CR-EQUITY provides a uniform procedure designed to coordinate the blue-sky registration process among states in which the issuer seeks to sell its equity securities. In addition to creating uniformity in review standards, the program is designed to expedite the registration process, saving the issuer time and money. Of the jurisdictions that register offerings eligible to use CR-EQUITY, all but two currently are participating in the program. CR-EQUITY is designed to target offerings of securities that are not “Covered Securities” as defined in Section 18(b)(1) of the Securities Act of 1933.
CR-EQUITY offers issuers registration efficiencies by creating a uniform scheme of review. CR-EQUITY utilizes established NASAA Statements of Policy for substantive (merit) comments. This provides a predictable standard of review for issuers with respect to merit issues. The review regarding disclosure issues is contingent on the nature of each individual offering although many of the NASAA Statements of Policy contain disclosure requirements.
Additionally, CR-EQUITY simplifies the process for resolution of issues raised during review of the registration application. Under CR-EQUITY, a lead disclosure jurisdiction and a lead merit jurisdiction are designated. The lead disclosure jurisdiction coordinates all disclosure comments and the lead merit jurisdiction coordinates all merit comments. The two lead jurisdictions generate one comment letter on behalf of all jurisdictions. The issuer negotiates resolution of comments with the two lead jurisdictions. Once the lead disclosure jurisdiction agrees to clear the offering, all participating disclosure jurisdictions agree to clear it simultaneously. The same is true with respect to the merit jurisdictions. In this way, CR-EQUITY simplifies the overall blue-sky registration process and places a significant portion of the coordination effort on the lead jurisdictions.
Finally, CR-EQUITY offers issuers expedited review. The CR-EQUITY Protocol establishes compulsory time periods for review and generation of comments. The time to clear an offering through CR-EQUITY remains contingent on the response time of the issuer, but the response time of the participating jurisdictions is established and predictable. Because of the time and effort necessary to coordinate comments from multiple jurisdictions, issuers should plan on the CR-EQUITY process taking a minimum of 30 days. Issuers should consider this time frame when requesting registration under CR-EQUITY.
Candidates for CR-EQUITY
CR-EQUITY generally is intended only for initial public offerings of common stock, preferred stock, warrants, rights and units comprised of equity securities. Such offerings also must be registered (or seeking registration) under Section 5 of the Securities Act of 1933. Thus, CR-EQUITY is not available for Regulation A offerings. CR-EQUITY is not available for issuers in blind pool or blank check offerings. Issuers should note that CR-EQUITY may not be available on all offerings even if the offering fits within the initial screening criteria.
The issuer should submit required forms directly to each jurisdiction in which it seeks to offer its securities. These forms typically are:
- Form U-1 (Uniform Application to Register Securities);
- Form U-2 (Consent to Service of Process);
- Form U-2A (Form of Corporate Resolution); and
- Form CR-EQUITY-1 (Application for Coordinated State Review). It is on this form that the issuer selects all jurisdictions in which it seeks to register under the CR-EQUITY Protocol.
The issuer is required to remit the fee required by each jurisdiction in which it seeks to offer and sell its securities. Such fee shall be submitted directly to that jurisdiction along with other required documentation.
Pennsylvania’s Role as Coordinating State
Pennsylvania acts as the CR-EQUITY Program Administrator. In this role, Pennsylvania designates the lead merit and disclosure jurisdictions, communicates with issuer’s counsel and the participating jurisdictions, acts as a troubleshooter for the process in general, and facilitates each specific application.
In addition to submitting the paperwork to each state in which it seeks to sell, the issuer also shall send the Form CR-EQUITY-1 to Pennsylvania. If the issuer does not seek to register its securities in Pennsylvania, the issuer should submit only Form CR-EQUITY-1 and the appropriate offering documents. If the issuer seeks to register its securities in Pennsylvania, it should submit Form CR-EQUITY-1, the appropriate registration forms, fees and offering documents.
