acquirable (2)

Percent of class (3)

(1) The address given in this column 

may be a business, mailing, or 

residential address. The address may be 

included in an appropriate footnote to 

the table rather than in this column. 

(2) This column must include the 

amount of equity securities each 

beneficial owner has the right to acquire 

using the manner specified in Rule 13d– 

3(d)(1) of the Securities Exchange Act of 

1934. An appropriate footnote must be 

included if the column heading does not 

sufficiently describe the circumstances 

upon which such securities could be 

acquired. 

(3) This column must use the amounts 

contained in the two preceding columns 

to calculate the percent of class owned 

by such beneficial owner. 

Item 13. Interest of Management and 

Others in Certain Transactions 

(a) Describe briefly any transactions or 

any currently proposed transactions 

during the issuer’s last two completed 

fiscal years and the current fiscal year, 

to which the issuer or any of its 

subsidiaries was or is to be a participant 

and the amount involved exceeds 

$50,000 for Tier 1 or the lesser of 

$120,000 and one percent of the average 

of the issuer’s total assets at year end for 

the last two completed fiscal years for 

Tier 2, and in which any of the 

following persons had or is to have a 

direct or indirect material interest, 

naming the person and stating his or her 

relationship to the issuer, the nature of 

the person’s interest in the transaction 

and, where practicable, the amount of 

such interest: 

(1) Any director or executive officer of 

the issuer; 

(2) Any nominee for election as a 

director; 

(3) Any securityholder named in 

answer to Item 12(a)(2); 

(4) If the issuer was incorporated or 

organized within the past three years, 

any promoter of the issuer; or 

(5) Any immediate family member of 

the above persons. An ‘‘immediate 

family member’’ of a person means such 

person’s child, stepchild, parent, 

stepparent, spouse, sibling, mother-inlaw, father-in-law, son-in-law, daughterin-law, brother-in-law, sister-in-law, or 

any person (other than a tenant or 

employee) sharing such person’s 

household. 

Instructions to Item 13(a): 

1. For purposes of calculating the 

amount of the transaction described 

above, all periodic installments in the 

case of any lease or other agreement 

providing for periodic payments must be 

aggregated to the extent they occurred 

within the time period described in this 

item. 

2. No information need be given in 

answer to this item as to any transaction 

where: 

(a) The rates of charges involved in 

the transaction are determined by 

competitive bids, or the transaction 

involves the rendering of services as a 

common or contract carrier at rates or 

charges fixed in conformity with law or 

governmental authority; 

(b) The transaction involves services 

as a bank depositary of funds, transfer 

agent, registrar, trustee under a trust 

indenture, or similar services; 

(c) The interest of the specified person 

arises solely from the ownership of 

securities of the issuer and the specified 

person receives no extra or special 

benefit not shared on a pro-rata basis by 

all of the holders of securities of the 

class. 

3. This item calls for disclosure of 

indirect as well as direct material 

interests in transactions. A person who 

has a position or relationship with a 

firm, corporation, or other entity which 

engages in a transaction with the issuer 

or its subsidiaries may have an indirect 

interest in such transaction by reason of 

the position or relationship. However, a 

person is deemed not to have a material 

indirect interest in a transaction within 

the meaning of this item where: 

(a) the interest arises only (i) from the 

person’s position as a director of 

another corporation or organization 

(other than a partnership) that is a party 

to the transaction, or (ii) from the direct 

or indirect ownership by the person and 

all other persons specified in 

paragraphs (1) through (5) of this item, 

in the aggregate, of less than a 10 

percent equity interest in another person 

(other than a partnership) that is a party 

to the transaction, or (iii) from both such 

position and ownership; 

(b) the interest arises only from the 

person’s position as a limited partner in 

a partnership in which the person and 

all other persons specified in 

paragraphs (1) through (5) of this item 

had an interest of less than 10 percent; 

or 

(c) the interest of the person arises 

solely from the holding of an equity 

interest (unless the equity interest 

confers management rights similar to a 

general partner interest) or a creditor 

interest in another person that is a party 

to the transaction with the issuer or any 

of its subsidiaries and the transaction is 

not material to the other person. 

4. Include the name of each person 

whose interest in any transaction is 

described and the nature of the 

relationships by reason of which such 

interest is required to be described. The 

amount of the interest of any specified 

person must be computed without 

regard to the amount of the profit or loss 

involved in the transaction. Where it is 

not practicable to state the approximate 

amount of the interest, the approximate 

amount involved in the transaction 

must be disclosed. 

5. Information must be included as to 

any material underwriting discounts 

and commissions upon the sale of 

securities by the issuer where any of the 

specified persons was or is to be a 

principal underwriter or is a controlling 

person, or member, of a firm which was 

or is to be a principal underwriter. 

Information need not be given 

concerning ordinary management fees 

paid by underwriters to a managing 

underwriter pursuant to an agreement 

among underwriters, the parties to 

which do not include the issuer or its 

subsidiaries. 

6. As to any transaction involving the 

purchase or sale of assets by or to any 

issuer or any subsidiary, otherwise than 

in the ordinary course of business, state 

the cost of the assets to the purchaser 

and, if acquired by the seller within two 

years before the transaction, the cost to 

the seller. 

7. Information must be included in 

answer to this item with respect to 

transactions not excluded above which 

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21912 Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Rules and Regulations 

involve compensation from the issuer or 

its subsidiaries, directly or indirectly, to 

any of the specified persons for services 

in any capacity unless the interest of 

such persons arises solely from the 

ownership individually and in the 

aggregate of less than 10 percent of any 

class of equity securities of another 

corporation furnishing the services to 

the issuer or its subsidiaries. 

(b) If any expert named in the offering 

statement as having prepared or 

certified any part of the offering 

statement was employed for such 

purpose on a contingent basis or, at the 

time of such preparation or certification 

or at any time thereafter, had a material 

interest in the issuer or any of its 

parents or subsidiaries or was connected 

with the issuer or any of its subsidiaries 

as a promoter, underwriter, voting 

trustee, director, officer or employee, 

describe the nature of such contingent 

basis, interest or connection. 

Item 14. Securities Being Offered 

(a) If capital stock is being offered, 

state the title of the class and furnish the 

following information regarding all 

classes of capital stock outstanding: 

(1) Outline briefly: (i) dividend rights; 

(ii) voting rights; (iii) liquidation rights; 

(iv) preemptive rights; (v) conversion 

rights; (vi) redemption provisions; (vii) 

sinking fund provisions; (viii) liability 

to further calls or to assessment by the 

issuer; (ix) any classification of the 

Board of Directors, and the impact of 

classification where cumulative voting 

is permitted or required; (x) restrictions 

on alienability of the securities being 

offered; (xi) any provision 

discriminating against any existing or 

prospective holder of such securities as 

a result of such securityholder owning 

a substantial amount of securities; and 

(xii) any rights of holders that may be 

modified otherwise than by a vote of a 

majority or more of the shares 

outstanding, voting as a class. 

(2) Briefly describe potential 

liabilities imposed on securityholders 

under state statutes or foreign law, for 

example, to employees of the issuer, 

unless such disclosure would be 

immaterial because the financial 

resources of the issuer or other factors 

are such as to make it unlikely that the 

liability will ever be imposed. 

(3) If preferred stock is to be offered 

or is outstanding, describe briefly any 

restriction on the repurchase or 

redemption of shares by the issuer while 

there is any arrearage in the payment of 

dividends or sinking fund installments. 

If there is no such restriction, so state. 

(b) If debt securities are being offered, 

outline briefly the following: 

(1) Provisions with respect to interest, 

conversion, maturity, redemption, 

amortization, sinking fund or 

retirement. 

(2) Provisions with respect to the kind 

and priority of any lien securing the 

issue, together with a brief identification 

of the principal properties subject to 

such lien. 

(3) Material affirmative and negative 

covenants. 

Instruction to Item 14(b): 

In the case of secured debt there must 

be stated: (i) the approximate amount of 

unbonded property available for use 

against the issuance of bonds, as of the 

most recent practicable date, and (ii) 

whether the securities being issued are 

to be issued against such property, 

against the deposit of cash, or 

otherwise. 

(c) If securities described are to be 

offered pursuant to warrants, rights, or 

convertible securities, state briefly: 

(1) the amount of securities issuable 

upon the exercise or conversion of such 

warrants, convertible securities or 

rights; 

(2) the period during which and the 

price at which the warrants, convertible 

securities or rights are exercisable; 

(3) the amounts of warrants, 

convertible securities or rights 

outstanding; and 

(4) any other material terms of such 

securities. 

(d) In the case of any other kind of 

securities, include a brief description 

with comparable information to that 

required in (a), (b) and (c) of Item 14. 

Part F/S 

(a) General Rules 

(1) The appropriate financial 

statements set forth below of the issuer, 

or the issuer and its predecessors or any 

businesses to which the issuer is a 

successor must be filed as part of the 

offering statement and included in the 

offering circular that is distributed to 

investors. 

(2) Unless the issuer is a Canadian 

company, financial statements must be 

prepared in accordance with generally 

accepted accounting principles in the 

United States (US GAAP). If the issuer 

is a Canadian company, such financial 

statements must be prepared in 

accordance with either US GAAP or 

International Financial Reporting 

Standards (IFRS) as issued by the 

International Accounting Standards 

Board (IASB). If the financial statements 

comply with IFRS, such compliance 

must be explicitly and unreservedly 

stated in the notes to the financial 

statements and if the financial 

statements are audited, the auditor’s 

report must include an opinion on 

whether the financial statements 

comply with IFRS as issued by the 

IASB. 

(3) The issuer may elect to delay 

complying with any new or revised 

financial accounting standard until the 

date that a company that is not an issuer 

(as defined under section 2(a) of the 

Sarbanes-Oxley Act of 2002 (15 U.S.C. 

7201(a)) is required to comply with such 

new or revised accounting standard, if 

such standard also applies to companies 

that are not issuers. Issuers electing 

such extension of time accommodation 

must disclose it at the time the issuer 

files its offering statement and apply the 

election to all standards. Issuers electing 

not to use this accommodation must 

forgo this accommodation for all 

financial accounting standards and may 

not elect to rely on this accommodation 

in any future filings. 

(b) Financial Statements for Tier 1 

Offerings 

(1) The financial statements prepared 

pursuant to this paragraph (b), including 

(b)(7), need not be prepared in 

accordance with Regulation S–X. 

(2) The financial statements prepared 

pursuant to paragraph (b), including 

(b)(7), need not be audited. If the 

financial statements are not audited, 

they shall be labeled as ‘‘unaudited’’. 

However, if an audit of these financial 

statements is obtained for other 

purposes and that audit was performed 

in accordance with either U.S. generally 

accepted auditing standards or the 

Standards of the Public Company 

Accounting Oversight Board by an 

auditor that is independent pursuant to 

either the independence standards of 

the American Institute of Certified 

Public Accountants (AICPA) or Rule 2– 

01 of Regulation S–X, those audited 

financial statements must be filed, and 

an audit opinion complying with Rule 

2–02 of Regulation S–X must be filed 

along with such financial statements. 

