SEC Adopts Changes to Regulation D and Intrastate Offerings and Proposes Use of “Universal Proxy Cards” in Contested Director Elections
On Oct. 26, the Securities and Exchange Commission adopted final rules increasing the threshold for offerings made under Rule 504 of Regulation D and broadening the intrastate offering exemption afforded by Rule 147. These finalized rules facilitate crowdfunding efforts for smaller companies.
In addition, the SEC proposed amendments to its proxy rules that would, if adopted, require the use of “universal proxy cards” including the names of all director nominees proposed by all parties in a contested director election and require companies to clarify the voting options and describe the voting standards in director elections.
Rules to Facilitate Smaller Regulation D and Intrastate Offerings
The SEC adopted amendments to increase the ceiling on the aggregate offering price of securities offered and sold in reliance on Rule 504 of Regulation D from $1 million to $5 million in a 12-month period. The rules also include disqualification provisions for “bad actors” from participation in Rule 504 offerings. In addition, the final rules repeal Rule 505, which has not been widely utilized compared to other Regulation D exemptions. The SEC believes the increased offering limit under Rule 504 will provide further disincentive to use Rule 505, which featured the same $5 million limit.
The SEC also adopted final rules relating to exempt intrastate offerings. Amended Rule 147 will remain a safe harbor under Section 3(a)(11) of the Securities Act, so issuers may continue to use the rule for offerings relying on current state law exemptions. Rule 147A will be substantially identical except that it would allow companies to make offers to out-of-state residents so long as sales are made only to in-state residents.
Universal Proxy Cards and Related Proxy Disclosure Changes
The proposed proxy rules would require the company and the dissident in a proxy contest to provide shareholders with universal proxy cards that include the names of both management and dissident director nominees, a change from the existing regime in which the subject companies and the dissident shareholders typically provide proxy cards listing only their own nominees. As a result, under current rules, shareholders generally can only vote for combinations of management and dissident director nominees if they attend the meeting and vote their shares in person. The goal of the proposed universal proxy cards is to enable shareholders to vote by proxy to elect whichever nominees they prefer, regardless of which party nominated them, in the same manner as if the shareholder were attending the meeting in person.
Other changes proposed by the SEC would apply to all solicitations subject to the proxy rules by requiring enhanced disclosures regarding voting options and voting standards relating to all director elections. These amendments would require that proxy cards clearly specify voting options and avoid ambiguous standards.