Final Rules for Continuing Disclosure Obligations
We are adopting rules for continuing disclosure obligations under Regulation A generally as proposed, with certain technical modifications and clarifications. The final rules eliminate Form 2-A and in its place require the disclosure of similar information pursuant to Part I of Form 1-Z for Tier 1 issuers and, depending on when the issuer’s offering is terminated or completed, in either Form 1-K or Part I of Form 1-Z for Tier 2 issuers. As proposed, the respective disclosure requirements in Part I of Forms 1-K and 1-Z will include the date the offering was qualified and commenced, the amount of securities qualified, the amount of securities sold in the offering, the price of the securities, the portions of the offering that were sold on behalf of the issuer and any selling securityholders, any fees associated with the offering, and the net proceeds to the issuer.608 We believe that summary information and data about an issuer and its Regulation A offering is most valuable when obtained after the offering is completed or
606 E&Y Letter.
607 ABA BLS Letter; MoFo Letter.
608 See Part I of Form 1-K and Part I of Form 1-Z. For clarification purposes, we have changed the references in Part I in these forms from “number of securities” to “amount of securities.” These changes should avoid confusion when reporting debt offerings where a quantifiable number of securities is not being offered. In such cases, issuers will be able to report the aggregate sales of securities in the offering.
terminated.609 Therefore, as proposed, issuers will only be required to disclose such information after the termination or completion of the offering.
As noted in the Proposing Release, we are concerned that uniform ongoing reporting requirements for all issuers of Regulation A securities could disproportionately affect issuers in smaller offerings. For that reason, the final rules do not require any ongoing reporting for issuers conducting Tier 1 offerings, other than the disclosure of the summary information discussed above.610 Issuers in smaller offerings will, however, have the option to conduct a Tier 2 offering and subject themselves to ongoing reporting and other Tier 2 requirements.611
The final rules for ongoing reporting for Tier 2 issuers are being adopted as proposed, except where noted below, and will require issuers to file annual reports on Form 1-K,612 file semiannual reports on Form 1-SA,613 file current event reports on
Form 1-U,614 and provide notice to the Commission of the suspension of their ongoing
reporting obligations on Part II of Form 1-Z.615 All reports for Tier 1 and Tier 2 offerings are required to be filed electronically on EDGAR.616
609 Additionally, in continuous offerings, issuers are required to file post-qualification amendments with the Commission every twelve months to the extent that sales are ongoing at that time. See Rule 252(f)(2)(i).
610 See Rule 257(a).
611 An issuer offering up to $20 million in a Tier 2 offering would, in addition to providing ongoing reports to the Commission on an annual and semiannual basis, with interim current event updates, be required to file audited financial statements in the offering statement, just as issuers in larger Tier 2 offerings are required to do. See Section II.C.3.b(2)(c). above.
612 Rule 257(b)(1).
613 Rule 257(b)(3).
614 Rule 257(b)(4).
615 Rule 257(d)(2).
616 Subject, in certain cases, to the hardship exemptions set forth in Rules 201 and 202 of Regulation S-T. 17 CFR 232.201-202.
As discussed above, commenters suggested that the Commission consider various potential changes to the proposed ongoing reporting requirements for Tier 2 issuers, including: extending ongoing reporting to Tier 1 offerings with some modifications; increasing the ongoing reporting requirements for Tier 2 issuers to include analogs to Exchange Act Forms 3, 4, and 5 and beneficial ownership reporting on Schedules 13D, 13G and 13F; basing the ongoing reporting requirements on characteristics of the issuer, such as whether the issuer has taken steps to foster a secondary market; or providing different requirements for Canadian companies or foreign private issuers. Another commenter suggested that we allow issuers to either avoid ongoing reporting or to file only financial statements and a management letter regarding operations and results if,
shortly after commencing the offering upon qualification, issuers have less than 300 record holders.617
We do not, however, believe that the changes suggested by commenters described above are advisable at this time. Instead, we believe the approach to ongoing reporting adopted in the final rules is preferable and will support a regular flow of information about issuers conducting Tier 2 offerings, which will benefit investors in these larger offerings and also help foster the development of a secondary market in such securities, while balancing the compliance burden that would be imposed on smaller issuers. We do not believe that requiring ongoing reporting for Tier 1 issuers, other than the requirement to file a Form 1-Z upon completion or termination of the offering, is necessary for Tier 1 offerings. We believe issuers in Tier 1 offerings will be small companies whose businesses revolve around products, services, and a customer base that will likely be