§ 6:17   Plain English: Staff Legal Bulletin No. 7

The Division of Corporation Finance issued the revised Staff Legal Bulletin No. 7 on June 7, 1999. This staff legal bulletin identified some recurring issues in staff comment letters on plain English filings.

Now that the staff has gained several months’ experience issuing plain English comments under the new rule and amendments, we thought it would be helpful to list the comments we have been issuing most frequently. By alerting issuers to these comments before they file their next registration statement, we hope to enable them to avoid receiving these comments.[1]

Some of the recurring issues that these comments address are summarized below:

Limit your reliance on defined terms

Don’t over-rely on defined terms. For example:

·         Avoid capitalizing terms that you use for their common meanings, such as: “Common Stock,” “Preferred Stock,” “Registration Statement,” “Prospectus,” “Merger Agreement.”

·         Use the company’s name or an abbreviation that investors can easily understand instead of calling your company “the Company.”

·         Avoid using parenthetical definitions, such as (“SEC”) and (“IRS”) when the meaning of the terms is commonly understood or clear from the context.

·         Don’t define terms just for your prospectus. Investors should not have to learn a new vocabulary in order to understand the document.

Be particularly careful to eliminate or severely limit defined terms in the forepart of the prospectus.

 

When should you use a glossary?

The answer to question #2 in revised Staff Legal Bulletin No. 7 explains:

You should use a glossary only if:

·        you must include terms in your prospectus that are understood only by industry experts; and

·        you cannot make the meanings of these terms clear from the context or explain them concisely where you first use them.

You should not use a glossary:

·        to define commonly understood abbreviations, or acronyms, like SEC and Nasdaq, or

·        to define terms that you have created solely for the purpose of your registration statement.

Avoid cryptic names and acronyms

If you use a shortened name or acronym, try to make sure the meaning is clear from the context.

Make it clear who is responsible

Sometimes it is unclear who is responsible for taking specified actions. While you do not always need to use the active voice, you should do so if necessary to clarify who is responsible for a particular action.

Avoid an over-reliance on jargon, technical terms and legalistic presentation of information

Examples of jargon/technical terms:

·        proprietary drug	·        intravenous solutions
·        logistics capabilities	·        coordinated manufacturing and distribution efforts
·        proprietary medicines	·        vertically-integrated
·        revenue synergies	·        lower margin
·        products utilization realigning	·        sales forces
·        centralized management	·        information systems
·        global platform	·        integrated agricultural chain

Examples of legalese:

·        thereto	·        pari passu
·        in connection with	·        ratably
·        pursuant to	·        set forth
·        thereof	·        in respect of
·        such	·        foregoing conditions
·        herein	·        hereafter
·        subject to	·        herein

 

·        Limit the use of footnotes to tables. Instead, when possible, include the footnote information in the text of the document. As a general rule, if the footnote applies to the entire row, column or table, you should explain the information in the text before the table. If the footnote only applies to a specific line item, then use a footnote.

·        Consider using tables and charts to illustrate complex legalistic disclosures.

·        Avoid copying complex information directly from underlying legal documents without a clear and concise explanation of the information. If you think the language in the underlying document is indispensable to the prospectus, you must present it clearly, using bullet lists, concise sections, and the other principles stated in Rule 421(b), and explain what it means.

In the forepart of the document, you should try to eliminate all jargon and legalese and make the cover page, summary and risk factors sections as clear and readable as possible.

Don’t overuse “certain”

Replace “certain” with a brief description of what limits the information or makes it qualify as “certain.”

Avoid redundancy

Avoid unnecessary repetition. For example, don’t repeat the same information in the summary, the risk factors and the body of the document. Disclose the key information briefly once in the forepart of the document then elaborate in the body of the document.

Make your subheadings useful to the reader

·         Avoid vague subheadings. Use informative subheadings that tell the reader what the subsection is about.

·         Make the subheadings visually distinctive.

Don’t use long sentences

·         Break long sentences down to a manageable length. They should be clear, concise and understandable.

·         Avoid long embedded lists within a sentence. Use bullet points or numbered lists.

·         Don’t use too many parenthetical phrases. If necessary, break this information into separate sentences.