Regulation S
PPM.net can write your Regulation S Private Placement Memorandum (Reg S PPM).
Regulation S under the Securities Act of 1933, (the “Securities Act”) is classified as a safe harbour rule. Regulation S is often used for ‘offshore’ offerings such as when a US company is seeking foreign capital. Regulation S defines when an offering of securities would be deemed to “come to rest abroad”. This would insure that the company would not be subject to the registration obligations imposed under Section 5 of the Securities Act. The General Statement to Regulation S applies a territorial approach to Securities Act registration by providing that offers and sales subject to Section 5 include offers and sales that occur within the United States and do not include offers and sales that occur outside the United States, i.e. such as in Europe or Asia or South America. Regulation S also includes several safe harbour exemptions that address specified transactions.
Safe Harbour
Each safe harbour is subject to two general conditions (a “safe harbor” exemption is an exemption that is not the exclusive means that must be employed to fall within a more general exemption or jurisdictional limitation. By promulgating a safe harbour, the SEC is affirming that someone complying with its requirements will definitely have the benefit of the broader exemption or limitation.):
1. The offer or sale must occur in an “offshore transaction.” This means that (i) the seller reasonably believes that the buyer is offshore at the time of the offer or sale, i.e. outside of the United States, or (ii) the transaction occurs on certain “designated offshore securities markets,” which includes each of the Canadian stock exchanges participating in the Committee, and the transaction is not pre-arranged with a buyer in the United States. That no “directed selling efforts” may be made in the United States by the issuer, a distributor, any of their respective affiliates, or any person acting on behalf of any of the foregoing. These activities consist of efforts reasonably expected to condition the U.S. market for the securities.
2. Rule 903 provides specific rules for offerings by issuers, distributors and their respective affiliates:
Category 1:
(a) securities of a “foreign issuer” for which there is no “substantial U.S. market interest”, (b) securities offered by a “foreign issuer” in “overseas directed offerings”, (c) non-convertible debt securities of a domestic issuer offered in overseas directed offerings that are denominated in a currency other than U.S. dollars, and (d) securities backed by the full faith and credit of a foreign government.
Category 2:
(a) equity offerings by reporting foreign issuers, and (b) offerings of debt securities and non-convertible, non-participating preferred stock by reporting issuers or non-reporting foreign issuers. To be treated as a qualified reporting issuer, the issuer must have filed all required reports for at least twelve months prior to the offer or sale, or such shorter period during which the issuer was subject to the reporting obligation.
Offering Restrictions must be observed, which include prohibitions on resales to U.S. Persons during the distribution compliance period, in addition to the application of the general conditions. Generally, a 40-day distribution compliance period (meaning the period during which the restrictions required by the particular category remain in effect) will apply, which will have to be codified in a written agreement with each distributor and reflected in the offering documentation and on all confirmations issued to distributors and others receiving transaction-based compensation and to purchasers during the distribution compliance period.
3. Offerings of all other securities, including (a) equity offerings by domestic reporting issuers, (b) offerings of equity securities by non-reporting foreign issuers for which there is a substantial U.S. market interest and (c) offerings by U.S. issuers that are not reporting issuers. These offerings are subject to the most stringent conditions.
PPM.net can help structure your Regulation S Offering.