The auditor may, but need not, be 

registered with the Public Company 

Accounting Oversight Board. 

(3) Consolidated Balance Sheets. Age 

of balance sheets at filing and at 

qualification: 

(A) If the filing is made, or the 

offering statement is qualified, more 

than three months but no more than 

nine months after the most recently 

completed fiscal year end, include a 

balance sheet as of the two most 

recently completed fiscal year ends. 

(B) If the filing is made, or the offering 

statement is qualified, more than nine 

months after the most recently 

completed fiscal year end, include a 

balance sheet as of the two most 

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recently completed fiscal year ends and 

an interim balance sheet as of a date no 

earlier than six months after the most 

recently completed fiscal year end. 

(C) If the filing is made, or the offering 

statement is qualified, within three 

months after the most recently 

completed fiscal year end, include a 

balance sheet as of the two fiscal year 

ends preceding the most recently 

completed fiscal year end and an 

interim balance sheet as of a date no 

earlier than six months after the date of 

the most recent fiscal year end balance 

sheet that is required. 

(D) If the filing is made, or the offering 

statement is qualified, during the period 

from inception until three months after 

reaching the annual balance sheet date 

for the first time, include a balance 

sheet as of a date within nine months of 

filing or qualification. 

(4) Statements of comprehensive 

income, cash flows, and changes in 

stockholders’ equity. File consolidated 

statements of income, cash flows, and 

changes in stockholders’ equity for each 

of the two fiscal years preceding the 

date of the most recent balance sheet 

being filed or such shorter period as the 

issuer has been in existence. If a 

consolidated interim balance sheet is 

required by (b)(3) above, consolidated 

interim statements of income and cash 

flows shall be provided and must cover 

at least the first six months of the 

issuer’s fiscal year and the 

corresponding period of the preceding 

fiscal year. 

(5) Interim financial statements. 

Interim financial statements may be 

condensed as described in Rule 8–03(a) 

of Regulation S–X. The interim income 

statements must be accompanied by a 

statement that in the opinion of 

management all adjustments necessary 

in order to make the interim financial 

statements not misleading have been 

included. 

(6) Oil and Gas Producing Activities. 

Issuers engaged in oil and gas producing 

activities must follow the financial 

accounting and reporting standards 

specified in Rule 4–10 of Regulation S– 

X. 

(7) Financial Statements of Other 

Entities. The circumstances described 

below may require you to file financial 

statements of other entities in the 

offering statement. The financial 

statements of other entities must be 

presented for the same periods as if the 

other entity was the issuer as described 

above in paragraphs (b)(3) and (b)(4) 

unless a shorter period is specified by 

the rules below. The financial statement 

of other entities shall follow the same 

audit requirement as paragraph (b)(2) of 

this Part F/S. 

(i) Financial Statements of Guarantors 

and Issuers of Guaranteed Securities. 

Financial statements of a subsidiary that 

issues securities guaranteed by the 

parent or guarantees securities issued by 

the parent must be presented as 

required by Rule 3–10 of Regulation S– 

X. 

(ii) Financial Statements of Affiliates 

Whose Securities Collateralize an 

Issuance. Financial statements for an 

issuer’s affiliates whose securities 

constitute a substantial portion of the 

collateral for any class of securities 

being offered must be presented as 

required by Rule 3–16 of Regulation S– 

X. 

(iii) Financial Statements of 

Businesses Acquired or to be Acquired. 

File the financial statements required by 

Rule 8–04 of Regulation S–X. 

(iv) Pro Forma Financial Information. 

If financial statements are presented 

under paragraph (b)(7)(iii) above, file 

pro forma information showing the 

effects of the acquisition as described in 

Rule 8–05 of Regulation S–X. 

(v) Real Estate Operations Acquired 

or to be Acquired. File the financial 

information required by Rule 8–06 of 

Regulation S–X. 

Instructions to paragraph (b) in Part 

F/S: 

1. Issuers should refer to Rule 

257(b)(2) to determine whether a special 

financial report will be required after 

qualification of the offering statement. 

2. If the last day that the financial 

statements included in the offering 

statement can be accepted, according to 

the age requirements of this item falls 

on a Saturday, Sunday, or holiday, such 

offering statement may be filed on the 

first business day following the last day 

of the specified period. 

3. As an alternative, an issuer may— 

but need not—elect to comply with the 

provisions of paragraph (c). 

(c) Financial Statement Requirements 

for Tier 2 Offerings 

(1) In addition to the general rules in 

paragraph (a), provide the financial 

statements required by paragraph (b) of 

this Part F/S, except the following rules 

should be followed in the preparation of 

the financial statements: 

(i) The issuer and, when applicable, 

other entities for which financial 

statements are required, must comply 

with Article 8 of Regulation S–X, as if 

it was conducting a registered offering 

on Form S–1, except the age of interim 

financial statements may follow 

paragraphs (b)(3)–(4) of this Part F/S. 

(ii) Audited financial statements are 

required for Tier 2 offerings for the 

issuer and, when applicable, for 

financial statements of other entities. 

However, interim financial statements 

may be unaudited. 

(iii) The audit must be conducted in 

accordance with either U.S. Generally 

Accepted Auditing Standards or the 

standards of the Public Company 

Accounting Oversight Board (United 

States) and the report and qualifications 

of the independent accountant shall 

comply with the requirements of Article 

2 of Regulation S–X. Accounting firms 

conducting audits for the financial 

statements included in the offering 

circular may, but need not, be registered 

with the Public Company Accounting 

Oversight Board. 

PART III—EXHIBITS 

Item 16. Index to Exhibits 

(a) An exhibits index must be 

presented at the beginning of Part III. 

(b) Each exhibit must be listed in the 

exhibit index according to the number 

assigned to it under Item 17 below. 

(c) For incorporation by reference, 

please refer to General Instruction III of 

this Form. 

Item 17. Description of Exhibits 

As appropriate, the following 

documents must be filed as exhibits to 

the offering statement. 

1. Underwriting agreement—Each 

underwriting contract or agreement with 

a principal underwriter or letter 

pursuant to which the securities are to 

be distributed; where the terms have yet 

to be finalized, proposed formats may be 

provided. 

2. Charter and bylaws—The charter 

and bylaws of the issuer or instruments 

corresponding thereto as currently in 

effect and any amendments thereto. 

3. Instruments defining the rights of 

securityholders— 

(a) All instruments defining the rights 

of any holder of the issuer’s securities, 

including but not limited to (i) holders 

of equity or debt securities being issued; 

(ii) holders of long-term debt of the 

issuer, and of all subsidiaries for which 

consolidated or unconsolidated 

financial statements are required to be 

filed. 

(b) The following instruments need 

not be filed if the issuer agrees to file 

them with the Commission upon 

request: (i) instruments defining the 

rights of holders of long-term debt of the 

issuer and all of its subsidiaries for 

which consolidated financial statements 

are required to be filed if such debt is 

not being issued pursuant to this 

Regulation A offering and the total 

amount of such authorized issuance 

does not exceed 5% of the total assets 

of the issuer and its subsidiaries on a 

consolidated basis; (ii) any instrument 

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21914 Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Rules and Regulations 

with respect to a class of securities that 

is to be retired or redeemed before the 

issuance or upon delivery of the 

securities being issued pursuant to this 

Regulation A offering and appropriate 

steps have been taken to assure such 

retirement or redemption; and (iii) 

copies of instruments evidencing scrip 

certificates or fractions of shares. 

4. Subscription agreement—The form 

of any subscription agreement to be 

used in connection with the purchase of 

securities in this offering. 

5. Voting trust agreement—Any 

voting trust agreements and 

amendments. 

6. Material contracts 

(a) Every contract not made in the 

ordinary course of business that is 

material to the issuer and is to be 

performed in whole or in part at or after 

the filing of the offering statement or 

was entered into not more than two 

years before such filing. Only contracts 

need be filed as to which the issuer or 

subsidiary of the issuer is a party or has 

succeeded to a party by assumption or 

assignment or in which the issuer or 

such subsidiary has a beneficial interest. 

Schedules (or similar attachments) to 

material contracts may be excluded if 

not material to an investment decision 

or if the material information contained 

in such schedules is otherwise disclosed 

in the agreement or the offering 

statement. The material contract filed 

must contain a list briefly identifying 

the contents of all omitted schedules, 

together with an agreement to furnish 

supplementally a copy of any omitted 

schedule to the Commission upon 

request. 

(b) If the contract is such as ordinarily 

accompanies the kind of business 

conducted by the issuer and its 

subsidiaries, it is made in the ordinary 

course of business and need not be filed 

unless it falls within one or more of the 

following categories, in which case it 

must be filed except where immaterial 

in amount or significance: (i) any 

contract to which directors, officers, 

promoters, voting trustees, 

securityholders named in the offering 

statement, or underwriters are parties, 

except where the contract merely 

involves the purchase or sale of current 

assets having a determinable market 

price, at such market price; (ii) any 

contract upon which the issuer’s 

business is substantially dependent, as 

in the case of continuing contracts to 

sell the major part of the issuer’s 

products or services or to purchase the 

major part of the issuer’s requirements 

of goods, services or raw materials or 

any franchise or license or other 

agreement to use a patent, formula, 

trade secret, process or trade name upon 

which the issuer’s business depends to 

a material extent; (iii) any contract 

calling for the acquisition or sale of any 

property, plant or equipment for a 

consideration exceeding 15% of such 

fixed assets of the issuer on a 

consolidated basis; or (iv) any material 

lease under which a part of the property 

described in the offering statement is 

held by the issuer. 

(c) Any management contract or any 

compensatory plan, contract or 

arrangement including, but not limited 

to, plans relating to options, warrants or 

rights, pension, retirement or deferred 

compensation or bonus, incentive or 

profit sharing (or if not set forth in any 

formal document, a written description) 

is deemed material and must be filed 

except for the following: (i) ordinary 

purchase and sales agency agreements; 

(ii) agreements with managers of stores 

in a chain organization or similar 

organization; (iii) contracts providing 

for labor or salesperson’s bonuses or 

payments to a class of securityholders, 

as such; (iv) any compensatory plan, 

contract or arrangement that pursuant to 

its terms is available to employees 

generally and that in operation provides 

for the same method of allocation of 

benefits between management and nonmanagement participants. 

7. Plan of acquisition, reorganization, 

arrangement, liquidation, or 

succession—Any material plan of 

acquisition, disposition, reorganization, 

readjustment, succession, liquidation or 

arrangement and any amendments 

thereto described in the offering 

statement. Schedules (or similar 

attachments) to these exhibits must not 

be filed unless such schedules contain 

information that is material to an 

investment decision and that is not 

otherwise disclosed in the agreement or 

the offering statement. The plan filed 

must contain a list briefly identifying 

the contents of all omitted schedules, 

together with an agreement to furnish 

supplementally a copy of any omitted 

schedule to the Commission upon 

request. 

8. Escrow agreements—Any escrow 

agreement or similar arrangement which 

has been executed in connection with 

the Regulation A offering. 

9. Letter re change in certifying 

accountant—A letter from the issuer’s 

former independent accountant 

regarding its concurrence or 

disagreement with the statements made 

by the issuer in the current report 

concerning the resignation or dismissal 

as the issuer’s principal accountant. 

