Understanding Continuous Offerings
The Problem Solved by Continuous Offerings
Before the new Reg A+, companies whose stock was already trading wanted to sell stock with the old Reg A. To do this the stock had to be reasonably priced in relation to the market price. However, the market price in small companies can be volatile. To change the price of the offering, the company had to file an amendment of its Reg A+ filing and wait weeks to get it approved by the SEC. By that time the market price would have changed and the pricing would be out of date.
The new Reg A+ allows companies to offer stock at various prices for some time after the offering is qualified by the SEC. Pricing information is filed after the sale at the time of sale as a supplement and that supplement does not require SEC review.
First, you should note the difference between “amending” and “supplementing” a Reg A offering. Both of these occur after the Reg A offering is “qualified” by the SEC. A Reg A offering is qualified when the SEC releases the offering and the company can cash investor checks. Until the offering is qualified, the SEC is still reviewing it.
Amending is done when there is a major change and filing the amendment requires the SEC to review the offering once again.
Supplementing the offering is done where there is no major change and the SEC does not have to review the offering.
In conventional IPOs the sales document is the prospectus. In a Reg A offering the sales document is the “offering circular.” Conventional IPOs file a registration statement with the SEC and these registration statements contain the prospectus. Reg A IPOs file “offering statements” with the SEC and these offering statements contain the offering circular.
A continuous offering is one where not all the stock offered is sold at the beginning after the offering is qualified. Some stock is reserved for later sale.
To have a continuous offering the company needs to be current in its annual and semiannual report filing at the time of sale.
You can do a continuous offering (1) for selling shareholders, (2) for a dividend or an employee benefit plan of the issuer, (3) for securities issued upon the exercise of outstanding options, warrants, or rights, for securities issued upon conversion of other outstanding securities, (4) for securities pledged as collateral, or (5) 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 from the initial qualification date.
Most companies will use continuous offerings for selling shareholders and stock that will be sold within the next two years after the offering is qualified.
Note that you cannot sell stock into the market in what is called an “at the market offering.” At the market simply means you are entering sell order into the market just as you would if you were an ordinary shareholder holding free trading stock. You cannot just hit the bid. You have to find a buyer.
Supplementing the Offering Circular
You can file an offering circular supplement for final pricing information in your continuously offered stock where the offering statement is qualified on the basis of a bona fide price range estimate. Thus, in the offering statement, you specify a range of prices. When the SEC qualifies the offering, and you sell the stock, you file only a supplement giving the final pricing information.
However, you cannot omit the volume of securities (the number of equity securities or aggregate principal amount of debt securities) to be offered.
You can supplement the offering circular 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 offering statement at qualification.
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.
Under no circumstances, however, can your new terms exceed the offering amount limitations. Thus, if you filed an offering for the maximum Reg A amount of $50 million*, you cannot go over that limit.
If the company omitted certain pricing and price-related information from an offering statement at the time of qualification, the company should file pricing information in 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.
The company can file an offering allowing it to sell stock after the offering is qualified. Selling shareholders can sell stock this way also.
When the final pricing information is known, it is filed with the SEC as a supplement. No amendment is required.
This FAQ content was generously written and provided to us by Attorney John Lux. Here is his website.
*For businesses that can segment their market by geographic regions, it is possible to make multiple simultaneous offerings for one entity.
For example, let's say a company is planning to buy a series of businesses and add value to them for future sale at a profit - Private Equity is a good example. A company can establish say six regions of the US and raise capital for each region simultaneously using a dedicated Reg A+ for each region. In this example, the maximum per year would be 6x50 = $300 million per year.
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