Aggregate Offering Price

How do the two tiers of Regulation A differ in the amount that may be raised, and how is the amount measured?

1. A.Twenty million and seventy-five million, measured on the current offering alone with no sub-limits.Wrong. Both a twelve-month look-back and affiliate sub-limits apply.
2. B.Twenty million and seventy-five million, each with an affiliate selling securityholder sub-limit and a twelve-month look-back.Correct. Headline ceiling, insider sub-limit and look-back all apply to each tier.
3. C.Ten million and fifty million, measured over the life of the issuer.Wrong. Neither figure nor the measurement period is correct.
4. D.The tiers share one ceiling and differ only in their ongoing reporting obligations.Wrong. The tiers carry different ceilings as well as different ongoing obligations.

Why: A Tier 1 offering may not exceed twenty million dollars, of which not more than six million may be offered by selling securityholders who are affiliates of the issuer. A Tier 2 offering may not exceed seventy-five million dollars, of which not more than twenty-two and a half million may be offered by affiliate selling securityholders. In each case the measure is the aggregate offering price plus the gross proceeds of all securities sold under other offering statements in the twelve months before the start of and during the current offering. There is also a separate limit in the first year, capping securities of selling securityholders at thirty percent of the aggregate offering price of the offering.

How is the ceiling on a Rule 504 offering measured?

1. A.By the aggregate offering price of the current offering alone, with no reference to earlier sales.Wrong. The rule subtracts securities sold in the preceding twelve months and during the offering.
2. B.By the number of purchasers rather than by any dollar figure.Wrong. Rule 504 sets a dollar ceiling; the purchaser ceiling belongs to Rule 506(b).
3. C.By the aggregate offering price, reduced by securities sold in the twelve months before the offering began and during it.Correct. The look-back prevents an issuer serialising raises to defeat the ceiling.
4. D.By the issuer total capitalisation at the time the Form D is filed.Wrong. Capitalisation plays no part in the Rule 504 offering limit.

Why: Rule 504 caps the aggregate offering price at ten million dollars, and the cap is not measured on the current offering alone. The rule subtracts the aggregate offering price of all securities sold within the twelve months before the start of the offering and during it, as well as anything sold in violation of Section 5(a). An issuer that raised money recently therefore has less than the full ceiling available. The look-back exists so that an issuer cannot serialise small offerings into a large one and stay inside a rule meant for limited raises.

When calculating whether a Rule 504 offering stays within the $10,000,000 ceiling, is the relevant figure the gross aggregate offering price of the securities sold, or the net proceeds the issuer actually receives after deducting placement agent commissions and offering expenses?

1. A.The net proceeds figure controls, so an issuer can sell more than $10,000,000 in gross securities as long as commissions and expenses bring net proceeds below that figure.Wrong. This assumes the ceiling tracks what the issuer keeps rather than what investors paid.
2. B.Neither figure is used; the ceiling is instead measured by the number of securities issued, multiplied by a fixed per-unit value set by the SEC.Wrong. There is no such fixed per-unit valuation methodology.
3. C.The gross aggregate offering price controls, but only for cash sales; securities sold for non-cash consideration are excluded from the ceiling calculation entirely.Wrong. Non-cash consideration is not simply excluded from the aggregate offering price calculation.
4. D.The gross aggregate offering price of the securities sold is the relevant figure, not the issuer's net proceeds after commissions and expenses.Correct. The ceiling is measured by what purchasers pay, not by the issuer's net take.

Why: The gross aggregate offering price of the securities sold is the relevant figure, not the issuer's net proceeds after deducting commissions and expenses. The ceiling is measured by what purchasers pay for the securities, not by what the issuer ultimately keeps after costs of the distribution.