509 Rule 251(d)(3).
510 See Rel. No. 33-6499, at IV.A. (“[T]he procedural flexibility afforded by the Rule enables a registrant to time its offering to avail itself of the most advantageous market conditions . . . registrants are able to obtain lower interest rates on debt and lower dividend rates on preferred stock, thereby benefiting their existing shareholders.”).
511 This condition only applies to continuous offerings under Rule 251(d)(3)(i)(F).
securities pledged as collateral; or securities that are part of an offering which commences within two calendar days after the qualification date, will be offered on a continuous basis, may continue to be offered for a period in excess of 30 days from the date of initial qualification, and will be offered in an amount that, at the time the offering statement is qualified, is reasonably expected to be offered and sold within two years from the initial qualification date.512 Notwithstanding the suggestions of commenters regarding at the market offerings, we continue to believe that such offerings are not appropriate for Regulation A offerings, particularly at the outset of the adoption of today’s amendments to the existing rules.
While it is possible that a market in Regulation A securities may develop that is capable of supporting primary and secondary at the market offerings, rather than permit such offerings at the outset, we believe that any determination as to whether the exemption would be an appropriate method for such offerings should occur in the future. Further, an offering sold at fluctuating market prices may not be appropriate within the context of an exemption that is contingent upon not exceeding a maximum offering size.
Under the final rules, as proposed, changes in the information contained in the offering statement will no longer necessarily trigger an obligation to amend.513 Offering circulars for continuous or delayed Regulation A offerings will continue to be required to be updated, and the offering statements to which they relate requalified annually to include updated financial statements, and otherwise as necessary to reflect facts or events
512 Id.
513 Rule 252(f)(2).
arising after qualification which, in the aggregate, represent a fundamental change in the information set forth in the offering statement.514 In addition to post-qualification amendments to the offering statement that must be qualified, the final rules also will allow issuers to use offering circular supplements in certain situations.515 Further, issuers in continuous offerings will be permitted to qualify additional securities in reliance on Regulation A by a post-qualification amendment.516
The final rules will, as proposed, permit offering circular supplements to be used for final pricing information, where the offering statement is qualified on the basis of a bona fide price range estimate.517 Additionally, the final rules permit offering circulars to omit information with respect to the underwriting syndicate analogous to the provisions for registered offerings under Rule 430A.518 However, the final rules do not allow an issuer to omit the volume of securities (the number of equity securities or aggregate
principal amount of debt securities) to be offered.519 The final rules also permit, as proposed, offering circular supplements to reflect a decrease in the volume of, or to change the price range of, the securities offered in reliance on a qualified offering statement under Regulation A, so long as the decrease in the volume of securities offered or change in the price range would not materially change the disclosure contained in the
514 Id.
515 Rule 253(g).
516 Rule 251(d)(3)(i)(F) and note to Rule 253(b).
517 Rule 253(b)(2). The bona fide price range estimate may not exceed $2 for offerings where the upper end of the range is $10 or less and 20% if the upper end of the price range is over $10.
518 Rule 253(b) (also permitting the omission of underwriting discounts or commissions, discounts or commissions to dealers, amount of proceeds, conversion rates, call prices and other items dependent upon the offering price, delivery dates, and terms of the securities dependent upon the offering date, so long as certain conditions are met).
519 Rule 253(b)(4).
offering statement at qualification.520 Notwithstanding this provision, any decrease in the volume of securities offered and any deviation from the low or high end of the price range may be reflected in the offering circular supplement filed with the Commission if, in the aggregate, the decrease in volume and/or change in price represent no more than a 20% change from the maximum aggregate offering price calculable using the information in the qualified offering statement.521 Under no circumstances, however, would an issuer be able to amend its offering statement or rely on the provisions for offering circular supplements where the maximum aggregate offering price resulting from any changes in the price of the securities would exceed the offering amount limitation set forth in
Rule 251(a) or if the increase in aggregate offering price would result in a Tier 1 offering becoming a Tier 2 offering.522
We are also adopting as proposed provisions similar to Rule 424 that require issuers omitting certain pricing and price-related information from an offering statement at the time of qualification, in reliance on 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.523 These provisions require offering circulars that contain
substantive changes (other than information omitted in reliance on Rule 253(b)) in information previously provided in the last offering circular to be filed within five
