"Will Congress and the President Reform Reg A

and Reg D in 2012?"

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Welcome

Greg Mausz, Chief Operating Officer – Investaire LLC and Chair of REISA Education Subcommittee

greg@investaire.com 847-805-6235(847) 805-6235

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Today’s PresentersModeratorDeborah Froling, Partner – Arent Fox LLP

PanelistsRob Kaplan, Managing Partner – Kaplan Voekler Cunningham & Frank PLC

Jessica Jeffries, Director of Risk Management – FactRight, LLC

Wayne Souza, General Counsel & Executive Vice President, Law – Walton International

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Regulation A• Under Section 3(b) of the Act• Exempts the security itself – not transactional!• No Accredited Investors• Public solicitation• Legally transferable• 12-month cap of $5MM per issuer• Subject to state securities laws (“Blue Sky”)

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Regulation A Reform• H.R. 1070 & S. 1544

• Increases 12-month cap to $50MM

• Endorses public solicitation, free tradeability, solicitation of interest (“test the waters”)

• Section 12(a)(2) liability (not Section 11)

• Annual audited financial statements

• Covered securities – if sold to “qualified purchasers” or listed on national exchange

• Bi-annual review of thresholds

• Comptroller General – conduct study on impact of “Blue Sky” laws

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Where have we been?HR 1070 (Small Company Capital Formation Act:

• Sponsored by Schweickert (R, AZ), introduced on 3/14/11

• Passed by House of Representatives on 11/2/11, by vote of 421 to 1

• Major point of debate was “covered securities” status under NSMIA

S 1544:

• Sponsored by Tester (D, MT) and Toomey (R, PA), 9/12/11

• Referred to Banking, Housing and Urban Affairs, hearings held 12/1/2011

• Currently seeking unanimous written consent

“Start Up America Legislative Agenda”

• Submitted by the White House to Congress 1/31/12 – specifically identifies Small Company Capital Formation Act for quick passage

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Where are we going?

SEC Implementation:

Office of Small Business Policy – indicating it is recommending revision of current Reg A as opposed to new companion regulation.

• Currently, estimated at a minimum of six months to amend Reg A

• Working with SEC to make this a rule-making priority.

• Emphasizing the importance of liquidity in the marketplace

• Educating SEC as to the relative regulatory burdens of registration and qualification

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What about Blue Sky?

• Currently, Reg A not a “covered security” under NSMIA.

• Must register in those states where intend to offer for sale – exempt in CO and LA

• Comptroller General study? • SEC imposed coordination an option

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Private Company Flexibility and Growth Act

• Current Regulation• Current Regime Issues• Proposed Changes• Timeline

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Current Regulation• Exchange Act Section 12(g) – Companies with $10 million in assets and 500 shareholders of record

required to register with the SEC

• Subject to SEC’s periodic reporting requirements

• File annual and quarterly reports with the SEC

• Audited financials

• Proxy disclosure rules

• Reporting to shareholders for “material” events

• Directors and officers face restrictions on selling shares

• Additional Dodd-Frank and Sarbanes-Oxley requirements

• Additional requirements for registered companies

• Lawyers and accountants to put together documents necessary to “register” with the SEC

• If shares are traded on exchange, companies must hire a syndicate of investment bankers to help sell the shares and prepare listing applications for the shares

• Companies may need to clean up corporate structure and ready themselves for public and regulator scrutiny

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Current Regime Issues• $10 million threshold incrementally increased since 1964

from $1 million, but 500 shareholder requirement has not

• 500 shareholders of record is the wrong measure for determining if a company is “public”• Intended to help regulate “over the counter” market• Aimed at actively traded issues• Possible for company with fewer than 500 shareholders

to be relatively more “public”

• The current rule limits companies’ flexibility as they grow

• The rule limits the growth of alternative markets for investments in emerging companies.

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Proposed ChangesPrivate Company Growth and Flexibility Act

• H.R. 2167, mirroring bill S. 1824

• Amends 1934 Act to increase shareholders of record from 500 to 1,000 persons.

• Originally provided that ‘Accredited Investors’ would not count toward the 1,000– Provision removed during committee

• Excludes persons who receive shares pursuant to employee compensation plan

• Directs SEC to adopt ‘safe harbor’ provisions to determine if shareholders have received shares pursuant to employee compensation plan

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