On March 4, 2020, the SEC voted 3-1 to propose amendments to "simplify, harmonize, and improve certain aspects" of the framework for offerings exempt from Securities Act registration.

The amendments cover a number of areas, including integration, general solicitation and offering communications, and Rule 506(c) verification requirements. We discuss below selected key aspects of the proposal.

Background

The SEC first articulated the concept of integration in 1933 and has subsequently developed various approaches for determining when multiple offerings should be treated as a single offering. These approaches include:

  • The well-known five-factor test in Regulation D1 – whether:
    • the different offerings are part of a single plan of financing;
    • the offerings involve issuance of the same class of security;
    • the offerings are made at or about the same time;
    • the same type of consideration is to be received; and
    • the offerings are made for the same general purpose.
  • The 2007 guidance for analyzing the integration of simultaneous registered and private offerings: 2
    • The filing of a registration statement should not be considered general solicitation that undermines the availability of the Section 4(a)(2) exemption for a concurrent private placement if the private placement investors were not solicited by the registration statement.
    • A prospective investor could become interested in the concurrent private placement through a "pre-existing, substantive relationship" with the issuer, or direct contact by the issuer or its agents outside the public offering effort.
  • The integration framework for concurrent exempt offerings developed as part of promulgating Regulation A and Crowdfunding rules in 2015 and Rule 147 and 147A in 2016 that focused on facts and circumstances, including each offering complying with the requirements of the relevant exemption.3

Proposal

The proposal would build on and simplify these concepts by establishing a general principle of integration that looks to facts and circumstances, supplemented by four non-exclusive safe harbors to address specific situations.

General Principle

For all offerings not covered by a safe harbor, offers and sales would not be integrated if, based on the facts and circumstances, the issuer can establish that each offering either complies with the registration requirements of the Securities Act, or that an exemption from registration is available for the particular offering.

  • If General Solicitation is NOT Permitted: The issuer must have a reasonable belief, based on the facts and circumstances, that:
    • the purchasers in each exempt offering were not solicited through the use of general solicitation; or
    • the purchasers in each exempt offering must have a pre-existing, substantive relationship with the issuer, or a person acting on the issuer's behalf, that was established prior to the commencement of the offering.
  • If General Solicitation IS Permitted: If an exempt offering includes information about the material terms of a concurrent offering under another exemption also permitting general solicitation, the offering materials must include the legends for, and otherwise comply with, the requirements of each exemption.

Application

The general principle would apply where an issuer is, for example, conducting an IPO alongside a Rule 506(b) offering, or a Rule 506(c) offering followed by a Rule 506(b) offering. The offerings would not be integrated if the investors in the Rule 506(b) offering were not solicited through the registration statement or general solicitation from the Rule 506(c) offering, or if the investors had a pre-existing, substantive relationship with the issuer (or person acting on the issuer's behalf) before the commencement of the Rule 506(b) offering.

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Footnotes

1 Note to Rule 502(a)

2 SEC Release No. 33-8828 (Aug. 3, 2007), at Section II.C.1, available at https://www.sec.gov/rules/proposed/2007/33-8828.pdf

3 SEC Release No. 33-9741 (March 25, 2015), at Section II.B.5, available at https://www.sec.gov/rules/final/2015/33- 9741.pdf; SEC Release No. 33-9974 (Oct. 30, 2015), at Section II.A.1.c, available at https://www.sec.gov/rules/final/2015/33-9974.pdf; and SEC Release No. 33-10238 (Oct. 26, 2016), at Section II.B.5, available at https://www.sec.gov/rules/final/2016/33- 10238.pdf.

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