|
| |
|
|
|
|
Report on the
Uniformity of State Regulatory Requirements for Offerings of Securities
That Are Not “Covered Securities”
Pursuant to Section 102(b)
|
Alabama |
Maryland |
Oregon |
Alaska |
Massachusetts |
Pennsylvania |
Arkansas |
Michigan |
Puerto Rico |
Colorado |
Minnesota |
Rhode Island |
Connecticut |
Mississippi |
South Carolina |
Delaware |
Missouri |
South Dakota |
District of Columbia |
Montana |
Tennessee |
Guam |
Nebraska |
Utah |
Hawaii |
Nevada |
Virginia |
Idaho |
New Hampshire |
Washington |
Indiana |
New Jersey |
West Virginia |
Iowa |
New Mexico |
Wisconsin |
Kansas |
North Carolina |
Wyoming |
Kentucky |
Oklahoma |
|
9 Survey response of NASAA,
attached as Appendix A.
10 These statements address
affiliated transactions, debt securities, impoundment of proceeds, options
and warrants, preferred stock, promoter's equity investment, promotional
shares, underwriting and selling expenses, unsound financial condition and
use of proceeds.
11 These statements address
asset-backed securities, cattle-feeding programs, church bonds, commodity
pool programs, equipment programs, health care facility offerings,
mortgage programs, real estate investment trusts, real estate programs and
variable annuities companies and trusts.
12 The initial version of ULOE
provided a state counterpart only to Rule 505 offerings. In 1989, the
exemption was revised to include Rule 505 and/or 506 offerings. After
NSMIA, securities sold in Rule 506 offerings are "covered securities" and
preempted from state registration and review.
13 Mark A. Sargent & Hugh
H. Makens, ULOE: New Hope, New Challenge, 45 Bus. Law. 1319 (May
1990), fn. 9.
14 Id.
15 NSMIA replaced the
pre-existing Section 18 of the Securities Act that preserved the
jurisdiction of the states with a new Section 18 that preempts most state
authority to regulate many securities offerings.
16 Section 18(b)(1) of the
Securities Act defines a "nationally traded security" as a security that
is:
"(A) listed or
authorized for listing, on the New York Stock Exchange or American Stock
Exchange, or listed on the National Market System of the Nasdaq Stock
Market (or any successor to such entities);
(B) listed, or
authorized for listing, on a national securities exchange (or tier or
segment thereof) that has listing standards that the Commission determines
by rule (on its own initiative or on the basis of a petition) are
substantially similar to securities described in subparagraph (A); or
(C) is a security
of the same issuer that is equal in seniority or that is a senior security
to a security described in subparagraph (A) or (B)."
Section 18(d)(4)
defines the term "senior security," for purposes of Section 18, as "any
bond, debenture, note, or similar obligation or instrument constituting a
security and evidencing indebtedness, and any stock of a class having
priority over any other class as to distribution of assets or payment of
dividends."
17 Securities Act Section
18(b)(2).
18 Securities Act Section
18(b)(3). The Commission has not yet proposed a definition of "qualified
purchaser."
19 Securities Act Section
18(b)(4)(A). The Exchange Act is located at 15 U.S.C. §78a et seq
.
20 Securities Act Section
18(b)(4)(B).
21 Securities Act Section
18(b)(4)(C).
22 Securities Act 18(b)(4)(D).
23 Securities Act Section
18(c)(1).
24 Securities Act Section
18(c)(2)(A).
25 Securities Act Section
18(c)(2)(B)(i). Under Securities Act Section 18(c)(2)(D), fees may not be
required with respect to "nationally traded securities" under Section
18(b)(1). Specifically, Section 18(c)(2)(D) states:
Fees not permitted
on listed securities. - Notwithstanding subparagraphs (A), (B), and (C),
no filing or fee may be required with respect to any security that is a
covered security pursuant to subsection (b)(1), or will be such a covered
security upon completion of the transaction, or is a security of the same
issuer that is equal in seniority or that is a senior security to security
that is a covered security pursuant to subsection (b)(1).
NSMIA also
preserves the authority of the states to require registration of the offer
and sale of "covered securities" within a state as a result of a refusal
to pay a fee. Specifically, Section 18(c)(2)(C) states:
Availability of
preemption contingent on payment of fees. -
(i) In general. -
During the period beginning on the date of enactment of the National
Securities Markets Improvement Act of 1996 and ending 3 years after that
date of enactment, the securities commission (or any agency or office
performing like functions) of any State may require the registration of
securities issued by any issuer who refuses to pay the fees required by
subparagraph (B).
