R164. Commerce, Securities.
R164-10. Registration by Qualification.
R164-10-2. Registration Statements.
(A) Authority and purpose
(1) The Division enacts this rule under authority granted by Sections 61-1-10, 61-1-11, and 61-1-24.
(2) This rule sets forth the procedure and requirements to be met when applying for registration by qualification in Utah. It is available for registration of securities by any person who proposes to issue or sell any security.
(3) This rule requires that the registration statement must contain certain information. The issuer, issuer-agent and broker-dealer should be aware that information not specifically required by this rule or by the Division prior to effectiveness may be necessary to be included so as to meet the disclosure requirements of Section 61-1-1. Review of the registration statement by the Division does not imply that the disclosure requirements of Section 61-1-1 have been met.
(4) Section 61-1-12 enables the Director of the Division to deny effectiveness to, or revoke or suspend effectiveness of, any securities registration statement, and to impose a fine. Applicant should be aware that criteria contained in Section 61-1-12 will be applied in addition to the requirements of this rule.
(5) This rule requires that certain actions be taken by the issuer after the effective date of the registration statement. See paragraph (C) of this rule. Effectiveness of the registration statement may be suspended or revoked, and a fine imposed, for failure to comply with these requirements.
(6) Section 61-1-16 prohibits the filing of false or misleading documents with the Division. Documents and information filed with the Division should be closely scrutinized prior to signing and filing to insure their accuracy.
(7) Any security may be registered by qualification.
(8) Qualifying companies may utilize NASAA Form U-7 to satisfy the prospectus information requirements set forth in subparagraphs (E)(1) and (E)(2) this rule.
(B) Definitions used in this rule
(1) "Development stage company" means a company that is devoting substantially all of its efforts to acquiring or establishing a new business and either of the following conditions exists:
(1)(a) planned principal operations have not commenced; or
(1)(b) planned principal operations have commenced, but there has been no significant revenue therefrom.
(2) "Director" means the Director of the Division of Securities, Utah Department of Commerce.
(3) "Division" means the Division of Securities, Utah Department of Commerce.
(4) "Expert" means any person referred to in Subsection 61-1-10(2)(o), whose opinion, appraisal, report, name or similar information, is used in the registration statement or provides information which is used in the registration statement.
(5) "Financial statements" means a balance sheet, an income statement or statement of operations, a statement of cash flows, a statement of stockholders' equity or partners' capital, and appropriate notes to the financial statements.
(6) "NASAA" means the North American Securities Administrators Association, Inc.
(7) "SEC" means the United States Securities and Exchange Commission.
(C) Registration requirements
(1) The issuer must file with the Division the documents and information required by paragraphs (C) and (D) of this rule, and pay a fee as specified in the Division's fee schedule.
(2) The registration statement must
(2)(a) contain the documents required by paragraph (D) of this rule,
(2)(b) comply with the merit requirements of paragraph (G) of this rule,
(2)(c) comply with the requirements of Section R164-11-1,
(2)(d) comply with the fund impound requirements of Section R164-11-7b, and
(2)(e) comply with the sales commission requirements of Section R164-12-1f.
(3) Within ten working days after the effective date of the registration statement, issuer must file with the Division two copies of the final prospectus.
(4) Within ten working days after the expiration of the effectiveness of the registration statement, sale of the entire amount of the securities registered in the offering, or termination of the offering, whichever occurs first, issuer must file with the Division a completed and executed closing report on Division Form 10-2-1A.
(5) Within ten working days after the expiration of effectiveness of the registration statement, sale of the entire amount of the securities registered in the offering, or termination of the offering, whichever occurs first, issuer must file with the Division a list of persons who have purchased or subscribed to the offering, including the residential address of each purchaser, the dates of and amount of securities purchased or subscribed to, and the consideration paid by each purchaser or subscriber.
(6) Subsequent to the filing date of the registration statement, issuer must file with the Division financial statements which meet the requirements of paragraph (H) of this rule.
