Five weeks to effectiveness of the changes to the SEC's Regulation A, popularly known as A+, and we are starting a series of blog posts about getting ready to use Regulation A. And the first topic is one we haven't seen very much chatter about: the need to file "material contracts" with the SEC as part of the filing of the Offering Statement.
Here's the rule: a "material contract" is one that is made "other than in the ordinary course of business that is material to the issuer". Simply put, that means a contract that isn't run of the mill and that is important to your business. So it doesn't include your contract for internet service but it does include things like your option plans and the license to use the software platform that you are using to build your "Uber for Ferrets" application.
With internally generated documents such as option plans, the only question is whether you want to expose the information to the glare of public scrutiny. With contracts made with third parties, you have the added complication that the other party might not want to have the terms of the contract publicized.
You can't redact (black out) sensitive information in the contract unless you get "confidential treatment" from the SEC. And the confidential treatment request ("CTR") process is REALLY long and REALLY expensive and mostly they only let you black out things like social security numbers in any case. Trade secrets like the formula for Coke (everyone's favorite example) yes, you can black out those, but things like the cost you pay for your licenses -- you're probably going to end up disclosing those.
So before you decide you are going to do a Regulation A offering, do this:
- Work out what contracts you have that might be material.
- Consider whether you can bear to have the information in that contract made public.
- Consider whether you need to get permission from the other party to the contract to file publicly with the SEC.
And you'll probably want to talk to a lawyer about that.