520 See note to Rule 253(b).
521 Id.
522 Id.
523 Rule 253(g)(1).
business days after the date such offering circular is first used after qualification.524 Offering circular supplements that are not filed within the required time frames provided by the rules are required to be filed as soon as practicable after the discovery of the failure to file.525
Qualification
Under existing Regulation A, an offering statement is generally only qualified by order of the Commission in a manner similar to a registration statement being declared effective.526 In such instances, the issuer includes a delaying notation on the cover of the Form 1-A stating that the offering statement shall only be qualified by order of the Commission.527 In order to remove a delaying notation, an issuer must file an amendment to the offering statement indicating that the offering statement will become qualified on the 20th calendar day after filing.528 An offering statement that does not include a delaying notation will be qualified without Commission action on the 20th calendar day after filing.529
We proposed to alter the qualification process of existing Regulation A. As proposed, an offering statement could only be qualified by order of the Commission, and the process associated with the delaying notation would be eliminated. A few
524 Rule 253(g)(2).
525 Rule 253(g)(4).
526 17 CFR 230.252(g)(2) (2014).
527 Id.
528 17 CFR 230.252(g)(3) (2014).
529 17 CFR 230.252(g)(1) (2014).
commenters generally supported the proposed elimination of qualification without Commission action.530 No commenters opposed this aspect of the proposal.
We are adopting, substantially as proposed, final rules that require Commission action before a Regulation A offering statement may be qualified. The final rules modify the proposed rules by permitting the offering statements to be declared qualified by a “notice of qualification” issued by the Division of Corporation Finance, pursuant to delegated authority, rather than requiring the Commission itself to issue an order.531 The
notice of qualification is analogous to a notice of effectiveness in registered offerings.532
We are therefore amending the Commission’s organization rules, as they relate to the delegated authority of the Director of the Division of Corporation Finance, to permit the Division to issue qualification orders pursuant to Regulation A.533 The final rules also eliminate the risk that an issuer may exclude a delaying notation either in error or in an effort to become qualified automatically without review and comment by the Commission staff. Given the electronic filing processes we are adopting,534 the scaled disclosure requirements for Tier 1 and Tier 2 offerings,535 and the preemption of state securities law registration and qualification requirements for Tier 2 offerings,536 we
530 CFA Letter; CFA Institute Letter; MCS Letter.
531 See Rule 252(e).
532 See 17 CFR 200.30-1(a)(5) (The Director of the Division of Corporation Finance has the delegated authority to declare registration statements to be effective within shorter periods of time than 20 days after filing, consistent with Section 8(a) of the Securities Act (15 U.S.C. 77h).
533 Rule 30-1(b)(2)-(4).
534 See discussion in Section II.C.1. above.
535 See discussion in Section II.C.3.b. above.
536 See discussion in Section II.H.3. below.
believe it is appropriate to ensure that the Commission staff has the opportunity to review and comment on an offering statement before it becomes qualified.
Solicitation of Interest (Testing the Waters)
Proposed Rules
Under Securities Act Section 3(b)(2)(E), issuers may test the waters for interest in an offering—without restriction as to the types of investors solicited—before filing an offering statement on such terms and conditions as the Commission prescribes. We proposed to permit issuers to use testing the waters solicitation materials both before and after the offering statement is filed, subject to issuer compliance with the rules on filing of solicitation materials and disclaimers.537 As we noted in the Proposing Release, the investor protections with respect to solicitation materials in existing Regulation A would remain in place as these materials remain subject to the antifraud and other civil liability provisions of the federal securities laws.538 As proposed, testing the waters materials used by an issuer or its intermediaries after publicly filing an offering statement would be required to include a current preliminary offering circular or contain a notice informing potential investors where and how the most current preliminary offering circular can be obtained. We further proposed to require issuers to publicly file their offering statements not later than 21 calendar days before qualification so that any solicitation made in the
537 This timing is similar to the “testing the waters” permitted for emerging growth companies under new Section 5(d) of the Securities Act, added by the JOBS Act, which can also be conducted both before and after filing of a registration statement. Under Section 5(d), no legending or disclaimers are required, but testing the waters is limited to potential investors that are “qualified institutional buyers” or institutional “accredited investors.”