(7) Where the Division has notified issuer in writing of any missing or incomplete documents, deficiencies in the registration statement, or changes required in the prospectus, issuer must respond promptly. If issuer does not respond to the Division's deficiency letter within 30 calendar days of the mailing date of its deficiency letter, the registration statement may be deemed incomplete and appropriate action may be taken to deny effectiveness to the registration statement, and to impose a fine.
(D) Documents to be filed with the Division
The registration statement must contain the following:
(1) One original Division Form 10-2-1 which has been manually executed by all officers, directors, or partners;
(2) One original Division Form 10-2-1B certification for each officer, director, promoter, holder of 10% of the outstanding stock, broker-dealer or issuer-agent, and attorney;
(3) One original NASAA Form U-2, Uniform Consent to Service of Process, which is available from NASAA or the Division, appointing the Director, Utah Division of Securities as issuer's agent for service;
(4) Two copies of the preliminary prospectus containing the information required by paragraph (E) of this rule;
(5) Two copies of financial statements conforming to the requirements of paragraph (F) of this rule;
(6) One original opinion of counsel as required by Subsection 61-1-10(2)(n);
(7) One original NASAA Form U-2A, Uniform Corporate Resolution, which is available from NASAA or the Division, of the issuer where the registration statement is filed by or on behalf of a person other than an individual;
(8) One copy of the organizational documents as required by paragraph (I) of this rule;
(9) One copy of the subscription agreement, if any, to be used in connection with the offering;
(10) One original specimen security as required by paragraph (J) of this rule;
(11) One copy of the executed selling documents as required by paragraph (K) of this rule;
(12) One original of completed and executed documents required by Section R164-11-7b;
(13) One copy of any order, judgment or decree described in subparagraph (E)(2)(d)(ix) of this rule;
(14) At the time of filing the registration statement or not less than five days prior to use, one copy of any item, other than the prospectus, intended to be used to advertise or solicit interest in the offering; except no filing shall be required for notices and advertisements used after the effective date of a registration statement which contains only statements allowed by SEC Rule 134, Communications Not Deemed a Prospectus, 17 CFR 230.134, 1993, which is adopted and incorporated by reference and available from the SEC or the Division;
(15) Original written consents as required by paragraph (L) of this rule;
(16) One copy of each material contract or agreement with an affiliate of the issuer and one copy of any other material contract;
(17) One original of documents supporting the value of assets as shown on the financial statements such as appraisals, assays, reserve reports, engineer reports and similar expert evaluations as discussed in the prospectus; and
(18) Other material documents or information as requested by the Division. The provisions of subparagraph (C)(7) of this rule apply to such requests.
(E) Prospectus information requirements
The prospectus must contain at least the following information:
(1) Facing pages
(1)(a) Title of document;
(1)(b) Number and class of shares or units offered;
(1)(c) Par or stated value;
(1)(d) Entity description, including:
(1)(d)(iv) state and date of incorporation or organization;
(1)(e) Statement as to whether or not a public market exists or will exist;
(1)(f) Statement as to how the securities are registered or exempt at both the federal and state level;
(1)(g) Statement that registration with the Division is neither a recommendation or endorsement of any security, individual, firm or corporation;
(1)(h) Statement as to whom offering is made;
(1)(i) In chart form, including:
(1)(i)(i) shares or units offered,
(1)(i)(ii) price per share,
(1)(i)(iv) net proceeds to the issuer, and
(1)(i)(v) minimums and maximums sought;
(1)(j) Footnotes including:
(1)(j)(i) consideration sought,
(1)(j)(ii) manner of offering,
(1)(j)(iii) amount and type of sales commissions to be paid, and
(1)(j)(iv) the maximum amount of offering expenses;
(1)(k) Broker-dealer or agent name, address, and telephone number;
(1)(l) Statement that no person is authorized to make any statements not contained in the disclosure document and that practices to the contrary may be a criminal offense;
(1)(m) Effective date of the prospectus.