10. Power of attorney—If any name is 

signed to the offering statement 

pursuant to a power of attorney, signed 

copies of the power of attorney must be 

filed. Where the power of attorney is 

contained elsewhere in the offering 

statement or documents filed therewith, 

a reference must be made in the index 

to the part of the offering statement or 

document containing such power of 

attorney. In addition, if the name of any 

officer signing on behalf of the issuer is 

signed pursuant to a power of attorney, 

certified copies of a resolution of the 

issuer’s board of directors authorizing 

such signature must also be filed. A 

power of attorney that is filed with the 

Commission must relate to a specific 

filing or an amendment thereto. A 

power of attorney that confers general 

authority may not be filed with the 

Commission. 

11. Consents— 

(a) Experts: The written consent of (i) 

any accountant, counsel, engineer, 

geologist, appraiser or any persons 

whose profession gives authority to a 

statement made by them and who is 

named in the offering statement as 

having prepared or certified any part of 

the document or is named as having 

prepared or certified a report or 

evaluation whether or not for use in 

connection with the offering statement; 

(ii) the expert that authored any portion 

of a report quoted or summarized as 

such in the offering statement, expressly 

stating their consent to the use of such 

quotation or summary; (iii) any persons 

who are referenced as having reviewed 

or passed upon any information in the 

offering statement, and that such 

information is being included on the 

basis of their authority or in reliance 

upon their status as experts. 

(b) All written consents must be dated 

and signed. 

12. Opinion re legality—An opinion 

of counsel as to the legality of the 

securities covered by the Offering 

Statement, indicating whether they will 

when sold, be legally issued, fully paid 

and non-assessable, and if debt 

securities, whether they will be binding 

obligations of the issuer. 

13. ‘‘Testing the waters’’ materials— 

Any written communication or 

broadcast script used under the 

authorization of Rule 255. Such 

materials need not be filed if they are 

substantively the same as materials 

previously filed with the offering 

statement. 

14. Appointment of agent for service 

of process—A Canadian issuer must file 

Form F–X. 

15. Additional exhibits— 

(a) Any non-public, draft offering 

statement previously submitted 

pursuant to Rule 252(d) and any related, 

non-public correspondence submitted 

by or on behalf of the issuer. 

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Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Rules and Regulations 21915 

(b) Any additional exhibits which the 

issuer may wish to file, which must be 

so marked as to indicate clearly the 

subject matters to which they refer. 

SIGNATURES 

Pursuant to the requirements of 

Regulation A, the issuer certifies that it 

has reasonable grounds to believe that it 

meets all of the requirements for filing 

on Form 1–A and has duly caused this 

offering statement to be signed on its 

behalf by the undersigned, thereunto 

duly authorized, in the City of llll, 

State of llll, on llll (date). 

(Exact name of issuer as specified in its charter)lllllll llllllllllll

By (Signature and Title)lllllll 

This offering statement has been signed by 

the following persons in the capacities and 

on the dates indicated. 

(Signature)lllllll llllllll

(Title)lllllll llllllllll

(Date)lllllll lllllllllll

Instructions to Signatures: 

1. The offering statement must be 

signed by the issuer, its principal 

executive officer, principal financial 

officer, principal accounting officer, and 

a majority of the members of its board 

of directors or other governing body. If 

a signature is by a person on behalf of 

any other person, evidence of authority 

to sign must be filed with the offering 

statement, except where an executive 

officer signs on behalf of the issuer. 

2. The offering statement must be 

signed using a typed signature. Each 

signatory to the filing must also 

manually sign a signature page or other 

document authenticating, 

acknowledging or otherwise adopting 

his or her signature that appears in the 

filing. Such document must be executed 

before or at the time the filing is made 

and must be retained by the issuer for 

a period of five years. Upon request, the 

issuer must furnish to the Commission 

or its staff a copy of any or all 

documents retained pursuant to this 

section. 

3. The name and title of each person 

signing the offering statement must be 

typed or printed beneath the signature. 

Note: The text of Form 1–A will not appear 

in the Code of Federal Regulations. 

■ 11. Revise § 239.91 to read as follows: 

§ 239.91 Form 1–K. 

This form shall be used for filing 

annual reports under Regulation A 

(§§ 230.251–230.263 of this chapter). 

■ 12. Add Form 1–K (referenced in 

§ 239.91) to read as follows: 

UNITED STATES 

SECURITIES AND EXCHANGE 

COMMISSION 

Washington, DC 20549 

FORM 1–K 

GENERAL INSTRUCTIONS 

A. Rules as to Use of Form 1–K. 

(1) This Form shall be used for annual 

reports pursuant to Rule 257(b)(1) of 

Regulation A (§§ 230.251–230.263). 

(2) Annual reports on this Form shall 

be filed within 120 calendar days after 

the end of the fiscal year covered by the 

report. 

(3) This Form also shall be used for 

special financial reports filed pursuant 

to Rule 257(b)(2)(i)(A) of Regulation A. 

Such special financial reports shall be 

filed and signed in the manner set forth 

in this Form, but otherwise need only 

provide Part I and the financial 

statements required by Rule 

257(b)(2)(i)(A). Special financial reports 

filed using this Form shall be filed 

within 120 calendar days after the 

qualification date of the offering 

statement. 

B. Preparation of Report. 

(1) Regulation A contains certain 

general requirements that are applicable 

to reports on any form, including 

amendments to reports. These general 

requirements should be carefully read 

and observed in the preparation and 

filing of reports on this Form. 

(2) This Form is not to be used as a 

blank form to be filled in, but only as 

a guide in the preparation of the report. 

(3) Except where information is 

required to be given for the fiscal year 

or as of a specified date, it shall be given 

as of the latest date reasonably 

practicable. 

(4) References in this Form to the 

items in Form 1–A are to the items set 

forth in Part II and Part III of Form 1– 

A, not Part I. 

(5) In addition to the information 

expressly required to be included in this 

Form, there shall be added such further 

material information, if any, as may be 

necessary to make the required 

statements, in light of the circumstances 

under which they are made, not 

misleading. 

C. Signature and Filing of Report. 

(1) The report must be filed with the 

Commission in electronic format by 

means of the Commission’s Electronic 

Data Gathering, Analysis and Retrieval 

System (‘‘EDGAR’’) in accordance with 

the EDGAR rules set forth in Regulation 

S–T (17 CFR part 232). 

(2) The report must be signed by the 

issuer, its principal executive officer, 

principal financial officer, principal 

accounting officer, and at least a 

majority of the members of its board of 

directors or other governing body. If a 

signature is by a person on behalf of any 

other person, evidence of authority to 

sign must be filed with the report, 

except where an executive officer signs 

on behalf of the issuer. 

(3) The report must be signed using a 

typed signature. Each signatory to the 

filing must also manually sign a 

signature page or other document 

authenticating, acknowledging or 

otherwise adopting his or her signature 

that appears in the filing. Such 

document must be executed before or at 

the time the filing is made and must be 

retained by the issuer for a period of five 

years. Upon request, the issuer must 

furnish to the Commission or its staff a 

copy of any or all documents retained 

pursuant to this paragraph. 

D. Incorporation by Reference and 

Cross-Referencing. 

(1) An issuer may incorporate by 

reference to other documents previously 

submitted or filed on EDGAR. Crossreferencing within the report is also 

encouraged to avoid repetition of 

information. For example, you may 

respond to an item of this Form by 

providing a cross-reference to the 

location of the information in the 

financial statements, instead of 

repeating such information. 

Descriptions of where the information 

incorporated by reference or crossreferenced can be found must be 

specific and must clearly identify the 

relevant document and portion thereof 

where such information can be found. 

For exhibits incorporated by reference, 

this description must be noted in the 

exhibits index for each relevant exhibit. 

All descriptions of where information 

incorporated by reference can be found 

must be accompanied by a separate 

hyperlink to the incorporated document 

on EDGAR. A hyperlink need not 

remain active after the filing of the 

report, except that amendments to the 

report must update any hyperlinks 

referred to in the amendment that are 

inactive. 

(2) Reference may not be made to any 

document if the portion of such 

document containing the pertinent 

information includes an incorporation 

by reference to another document. 

Incorporation by reference to documents 

not available on EDGAR is not 

permitted. Information shall not be 

incorporated by reference or crossreferenced in any case where such 

incorporation would render the 

statement or report incomplete, unclear, 

or confusing. Incorporating information 

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21916 Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Rules and Regulations 

into the financial statements from 

elsewhere is not permitted. 

(3) If any substantive modification has 

occurred in the text of any document 

incorporated by reference since such 

document was filed, the issuer must file 

with the reference a statement 

containing the text and date of such 

modification. 

PART I 

NOTIFICATION 

The following information must be 

provided in the XML-based portion of 

Form 1–K available through the EDGAR 

portal and must be completed or 

updated before uploading each offering 

statement or amendment thereto. The 

format of Part I shown below may differ 

from the electronic version available on 

EDGAR. The electronic version of Part 

I will allow issuers to attach Part II for 

filing by means of EDGAR. All items 

must be addressed, unless otherwise 

indicated. 

* * * * * 

This Form 1–K is to provide an b Annual 

Report OR b Special Financial Report for the 

fiscal year endedllllll 

Exact name of issuer as specified in the 

issuer’s charter:llllll 

Jurisdiction of incorporation/

organization:llllll 

I.R.S. Employer Identification 

Number:llllll 

Address of Principal Executive Offices: 

lllllllllllllllllllll

Phone: (l) lllllllllllllll

Title of each class of securities issued pursuant to Regulation A: lllllllllll

lllllllllllllllllllll

Summary Information Regarding Prior 

Offerings and Proceeds 

The following information must be 

provided for any Regulation A offering 

that has terminated or completed prior 

to the filing of this Form 1–K, unless 

such information has been previously 

reported in a manner permissible under 

Rule 257. If such information has been 

previously reported, check this box 

band leave the rest of Part I blank. 

Commission File Number of the offering 

statement:llllll 

Date of qualification of the offering 

statement:llllll 

Date of commencement of the 

offering:llllll 

Amount of securities qualified to be 

sold in the offering:llllll 

Amount of securities sold in the 

offering:llllll 

Price per security: $llllll 

The portion of aggregate sales 

attributable to securities sold on behalf 

of the issuer: $lllllll 

The portion of aggregate sales 

attributable to securities sold on behalf 

of selling securityholders: 

$lllllll 

Fees in connection with this offering 

and names of service providers: 

Name of Service Provider Fees 

Underwriters: ...................................................................................................... llllllllllll $llllllllllll 

Sales Commissions: ............................................................................................ llllllllllll $llllllllllll 

Finders’ Fees: ...................................................................................................... llllllllllll $llllllllllll 

Audit: ................................................................................................................... llllllllllll $llllllllllll 

Legal: ................................................................................................................... llllllllllll $llllllllllll 

Promoters: ........................................................................................................... llllllllllll $llllllllllll 

Blue Sky Compliance: ........................................................................................ llllllllllll $llllllllllll 

CRD Number of any broker or dealer 

listed:llllll 

Net proceeds to the issuer: 

$llllll 

Clarification of responses (if 

necessary):llllll 

PART II 

INFORMATION TO BE INCLUDED IN 

REPORT 

Item 1. Business 

Set forth the information required by 

Item 7 of Form 1–A. 

