Regulation S Frequently
Asked Questions:

What is Regulation S?
Regulation S is a section of the United States securities act which sets forth conditions under which securities offerings may take place outside of the US without registration under the Securities Act of 1933.

This section of the act was created to facilitate investment in US public companies by non-US Investors. It encourages non-US investment by, among other benefits, allowing for active non-US trading of restricted shares, issued by the US Issuer, as prescribed under SEC rule 904.

What are Regulation S
Securities?
Regulation S securities are a form of restricted equity made by a US public company that allows international investors the opportunity to participate in United States Markets under the following basic conditions:

• Each purchaser of the Regulation S securities must be a non-US person;
• Each subsequent purchaser of the Regulation S securities must also be a non-US person
• Regulation S securities may not be sold into the common US marketplace for a period of one year following the date of issue. This type of security was created by the SEC in order to facilitate investment in US public companies by non-US Investors.

When I look up Regulation S on the Internet, why do I find lots of references to fraud?
During the mid-90's, there was serious abuse of the old Regulation S rules through numerous loopholes in the old law, mostly due to the discrepancy in holding periods for non-US (40 days) versus US (2 years) purchasers of restricted securities. The amendments to Regulation S, which were adopted Feb. 10, 1998, in particular the equalizing of restrictive holding periods, eliminated the loopholes and the previous widespread fraudulent application of the Regulation ended immediately thereafter.

Under amended Regulation S, there are a number of conditions that must be met before a distribution of the shares of a US company can take place offshore. Several of these conditions are drafted so as to be workable only in face-to-face transactions involving paper-based securities. For example, each purchaser of the securities must certify that it is not a US person; second, each purchaser must agree to resell the securities only in accordance with Regulation S; third, the securities must contain a legend describing the Regulation S restrictions; and fourth, the issuer is required to refuse to register any transfer not made in accordance with Regulation S. Moreover, each confirmation of a purchase of such shares must contain a notice to the purchaser describing the Regulation S restrictions.

Because of these abuses, Regulation S securities have not been fully understood or appreciated for what they are, which is simply a way to facilitate investment in US public companies by non-US investors.

Since that time, the section of the securities act has been changed to deal with the abuses that were taking place and now, through a tightened marketplace and enforcement, Regulation S is again accepted as an ethical and practical method for companies to raise capital.

What is the current "Distribution Compliance Period" as the restriction period is now known?
There currently is a 1-year hold from purchase date, unless registered sooner by the issuer under the guidelines provided for in the Securities Act.

What are the Issuers reporting requirements for the Regulation S filing?
The next regular filing (eg.10q, 10k) after Reg S issuance is required to contain relevant disclosure of Regulation S transaction(s) during the applicable reporting period.

Is it complicated to sell Regulation S stock back into the US markets when the holding period requirement is satisfied?
NO. After the 1 year "Distribution Compliance Period" is over, a stockholder can have the legend removed and a new certificate issued to him that is freely tradable in the US marketplace, with US buyers. It's a simple procedure that requires the certificate being surrendered to the company's transfer agent, along with a declaration requesting that the legend be removed due to compliance with the rule and the 12-month holding period. If your stock is held in your Regulation-S.com equities account, our back office and legal staff will handle the whole process for you. You can also at this time easily sell your Regulation S stock holdings into the US markets from your Regulation-S.com brokerage account.