August 3, 2021

Volume XI, Number 215


August 02, 2021

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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.

© Polsinelli PC, Polsinelli LLP in CaliforniaNational Law Review, Volume VI, Number 312

About this Author

Phil Feigen of the Polsinelli Law Firm Corporate Transaction Attorney, in Washington DC
Office Managing Partner

Phil Feigen brings a unique perspective to providing general corporate advice, as well as complex business counsel to clients in ever-changing regulatory environments.  For more than 20 years, Phil has been providing guidance with respect to Small Business Investment Companies and other Small Business Administrative regulations, federal and state banking laws and federal securities laws. 

Phil focuses on helping clients through the SBIC licensing process so that they may realize the benefits of the program and increase the amount of investment...

Andrew Terry, Polsinelli, private equity attorney, automotive industry lawyer

Andrew Terry is committed to providing thoughtful, practical legal solutions to clients' needs, and thrives in an environment where he has an opportunity to counsel clients that are facing complex issues so that they may meet their business objectives. He uses his experience to advise public companies on compliance and governance matters, including Exchange Act reporting, Sarbanes-Oxley and Dodd-Frank reforms, Sections 13 and 16 reporting, Rule 144 issues and executive compensation matters.

Andrew has developed a broad range of experience...

Kevin L. Vold, Polsinelli, Aerospace Defense Industry Lawyer, Corporate Finance Attorney
Shareholder, Securities and Corporate Finance Chair

Kevin Vold is an experienced corporate finance and securities lawyer. During 20 years of practice, Kevin has served as the lead attorney advising on corporate, securities and finance matters to clients in diverse industries, including real estate; hospitality and gaming; telecommunications, media and technology; aerospace and defense; biotechnology; energy; retail; and specialty finance and banking.

Chair of Polsinelli's Securities & Corporate Finance practice, Kevin represents issuers and underwriters in the full gamut of equity and debt...

Eric S. Wu, Polsinelli, Capital Markets Lawyer, securities transactions attorney

Eric S. Wu has a capital markets background that allows him to serve his clients as a reliable resource and practical adviser.

Eric concentrates his practice in business transactions, finance, and corporate counseling. He has a special focus on helping publicly-traded and privately-held companies anticipate, navigate, and resolve the legal issues surrounding capital-raising securities transactions, mergers and acquisitions, SEC periodic reporting, executive compensation, proxy and shareholder matters, and corporate governance practices.