Aggregate Amount of Offering
The primary distinguishing factor between available exemptions, both statutory and under Regulations A and D, regards the total value of the securities offered for sale. For example, a Rule 504 offering is limited to a total amount of $1 million dollars during any 12-month period. A rule 505 offering, on the other hand, has a $5 million dollar limit on the sale of securities within a 12-month period. As such, the amount of funds capable of being obtained through the offering is often the primary consideration in determine what type of exemption to employ.
Integration of Issuances
The above-discussed rules apply to a single securities offering under the ’33 Act. Rule 502(a) prevents individuals from using multiple exemptions within a short period of time to carry out the sale of securities. This rule excludes any offerings under a Regulation D exemption that takes place more than six months before a current offering as long as there are no other offerings of the same class of securities during that six-month period. If any such offering takes place during that time, it may be integrated into a single offering. Integrating multiple offers generally violates some of the above-stated conditions for a given exemption. This may result in a violation of Section 5 and allow purchasers of the securities to rescind the transaction.
The determination of whether the sale of other securities is integrated depends upon the facts of the situation. If the Rule 502(a) safe harbor doesn’t apply, the following factors will be considered in determining whether there is integration:
- Is there a single plan of financing for the sales?
- Was the same class of security sold?
- Were the sales made close in time
- Were the securities purchased with the same type of consideration (e.g., cash); and
- What was the purpose of the securities sale.
It is uncertain whether the Issuer will have the burden of proving to the court that the issuances should not be integrated. If the Issuer subsequently decides to undergo a public offering by complying with all Section 5 registration requirements it will likely not affect an early Regulation D offering. Likewise, a foreign offering within the safe harbor time period will likely not cause integration.
Rule 147 – Integration Safe Harbor
Rule 147 is a “Non-exclusive safe harbor” that provides no integration of other section 3 offerings, 4(2) offerings, or of registered offerings, if those others:
- are finished more than 5 months before Rule 147 offering begins, or
- commence more than 6 months after conclusion of rule 147 Offering – Rule 147(b)(2).
To rely on this safe harbor, during the six-month periods, an issuer may not make any offers or sales of securities of the same class as those offering in the intrastate offering.