Item 2. Management’s Discussion and 

Analysis of Financial Condition and 

Results of Operations 

Set forth the information required by 

Item 9(a), (b) and (d) of Form 1–A for 

the most recent two completed fiscal 

years. 

Item 3. Directors and Officers 

Set forth the information required by 

Items 10 and 11 of Form 1–A. 

Item 4. Security Ownership of 

Management and Certain 

Securityholders 

Set forth the information required by 

Item 12 of Form 1–A. 

Item 5. Interest of Management and 

Others in Certain Transactions 

Set forth the information required by 

Item 13 of Form 1–A. 

Item 6. Other Information 

Set forth any information required to 

be disclosed in a report on Form 1–U 

during the last six months of the fiscal 

year covered by this Form 1–K, but not 

reported, whether or not otherwise 

required by this Form 1–K. If disclosure 

of such information is made under this 

item, it need not be repeated in a report 

on Form 1–U that would otherwise be 

required to be filed with respect to such 

information or in a subsequent report on 

Form 1–U. 

Item 7. Financial Statements 

(a) The appropriate audited financial 

statements set forth below of the issuer, 

or the issuer and its predecessors or any 

businesses to which the issuer is a 

successor must be filed as part of the 

Form 1–K. 

(b) Unless the issuer is a Canadian 

company, financial statements must be 

prepared in accordance with generally 

accepted accounting principles in the 

United States (US GAAP). If the issuer 

is a Canadian company, such financial 

statements must be prepared in 

accordance with either US GAAP or 

International Financial Reporting 

Standards (IFRS) as issued by the 

International Accounting Standards 

Board (IASB). If the financial statements 

comply with IFRS, such compliance 

must be explicitly and unreservedly 

stated in the notes to the financial 

statements and the auditor’s report must 

include an opinion on whether the 

financial statements comply with IFRS 

as issued by the IASB. 

(c) The audit of the financial 

statements must be conducted in 

accordance with either U.S. Generally 

Accepted Auditing Standards or the 

standards of the Public Company 

Accounting Oversight Board (United 

States) and the report and qualifications 

of the independent accountant shall 

comply with the requirements of Article 

2 of Regulation S–X. Accounting firms 

conducting audits for the financial 

statements may, but need not, be 

registered with the Public Company 

Accounting Oversight Board. 

(d) Balance Sheet. There shall be filed 

an audited consolidated balance sheet 

as of the end of each of the most recent 

two fiscal years. 

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(e) Statements of income, cash flows, 

and changes in stockholders’ equity. 

File audited consolidated statements of 

income, cash flows, and changes in 

stockholders’ equity for each of the two 

fiscal years preceding the date of the 

most recent balance sheet being filed or 

such shorter period as the issuer has 

been in existence. 

(f) Oil and Gas Producing Activities. 

Issuers engaged in oil and gas producing 

activities must follow the financial 

accounting and reporting standards 

specified in Rule 4–10 of Regulation S– 

X. 

(g) Financial Statements of Other 

Entities. The circumstances described 

below may require you to file financial 

statements of other entities. The 

financial statements of other entities 

must be presented for the same periods 

as the issuer’s financial statements 

described above in paragraphs (d) and 

(e) unless a shorter period is specified 

by the rules below. 

(1) Financial Statements of 

Guarantors and Issuers of Guaranteed 

Securities. Financial statements of a 

subsidiary that issues securities 

guaranteed by the parent or guarantees 

securities issued by the parent must be 

presented as required by Rule 3–10 of 

Regulation S–X. 

(2) Financial Statements of Affiliates 

Whose Securities Collateralize an 

Issuance. Financial statements for an 

issuer’s affiliates whose securities 

constitute a substantial portion of the 

collateral for any class of securities 

being offered must be presented as 

required by Rule 3–16 of Regulation S– 

X. 

Item 8. Exhibits 

(a) An exhibits index must be 

presented immediately preceding the 

first signature page of the report. 

(b) File, as exhibits to this Form, the 

exhibits required by Form 1–A, except 

for the exhibits required by paragraphs 

1, 12, and 13 of Item 17. 

SIGNATURES 

Pursuant to the requirements of 

Regulation A, the issuer has duly caused 

this report to be signed on its behalf by 

the undersigned, thereunto duly 

authorized. 

(Exact name of issuer as specified in its charter) lllllllllllllllllll

lllllllllllllllllllll

By (Signature and Title) lllllllll

Date llllllllllllllllll

Pursuant to the requirements of Regulation 

A, this report has been signed below by the 

following persons on behalf of the issuer and 

in the capacities and on the dates indicated. 

By (Signature and Title) lllllllll

Date llllllllllllllllll

By (Signature and Title) lllllllll

Date llllllllllllllllll

Note: The text of Form 1–K will not appear 

in the Code of Federal Regulations. 

■ 13. Add § 239.92 to read as follows: 

§ 239.92 Form 1–SA. 

This form shall be used for filing 

semiannual reports under Regulation A 

(§§ 230.251–230.263 of this chapter). 

■ 14. Add Form 1–SA (referenced in 

§ 239.92) to read as follows: 

UNITED STATES SECURITIES AND 

EXCHANGE COMMISSION 

Washington, DC 20549 

FORM 1–SA 

[ ] SEMIANNUAL REPORT 

PURSUANT TO REGULATION A or 

[ ] SPECIAL FINANCIAL REPORT 

PURSUANT TO REGULATION A 

For the fiscal semiannual period ended ll

lllllllllllllllllllll

(Exact name of issuer as specified in its 

charter) 

State or other jurisdiction of incorporation or 

organization lllllllllllllll

(I.R.S. Employer Identification No.) llll

(Full mailing address of principal executive 

offices) lllllllllllllllll

(Issuer’s telephone number, including area 

code) llllllllllllllllll

GENERAL INSTRUCTIONS 

A. Rules as to Use of Form 1–SA. 

(1) This Form shall be used for 

semiannual reports pursuant to Rule 

257(b)(3) of Regulation A (§§ 230.251– 

230.263). 

(2) Semiannual reports on this Form 

shall be filed within 90 calendar days 

after the end of the semiannual period 

covered by the report. 

(3) This Form also shall be used for 

special financial reports filed pursuant 

to Rule 257(b)(2)(i)(B) of Regulation A. 

Such special financial reports shall be 

filed and signed in the manner set forth 

in this Form, but otherwise need only 

provide the cover page and financial 

statements required by Rule 

257(b)(2)(i)(B). Special financial reports 

filed using this Form shall be filed 

within 90 calendar days after the 

qualification date of the offering 

statement. 

B. Preparation of Report. 

(1) Regulation A contains certain 

general requirements that are applicable 

to reports on any form, including 

amendments to reports. These general 

requirements should be carefully read 

and observed in the preparation and 

filing of reports on this Form. 

(2) This Form is not to be used as a 

blank form to be filled in, but only as 

a guide in the preparation of the report. 

(3) In addition to the information 

expressly required to be included in this 

Form, there shall be added such further 

material information, if any, as may be 

necessary to make the required 

statements, in light of the circumstances 

under which they are made, not 

misleading. 

C. Signature and Filing of Report. 

(1) The report must be filed with the 

Commission in electronic format by 

means of the Commission’s Electronic 

Data Gathering, Analysis and Retrieval 

System (‘‘EDGAR’’) in accordance with 

the EDGAR rules set forth in Regulation 

S–T (17 CFR part 232). 

(2) The report must be signed by the 

issuer, its principal executive officer, 

principal financial officer and principal 

accounting officer. If a signature is by a 

person on behalf of any other person, 

evidence of authority to sign must be 

filed with the report, except where an 

executive officer signs on behalf of the 

issuer. 

(3) The report must be signed using a 

typed signature. Each signatory to the 

filing must also manually sign a 

signature page or other document 

authenticating, acknowledging or 

otherwise adopting his or her signature 

that appears in the filing. Such 

document must be executed before or at 

the time the filing is made and must be 

retained by the issuer for a period of five 

years. Upon request, the issuer must 

furnish to the Commission or its staff a 

copy of any or all documents retained 

pursuant to this paragraph. 

D. Incorporation by Reference and 

Cross-Referencing. 

(1) An issuer may incorporate by 

reference to other documents previously 

submitted or filed on EDGAR. Crossreferencing within the report is also 

encouraged to avoid repetition of 

information. For example, you may 

respond to an item of this Form by 

providing a cross-reference to the 

location of the information in the 

financial statements, instead of 

repeating such information. 

Descriptions of where the information 

incorporated by reference or crossreferenced can be found must be 

specific and must clearly identify the 

relevant document and portion thereof 

where such information can be found. 

For exhibits incorporated by reference, 

this description must be noted in the 

exhibits index for each relevant exhibit. 

All such descriptions of where 

information incorporated by reference 

can be found must be accompanied by 

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21918 Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Rules and Regulations 

a separate hyperlink to the incorporated 

document on EDGAR. A hyperlink need 

not remain active after the filing of the 

report, except that amendments to the 

report must update any hyperlinks 

referred to in the amendment that are 

inactive. 

(2) Reference may not be made to any 

document if the portion of such 

document containing the pertinent 

information includes an incorporation 

by reference to another document. 

Incorporation by reference to documents 

not available on EDGAR is not 

permitted. Information shall not be 

incorporated by reference or crossreferenced in any case where such 

incorporation would render the 

statement or report incomplete, unclear, 

or confusing. Incorporating information 

into the financial statements from 

elsewhere is not permitted. 

(3) If any substantive modification has 

occurred in the text of any document 

incorporated by reference since such 

document was filed, the issuer must file 

with the reference a statement 

containing the text and date of such 

modification. 

INFORMATION TO BE INCLUDED IN 

REPORT 

Item 1. Management’s Discussion and 

Analysis of Financial Condition and 

Results of Operations 

Set forth the information required by 

Item 9(a), (b), and (d) of Form 1–A for 

the interim period for which financial 

statements are required by Item 3 below. 

Item 2. Other Information 

Set forth any information required to 

be disclosed in a report on Form 1–U 

during the semiannual period covered 

by this Form 1–SA, but not reported, 

whether or not otherwise required by 

this Form 1–SA. If disclosure of such 

information is made under this item, it 

need not be repeated in a report on 

Form 1–U that would otherwise be 

required to be filed with respect to such 

information or in a subsequent report on 

Form 1–U. 

Item 3. Financial Statements 

The appropriate financial statements 

set forth below of the issuer, or the 

issuer and its predecessors or any 

businesses to which the issuer is a 

successor must be filed as part of the 

Form 1–SA. 

Unless the issuer is a Canadian 

company, financial statements must be 

prepared on a consolidated basis in 

accordance with generally accepted 

accounting principles in the United 

States (US GAAP). If the issuer is a 

Canadian company, such financial 

statements must be prepared in 

accordance with either US GAAP or 

International Financial Reporting 

Standards (IFRS) as issued by the 

International Accounting Standards 

Board (IASB). If the financial statements 

comply with IFRS as issued by the 

IASB, such compliance must be 

explicitly and unreservedly stated in the 

notes to the financial statements. 