(ii) Delays. - for
purposes of this subparagraph, delays in payment of fees or underpayments
of fees that are promptly remedied shall not constitute a refusal to pay
fees.
26 The Commission staff
prepared separate Surveys for state securities administrators, issuers,
and broker-dealers and counsel, respectively. Surveys were sent out to 51
securities administrators, 1083 issuers, 220 broker-dealers and 587 law
firms. The Surveys are attached as Appendix B.
27 In addition to securities
administrators, the Commission received responses from 60 issuers, 15
broker-dealers, 25 law firms, 3 individual investors, the Boston Stock
Exchange ("BSE"), NASAA and the SIA. The responses to the Surveys are
available for inspection and copying in the Commission's public reference
room. Refer to File No. S-7-20-97. A summary of the Survey responses
(excluding NASAA and the states) is attached as Appendix C. A summary of
the state Survey responses is attached as Appendix D.
28 Securities Act Section
18(b)(1). In connection with the Commission's authority to designate those
other exchanges on which a listing will qualify the securities as
"nationally traded," the Commission has proposed to include the Chicago
Board Options Exchange and Tier 1 of the Pacific Exchange. Securities Act
Release No. 7422 (June 10, 1997).
29 Forms SB-1 and SB-2 are
tailored for small business issuers and require less burdensome disclosure
to help alleviate the cost and burden of the registration process. A
"small business issuer" is a United States or Canadian issuer that had
less than $25 million in revenues in its last fiscal year, and whose
outstanding publicly-held stock is worth no more than $25 million.
During the fiscal
year commencing on October 1, 1996 and ending September 30, 1997, the
Commission received 547 Form SB-2 registration statements and 10 Form SB-1
registration statements.
30 See the discussion under
Section I.B. "Registration of Securities Offerings Under State Securities
Laws" regarding the state securities registration process.
31 Survey response of Kelley
Drye & Warren LLP.
32 Survey response of Krys
Boyle Freedman Scott & Sawyer, P.C.
33 Survey responses of CRAGAR
Industries, Inc.; Obie Media Corporation; General Bearing Corporation;
Kideo Productions, Inc.; and Simulations Plus, Inc.
34 Survey response from CRAGAR
Industries, Inc.
35 Survey response of Obie
Media Corporation.
36 37 Survey response
of Paragon Capital Corporation.
37 Id .
38 Survey response of Paulson
Investment Company, Inc.
39 Survey response of Capital
West Securities, Inc.
40 E.g. , Survey
response of Spelman & Co., Inc.
41 Survey response of Argent
Securities, Inc.
42 Materials regarding the CER
program are attached as Appendix E.
43 See , fn. 10 and fn.
11, supra .
44 State securities
administrators are not prevented from applying different standards than
those contained in NASAA's Statements of Policy.
45 Arkansas, Indiana, Iowa,
Kansas, Kentucky, Maine, Massachusetts, Michigan, Mississippi, Nebraska,
New Mexico, North Carolina, North Dakota, Oklahoma, Oregon, Ohio,
Pennsylvania, Rhode Island, South Dakota, Tennessee, Texas, Utah, Vermont,
Virginia, West Virginia, Washington, Wisconsin and Wyoming.
46 Alaska, Arkansas,
Connecticut, Georgia, Florida, Indiana, Iowa, Kansas, Kentucky, Maine
(applies exemption, plans to adopt formally as rule), Maryland,
Massachusetts, Michigan, Minnesota, Mississippi, Nevada, New Hampshire
(applies exemption, plans to adopt formally), New Jersey, North Carolina,
North Dakota, Oregon, Rhode Island, South Carolina, South Dakota, Texas,
Utah, Vermont, Virginia, West Virginia, Washington, Wisconsin and Wyoming.
47 Arizona and Delaware.
48 Tennessee.
49 These states are
California, Colorado, Idaho, Illinois, New Mexico, New York, Oklahoma and
Ohio.
50 E.g. , Survey
responses of Connecticut, Delaware, Indiana and Kansas.
51 E.g. , Survey
responses of Maine, Maryland, New Jersey, Pennsylvania and Washington.
52 During the fiscal year
commencing on October 1, 1996 and ending September 30, 1997, the
Commission received 109 Regulation A offering statements and more than
1,400 Rule 504 notices.
53 For this purpose, a blank
check issuer is "a development stage company that either has no specific
business plan or purpose or has indicated that its business plan is to
engage in a merger or acquisition with an unidentified company or
companies, or other entity or person." Securities Act Rule 504(a)(3).