(2) Subsequent pages
(2)(a) The issuer:
(2)(b) Risk factors;
(2)(c) Conflicts of interest;
(2)(d) With respect to every director and officer of the issuer, the following information:
(2)(d)(i) Name, age, residential address;
(2)(d)(ii) Occupation and business experience during the past five years;
(2)(d)(iii) The number of shares or partnership interests of the issuer owned as of a specified date within 30 days of the filing of the registration statement, the approximate date of purchase and the consideration paid for those shares or interests;
(2)(d)(iv) The amount of the securities covered by the registration statement to which an intention to subscribe has been indicated;
(2)(d)(v) Any material interest in any material transaction with the issuer or any significant subsidiary effected within the past three years or proposed to be effected;
(2)(d)(vi) Any family relationship between any director or officer;
(2)(d)(vii) Any other director or officer or similar position held in any other non-public company;
(2)(d)(viii) Any previous involvement in a public company as an officer, director or promoter, including a complete description of the company and affiliation with the company, the dates of and amounts raised in public offerings of the company and, if the company has undergone a reorganization, merger or an acquisition of assets in which an amount of stock representing more than 50% of the company's outstanding stock was issued, the consideration per share received by the company and the book value per share of the company immediately before and after the reorganization, merger or acquisition of assets;
(2)(d)(ix) Involvement in any material legal proceeding;
(2)(d)(x) Any remuneration paid directly or indirectly by the issuer, its predecessors, parents, or subsidiaries, during the past twelve months and estimated to be paid during the succeeding twelve months;
(2)(e) With respect to any person owning of record, or beneficially, 10% of the outstanding shares of any class of equity security of the issuer, the same information specified in subparagraphs (E)(2)(d)(i) and (iii)-(x) of this rule.
(2)(f) With respect to every promoter, if the issuer was organized within the past three years, the same information as specified in subparagraph (E)(2)(d) of this rule and any amount paid by the issuer within the past three years as well as the consideration given for such payments.
(2)(g) With respect to any person on whose behalf any part of the offering is to be made in a nonissuer distribution the following information:
(2)(g)(i) The information required in subparagraph (E)(2)(d)(i) of this rule;
(2)(g)(ii) The amount of securities of the issuer held as of the date the registration statement was filed with the Division;
(2)(g)(iii) The information required in subparagraph (E)(2)(d)(v) of this rule;
(2)(g)(iv) Statement of reasons for making the offering.
(2)(h) Dilution, share ownership and capital contributions: narrative discussion and graphic or tabular illustration, such as bar graphs or pie charts;
(2)(i) Fund impound:
(2)(i)(iii) location, and
(2)(i)(iv) statement that funds will be released only upon order of the Division;
(2)(j) Material litigation which affects the offering;
(2)(k) Summary of the Opinion of Counsel required by Subsection 61-1-10(2)(n);
(2)(l) The substance of reports, findings, appraisals and valuations provided by persons who are named as having prepared or certified such reports or valuations pursuant to Subsection 61-1-10(2)(o);
(2)(m) With respect to Limited Partnerships, net worth of each individual general partner exclusive of home, automobile and home furnishings or, in the alternative, a representation that the general partner meets the net worth requirements of subparagraph (G)(3)(b)(iii) of this rule;
(2)(n) Definition section, where material;
(2)(o) Substance of material contracts and agreements;
(2)(p) The amount of shares subject to transferability restrictions, contractual or otherwise, and the nature of said restriction;
(2)(q) Statement as to the issuer's fiscal year-end date;
(2)(r) Financial statements as required by this rule;
(2)(s) Statement of the intended use of proceeds of the offering as required by Subsection 61-1-10(2)(i);
(2)(t) Transfer agent's name and street address;
(2)(u) Statement that any and all amendments to the prospectus will be promptly filed with the Division, distributed to purchasers in the offering, and made a part of any prospectus used thereafter;
(2)(v) Statement that the Division, market makers, and security holders will be promptly notified in writing of any change in the management, purpose, and control of the issuer, or any material or adverse condition affecting the issuer.