The financial statements included 

pursuant to this item may be condensed, 

unaudited, and are not required to be 

reviewed. For additional guidance on 

presentation of the financial statements 

refer to Rule 8–03(a) of Regulation S–X. 

The financial statements must include 

the following: 

(a) An interim consolidated balance 

sheet as of the end of the six month 

period covered by this report and a 

balance sheet as of the end of the 

preceding fiscal year. An interim 

balance sheet as of the end of the 

corresponding six month interim period 

of the preceding fiscal year need not be 

provided unless necessary for an 

understanding of the impact of seasonal 

fluctuations on the issuer’s financial 

condition. 

(b) Interim consolidated statements of 

income must be provided for the six 

month interim period covered by this 

report and for the corresponding period 

of the preceding fiscal year. Income 

statements must be accompanied by a 

statement that in the opinion of 

management all adjustments necessary 

in order to make the interim financial 

statements not misleading have been 

included. 

(c) Interim statements of cash flows 

must be provided for the six month 

interim period covered by this report 

and for the corresponding period of the 

preceding fiscal year. 

(d) Footnote and other disclosures 

should be provided as needed for fair 

presentation and to ensure that the 

financial statements are not misleading. 

Refer to Rule 8–03(b) of Regulation S– 

X for examples of disclosures that may 

be needed. 

(e) Financial Statements of 

Guarantors and Issuers of Guaranteed 

Securities. Financial statements of a 

subsidiary that issues securities 

guaranteed by the parent or guarantees 

securities issued by the parent must be 

presented as required by Rule 3–10 of 

Regulation S–X, except that the periods 

presented are those required by this 

item and the financial statements need 

not be audited. 

Item 4. Exhibits 

(a) An exhibits index must be 

presented immediately preceding the 

first signature page of the report. 

(b) File, as exhibits to this Form, the 

exhibits required by Form 1–A, except 

for the exhibits required by paragraphs 

1, 12, and 13 of Item 17. 

SIGNATURES 

Pursuant to the requirements of 

Regulation A, the issuer has duly caused 

this report to be signed on its behalf by 

the undersigned, thereunto duly 

authorized. 

(Exact name of issuer as specified in its charter) lllllllllllllllllll

By (Signature and Title) lllllllll

Date llllllllllllllllll

Pursuant to the requirements of Regulation 

A, this report has been signed below by the 

following persons on behalf of the issuer and 

in the capacities and on the dates indicated. 

By (Signature and Title) lllllllll

Date llllllllllllllllll

By (Signature and Title) lllllllll

Date llllllllllllllllll

Note: The text of Form 1–SA will not 

appear in the Code of Federal Regulations. 

■ 15. Add § 239.93 to read as follows: 

§ 239.93 Form 1–U. 

This form shall be used for filing 

current reports under Regulation A 

(§§ 230.251–230.263 of this chapter). 

■ 16. Add Form 1–U (referenced in 

§ 239.92) to read as follows: 

UNITED STATES SECURITIES AND 

EXCHANGE COMMISSION 

Washington, D.C. 20549 

FORM 1–U 

CURRENT REPORT PURSUANT TO 

REGULATION A 

Date of Report (Date of earliest event reported) lllllllllllllllll

(Exact name of issuer as specified in its charter) lllllllllllllllllll

State or other jurisdiction of incorporation or 

organization lllllllllllllll

(I.R.S. Employer Identification No.) llll

(Full mailing address of principal executive 

offices) lllllllllllllllll

(Issuer’s telephone number, including area 

code) llllllllllllllllll

Title of each class of securities issued pursuant to Regulation A: lllllllllll

lllllllllllllllllllll

GENERAL INSTRUCTIONS 

A. Rules as to Use of Form 1–U. 

(1) This Form shall be used for 

current reports pursuant to Rule 

257(b)(4) of Regulation A (§§ 230.251– 

230.263). 

(2) A report on this Form is required 

to be filed, as applicable, upon the 

occurrence of any one or more of the 

events specified in Items 1—9 of this 

Form. Unless otherwise specified, a 

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Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Rules and Regulations 21919 

report is to be filed within four business 

days after occurrence of the event. If the 

event occurs on a Saturday, Sunday, or 

holiday on which the Commission is not 

open for business, then the four 

business day period shall begin to run 

on, and include, the first business day 

thereafter. 

(3) If the issuer previously has 

provided substantially the same 

information as required by this Form in 

a report required by Rule 257(b) of 

Regulation A, the issuer need not make 

an additional report of the information 

on this Form. To the extent that an item 

calls for disclosure of developments 

concerning a previously reported event 

or transaction, any information required 

in the new report or amendment about 

the previously reported event or 

transaction may be provided by 

incorporation by reference to the 

previously filed report, if a hyperlink to 

such report as filed with the 

Commission is included. 

(4) Copies of agreements, amendments 

or other documents or instruments are 

not required to be filed as exhibits to the 

Form 1–U unless specifically required 

by the applicable item. This instruction 

does not affect the requirement to 

otherwise file such agreements, 

amendments or other documents or 

instruments, including as exhibits to 

offering statements and periodic reports 

pursuant to the requirements of 

Regulation A. 

B. Preparation of Report. 

(1) Regulation A contains certain 

general requirements which are 

applicable to reports on any form, 

including amendments to reports. These 

general requirements should be 

carefully read and observed in the 

preparation and filing of reports on this 

Form. 

(2) This Form is not to be used as a 

blank form to be filled in, but only as 

a guide in the preparation of the report. 

Nevertheless, the report shall contain 

the number and caption of each 

applicable item, but the text of such 

item may be omitted. All items that are 

not required to be answered in a 

particular report may be omitted and no 

reference thereto need be made in the 

report. All instructions should also be 

omitted. 

(3) In addition to the information 

expressly required to be included in this 

Form, there shall be added such further 

material information, if any, as may be 

necessary to make the required 

statements, in light of the circumstances 

under which they are made, not 

misleading. 

C. Signature and Filing of Report. 

(1) The report must be filed with the 

Commission in electronic format by 

means of the Commission’s Electronic 

Data Gathering, Analysis and Retrieval 

System (‘‘EDGAR’’) in accordance with 

the EDGAR rules set forth in Regulation 

S–T (17 CFR part 232). 

(2) The report must be signed by an 

officer duly authorized to sign on behalf 

of the issuer. The report must be signed 

using a typed signature. The signatory to 

the filing must also manually sign a 

signature page or other document 

authenticating, acknowledging or 

otherwise adopting his or her signature 

that appears in the filing. Such 

document must be executed before or at 

the time the filing is made and must be 

retained by the issuer for a period of five 

years. Upon request, the issuer must 

furnish to the Commission or its staff a 

copy of any or all documents retained 

pursuant to this paragraph. 

D. Incorporation by Reference and 

Cross-Referencing. 

(1) An issuer may incorporate by 

reference to other documents previously 

submitted or filed on EDGAR. Crossreferencing within the report is also 

encouraged to avoid repetition of 

information. For example, you may 

respond to an item of this Form by 

providing a cross-reference to the 

location of the information in another 

item, instead of repeating such 

information. Descriptions of where the 

information incorporated by reference 

or cross-referenced can be found must 

be specific and must clearly identify the 

relevant document and portion thereof 

where such information can be found. 

For exhibits incorporated by reference, 

this description must be noted in the 

exhibits index for each relevant exhibit. 

All such descriptions of where 

information incorporated by reference 

can be found must be accompanied by 

a separate hyperlink to the incorporated 

document on EDGAR. A hyperlink need 

not remain active after the filing of the 

report, except that amendments to the 

report must update any hyperlinks 

referred to in the amendment that are 

inactive. 

(2) Reference may not be made to any 

document if the portion of such 

document containing the pertinent 

information includes an incorporation 

by reference to another document. 

Incorporation by reference to documents 

not available on EDGAR is not 

permitted. Information shall not be 

incorporated by reference or crossreferenced in any case where such 

incorporation would render the 

statement or report incomplete, unclear, 

or confusing. Incorporating information 

into any financial statements from 

elsewhere is not permitted. 

(3) If any substantive modification has 

occurred in the text of any document 

incorporated by reference since such 

document was filed, the issuer must file 

with the reference a statement 

containing the text and date of such 

modification. 

INFORMATION TO BE INCLUDED IN 

THE REPORT 

Item 1. Fundamental Changes 

(a) If the issuer has entered into or 

terminated a material definitive 

agreement that has resulted in or would 

reasonably be expected to result in a 

fundamental change to the nature of its 

business or plan of operations, disclose 

the following information to the extent 

applicable: 

(1) the date on which the agreement 

was entered into, amended, or 

terminated, the identity of the parties to 

the agreement or amendment, and a 

brief description of any material 

relationship between the issuer or its 

affiliates and any of the parties (other 

than the relationship created by the 

material definitive agreement or 

amendment); 

(2) a brief description of the material 

terms and conditions of the agreement; 

(3) a brief description of the material 

circumstances surrounding the 

termination; and 

(4) any material early termination 

penalties incurred by the issuer due to 

a termination. 

(b) For purposes of this item, a 

material definitive agreement means an 

agreement that provides for obligations 

that are material to and enforceable 

against the issuer, or rights that are 

material to the issuer and enforceable by 

the issuer against one or more other 

parties to the agreement, in each case 

whether or not subject to conditions. 

(c) File any material definitive 

agreement disclosed pursuant to this 

item as an exhibit to the report on this 

Form. 

Instructions to Item 1: 

1. A material definitive agreement 

that is not made in the ordinary course 

of business is not necessarily required to 

be disclosed under this item if it does 

not result in, and would not reasonably 

be expected to result in, a fundamental 

change to the nature of the issuer’s 

business or plan of operations. 

2. Without limiting the generality of 

the foregoing and solely for the purposes 

of this Item 1, a material definitive 

agreement is deemed to result in a 

fundamental change if it involves any of 

the following: 

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21920 Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Rules and Regulations 

a. An acquisition transaction for 

which the purchase price, as defined by 

U.S. GAAP or IFRS, exceeds fiftypercent of the total consolidated assets 

of the issuer as of the end of the most 

recently completed fiscal year. If the 

acquirer transferred assets to the 

acquiree than the carrying value of 

those assets should be excluded from 

the purchase price; 

b. A merger, consolidation, 

acquisition or similar transaction that 

requires approval by the issuer’s 

securityholders; or 

c. Any contract upon which the 

issuer’s business is substantially 

dependent, as in the case of continuing 

contracts to sell the major part of the 

issuer’s products or services or to 

purchase the major part of the issuer’s 

requirements of goods, services or raw 

materials or any franchise or license or 

other agreement to use a patent, 

formula, trade secret, process or trade 

name upon which the issuer’s business 

is substantially dependent. 

3. An issuer must provide disclosure 

under this item if the issuer succeeds as 

a party to the agreement or amendment 

to the agreement by assumption or 

assignment (other than in connection 

with a merger or acquisition or similar 

transaction that is otherwise reported 

pursuant to this item). 