538 The Commission’s antifraud liability provisions in Section 17 of the Securities Act, 15
U.S.C. 77q, apply to any person who commits fraud in connection with the offer or sale of securities. Section 3(b)(2)(D) of the Securities Act, 15 U.S.C. 77c(b)(2)(D), states that the civil liability provisions of Section 12(a)(2) apply to any person offering or selling securities under Regulation A. See also Rel. No. 33-6924, at fn. 48.
21 calendar days before the earliest date of potential sales of securities would be conducted using the most recent version of the preliminary offering circular. The proposed rules would amend the requirements for submission or filing of solicitation materials, so that such material would be submitted or filed as an exhibit when the offering statement is either submitted for non-public review or filed (and updated for substantive changes in such material after the initial non-public submission or filing) but would no longer be required to be submitted at or before the time of first use.
As proposed, Rule 255(b) would require all soliciting materials to bear certain legends or disclaimers.539 Further, we did not propose to limit testing the waters to QIBs and institutional accredited investors (as is currently the case with testing the waters by emerging growth companies under Securities Act Section 5(d)).
Comments on Proposed Rules
Most commenters generally supported the proposed amendments to the testing the waters provisions.540 Several commenters, however, recommended requiring the filing of testing the waters materials prior to first use.541 These commenters suggested that the antifraud and other civil liability provisions of the federal securities laws are not an adequate substitute for the investor protections afforded by an advance filing requirement for solicitation materials. They further suggested that their concerns about the proposed testing the waters provisions are compounded by an access equals delivery model of final
539 Proposed Rule 255(b). As proposed, Rule 255(b) would largely follow similar provisions in the context of registered offerings. See Rule 134(d), 17 CFR 230.134(d) (requiring a disclaimer for solicitations of interest in registered offerings).
540 BIO Letter; Letter from Daniel McElroy, DuMoulin Black LLP, April 1, 2014 (“DuMoulin Letter”); Ladd Letter 2; Paul Hastings Letter; Richardson Patel Letter.
541 Massachusetts Letter 2; NASAA Letter 2; WDFI Letter.
offering circular delivery. One commenter recommended allowing states to have immediate access to all testing the waters materials filed with the Commission.542 Another commenter recommended making the filing of testing the waters materials a condition to the exemption,543 while a third commenter specifically opposed that recommendation.544
Two commenters recommended ensuring that any testing the waters materials that are filed with the Commission be kept confidential, at least until the offering statement is qualified.545 One commenter recommended removing any requirement to file testing the
waters materials publicly,546 while another commenter recommended not requiring
testing the waters materials to be filed for Tier 2 offerings.547 One commenter supported the use of legends on testing the waters materials or, in lieu of legends, restricting testing the waters to certain types of investors, such as QIBs and accredited investors.548
Several commenters suggested that the Commission provide market participants with communication safe harbors from Section 12(a)(2) liability for regular business communications by a Regulation A issuer.549
542 Ladd Letter 2.
543 MCS Letter.
544 BIO Letter.
545 Heritage Letter; Ladd Letter 2.
546 BIO Letter.
547 MoFo Letter.
548 CFA Institute Letter.
549 ABA BLS Letter; Canaccord Letter; CFIRA Letter 1; CFIRA Letter 2; MoFo Letter; Public Startup Co. Letter 6; WR Hambrecht + Co Letter. See also discussion of Section 12(a)(2) liability in Proposing Release, Section II.B.7.