(3) Small Company Offering Registration (SCOR)
(3)(a) A company issuing securities exempt from federal registration under Rule 504 of Regulation D, Regulation A, or Section 3(a)(11) of the Securities Act of 1933, may utilize the NASAA Form U-7, which is available from NASAA or the Division, as the prospectus for the offering to satisfy subparagraph (D)(4) of this rule, provided that the issuer:
(3)(a)(i) complies with each of the requirements set forth in Part I(1) of the NASAA SCOR Issuer's Manual;
(3)(a)(ii) complies with all conditions set forth in, and provides all information required by Part I(2) of the NASAA SCOR Issuer's Manual; and,
(3)(a)(iii) in all material respects complies with all other requirements of this rule.
(3)(b) The filing of one original NASAA Form U-1, Uniform Application to Register Securities, which has been manually executed by all officers and directors of the issuer, satisfies subparagraph (D)(1).
(F) Financial statements
The financial statements contained in the registration statement and the prospectus must meet the requirements of this paragraph (F).
(1) Financial statements of the issuer, or the issuer and its predecessors or any business to which the issuer is a successor, which are to be filed as part of the registration statement must be prepared in accordance with generally accepted accounting principles (GAAP).
(2) Audited financial statements required herein must be accompanied by an unqualified opinion report by an independent certified public accountant.
(3) Consolidated financial statements must be prepared for an issuer that has majority-owned subsidiaries.
(4) The Division may permit the omission of one or more of the financial statements required under this rule and in substitution thereof permit appropriate comparable financial statements, upon the written request of issuer and where consistent with the protection of Utah investors.
(5) The Division may require the filing of other financial statements in addition to or in substitution for the financial statements herein required where such financial statements are necessary or appropriate for an adequate presentation of the issuer's financial condition or the financial condition of any person considered necessary, where consistent with the protection of Utah investors.
(6) Issuer must file audited financial statements for the most recent fiscal year, or as of a date within four months of the date the registration statement is filed with the Division if the issuer, including predecessors, has existed for a period of less than one fiscal year.
(7) When the filing date of the registration statement falls after a date four months subsequent to the issuer's most recent fiscal year end, unaudited interim financial statements dated within four months of the filing date must also be included in the registration statement.
(8) Unaudited financial statements must be filed for the two fiscal years preceding the most recent fiscal year or for such shorter period as the issuer and any predecessors have been in existence if less than three years.
(9) If the financial statements required herein are as of a date more than four months prior to the date that the registration statement is expected to become effective, the financial statements must be updated as of a date within four months of the expected effective date and include the entire period since the last fiscal year end. Such interim financial statements need not be audited.
(10) If any part of the proceeds of the offering is to be applied to the purchase of any business, the same financial statements shall be required of that business as if it were the issuer.
(11) An issuer which is a limited partnership shall also be required to file the balance sheets of the general partners as described below.
(11)(a) Where a general partner of the limited partnership is a corporation there must be filed an audited balance sheet of such corporation as of the end of its most recently completed fiscal year.
(11)(b) Where a general partner of the limited partnership is a partnership there must be filed an audited balance sheet of such partnership as of the end of its most recently completed fiscal year.
(11)(c) Where a general partner of the limited partnership is a natural person there must be filed, only as supplemental information, an unaudited balance sheet of such natural person as of a date no more than four months prior to the date the registration statement was filed.