4. No disclosure under this item is 

required regarding the termination of a 

material definitive agreement if: 

a. The agreement terminated on its 

stated termination date, or as a result of 

all parties completing their obligations 

under such agreement. 

b. Only negotiations or discussions 

regarding termination of a material 

definitive agreement are being 

conducted and the agreement has not 

been terminated. 

c. The issuer believes in good faith 

that the material definitive agreement 

has not been terminated, unless the 

issuer has received a notice of 

termination pursuant to the terms of 

agreement. 

Item 2. Bankruptcy or Receivership 

(a) If a receiver, fiscal agent or similar 

officer has been appointed for an issuer 

or its parent, in a proceeding under the 

U.S. Bankruptcy Code or in any other 

proceeding under state, federal, or 

Canadian laws, in which a court or 

governmental authority has assumed 

jurisdiction over substantially all of the 

assets or business of the issuer or its 

parent, or if such jurisdiction has been 

assumed by leaving the existing 

directors and officers in possession but 

subject to the supervision and orders of 

a court or governmental authority, 

disclose the following information: 

(1) the name or other identification of 

the proceeding; 

(2) the identity of the court or 

governmental authority; 

(3) the date that jurisdiction was 

assumed; and 

(4) the identity of the receiver, fiscal 

agent or similar officer and the date of 

his or her appointment. 

(b) If an order confirming a plan of 

reorganization, arrangement or 

liquidation has been entered by a court 

or governmental authority having 

supervision or jurisdiction over 

substantially all of the assets or business 

of the issuer or its parent, disclose the 

following: 

(1) the identity of the court or 

governmental authority; 

(2) the date that the order confirming 

the plan was entered by the court or 

governmental authority; 

(3) a summary of the material features 

of the plan; 

(4) the number of shares or other units 

of the issuer or its parent issued and 

outstanding, the number reserved for 

future issuance in respect of claims and 

interests filed and allowed under the 

plan, and the aggregate total of such 

numbers; and 

(5) information as to the assets and 

liabilities of the issuer or its parent as 

of the date that the order confirming the 

plan was entered, or a date as close 

thereto as practicable. 

Instruction to Item 2: 

The information called for in 

paragraph (b)(5) of this item may be 

presented in the form in which it was 

furnished to the court or governmental 

authority. 

Item 3. Material Modification to Rights 

of Securityholders 

(a) If the constituent instruments 

defining the rights of the holders of any 

class of securities of the issuer that were 

issued pursuant to Regulation A have 

been materially modified, disclose the 

date of the modification, the title of the 

class of securities involved and briefly 

describe the general effect of such 

modification upon the rights of holders 

of such securities. 

(b) If the rights or benefits evidenced 

by any class of securities issued 

pursuant to Regulation A have been 

materially limited or qualified by the 

issuance or modification of any other 

class of securities by the issuer, briefly 

disclose the date of the issuance or 

modification, the general effect of the 

issuance or modification of such other 

class of securities upon the rights or 

benefits of the holders of the securities 

issued pursuant to Regulation A. 

Instruction to Item 3: 

Working capital restrictions and other 

limitations upon the payment of 

dividends must be reported pursuant to 

this item. 

Item 4. Changes in Issuer’s Certifying 

Accountant 

(a) If an independent accountant who 

was previously engaged as the principal 

accountant to audit the issuer’s financial 

statements, or an independent 

accountant upon whom the principal 

accountant expressed reliance in its 

report regarding a significant subsidiary, 

resigns (or indicates that it declines to 

stand for re-appointment after 

completion of the current audit) or is 

dismissed, disclose the information that 

would be required under Item 304(a)(1) 

of Regulation S–K (17 CFR 

229.304(a)(1)), including compliance 

with Item 304(a)(3) of Regulation S–K 

(17 CFR 229.304(a)(3)) if the issuer were 

a ‘‘registrant.’’ 

(b) If a new independent accountant 

has been engaged as either the principal 

accountant to audit the issuer’s financial 

statements or as an independent 

accountant on whom the principal 

accountant is expected to express 

reliance in its report regarding a 

significant subsidiary, the issuer must 

disclose the information that would be 

required by Item 304(a)(2) of Regulation 

S–K (17 CFR 229.304(a)(2)) if the issuer 

were a ‘‘registrant.’’ 

Instructions to Item 4: 

1. Information under this Item 4 is 

only required if the issuer’s most recent 

qualified offering statement on Form 1– 

A or report on Form 1–K, whichever is 

most recent, contains audited financial 

statements. 

2. The resignation or dismissal of an 

independent accountant, or its refusal 

to stand for re-appointment, is a 

reportable event separate from the 

engagement of a new independent 

accountant. On some occasions, two 

reports on Form 1–U are required for a 

single change in accountants, the first 

on the resignation (or refusal to stand 

for re-appointment) or dismissal of the 

former accountant and the second when 

the new accountant is engaged. 

Information required in the second 

Form 1–U filing in such situations need 

not be provided to the extent that it has 

been reported previously in the first 

Form 1–U filing. 

Item 5. Non-reliance on Previously 

Issued Financial Statements or a 

Related Audit Report or Completed 

Interim Review 

(a) If the issuer’s board of directors, a 

committee of the board of directors or 

the officer or officers of the issuer 

authorized to take such action if board 

action is not required, concludes that 

any previously issued financial 

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Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Rules and Regulations 21921 

statements, covering one or more years 

or interim periods for which the issuer 

is required to provide financial 

statements under Regulation A, 

including Form 1–A, should no longer 

be relied upon because of an error in 

such financial statements as addressed 

in FASB Accounting Standards 

Codification Topic 250 or IAS 8, as may 

be modified, supplemented or 

succeeded, disclose the following 

information: 

(1) the date of the conclusion 

regarding the non-reliance and an 

identification of the financial statements 

and years or periods covered that 

should no longer be relied upon; 

(2) a brief description of the facts 

underlying the conclusion to the extent 

known to the issuer at the time of filing; 

and 

(3) a statement of whether the audit 

committee, or the board of directors in 

the absence of an audit committee, or 

authorized officer or officers, discussed 

with the issuer’s independent 

accountant the matters disclosed in the 

filing pursuant to this paragraph (a). 

(b) If the issuer is advised by, or 

receives notice from, its independent 

accountant that disclosure should be 

made or action should be taken to 

prevent future reliance on a previously 

issued audit report or completed interim 

review related to previously issued 

financial statements, disclose the 

following information: 

(1) the date on which the issuer was 

so advised or notified; 

(2) identification of the financial 

statements that should no longer be 

relied upon; 

(3) a brief description of the 

information provided by the accountant; 

and 

(4) a statement of whether the audit 

committee, or the board of directors in 

the absence of an audit committee, or 

authorized officer or officers, discussed 

with the independent accountant the 

matters disclosed in the filing pursuant 

to paragraph (b) of this item. 

(c) If the issuer receives advisement or 

notice from its independent accountant 

requiring disclosure under paragraph (b) 

of this item, the issuer must: 

(1) provide the independent 

accountant with a copy of the 

disclosures the issuer is making in 

response to this item and the 

independent accountant shall receive a 

copy no later than the day that the 

disclosures are filed with the 

Commission; 

(2) request the independent 

accountant to furnish to the issuer as 

promptly as possible a letter addressed 

to the Commission stating whether the 

independent accountant agrees with the 

statements made by the issuer in 

response to this item and, if not, stating 

the respects in which it does not agree; 

and 

(3) amend the issuer’s previously filed 

Form 1–U by filing the independent 

accountant’s letter as an exhibit to the 

filed Form 1–U no later than two 

business days after the issuer’s receipt 

of the letter. 

Item 6. Changes in Control of Issuer 

(a) If, to the knowledge of the issuer’s 

board of directors, a committee of the 

board of directors, governing body 

similar to a board of directors, or 

authorized officer or officers of the 

issuer, a change in control of the issuer 

has occurred, furnish the following 

information: 

(1) the identity of the persons who 

acquired such control; 

(2) the date and a description of the 

transactions which resulted in the 

change in control; 

(3) the basis of the control, including 

the percentage of voting securities of the 

issuer now beneficially owned directly 

or indirectly by the persons who 

acquired control; 

(4) the amount of the consideration 

used by such persons; 

(5) the sources of funds used by the 

persons, unless all or any part of the 

consideration used is a loan made in the 

ordinary course of business by a bank as 

defined by Section 3(a)(6) of the 

Securities Exchange Act of 1934. 

(6) the identity of the persons from 

whom control was assumed; and 

(7) any arrangements or 

understandings among members of both 

the former and new control groups and 

their associates with respect to election 

of directors or other matters. 

(b) Describe any arrangements, known 

to the issuer, including any pledge by 

any person of securities of the issuer or 

any of its parents, the operation of 

which may at a subsequent date result 

in a change in control of the issuer. It 

is not necessary to describe ordinary 

default provisions contained in the 

charter, trust indentures, or other 

governing instruments relating to 

securities of the issuer in response to 

this paragraph. 

Item 7. Departure of Certain Officers 

If the issuer’s principal executive 

officer, principal financial officer, 

principal accounting officer, or any 

person performing similar functions, 

retires, resigns or is terminated from 

that position, disclose the fact that the 

event has occurred and the date of the 

event. 

Instruction to Item 7: 

The disclosure requirements of this 

item do not apply to an issuer that is a 

wholly-owned subsidiary of an issuer 

with a class of securities registered 

under Section 12 of the Exchange Act 

(15 U.S.C. 78l), or that is required to file 

reports under Section 15(d) of the 

Exchange Act (15 U.S.C. 78o(d)) or 

under Regulation A. 

Item 8. Certain Unregistered Sales of 

Equity Securities 

(a) If the issuer sells equity securities 

in a transaction that is not registered 

under the Securities Act or qualified 

under Regulation A, furnish the 

information set forth in Item 6 of Part I 

of Form 1–A. For purposes of 

determining the required filing date for 

the Form 1–U under this item, the issuer 

has no obligation to disclose 

information under this item until the 

issuer enters into an agreement 

enforceable against the issuer, whether 

or not subject to conditions, under 

which the equity securities are to be 

sold. If there is no such agreement, the 

issuer must provide the disclosure 

within four business days after the 

occurrence of the closing or settlement 

of the transaction or arrangement under 

which the equity securities are to be 

sold. 

(b) No report need be filed if the 

equity securities sold, in the aggregate 

since its last report filed under this item 

or its last periodic report containing 

such disclosure, whichever is more 

recent, constitute less than 10% of the 

number of shares outstanding of the 

class of equity securities sold. 

Instructions to Item 8: 

1. For purposes of this item, ‘‘the 

number of shares outstanding’’ refers to 

the actual number of shares of equity 

securities of the class outstanding and 

does not include outstanding securities 

convertible into or exchangeable for 

such equity securities. 

2. It is not necessary to follow the 

format of Item 6 of Part I of Form 1–A 

when providing the information 

required by this item. 

Item 9. Other Events 

The issuer may, at its option, disclose 

under this item any events or 

information, the disclosure of which is 

not otherwise called for by this Form, 

that the issuer deems of importance to 

securityholders. 

