Proposed Rules
Rule 251(d)(3) currently allows for continuous or delayed offerings under Regulation A if permitted by Rule 415.484 By reference to the undertakings of
Item 512(a) of Regulation S-K,485 Rule 415 does not necessarily require every change in
the information contained in a prospectus to a registration statement in a continuous offering to be reflected in a post-effective amendment.486 On the other hand, currently Regulation A requires every revised or updated offering circular in a continuous offering to be filed as an amendment to the offering statement to which it relates and to be qualified in a process similar to the Commission staff review, comment and qualification process for initial offering statements.487 The requalification process can be costly and time consuming for smaller issuers conducting continuous offerings of securities pursuant to Regulation A. We proposed to clarify in the rules for Regulation A the scope of permissible continuous or delayed offerings and the related concept of offering circular supplements.
484 17 CFR 230.415. Certain shelf offerings, however, are only permissible in offerings on Form S-3, which Regulation A issuers are ineligible to use. See, e.g., Rule 415(a)(1)(x).
485 17 CFR 230.415(a)(3).
486 See 17 CFR 229.512(a)(1) (requiring issuers to file a post-effective amendment for purposes of an update under Section 10(a)(3) of the Securities Act, to reflect any facts or events arising after effectiveness that, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement, or to include, subject to certain exceptions, any material information with respect to the plan of distribution not previously disclosed (or material changes to information previously disclosed) in the registration statement).
487 See 17 CFR 230.253(e) (2014); 17 CFR 230.252(h)(1) (2014).
Rule 415 attempts to promote efficiency and cost savings in the securities markets by allowing for the registration of certain traditional and other shelf offerings.488 Prior to the adoption of final rules today, Rule 251(d)(3) of Regulation A allowed for continuous or delayed offerings under Regulation A if permitted by Rule 415.489 When Rule 415 was adopted, the Commission recognized that certain traditional shelf offerings have been allowed by administrative practice for many years despite the absence of such a
rule.490 Since Rule 415 only addresses registered offerings, however, the precise scope of continuous or delayed offerings under Regulation A has been unclear.
The proposed rules would clarify the scope of permissible continuous or delayed offerings under Regulation A and the related concept of offering circular supplements, and otherwise continue to allow for certain traditional shelf offerings to promote flexibility, efficiency, and to reduce unnecessary offerings costs.491 Further, as proposed, an issuer’s ability to sell securities in a continuous or delayed offering would be conditioned on being current with the Tier 2 ongoing reporting requirements at the time of sale.492
To provide clarity regarding the application of Rule 415 concepts to Regulation A offerings, we proposed to add a provision to Regulation A similar to Rule 415, but with
488 See Rel. No. 33-6499 [48 FR 52889] (Nov. 23, 1983) (noting the efficiency and cost savings issuers experienced during the eighteen month trial period for a previous temporary version of the rule).
489 17 CFR 230.415.
490 Certain “traditional shelf offerings” have been allowed since at least 1968 by the Commission’s guides for the preparation and filing of registration statements, such as Guide 4, and related administrative practice. See id.; see also Rel. No. 33-4936 [33 FR 18617] (Dec. 9, 1968) (adopting Guide 4 and other Commission guides).
491 See Proposing Release, at Section II.C.4.
492 Proposed Rule 251(d)(3)(i)(F).
limitations that we believed would be appropriate for Regulation A. The provision would establish time limits similar to those in Rule 415 and make conforming changes as necessary.493
In the Proposing Release we proposed excluding types of shelf offerings that cannot be conducted under existing Regulation A, such as offerings requiring registration on Form F-6, offerings requiring primary eligibility to use Forms S-3 or F-3,494 offerings
conducted by issuers ineligible to use Regulation A,495 as well as certain offerings that
we do not currently believe would be appropriate to include in the Regulation A framework. Further, we proposed prohibiting all “at the market” offerings under Regulation A.496
Additionally, as proposed, changes in the information contained in the offering statement would no longer necessarily trigger an obligation to amend.497 Offering circulars for continuous Regulation A offerings would, however, continue to be required to be updated annually through the filing of a post-qualification amendment. These annual post-qualification amendments would include updated financial statements and post-qualification amendments would also be required when updating the offering circular to reflect facts or events arising after qualification which, in the aggregate, represent a fundamental change in the information set forth in the offering statement.498
