withdrawn, priced below the low end of the IPO filing range or that have broken the IPO price within 30 days of the completion of the offering as potentially ruinous to smaller companies.54
This legislation would have amended section 3(b) of the
Securities Act by requiring the SEC to increase the aggregate offering amount to $50 million for exempt offerings of securities. The legislation also would have amended section 18(b)(4) of the Securities Act by including in the definition of “covered security”: a rule or regulation adopted pursuant to section 3(b)(2)
and such security is — (i) offered or sold through a broker or dealer; (ii) offered or sold on a national securities exchange; or (iii) sold to a qualified purchaser …”55 Accordingly, certain Regulation A offerings would have
been pre-empted from state blue sky review.56 In June 2011, the House Committee on Financial
Services approved an amendment to the Small Company Capital Formation Act, which provided that “the Commission shall require an issuer to file audited financial statements with the Commission annually” (our emphasis).57
Title IV of the JOBS Act incorporates this
reporting requirement in the context of the section 3(b)(2) exemption that it references. The legislation was met with strong bipartisan support.
In November 2011, the House of Representatives overwhelmingly approved the Small Company Capital Formation Act of 2011 by a vote of 421 to one. Companion legislation was introduced in the Senate in September 2011 by Senators Jon Tester and Pat Toomey. But for a few minor differences, the Senate bill was substantially similar to the Small Company Capital Formation Act. Ultimately, the changes that were contemplated in these bills were incorporated into the JOBS Act, albeit with some modifications. It is important to note that, throughout the preceding
few years, when commentators were considering amending Regulation A to increase the dollar threshold and address state blue sky matters, the proposals had as their underlying premise that smaller issuers that were not SEC- reporting companies would be able to conduct one or more Regulation A offerings and elect either to remain non-reporting issuers, or voluntarily seek to have their securities listed and quoted on a national securities exchange (thereby becoming SEC-reporting companies) and use Regulation A as an alternative to a traditional IPO. The notion of an IPO on-ramp, or scaled approach to IPOs for emerging growth companies, had not yet been proposed.
54 JOBS Act Quick Start
Title IV of the JOBS Act As noted above, Title IV of the JOBS Act does not amend existing Regulation A. Instead, section 401 of the JOBS Act amends section 3(b) of the Securities Act by adopting a new section (b). Pursuant to the new section 3(b)(2), the SEC is authorised to promulgate rules or regulations creating an exemption that is substantially similar to the existing Regulation A. An issuer would be able to offer and sell up to $50
million in securities within a 12-month period in reliance on the exemption. The issuer may offer equity securities, debt securities, and debt securities convertible or exchangeable for equity interests, including any guarantees of such securities. The securities sold pursuant to the exemption will be offered and sold publicly (without restrictions on the use of general solicitation or general advertising) and will not be considered “restricted securities.” The issuer may test the waters or solicit interest in the offering before filing any offering statement with the SEC, subject to any additional conditions or requirements that may be imposed by the SEC. The civil liability provision in section 12(a)(2) shall apply to any person offering or selling such securities. The securities will be considered “covered securities” for NSMIA purposes (and not subject to state securities review) if: the securities are offered and sold on a national securities exchange, or the securities are offered or sold to a “qualified purchaser” as defined under the Securities Act.58
These provisions are more limited than those
originally contained in the standalone Regulation A legislation. During the consideration of the Regulation A legislation, it became clear that perhaps the only significant source of controversy regarding modernizing Regulation A related to state blue sky qualification. State securities regulators, through the North American Securities Administrators Association (Nasaa), expressed concerns about the potential for fraud and abuse related to offerings for small companies, including offerings completed pursuant to Regulation A. Nasaa opposed certain aspects of the proposals to modernise the regulation of these offerings that would involve broader state blue sky pre- emption.59 The SEC will require that the issuer file audited financial statements with the SEC annually. The SEC may impose other terms, conditions or requirements deemed necessary for investor protection, including a requirement that the issuer prepare and file electronically with the SEC and distribute to prospective investors an offering statement and any related documents, including a description of the issuer’s business and financial condition, its corporate
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