Comments on Proposed Rules
We received several comments with recommendations specific to certain items on Part I of Form 1-A. With respect to Item 1 of Part I, one commenter recommended defining the term “publicly traded,” eliminating the “Financial Statements” section of Item 1 of Part I or conforming it to the existing disclosures required by Item 301 of Regulation S-K, or conforming the line item descriptions in Item 1 to those in
Regulation S-X.291 Other commenters recommended clarifying that an auditor and
related fees need not be listed in Part I if audited financial statements are not included.292 With respect to Item 5 of Part I, another commenter supported the proposal’s inclusion of checkboxes specifying the jurisdictions in which the securities are intended to be offered,293 while a different commenter recommended expanding the list of jurisdictions so that issuers could indicate the Canadian provinces in which they intended to conduct
289 As proposed, the cover page to current Form 1-A would be eliminated as a standalone requirement, while portions of the information required on the cover page would be combined with Item 1 of Part I of Form 1-A in the XML fillable form.
290 The Commission would make the information available on EDGAR in a format that provides normal text for reading and XML-tagged data for analysis. With the exception of the items that focus issuers on eligibility to use Regulation A, much of the information called for in the
XML-based fillable form is also required to be disclosed to investors in Part II of Form 1-A.
291 Letter from Ernst & Young LLP, March 24, 2014 (“E&Y Letter”).
292 Letter from Cynthia M. Fornelli, Executive Director, Center for Audit Quality, March 24, 2014 (“CAQ Letter”); Letter from Deloitte & Touche LLP, March 24, 2014 (“Deloitte Letter”); E&Y Letter; Letter from PricewaterhouseCoopers LLP, March 24, 2014 (“PwC Letter”).
293 NASAA Letter 2.
their offerings.294 With respect to Item 6 of Part I, one commenter recommended defining the term “affiliated issuer.”295 This commenter recommended defining the term
to refer to entities controlled by the issuer, noting that otherwise it may require disclosure by parent and sister entities, which is information unrelated to the capitalization of the issuer.
Other commenters recommended including additional disclosure in Part I. Two of these commenters recommended requiring issuers to include their website address and the jurisdiction of their principal place of business.296 These commenters also objected to removing the disclosure and contact information for persons that are covered by the bad actor rules.297
Final Rules
With the exception of technical clarifications, we are adopting provisions for Part I as proposed. The notification in Part I of Form 1-A will require disclosure in response to the following items:
Item 1. (Issuer Information) will require information about the issuer’s identity, industry, number of employees, financial statements and capital structure, as well as contact information.298
294 Letter from Mike Liles, Jr., Attorney, Karr Tuttle Campbell, January 17, 2014 (“Karr Tuttle Letter”).
295 Paul Hastings Letter.
296 NASAA Letter 2; WDFI Letter. These commenters requested that this information be included in XBRL format, rather than XML. We note that XBRL is a form of XML, and generally requires labeling information with data “tags” rather than providing the information through fillable forms.
297 NASAA Letter 2; WDFI Letter.
298 Some of the information in Item 1, such as the name of the issuer, jurisdiction of incorporation, contact information, primary Standard Industrial Classification Code Number, and I.R.S. Employer Identification Number is already required to be included on the cover page of Form 1-A.
Item 2. (Issuer Eligibility) will require the issuer to certify that it meets various issuer eligibility criteria.
Item 3. (Application of Rule 262 (“bad actor” disqualification and disclosure)) will require the issuer to certify that no disqualifying events have occurred and to indicate whether related disclosure will be included in the offering circular (i.e., events that would have been disqualifying, but occurred before the effective date of the amendments to Regulation A).299
Item 4. (Summary Information Regarding the Offering and other Current or Proposed Offerings) will include indicator boxes or buttons and text boxes eliciting information about the offering (including whether the issuer is conducting a Tier 1 or Tier 2 offering, amount and type of securities offered, proposed sales by selling securityholders and affiliates, type of offering, estimated aggregate sales of any concurrent offerings pursuant to Regulation A, anticipated fees in connection with the offering, and the names of audit and legal service providers, underwriters, and certain others providing services in connection with the offering).
Item 5. (Jurisdictions in Which Securities are to be Offered) will include information about the jurisdiction(s) in which the securities will be offered.
Item 6. (Unregistered Securities Issued or Sold Within One Year) will require disclosure about unregistered issuances or sales of securities within the last year, but will not include a requirement to provide the names and identities of the persons to whom unregistered securities were issued.
299 See discussion of Rule 262(a)(3) and (a)(5) in Section II.G. below.
We are adopting, as proposed, further changes to Part I of Form 1-A. We are eliminating Item 1 (Significant Parties) of current Part I, which requires disclosure of the names, business address, and residential address of all the persons covered by current Rule 262. Instead, we are requiring only narrative disclosure in Part II of Form 1-A when
the issuer has determined that a relevant party has a disclosable, but not disqualifying, “bad actor” event.300 We also are eliminating Item 3 of current Part I relating to affiliate sales, because we are eliminating the current restrictions on affiliate resales under
Rule 251(b).301 Information about the amount of expected secondary sales and the existence of affiliate sales in the offering, however, will continue to be disclosed in
Item 4. Item 6 (Other Present or Proposed Offerings) and Item 9 (Use of a Solicitation of Interest Document) of current Part I will be incorporated into Item 4 (Summary Information Regarding the Offering and Other Current or Proposed Offerings). We also are eliminating Item 7 (Marketing Arrangements) and Item 8 (Relationship with Issuer of Experts Named in Offering Statement) of current Part I, as disclosure of this information is required in Part II (Offering Circular).
Some of the technical changes from the proposed rules are non-substantive procedural revisions to the form that are needed to conform the form with the technical requirements of EDGAR, while the others will, as suggested by commenters, provide clarifications to the terms and requirements of Part I.