(G) Merit requirements
(1) Minimum offering amount for a development stage company
(1)(a) The minimum offering amount for a development stage company shall not be less than an amount such that immediately following the close of the offering the net tangible asset value of the company is equal to or greater than $75,000, based on the net tangible asset value of the most recent balance sheet included in the prospectus as adjusted to give effect to the minimum net proceeds of the offering and, at the discretion of the Division, any value not recognized for financial statement purposes as supported by independent appraisal or other recognized authority.
(2)(a) The maximum dilution to the net tangible asset value of the securities offered in a public offering pursuant to Section 61-1-10 shall not exceed 33 1/3% of the public offering price for a development stage company or 50% for all other companies.
(2)(b) This subparagraph (G)(2) of this rule shall apply to all offerings of preferred or common corporate stock.
(2)(c) Dilution shall be equal to the difference between the offering price of the shares and the net tangible asset value per share based on the most recent balance sheet included in the prospectus as adjusted to give effect to the maximum net proceeds of the offering. The net tangible asset value of the shares at the close of the offering shall be determined by dividing the net tangible asset value of the corporation by the total number of shares outstanding at the close of the offering. The net tangible asset value of the corporation shall be equal to the total assets of the corporation less the intangible assets and the liabilities of the corporation.
(2)(d) In the event that not all shares offered are sold, the shareholders, other than those purchasing in the offering, shall be required to contribute to the company a sufficient number of shares or tangible assets so that dilution, based on the most recent balance sheet included in the prospectus and receipt of the net proceeds from the shares actually sold, does not exceed the maximum dilution allowed.
(2)(e) Registration will not be permitted to close, and will not be issued a closing letter, where the dilution at the close of the offering is greater than the maximum dilution allowed and such violation has not been remedied.
(3)(a) Corporate Equity and Debt Offering.
(3)(a)(i) Prior to and during the effectiveness of a registration statement pertaining to an offering of securities which are corporate equity securities, rights to obtain corporate equity securities, securities convertible into corporate equity securities, or corporate debt securities, the corporation must have equity equal to at least 10% of the maximum aggregate offering price of the securities which are registered or to be registered. Equity shall be equal to the sum of stated capital, capital surplus which was contributed in cash, and retained earnings. Retained deficits will not reduce the equity of the corporation for purposes of this subparagraph (G)(3)(a) of this rule. In no event shall capital contributed in the form of services or any evidence of indebtedness qualify as any portion of equity in order to meet the requirements of this subparagraph (G)(3)(a) of this rule.
(3)(a)(ii) Tangible property may be considered to satisfy this requirement, in the discretion of the Division, only where the value of such property is ascertained and supported by the issuer, where the value substantially exceeds the necessary equity requirement and where clear title to the property is held by the issuer.
(3)(b) Limited Partnership and Trust Certificate Offering. Prior to the effectiveness of a registration statement relating to limited partnership units, issuer must meet one of the following requirements:
(3)(b)(i) The general partner, promoter, or manager has paid, in cash, at least an amount equal to 5% of the maximum aggregate offering price of the securities to be registered to the issuer for equity interests in the issuer;
(3)(b)(ii) The general partner, promoter, or manager has the ability to pay and commit themselves to pay, in cash, 5% of the maximum aggregate offering price of the securities to be registered into the fund impound prior to the release of the impound and in addition to any other impound which may be required by the rules of the Division; or,
(3)(b)(iii) The general partner, promoter, or manager has an aggregate net tangible asset value exclusive of home, automobile, and home furnishings equal to 10% of the maximum aggregate offering price of the securities to be registered. Where a general partner, promoter or manager is also a general partner, promoter or manager of another partnership or trust for which this subparagraph was used to satisfy the equity requirements for a registered offering of that partnership or trust, the aggregate net tangible asset value will be reduced by the amount required to satisfy the equity requirements of the previous offering.
(4) Offering Expenses
The maximum offering expenses, not including commissions on the sales of the securities, which shall be paid from the proceeds of the public offering or by the issuer in connection with the public offering is the greater of $6,000 or 8% of the minimum aggregate offering price of the securities registered.