Selection of the Lead Jurisdictions
As the coordinating jurisdiction, Pennsylvania is responsible for selecting the two “lead” jurisdictions from the states checked by the issuer on the Form CR-EQUITY-1. The issuer does not have the option of requesting specific lead jurisdictions. Pennsylvania will select the lead jurisdictions based on a number of factors, including a state’s resources and experience in CR-EQUITY applications. There may be no correlation between the lead jurisdictions and the issuer’s home jurisdiction.
Timing of the CR-EQUITY Process
Within three full business days of Pennsylvania’s receipt of the issuer’s Form CR-EQUITY-1, Pennsylvania will designate two lead states. All participating states have 10 business days to comment on the issuer’s application and forward those comments to the leads. Within another five business days, the lead examiners collect and consolidate all comments and send one coordinated comment letter to the issuer. The lead examiners then resolve outstanding comments with the issuer’s legal counsel. Once the lead examiners clear the application, all participating jurisdictions agree to clear it simultaneously. The issuer should anticipate that the CR-EQUITY process will take a minimum of 30 days.
Adding Jurisdictions to Form CR-EQUITY-1
After the CR-EQUITY process has begun, the issuer has a limited ability to add jurisdictions. The issuer may add as many jurisdictions as it desires so long as such additions occur within the initial 10-day comment period. Following that period, the issuer may not be permitted to add jurisdictions, and, thus, may be required to seek independent registration in each additional jurisdiction subject to that jurisdiction’s standards of review for non-coordinated registrations.
The Comment Letter
The comment letter will be divided into various sections, covering disclosure comments, merit comments and any state specific comments.
Merit or Substantive Issues: Merit comments are based only on the NASAA Statements of Policy. All merit comments will be resolved through the lead merit state.
Disclosure Issues: Disclosure comments may be based on the NASAA Statements of Policy and/or be generated independently by the various examiners. Comments of this type will be submitted by both disclosure and merit examiners. All disclosure comments will be resolved through the lead disclosure jurisdiction.
State Specific Comments: As the CR-EQUITY process does not encompass all areas of regulatory oversight, the examiners may make state specific comments. The state specific comments may include issuer dealer/agent registration, appropriate fees/documents, compliance with certain Internet offering requirements, etc. These comments generally are resolved directly with the jurisdiction issuing the comment.
Applicable NASAA Statements of Policy
CR-EQUITY utilizes the following NASAA Statements of Policy in the review of CR-EQUITY applications. The text of each of these statements is contained in its entirety in the NASAA Reports.
Additionally, this volume contains the Model Promotional Shares Lock-In Agreements for Class A and Class B issuers.
Overview of the Administrators’ Responsibilities
The lead examiners are responsible for the following:
- Collecting comments from participating jurisdictions;
- Drafting comment letters including disclosure, merit and state specific comments;
- Forwarding copies of comment letters to the issuer and the participating jurisdictions;
- Forwarding copies of the issuer’s response letters to the participating jurisdictions;
- Negotiating resolutions to comments with the participating jurisdictions;
- Negotiating resolutions to comments with the issuer;
- Making all final decisions regarding the resolution of comments;
- Recommending registration of the issuer’s offering; and
- Forwarding that recommendation to all participating jurisdictions.
Overview of the Issuer’s Responsibilities
The Issuer is responsible for the following:
- Submitting Form CR-EQUITY-1 to Pennsylvania, regardless of its intent to sell securities in Pennsylvania;
- Filing Form CR-EQUITY-1 and all other appropriate documents and fees in each participating jurisdiction in which it seeks to register securities;
- Filing all amendments with the participating jurisdictions;
- Communicating with the lead disclosure and lead merit examiners to resolve comments;
- Negotiating resolutions to state specific comments with the participating jurisdictions; and
- Forwarding notice to all participating jurisdictions that the Securities and Exchange Commission has cleared the issuer’s offering.
CR-EQUITY participants include:
District of Columbia
Jurisdictions Offering Automatic Effectiveness
Because Colorado, Connecticut, Florida, Georgia, Hawaii, Illinois, Louisiana, New York, and Wyoming do not require a state-level substantive review of this type of filing, they are not included in CR-EQUITY.