SIGNATURES 

Pursuant to the requirements of 

Regulation A, the issuer has duly caused 

this report to be signed on its behalf by 

the undersigned, thereunto duly 

authorized. 

(Exact name of issuer as specified in its charter) lllllllllllllllllll

By (Signature and Title) lllllllll

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21922 Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Rules and Regulations 

Datellllll 

Note: The text of Form 1–U will not appear 

in the Code of Federal Regulations. 

■ 17. Add § 239.94 to read as follows: 

§ 239.94 Form 1–Z. 

This form shall be used to file an exit 

report under Regulation A (§§ 230.251– 

230.263 of this chapter). 

■ 18. Add Form 1–Z (referenced in 

§ 239.94) to read as follows: 

UNITED STATES SECURITIES AND 

EXCHANGE COMMISSION 

Washington, DC 20549 

FORM 1–Z 

EXIT REPORT UNDER REGULATION 

A 

GENERAL INSTRUCTIONS 

(1) The following information must be 

provided in the XML-based Form 1–Z 

available through the EDGAR portal. 

The format shown below may differ 

from the electronic version available on 

EDGAR. 

(2) An issuer filing this Form 

pursuant to Rule 257(a) must only 

complete the Preliminary Information 

and Part I. 

(3) An issuer filing this Form to 

suspend its duty to file reports under 

Rule 257(d) must complete the 

Preliminary Information and Part II. 

Such issuer must also provide Part I if 

it has not previously provided the Part 

I information in a Form 1–K filing. 

* * * * * 

PRELIMINARY INFORMATION 

Exact name of issuer as specified in the 

issuer’s charter:llllll 

Address of Principal Executive 

Offices:llllll 

Phone: (l) 

Commission File 

Number(s):llllll 

PART I 

Summary Information Regarding the 

Offering and Proceeds 

Date of qualification of the offering 

statement:llllll 

Date of commencement of the 

offering:llllll 

Amount of securities qualified to be 

sold in the offering:llllll 

Amount of securities sold in the 

offering:llllll 

Price per security: $llllll 

The portion of aggregate sales 

attributable to securities sold on behalf 

of the issuer: 

$ lllllll 

The portion of aggregate sales 

attributable to securities sold on behalf 

of selling securityholders: 

$lllllll 

Fees in connection with this offering 

and names of service providers: 

Name of Service Provider Fees 

Underwriters: ...................................................................................................... llllllll llll $llllllll llll 

Sales Commissions: ............................................................................................ llllllll llll $llllllll llll 

Finders’ Fees: ...................................................................................................... llllllll llll $llllllll llll 

Audit: ................................................................................................................... llllllll llll $llllllll llll 

Legal: ................................................................................................................... llllllll llll $llllllll llll 

Promoters: ........................................................................................................... llllllll llll $llllllll llll 

Blue Sky Compliance: ........................................................................................ llllllll llll llllllll llll 

CRD Number of any broker or dealer 

listed:llllll 

Net proceeds to the issuer: 

$llllll 

Clarification of responses (if 

necessary):llllll 

PART II 

Certification of Suspension of Duty to 

File Reports 

Title of each class of securities covered by 

this Form llllllllllllllll

Commission File Number(s) lllllll

Approximate number of holders of record as 

of the certification date: lllllllll

Pursuant to the requirements of Regulation 

A, lllll (Name of issuer as specified in 

charter) certifies that it meets all of the 

conditions for termination of Regulation A 

reporting specified in Rule 257(d) and that 

there are no classes of securities other than 

those that are the subject of this Form 1–Z 

regarding which the issuer has Regulation A 

reporting obligations. lllll (Name of 

issuer as specified in charter) has caused this 

certification to be signed on its behalf by the 

undersigned duly authorized person. 

By: lllll Date: lllll 

Title: lllll 

Instruction: This Part II of Form 1–Z is 

required by Rule 257(d) of Regulation A. An 

officer of the issuer or any other duly 

authorized person may sign, and must do so 

by typed signature. The name and title of the 

person signing the form must be typed or 

printed under the signature. The signatory to 

the filing must also manually sign a signature 

page or other document authenticating, 

acknowledging or otherwise adopting his or 

her signature that appears in the filing. Such 

document must be executed before or at the 

time the filing is made and must be retained 

by the issuer for a period of five years. Upon 

request, the issuer must furnish to the 

Commission or its staff a copy of any or all 

documents retained pursuant to this 

instruction. 

Note: The text of Form 1–Z will not appear 

in the Code of Federal Regulations. 

PART 240—GENERAL RULES AND 

REGULATIONS, SECURITIES 

EXCHANGE ACT OF 1934 

■ 19. The authority citation for part 240 

continues to read in part as follows: 

Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 

77s, 77z–2, 77z–3, 77eee, 77ggg, 77nnn, 

77sss, 77ttt, 78c, 78c–3, 78c–5, 78d, 78e, 78f, 

78g, 78i, 78j, 78j–1, 78k, 78k–1, 78l, 78m, 

78n, 78n–1, 78o, 78o–4, 78o–10, 78p, 78q, 

78q–1, 78s, 78u–5, 78w, 78x, 78ll, 78mm, 

80a–20, 80a–23, 80a–29, 80a–37, 80b–3, 80b– 

4, 80b–11, 7201 et seq.; and 8302; 7 U.S.C. 

2(c)(2)(E); 12 U.S.C. 5221(e)(3); 18 U.S.C. 

1350; and Pub. L. 111–203, 939A, 124 Stat. 

1376, (2010), unless otherwise noted. 

* * * * * 

■ 20. Section 240.12g5–1 is amended by 

adding paragraph (a)(7) to read as 

follows: 

§ 240.12g5–1 Definition of securities ‘‘held 

of record’’. 

(a) * * * 

(7) Other than when determining 

compliance with Rule 257(d)(2) of 

Regulation A (§ 230.257(d)(2) of this 

chapter), the definition of ‘‘held of 

record’’ shall not include securities 

issued in a Tier 2 offering pursuant to 

Regulation A by an issuer that: 

(i) Is required to file reports pursuant 

to Rule 257(b) of Regulation A 

(§ 230.257(b) of this chapter); 

(ii) Is current in filing annual, 

semiannual and special financial reports 

pursuant to such rule as of its most 

recently completed fiscal year end; 

(iii) Has engaged a transfer agent 

registered pursuant to Section 17A(c) of 

the Act to perform the function of a 

transfer agent with respect to such 

securities; and 

(iv) Had a public float of less than $75 

million as of the last business day of its 

most recently completed semiannual 

period, computed by multiplying the 

aggregate worldwide number of shares 

of its common equity securities held by 

non-affiliates by the price at which such 

securities were last sold (or the average 

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bid and asked prices of such securities) 

in the principal market for such 

securities or, in the event the result of 

such public float calculation was zero, 

had annual revenues of less than $50 

million as of its most recently 

completed fiscal year. An issuer that 

would be required to register a class of 

securities under Section 12(g) of the Act 

as a result of exceeding the applicable 

threshold in this paragraph (a)(7)(iv), 

may continue to exclude the relevant 

securities from the definition of ‘‘held of 

record’’ for a transition period ending 

on the penultimate day of the fiscal year 

two years after the date it became 

ineligible. The transition period 

terminates immediately upon the failure 

of an issuer to timely file any periodic 

report due pursuant to Rule 257 

(§ 230.257 of this chapter) at which time 

the issuer must file a registration 

statement that registers that class of 

securities under the Act within 120 

days. 

* * * * * 

■ 21. Section 240.15c2–11 is amended 

by revising paragraphs (a)(3) and 

(d)(2)(i) to read as follows: 

§ 240.15c2–11 Initiation or resumption of 

quotations without specific information. 

* * * * * 

(a) * * * 

(3) A copy of the issuer’s most recent 

annual report filed pursuant to section 

13 or 15(d) of the Act or pursuant to 

Regulation A ((§§ 230.251 through 

230.263 of this chapter), or a copy of the 

annual statement referred to in section 

12(g)(2)(G)(i) of the Act in the case of an 

issuer required to file reports pursuant 

to section 13 or 15(d) of the Act or an 

issuer of a security covered by section 

12(g)(2)(B) or (G) of the Act, together 

with any semiannual, quarterly and 

current reports that have been filed 

under the provisions of the Act or 

Regulation A by the issuer after such 

annual report or annual statement; 

provided, however, that until such 

issuer has filed its first annual report 

pursuant to section 13 or 15(d) of the 

Act or pursuant to Regulation A, or 

annual statement referred to in section 

12(g)(2)(G)(i) of the Act, the broker or 

dealer has in its records a copy of the 

prospectus specified by section 10(a) of 

the Securities Act of 1933 included in 

a registration statement filed by the 

issuer under the Securities Act of 1933, 

other than a registration statement on 

Form F–6, or a copy of the offering 

circular specified by Regulation A 

included in an offering statement filed 

by the issuer under Regulation A, that 

became effective or was qualified within 

the prior 16 months, or a copy of any 

registration statement filed by the issuer 

under section 12 of the Act that became 

effective within the prior 16 months, 

together with any semiannual, quarterly 

and current reports filed thereafter 

under section 13 or 15(d) of the Act or 

Regulation A; and provided further, that 

the broker or dealer has a reasonable 

basis under the circumstances for 

believing that the issuer is current in 

filing annual, semiannual, quarterly, 

and current reports filed pursuant to 

section 13 or 15(d) of the Act or 

Regulation A, or, in the case of an 

insurance company exempted from 

section 12(g) of the Act by reason of 

section 12(g)(2)(G) thereof, the annual 

statement referred to in section 

12(g)(2)(G)(i) of the Act; or 

* * * * * 

(d) * * * 

(2) * * * 

(i) A broker-dealer shall be in 

compliance with the requirement to 

obtain current reports filed by the issuer 

if the broker-dealer obtains all current 

reports filed with the Commission by 

the issuer as of a date up to five business 

days in advance of the earlier of the date 

of submission of the quotation to the 

quotation medium and the date of 

submission of the information in 

paragraph (a) of this section pursuant to 

the applicable rule of the Financial 

Industry Regulatory Authority, Inc. or 

its successor organization; and 

* * * * * 

PART 249—FORMS, SECURITIES 

EXCHANGE ACT OF 1934 

■ 22. The authority citation for part 249 

continues to read in part as follows: 

Authority: 15 U.S.C. 78a et seq. and 7201 

et seq.; 12 U.S.C. 5461 et seq.; and 18 U.S.C. 

1350, unless otherwise noted. 

* * * * * 

■ 23. Section 249.208 is amended by: 

■ a. Revising paragraph (a); and 

■ b. Adding paragraph (e). 

The revision and addition read as 

follows: 

§ 249.208a Form 8–A, for registration of 

certain classes of securities pursuant to 

section 12 (b) or (g) of the Securities 

Exchange Act of 1934. 

