Securities offerings and listings in the US: an ... - Latham & Watkins

Chapter 3 – Key exemptions from Securities Act registrationPractice point:Section 4(2) is only available for offers and sales by anissuer; resales of securities acquired from an issuerrequire a separate exemption (such as Rule 144A,discussed below).Private placements under Section 4(2) typically involve,among other things:• a non-public offering (that is, an offering without anyform of general solicitation or advertising);• to a limited number of offerees;• who are buying for investment and not with a viewto distribution; and• who are sophisticated investors and have beenprovided with or have access to information aboutthe issuer. 107In addition, the securities issued in a private placementgenerally include restrictions on resales by thepurchasers (such as through the use of stop-transferorders, restrictive legends and the like). 108Regulation D private placements(i) BackgroundLargely in response to the difficulties experienced bypractitioners in interpreting the availability of Section4(2), the SEC adopted Regulation D to provide aclearly defined non-exclusive safe harbour fromregistration for offers and sales of securities by issuers.Regulation D differentiates transactions based on thesize of the offerings and the types of investors to whomsecurities are being offered. Regulation D draws a coredistinction between accredited investors and other, nonsophisticatedinvestors. Accredited investors include: 109• banks, savings and loan associations, and similarinstitutions;• insurance companies, investment companies, smallbusiness investment companies and certain employeebenefit plans;• private business development companies;• certain tax-exempt organizations;• corporations with assets over $5 million;• directors, executive officers, and persons holdingsimilar positions with or in the issuer;• natural persons with a net worth (alone or with thatperson’s spouse) exceeding $1 million;• natural persons with individual income in excess of$200,000 per year or, with that person’s spouse, inexcess of $300,000 per year;• certain trusts with assets in excess of $5 million; and• any entity owned entirely by such persons.(ii) Regulation D general conditionsRegulation D provides certain general conditions (theRegulation D General Conditions), including:• Integration: 110 All sales that are part of the sameRegulation D offering must meet all of the terms andconditions of Regulation D. However, offers andsales made more than six months before or after thecompletion of a Regulation D offering will generallynot be considered part of the same Regulation Doffering.• Information requirements: Regulation D’sinformation requirements depend on the type oftransaction and the type of participants in thetransaction. The issuer must provide any purchaserthat is not an accredited investor with extensiveinformation regarding the issuer. If the issuer is notan Exchange Act reporting company, thatinformation includes non-financial and financialinformation substantially equivalent to that which itwww.iflr.comUS SECURITIES OFFERINGS: A GUIDE FOR NON-US ISSUERS19