General Solicitation and General Advertising

Definition:

A term generally used in the context of a business raising capital through an offering of equity and/or debt securities. General Solicitation and General Advertising is said to occur when securities are offered to the public at large via advertising (by any means) whereby the recipients of which cannot be limited (e.g., in a newspaper, radio, or TV broadcast, or on the internet) and have no pre-existing, substantive relationship with the issuer.

General Solicitation and General Advertising is generally prohibited in Private Placements conducted pursuant to exemptions from registration with the SEC under Section 4(a)(2) of the Securities Act. Registration of the offering is required if an exemption from registration is not available, pursuant to Section 5 of the Securities Act.

As a result of the JOBS Act, the SEC removed its ban (July 2013) on General Solicitation and General Advertising in Rule 144A Offerings and certain offerings made in reliance of Regulation D. Although Rule 144A did not include an express prohibition against General Solicitation or General Advertising, prior to the 2013 rule changes, all offers and sales of securities under Rule 144A had to be limited to QIBs, having the same practical effect. Under the amended rules, offers of securities to persons other than QIBs, including by means of General Solicitation or General Advertising, are now permitted. However, the securities must still only be sold to persons that the seller and any person acting on behalf of the seller reasonably believe are QIBs. The SEC also removed its ban on General Solicitation and General Advertising in certain Regulation D Offerings made in reliance of Rule 506(c) provided that all purchasers are Accredited Investors and the issuer takes reasonable steps to verify that the purchasers of the securities are Accredited Investors.

It is important to note that the JOBS Act did not alter the requirements in relation to Directed Selling Efforts under Regulation S Offerings. Therefore, in a concurrent offering involving a Rule 506(c) or Rule 144A component as well as a Regulation S component, it is important to maintain the integrity of each offering so as not to jeopardize the Regulation S Safe Harbor.

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