We are adopting as proposed the required legends for solicitation materials. The legends provide that sales made pursuant to Regulation A are contingent upon the qualification of the offering statement.558 Additionally, to provide greater flexibility when using solicitation materials, the final rules eliminate, as proposed, the requirement in existing Regulation A for testing the waters materials to identify the issuer’s chief executive officer, business, and products. Solicitation materials used before qualification
556 See Item 17 (Exhibits), Part III of Form 1-A.
557 BIO Letter; Heritage Letter; Ladd Letter 2; MoFo Letter.
558 See Rule 255(a).
will, therefore, be required to bear a legend or disclaimer indicating that: (1) no money or other consideration is being solicited, and if sent, will not be accepted; (2) no sales will be made or commitments to purchase accepted until the offering statement is qualified; and (3) a prospective purchaser’s indication of interest is non-binding.559 While the expansion of use of solicitation materials after filing may result in investors receiving more sales literature in marketed offerings, in such circumstances, potential investors will also be afforded more time with the preliminary offering circular before making an investment decision because, as noted above, testing the waters materials used by an
issuer or its intermediaries after the issuer publicly files an offering statement must be accompanied by a current preliminary offering circular or contain a notice informing potential investors where and how the most current preliminary offering circular can be obtained.560
We believe the approach to solicitation materials that we are adopting today is
consistent with existing Regulation A that allows issuers to test the waters and will make the use of solicitation materials more beneficial for issuers and investors. For issuers, the final rules will generally reduce compliance burdens and entirely eliminate the filing requirement for issuers that, after testing the waters, decide not to proceed with an offering. With respect to investors, we note that the final rules contain significant safeguards that should help mitigate the concerns expressed by some commenters that not requiring testing the waters materials to be submitted or filed with the Commission
559 See Rule 255(b).
560 Cf. The Regulation of Securities Offerings, Rel. No. 33-7606A, at 78 (Nov. 17, 1998) [63 FR 67174] (discussing the importance of providing a preliminary prospectus in conjunction with the distribution of sales materials).
before first use will result in a reduction in investor protections.561 These include the requirements to make the most recent preliminary offering circular available with solicitation materials after filing, to redistribute solicitation materials after filing to the extent that either the material itself or the preliminary offering circular attached thereafter becomes inadequate or inaccurate in any material respect, to deliver the preliminary offering circular at least 48 hours in advance of sale if the issuer is not subject to a Tier 2 reporting obligation, to deliver the final offering circular (or a notice of the final offering circular) no later than two business days after sale in all instances, and the minimum 21
calendar day filing requirement for issuers that non-publicly submit draft offering statements as well as the continued application of the antifraud provisions of the federal securities laws. Additionally, state securities regulators have the ability under the final rules to require issuers to file with them any materials required to be filed with the Commission.562 From an investor protection standpoint, we also note that sales under Regulation A may occur only in connection with a qualified offering statement that is filed with the Commission and that is subject to review by the staff.
Lastly, to address the concerns of commenters regarding an issuers’ ability to conduct routine communications with customers and suppliers at or near the time of a contemplated Regulation A offering,563 we are confirming, consistent with Rule 169’s existing exemption from Sections 2(a)(10) and 5(c) of the Securities Act for regularly
561 See fn. 541 above.
562 See also fn. 277 above and discussion in Section II.H. below. Where states elect to require issuers to file such information with them, their respective securities regulators will, for example, have access to solicitation materials relied upon by first-time issuers that non-publicly submit draft offering statements for a minimum of 21 calendar days before the first date of any potential sales.
563 See fn. 549 above
released factual business communications,564 that we do not believe such communications constitute solicitation of interest materials under Regulation A. Ultimately, whether or not a communication is limited to factual business information depends on the facts and circumstances, but issuers may generally look to the provisions of Rule 169 for guidance in making this determination in the Regulation A context. More generally, we note that factual business information means information about the issuer, its business, financial condition, products, services, or advertisement of such products or services.565 Factual business information generally does not include such things as
predictions, projections, forecasts, or opinions with respect to valuation of a security.566
The approach we are taking today with respect to factual business information is consistent with the Commission’s stated position on such communications for registered offerings and clarifies its application to Regulation A solicitation of interest materials.
Ongoing Reporting
Section 3(b)(2) of the Securities Act requires issuers to provide annual audited financial information on an ongoing basis and expressly provides that the Commission may consider whether additional ongoing reporting should be required. Specifically, Section 3(b)(4) grants the Commission authority to require issuers “to make available to investors and file with the Commission periodic disclosures regarding the issuer, its business operations, its financial condition, its corporate governance principles, its use of
564 17 CFR 230.169.
565 See Rel. No. 33-5180 (Aug. 20, 1971) (Guidelines for Release of Information by Issuers Whose Securities are in Registration).
566 Id.
investor funds, and other appropriate matters, and also may provide for the suspension and termination of such a requirement with respect to that issuer.”
As we noted in the Proposing Release, we are mindful that a one-size-fits-all ongoing reporting regime may not be suitable for all types of entities and investors.567 In the final rules for Regulation A, we have endeavored to achieve an appropriate balance between the costs and benefits associated with the provision of ongoing information about issuers of Regulation A securities to investors in such securities and any market that develops.