(a) Subject to paragraph (b) of this 

section, this form may be used for 

registration pursuant to section 12(b) or 

(g) of the Securities Exchange Act of 

1934 of any class of securities of any 

issuer which: 

(1) Is required to file reports pursuant 

to sections 13 and 15(d) of that Act; 

(2) Is concurrently qualifying a Tier 2 

offering statement relating to that class 

of securities using the Form S–1 or 

Form S–11 disclosure models; or 

(3) Pursuant to an order exempting 

the exchange on which the issuer has 

securities listed from registration as a 

national securities exchange. 

* * * * * 

(e) Notwithstanding the foregoing in 

paragraphs (c) and (d) of this section, if 

the form is used for registration of a 

class of securities being offered under 

Regulation A, it shall become effective: 

(1) For the registration of a class of 

securities under Section 12(b), upon the 

latest of the filing of the form with the 

Commission, the qualification of the 

Regulation A offering statement or the 

receipt by the Commission of 

certification from the national securities 

exchange listed on the form; or 

(2) For the registration of a class of 

securities under Section 12(g), upon the 

later of the filing of the form and 

qualification of that Regulation A 

offering statement. 

■ 24. Amend Form 8–A (referenced in 

§ 249.208a) by revising it to read as 

follows: 

UNITED STATES SECURITIES AND 

EXCHANGE COMMISSION 

Washington, D.C. 20549 

FORM 8–A 

FOR REGISTRATION OF CERTAIN 

CLASSES OF SECURITIES PURSUANT 

TO SECTION 12(b) OR (g) OF THE 

SECURITIES EXCHANGE ACT OF 1934 

GENERAL INSTRUCTIONS 

A. Rule as to Use of Form 8–A. 

(a) Subject to paragraph (b) below, 

this form may be used for registration 

pursuant to Section 12(b) or (g) of the 

Securities Exchange Act of 1934 of any 

class of securities of any issuer which is 

(1) required to file reports pursuant to 

Section 13 or 15(d) of that Act, (2) is 

concurrently qualifying a Tier 2 offering 

statement relating to that class of 

securities using the Form S–1 or Form 

S–11 disclosure models that includes 

financial statements that are audited in 

accordance with the standards of, and 

by an accounting firm that is registered 

with, the Public Company Accounting 

Oversight Board (United States), or (3) 

pursuant to an order exempting the 

exchange on which the issuer has 

securities listed from registration as a 

national securities exchange. 

(b) If the registrant would be required 

to file an annual report pursuant to 

Section 15(d) of the Act for its last fiscal 

year, except for the fact that the 

registration statement on this form will 

become effective before such report is 

required to be filed, an annual report for 

such fiscal year shall nevertheless be 

filed within the period specified in the 

appropriate annual report form. 

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21924 Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Rules and Regulations 

(c) If this form is used for the 

registration of a class of securities under 

Section 12(b), it shall become effective: 

(1) If a class of securities is not 

concurrently being registered under the 

Securities Act of 1933 (15 U.S.C. 77a et 

seq.) (‘‘Securities Act’’), upon the later 

of receipt by the Commission of 

certification from the national securities 

exchange listed on this form or the filing 

of the Form 8–A with the Commission; 

or 

(2) If a class of securities is 

concurrently being registered under the 

Securities Act, upon the latest of the 

filing of the Form 8–A with the 

Commission, receipt by the Commission 

of certification from the national 

securities exchange listed on this form 

or effectiveness of the Securities Act 

registration statement relating to the 

class of securities. 

(d) If this form is used for the 

registration of a class of securities under 

Section 12(g), it shall become effective: 

(1) If a class of securities is not 

concurrently being registered under the 

Securities Act, upon the filing of the 

Form 8–A with the Commission; or 

(2) If class of securities is 

concurrently being registered under the 

Securities Act, upon the later of the 

filing of the Form 8–A with the 

Commission or the effectiveness of the 

Securities Act registration statement 

relating to the class of securities. 

(e) Notwithstanding the foregoing in 

paragraphs (c) and (d) of this form, if 

this form is used for registration of a 

class of securities being offered under 

Regulation A, it shall become effective: 

(1) For the registration of a class of 

securities under Section 12(b), upon the 

latest of the filing of the Form 8–A with 

the Commission, the qualification of the 

Regulation A offering statement or the 

receipt by the Commission of 

certification from the national securities 

exchange listed on this form; or 

(2) For the registration of a class of 

securities under Section 12(g), upon the 

later of the filing of the Form 8–A and 

qualification of the Regulation A 

offering statement. 

(Note: Registration pursuant to 

paragraph (e) of this form is not 

permitted if the filing of the Form 8–A 

and, where applicable, the receipt by 

the Commission of certification from the 

national securities exchange listed on 

this form occurs more than five calendar 

days after the qualification of the 

Regulation A offering statement) 

B. Application of General Rules and 

Regulations. 

(a) The General Rules and Regulations 

under the Act contain certain general 

requirements which are applicable to 

registration on any form. These general 

requirements should be carefully read 

and observed in the preparation and 

filing of registration statements on this 

form. 

(b) Particular attention is directed to 

Regulation 12B which contains general 

requirements regarding matters such as 

the kind and size of paper to be used, 

legibility, information to be given 

whenever the title of securities is 

required to be stated, incorporation by 

reference and the filing of the 

registration statement. The definitions 

contained in Rule 12b–2 should be 

especially noted. 

C. Preparation of Registration 

Statement. 

This form is not to be used as a blank 

form to be filled in, but only as a guide 

in the preparation of the registration 

statement on paper meeting the 

requirements of Rule 12b–12. The 

registration statement shall contain the 

item numbers and captions, but the text 

of the items may be omitted. The 

answers to the items shall be prepared 

in the manner specified in Rule 12b–13. 

D. Signature and Filing of Registration 

Statement. 

Eight complete copies of the 

registration statement, including all 

papers and documents filed as a part 

thereof (other than exhibits) shall be 

filed with the Commission and at least 

one such copy shall be filed with each 

exchange on which the securities are to 

be registered. Exhibits shall be filed 

with the Commission and with any 

exchange in accordance with the 

Instructions as to Exhibits. At least one 

copy of the registration statement filed 

with the Commission and one filed with 

each exchange shall be manually signed. 

Unsigned copies shall be conformed. 

UNITED STATES SECURITIES AND 

EXCHANGE COMMISSION 

Washington, D.C. 20549 

FORM 8–A 

FOR REGISTRATION OF CERTAIN 

CLASSES OF SECURITIES PURSUANT 

TO SECTION 12(b) OR (g) OF THE 

SECURITIES EXCHANGE ACT OF 1934 

lllllllllllllllllllll

(Exact name of registrant as specified in its 

charter) 

lllllllllllllllllllll

(State or other jurisdiction of incorporation 

or organization) 

lllllllllllllllllllll

(Address of principal executive offices) 

lllllllllllllllllllll

(I.R.S. Employer Identification No.) 

lllllllllllllllllllll

(Zip Code) 

Securities to be registered pursuant to 

Section 12(b) of the Act: 

Title of each class to be so registered 

lllllllllllllllllllll

lllllllllllllllllllll

lllllllllllllllllllll

Name of each exchange on which each class 

is to be registered 

lllllllllllllllllllll

lllllllllllllllllllll

lllllllllllllllllllll

If this form relates to the registration 

of a class of securities pursuant to 

Section 12(b) of the Exchange Act and 

is effective pursuant to General 

Instruction A.(c) or (e), check the 

following box. b 

If this form relates to the registration 

of a class of securities pursuant to 

Section 12(g) of the Exchange Act and 

is effective pursuant to General 

Instruction A.(d) or (e), check the 

following box. b 

If this form relates to the registration 

of a class of securities concurrently with 

a Regulation A offering, check the 

following box. b 

Securities Act registration statement 

or Regulation A offering statement file 

number to which this form 

relates:llll (if applicable) 

Securities to be registered pursuant to 

Section 12(g) of the Act: 

lllllllllllllllllllll

(Title of class) 

lllllllllllllllllllll

(Title of class) 

INFORMATION REQUIRED IN 

REGISTRATION STATEMENT 

Item 1. Description of Registrant’s 

Securities to be Registered. 

Furnish the information required by 

Item 202 of Regulation S–K (§ 229.202 of 

this chapter), as applicable. 

Instruction. If a description of the 

securities comparable to that required 

here is contained in any prior filing 

with the Commission, such description 

may be incorporated by reference to 

such other filing in answer to this item. 

If such description will be included in 

a form of prospectus or an offering 

circular subsequently filed by the 

registrant pursuant to Rule 424(b) under 

the Securities Act (§ 230.424(b) of this 

chapter) or Rule 253(g) of Regulation A 

(§ 230.253(g) of this chapter), this 

registration statement shall state that 

such prospectus or offering circular 

shall be deemed to be incorporated by 

reference into the registration statement. 

If the securities are to be registered on 

a national securities exchange and the 

description has not previously been 

filed with such exchange, copies of the 

description shall be filed with copies of 

the application filed with the exchange. 

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Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Rules and Regulations 21925 

Item 2. Exhibits. 

List below all exhibits filed as a part 

of the registration statement: 

Instruction. See the instructions as to 

exhibits, set forth below. 

SIGNATURE 

Pursuant to the requirements of 

Section l2 of the Securities Exchange 

Act of 1934, the registrant has duly 

caused this registration statement to be 

signed on its behalf by the undersigned, 

thereto duly authorized. 

(Registrant) 

lllllllllllllllllllll

Date 

lllllllllllllllllllll

By 

lllllllllllllllllllll

*Print the name and title of the 

signing officer under such officer’s 

signature. 

INSTRUCTIONS AS TO EXHIBITS 

If the securities to be registered on 

this form are to be registered on an 

exchange on which other securities of 

the registrant are registered, or are to be 

registered pursuant to Section 12(g) of 

the Act, copies of all constituent 

instruments defining the rights of the 

holders of each class of such securities, 

including any contracts or other 

documents which limit or qualify the 

rights of such holders, shall be filed as 

exhibits with each copy of the 

registration statement filed with the 

Commission or with an exchange, 

subject to Rule 12b–32 regarding 

incorporation of exhibits by reference. 

Note: The text of Form 8–A will not appear 

in the Code of Federal Regulations. 

PART 260—GENERAL RULES AND 

REGULATIONS, TRUST INDENTURE 

ACT OF 1939 

■ 25. The authority citation for part 260 

is revised to read as follows: 

Authority: 15 U.S.C. 77c, 77ddd, 77eee, 

77ggg, 77nnn, 77sss, 78ll (d), 80b–3, 80b–4, 

and 80b–11, unless otherwise noted. 

■ 26. Section 260.4a–1 is revised to read 

as follows: 

§ 260.4a–1 Exempted securities under 

section 304(a)(8). 

The provisions of the Trust Indenture 

Act of 1939 shall not apply to any 

security that has been or will be issued 

otherwise than under an indenture. The 

same issuer may not claim this 

exemption within a period of twelve 

consecutive months for more than 

$50,000,000 aggregate principal amount 

of any securities. 

By the Commission. 

Dated: March 25, 2015. 

Brent J. Fields, 

Secretary. 

[FR Doc. 2015–07305 Filed 4–17–15; 8:45 am] 

BILLING CODE 8011–01–P 

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