493 Proposed Rule 251(d)(3).
494 See also fn. 484 above.
495 Rule 415(a)(1)(xi) discusses investment companies and BDCs.
496 See proposed Rule 251(d)(3)(ii).
497 See proposed Rule 252(h)(2).
498 Id.
In addition to these post-qualification amendments to the offering statement that must be qualified, we also proposed to allow issuers to use offering circular supplements in certain situations.499 Further, we proposed to permit issuers in continuous offerings to qualify additional securities in reliance on Regulation A by a post-qualification amendment.500
We also proposed provisions similar to Rule 424 that would require issuers omitting certain information from an offering statement at the time of qualification, in reliance on proposed Rule 253(b), to file such information as an offering circular supplement no later than two business days following the earlier of the date of
determination of such pricing information or the date of first use of the offering circular after qualification.501 Further, these proposed provisions would require offering circulars that contain substantive changes in information previously provided in the last offering circular (other than information omitted in reliance on proposed Rule 253(b)) to be filed within five business days after the date such offering circular is first used after qualification.502 Offering circular supplements that are not filed within the required time frames provided by the proposed rules would be required to be filed as soon as practicable after the discovery of the failure to file.503
499 See proposed Rule 253(g).
500 See proposed Rule 251(d)(3)(i)(F) and note to proposed Rule 253(b).
501 See proposed Rule 253(g).
502 See proposed Rule 253(g)(2).
503 See proposed Rule 253(g)(4).
Comments on Proposed Rules
Commenters were generally supportive of the proposed modernization of Regulation A’s offering process, in general, and the provisions for continuous or delayed offerings, in particular.504 Two commenters, however, recommended allowing for at the market offerings under Regulation A.505 Additionally, one commenter recommended allowing for at the market offerings in non-penny stocks on established trading markets.506 Another commenter recommended allowing for at the market offerings in securities that qualify for the actively-traded securities exceptions in Rules 101 and 102 of Regulation M.507 This commenter suggested that the offering amount could be determined by using the calculation set forth in Securities Act Rule 457(c)508 as of a specified date within five business days of qualification of the offering statement.
Final Rules
We believe the proposed rules sufficiently update existing rules, while providing issuers with adequate flexibility with respect to, and additional guidance on, the permissible scope of continuous or delayed Regulation A offerings and offering circular supplements. We are adopting these rules as proposed.
504 See, e.g., ABA BLS Letter; KVCF Letter; OTC Markets Letter; Paul Hastings Letter..
505 OTC Markets Letter; Paul Hastings Letter.
506 OTC Markets Letter. This commenter also recommended that securities offered under Regulation A that are not penny stocks and that trade on an established public market should be treated as having a “ready market” and thus be considered eligible for margin purposes, which the commenter believed would increase the value of securities and their liquidity.
507 Paul Hastings Letter. Regulation M was adopted by the Commission in 1996 and is intended to prevent potentially manipulative practices by underwriters, issuers, selling securityholders, and other participants in a securities offering. See Rel. No. 38067 (December 20, 1996) [62 FR 520].
508 Rule 457(c) specifies that Securities Act registration fees for securities offered on the basis of fluctuating market prices shall be calculated as follows: either the average of the high and low prices reported in the consolidated reporting system (for last sale reported over-the-counter securities) or the average of the bid and asked price (for other over-the-counter securities) as of a specified date within 5 business days prior to the date of filing the offering statement.
The final rules add Rule 251(d)(3) to Regulation A, without changes from the proposed rule. This provision is similar to Rule 415, but its scope is limited to permissible Regulation A offerings.509 In this regard, the final rules for Regulation A will continue to allow for certain traditional shelf offerings to promote flexibility, efficiency, and to reduce unnecessary offerings costs.510 The final rules will condition the ability of an issuer to sell securities in a continuous offering on being current in its
annual and semiannual report filing, if required under Rule 257(b), at the time of sale.511 As we indicated in the Proposing Release, we believe this additional condition will not impose incremental costs on issuers, which are in any case required to update their offering statement and to file such ongoing reports, and will promote parity of information in the secondary markets.
As proposed, the final rules provide for the following types of continuous or delayed offerings:
securities offered or sold by or on behalf of a person other than the issuer or its subsidiary or a person of which the issuer is a subsidiary;
securities offered and sold pursuant to a dividend or interest reinvestment plan or an employee benefit plan of the issuer;
securities issued upon the exercise of outstanding options, warrants, or rights;
securities issued upon conversion of other outstanding securities;