(H) Post filing financial statement requirements
(1) The financial statements required by this paragraph (H) of this rule must be prepared in accordance with the requirements set forth in paragraph (F) of this rule.
(2) Subsequent to the filing date of a registration statement, the following financial statements must be filed:
(2)(a) After the end of each fiscal year, through and including the year in which 80% of the offering proceeds will have been used, audited financial statements for the previous fiscal year must be filed with the Division within 90 days after the end of the applicant fiscal year.
(2)(b) If an effective registered offering has not been completely sold at a date six months after the end of the issuer's last fiscal year, unaudited interim financial statements must be filed with the Division within 30 days of that date for the period ending six months from the fiscal year end. Financial statements required by this subparagraph (H)(2) of this rule shall not be required where interim financial statements are filed pursuant to the requirements in paragraph (F) of this rule which cover at least the same period covered by this subparagraph (H)(2).
(3) If an effective registered offering has not been completely sold, the financial statements required by this paragraph (H) of this rule must be appended to every prospectus used thereafter.
(I) Organizational documents
(1) Corporation. A registration statement for the proposed sale of securities of a corporation must contain:
(1)(a) one copy of the certificate and articles of incorporation and all amendments thereto; and
(2) Limited Partnership. A registration statement for the proposed sale of securities of a limited partnership must contain:
(2)(a) one copy of the limited partnership agreement, and
(2)(b) the documentation of the managing general partner which would be required by this paragraph (I) of this rule if the managing general partner was the issuer of the securities.
(3) Others. As the Division specifies in each instance.
(J) Specimen Security
The registration statement must contain either:
(1) An original specimen security which conforms to the description of the security in the registration statement; or
(2)(a) A letter, signed by a director of the issuer, or a person of similar responsibility for an unincorporated issuer, stating that a specimen security meeting the requirements of subparagraph (J)(1) of this rule will be delivered prior to the release of impounded funds, and
(2)(b) A notation on Item 12 of Division Form 11-7B that it shall be a condition of release of such impounded funds for the issuer to provide a specimen security meeting the requirements of subparagraph (J)(1) of this rule.
(K) Selling documents
The registration statement must contain the following documents with respect to the persons who propose to offer or sell the securities pursuant to the registration statement:
(1) Where the securities are to be offered through a licensed agent or broker-dealer, one copy of the signed agreement between the agent OR broker-dealer and the issuer setting forth the compensation each person will receive in connection with such distribution, and a description of any transactions between such person and the issuer within the twelve months preceding the filing of the registration statement.
(2) Where the securities are to be offered through any person not licensed with the Division as a broker-dealer or agent, the broker-dealer or agent application and supporting documents and information, as required in Section R164-4-1, for such person must accompany the registration statement at the time of the original filing.
(3) No registration statement shall become effective where
(3)(a) the only person participating in the distribution is a broker-dealer which is a member of FINRA, and
(3)(b) the Division has not received written confirmation or oral confirmation to be followed by written confirmation that FINRA has no objection to the compensation arrangements set forth in the registration statement.
(4) No registration statement shall be effective or become effective without complete compliance with Section R164-4-1 by at least one person participating in the distribution.
(L) Consent of expert
(1) Where any information provided by an expert is used in the registration statement or prospectus, the registration statement must include the consent of the expert to the specific use of the information in the prospectus or registration statement.
(2) Where the name of an expert is used in the registration statement or prospectus, the registration statement or prospectus must contain the consent of the expert as to the specific use of the expert's name.
(1) Whenever there is a material change in any information or document filed with the Division, the issuer must file a correcting amendment with the Division within ten working days after the material change.
(2) There is no charge for filing a correcting amendment.
KEY: financial statements, securities, securities regulation
Date of Enactment or Last Substantive Amendment: February 2, 2010
Notice of Continuation: June 2, 2017
Authorizing, and Implemented or Interpreted Law: 61-1-10; 61-1-24