Developments in Securities Regulation, Corporate Governance, Capital Markets, M&A and Other Topics of Interest. MORE

The SEC’s Division of Corporation Finance released four new compliance and disclosure interpretations (C&DIs) on November 17th addressing aspects of offerings under Regulation A and Regulation D.  The staff’s new interpretations clarify the requirements for post-qualification amendments to offering statements under Regulation A, extend the same accommodations available to EGCs under the FAST Act to issuers making offerings under Regulation A, and discard traditional integration analysis for private offerings under 506(b) and subsequent offer sales using general solicitation under Rule 506(c).

The first of three C&DIs focused on “small issues” offerings under Regulation A (Question 182.12), discusses the applicable form requirements for a post-qualification amendment to an offering statement on Form 1-A to qualify an additional class of securities.  In particular, the C&DI highlights that the disclosure provided under Item 4 to Part I of Form 1-A (“Summary Information Regarding the Offering and Other Current or Proposed Offerings”) need only include information about the additional class of securities being qualified.  The C&DI also reminds issuers to update Item 6 to Part I of Form 1 A in the post-qualification amendment to reflect any class of securities previously issued or sold in a Regulation A offering over the past year as part of its description of “Unregistered Securities Issued or Sold Within One Year.”

The second Regulation A C&DI (Question 182.13) discusses how an issuer should calculate whether a change in the price of the offering exceeds 20% of the maximum aggregate offering such that a post-qualification amendment might be necessary to revise the pricing information (as discussed in the note to Rule 253(b) of Regulation A).  The C&DI clarifies that the 20% may be measured from either the high end of the price range (for an increased offering price) or the low end (for a decreased offering price) while noting that the provision may not be used to make an offering in excess of the Tier 1 or Tier 2 limits set forth in Rule 251(a) or if the change would result in a Tier 1 offering becoming a Tier 2 offering.

In Question 182.14, the staff indicates that an issuer relying on Regulation A may omit financial information for historical periods in a Form 1-A if it reasonably believes that those financial statements will not be required at the time of the qualification consistent with the treatment of “emerging growth companies” under the FAST Act.  A company would still be obligated to amend its offering statement prior to qualification to include all required financial information at the time of qualification and redistribute solicitation materials at the time that any previously omitted financial information has been included in an amended offering statement.

The final C&DI (Question 256.34) released by the staff reveals a novel interpretation of the applicable integration analysis for offerings initially made on a  private basis under Rule 506(b) and subsequently conducted using general solicitation under 506(c) where there is less than six months separating such offers and sales.  The new interpretation clarifies that such offerings would not be integrated if all of the applicable requirements of Rule 506(b) were met for offers and sales that occurred prior to the general solicitation.

In reliance on the logic of Rule 152 of the Securities Act (i.e. “transactions by an issuer not involving any public offering” remain exempt under Section 4(a))2) even if “subsequently thereto the issuer decides to make a public offering and/or files a registration statement”), the staff indicates that, under such circumstances, prior offerings made pursuant to 506(b) would remain exempt from registration and an issuer would be permitted to make subsequent offers and sales pursuant to Rule 506(c) (provided its continued compliance with the obligation “to take reasonable steps to verify the accredited investor status of all subsequent purchasers”).

The staff’s interpretation specifically states that the traditional integration analysis under the note to Rule 502(a) of the Securities Act (as derived from Release No. 33-4552 (November 6, 1962)) is not “the sole means by which the issuer determines whether all of the offers and sales constitute a single offering.”  However, in light of the staff’s expressed position in Question 256.34, it difficult to imagine a scenario in which the staff will ever apply the Rule 502(a) analysis to integrate proximate offerings under Rules 506(b) and 506(c) going forward.