Regulation S Debt Securities, Equity Securities, Rule 904
For debt securities the offering restrictions are the same as for Category 2 (see previous page), plus the need to use a temporary global certificate to support the 40-day distribution compliance period.
For equity securities, the distribution compliance period is increased to one year, and the purchaser must also provide a certification as to its non-U.S. status and must agree not to resell to a U.S. Person except in accordance with U.S. requirements, in addition to compliance with the restrictions applicable to Category 2.
The securities of a domestic issuer must bear a restrictive legend, supported by stop transfer instructions. The documentation required in the case of such issuers must refer to the prohibition on certain hedging transactions during the distribution compliance period that would have the effect of pre-selling, the securities into the United States and distributors must agree in writing to observe this prohibition.
Rule 904 provides a safe harbour for certain resale transactions by persons other than the issuer, a distributor, any of their respective affiliates (except any officer or director who is an affiliate solely by virtue of such office), or any person acting on their behalf. They are subject to the following conditions:
1. All permitted sellers are subject to the general conditions.
2. In the case of a seller who is a dealer or a person receiving any remuneration, a resale cannot be knowingly made to a U.S. Person prior to the end of the relevant distribution compliance period. A confirmation stating the applicable securities law restrictions must be sent to any other dealer or person receiving selling compensation person.
3. No special compensation can be paid if the seller is an officer or director of the issuer.
4. The safe harbour is not available to “affiliates” of the issuer, except where affiliation arises solely from the status of the seller as an officer or director. An “affiliate” is any person controlling, controlled by or under common control with the issuer. “Control” for this purpose means de facto control. A strong inference of control based upon voting influence often arises at the 10% threshold, although other factors may demonstrate or point away from control.
5. Transactions must be effected through a “designated offshore securities market” in transaction not pre-arranged with a U.S. Person or in a transaction involving a buyer outside of the United States at the time the buy order is originated.
6. Care must be taken to ensure that the transaction does not involve a scheme to evade the Securities Act registration requirements, including for the purpose of washing off transfer restrictions.
PPM.net can help structure your Regulation S Offering.