A likely overlooked advantage of Regulation A+ (“Reg A”) is that it allows an issuer to conduct certain delayed and continuous offerings without the need to set a share price at the time of qualification.
A Note on Terminology
In traditional public offerings, issuers file a “registration statement” on Form S-1 or other appropriate “S Form” with the Securities and Exchange Commission. Reg A issuers file an “offering statement” on Form 1-A with the SEC.
Broadly, in a traditional public offering, a registration statement is declared “effective” by the Securities and Exchange Commission and the offering is made by means of a “prospectus.” In a Reg A offering, the offering statement is “qualified” by the SEC and the offering is made with an “offering circular.”
“Amending” a registration statement or an offering statement requires an SEC review, and the amendment must be declared effective or be qualified before offers of securities can commence. An amendment to a registration statement or offering statement must be made when fundamental or certain material changes are made to the information within the document. “Supplementing” a prospectus or an offering circular does not trigger a review and the SEC does not need to declare effective or qualify the supplement filing in order for offers of securities to commence.
Traditional Continuous Offerings on Form S-1, Delayed or Continuous Offerings on Form S-3
In a “continuous offering” on Form S-1, securities are offered at a fixed price after the S-1 registration statement is declared effective and will continue to be offered at such fixed price in the future.
Because the price of the securities registered on Form S-1 has to be fixed upon effectiveness, to change the price of the securities offered an issuer must file an amendment to its registration statement, and then wait for the SEC to review and declare the amendment effective. Often, by the time the SEC declares an amendment to a registration statement effective, the market price of the securities offered has moved (up or down), making the purchase decision less or more desirable.
In a “delayed offering” (and/or a continuous offering) permitted on Form S-3, there may be no present intention to offer securities at the time of effectiveness of the registration statement. Instead, a “base” prospectus is filed with the Form S-3 and, after the Form S-3 becomes effective, one or more subsequent prospectus supplements, post-effective amendments or, where permitted, periodic reports incorporated by reference into the registration statement will provide the specific terms of the offering. Generally, only more seasoned issuers are eligible to use Form S-3 (broadly, having a class of securities registered under the Securities Exchange Act, having filed all reports required to be filed with the SEC for at least the 12 months preceding the filing of the registration statement, and having a public float of greater than $75 million) for use in making delayed primary offerings. Further, pursuant to SEC Rule 415, only issuers that are eligible to use Form S-3 can conduct an “at the market” offering, which is an “offering of equity securities into an existing trading market for outstanding shares of the same class at other than a fixed price.”
Delayed and Continuous Offerings under Regulation A+
Under Reg A, issuers may make delayed or continuous offerings that:
- commence within two calendar days after the qualification date;
- will be made on a continuous basis;
- may continue for a period in excess of 30 calendar days from the initial qualification date; and
- at the time of qualification, are reasonably expected to be completed within two years of the initial qualification date.
In addition, issuers may only sell securities on a continuous or delayed basis if they are current with the SEC reporting requirements for Reg A issuers at the time of such sale.
In addition, Reg A allows issuers more flexibility in the pricing of securities in an offering. A Reg A issuer can include a price range in its offering statement and subsequently file specific pricing information at the time of sale of the securities. The filing of this pricing information at the time of sale can be accomplished with a supplement to the offering circular, which does not require SEC review or re-qualification of the offering statement before the sale.
For delayed and continuous offerings, Reg A does not offer all of the advantages of a registration statement on Form S-3.
First, a Reg A issuer cannot use an offering supplement to increase the volume of securities sold in the offering. A decrease in the volume of securities offered and any deviation from the low or high end of the price range set forth in the original offering circular may be reflected in an offering circular supplement if, in the aggregate, the decrease in volume or change in price range represents no more than a 20% change from the maximum aggregate offering price calculable using the information in the qualified offering statement. SEC Rule 462 allows Form S-3 issuers to effect, without SEC review, an increase in the amount of securities to be offered and sold if the amount and price at which they are offered together represent no more than 20% of the maximum aggregate offering price set forth in the registration statement previously filed.
Also, under SEC Rule 251, a Reg A issuer cannot conduct an “at the market” offering; the issuer must have a buyer for the price/volume adjusted securities within the parameters of the 20% restrictions discussed above.
Finally, offerings on Form S-1 or S-3 can be registered for an unlimited dollar amount. Under Reg A, only $50 million worth of securities can be sold in any 12-month period.
For delayed offerings, although Reg A does not provide issuers with all of the advantages of registration under a Form S-3, Reg A does provide key benefits over a Form S-1 registration, including permitting delayed offerings for sales of securities after the offering is qualified without further SEC review.