Securityholders must register re-offers and resales of securities under Section 5 of the Securities Act of 1933 (Securities Act) unless an exemption from these registration requirements is available. While most securityholders rely on Section 4(a)(1) of the Securities Act or exercise registration rights for resales of their securities, many securityholders are not eligible to use Section 4(a)(1) and do not have registration rights for the securities they wish to resell. In these situations, a securityholder must rely on another exemption from the registration requirements of the Securities Act to resell their securities. Many of these securityholders either:

In addition to discussing the requirements of Regulation S's two safe harbors for non-US resales of securities, this update identifies other Practical Law resources for further guidance.

Re-offers and resales of securities outside the US might create a risk that the securities will "flow back" into the US. This flowback may cause the initial resale outside the US to violate the registration requirements of the Securities Act. Regulation S provides two non-exclusive safe harbors for re-offers and resales of securities outside the US:

Re-offers and resales that meet the requirements of Rule 903 or Rule 904 are deemed to occur outside the US within the meaning of Rule 901 under the Securities Act and are therefore not subject to the registration requirements of the Securities Act.

It is important to remember that Regulation S is:

For a more detailed discussion of Regulation S, see Practice Note, Regulation S Transactions.

Rule 903 is typically used for re-offers and resales by:

Under Rule 903, the two basic requirements of Regulation S must be satisfied:

Rule 903 resales must also satisfy certain additional requirements, which depend on whether the resale and the securities qualify for Category 1, Category 2 or Category 3 under Rule 903.

For more information on the additional requirements of Rule 903, see Practice Note, Regulation S Transactions: Additional Requirements for Issuer Safe Harbor under Rule 903.

The availability of Rule 904 is not generally affected by the actions of persons other than the selling securityholder and its affiliates. However, Rule 903 is unavailable to any person if the issuer, a distributor, any of their respective affiliates or any person acting on their behalf (Rule 903 Persons):

Rule 903 is also unavailable to a non-complying person, its affiliates and any person acting on their behalf if a Rule 903 Person fails to comply with any other requirement of Rule 903.

For these reasons, a selling securityholder must determine whether all relevant Rule 903 Persons have complied with the requirements of Rule 903. Where possible, the selling securityholder should obtain representations, warranties and covenants from any relevant Rule 903 Persons. This can be difficult in Rule 903 resales outside the context of underwritten offerings. In these offerings, the issuer and other relevant Rule 903 Persons are often not contractually obligated to provide any representations, warranties or covenants to the selling securityholder. This means that the selling securityholder must rely on its own due diligence to confirm that the resale satisfies the requirements of Rule 903. For examples of the types of representations, warranties and covenants provided in underwritten Rule 903 offerings, see Standard Clause, Standard Regulation S Representations and Covenants for Purchase Agreement.

Under Rule 904, the two basic requirements of Regulation S described under Resales under Rule 903 must be satisfied:

The following conditions also apply to offshore resales by dealers and other persons receiving a selling concession, fee or other remuneration if the resales occur before the end of the applicable "distribution compliance period" under Regulation S (see Practice Note, Regulation S Transactions: Additional Requirements for Issuer Safe Harbor under Rule 903 for more information on distribution compliance periods):

Officers and directors of the issuer or a distributor may rely on Rule 904 if no selling concession, fee or other remuneration is paid for the resale (other than a usual and customary broker's commission).

A seller must also determine the status of the securities under US securities laws, including whether the securities are:

If a seller re-offers and resells restricted securities in compliance with Rule 903 or Rule 904, the securities will cease to be restricted securities after the completion of the resale. Therefore, issuers and securities intermediaries may remove restrictive legends from securities resold in reliance on Rule 903 or Rule 904. A notable exception to this rule is that restricted equity securities of a domestic issuer do not lose their restricted status after a resale under Rule 903 or Rule 904 (Rule 905, Regulation S).

For more information on some of the technical aspects of resales of restricted securities under Rule 903, including a form of declaration for removal of legend for a Rule 903 resale, see Standard Document, Declaration for Removal of Legend (Rule 903 Resale). For more information on some of the technical aspects of resales of restricted securities under Rule 904, including a form of declaration for removal of legend for a Rule 904 resale, see Standard Document, Declaration for Removal of Legend (Rule 904 Resale).

If the securities are subject to a distribution compliance period, the seller must ensure that it does not offer or sell the securities to a US person or for the account or benefit of a US person (other than a distributor).

A seller must also determine whether the securities are subject to any contractual transfer restrictions.

Certain resales and the resale of certain types of securities may also raise additional issues under Rule 903 and Rule 904, including for:

For more information on some additional issues that might arise under Rule 903 or Rule 904, see Practice Note, Regulation S Transactions: Additional Requirements for Issuer Safe Harbor under Rule 903: Additional Issues Raised by Specific Types of Securities.