54 SCOR stands for Small
Company Offering Registration, a 50-question form used to register small
public offerings in most states without going through the time and expense
of filing a registration statement with the Commission. While regulations
vary among the states, the Securities Act permits the use of the form in
Rule 504 offerings. The SCOR form can also be used in Regulation A
offerings that are filed with the Commission. In either case, the
securities must be registered in the states in which they are to be sold.
55 Survey response of
Wohlforth, Argetsinger, Johnson & Brecht.
56 Survey response of
Polsinelli, White, Vardeman & Shalton.
57 Survey response of Butler,
Snow, O'Mara, Stevens & Cannada, PLLC.
58 Alaska, Arizona,
California, Colorado, Connecticut, Florida, Idaho, Illinois, Indiana,
Iowa, Kansas, Kentucky, Maine, Maryland, Massachusetts, Michigan,
Minnesota, Mississippi, Nevada, New Hampshire, New Mexico, New Jersey,
North Carolina, North Dakota, Oklahoma, Oregon, Ohio, Pennsylvania, Rhode
Island, South Carolina, Texas, Utah, Vermont, Washington, Wisconsin and
Wyoming.
59 Arkansas, South Dakota,
Virginia and West Virginia.
60 Survey response of NASAA.
61 The information in this
section regarding the SCOR regional review program is derived from the
NASAA Survey response.
62 These states are Alaska,
Arizona, California (for Regulation A offerings only), Colorado, Idaho,
Oregon, Utah, and Washington. Nevada recently amended its rules so that it
can participate in the Western Regional Review Program.
63 These state are
Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, and
Vermont.
64 These states are Illinois,
Indiana, Iowa, Kansas, Michigan, Missouri, and Wisconsin.
65 Florida, Maryland,
Mississippi, New Mexico, New Jersey, North Carolina, North Dakota,
Pennsylvania, South Carolina, South Dakota, Virginia and Wyoming.
66 Securities Act Rule 254.
67 Colorado, Illinois,
Indiana, Iowa, Massachusetts, Nevada, New York, North Dakota, Oregon,
Pennsylvania, South Carolina, Utah, Vermont, Virginia, Washington,
Wisconsin and Wyoming. Wisconsin indicated that its exemption is more
expansive than most since it permits "test the waters" in exempt
offerings.
68 Arizona, Maine, Michigan
and New Jersey.
69 Delaware, Florida,
Kentucky, Maryland, and Rhode Island.
70 Alaska, Arkansas,
Connecticut, Idaho, Minnesota, Mississippi, Nebraska, New Hampshire, New
Mexico, North Carolina, Ohio, South Dakota, Tennessee, Texas and West
Virginia.
71 Survey response of Drinker
Biddle & Reath.
72 Survey responses of the
Venture Law Group, Douglas Pollitt for Schulte Roth & Zabel, and
Waller Lansden Dortch & Davis.
73 Survey response of the
Venture Law Group.
74 Georgia, Idaho, Illinois,
Indiana, Iowa, Kansas, Kentucky, Maryland, Massachusetts, Michigan,
Minnesota, Mississippi, Nebraska, Nevada, New Hampshire, New Mexico, North
Carolina, North Dakota, Oklahoma, Pennsylvania, Tennessee, Texas, Utah,
Vermont, Virginia, West Virginia, Washington, Wisconsin and Wyoming.
75 Alaska, California,
Delaware, and Florida.
76 These states are Colorado,
Pennsylvania, South Carolina, Utah, Washington and Wyoming. A copy of the
NASAA Model Accredited Investor Exemption is attached as Appendix F. NASAA
proposed the Model Accredited Investor Exemption based, in part, on the
use of the Angel Capital Electronic Network ("ACE-Net"). ACE-Net is a
nationwide Internet-based listing service sponsored by the Small Business
Administration that provides information on Rule 504 and Regulation A
offerings to "accredited" angel investors. Angel investors are allowed to
view the securities offerings of these issuers via the Internet.
77 Alaska, Delaware, Kansas,
Maine, Michigan, Mississippi, New Jersey, Ohio, Rhode Island and Texas.
78 Connecticut, Florida,
Idaho, Kentucky, Maryland, Massachusetts, Nevada, New Mexico, North
Carolina, North Dakota, Oklahoma, South Dakota, Tennessee and Virginia.
79 Securities Act Sections
18(b)(1)(C) and 18(d)(4).
80 Respondents did not
specifically address offerings of corporate debt securities in response to
the Surveys.
81 During the fiscal year
commencing October 1, 1996 and ending September 30, 1997, the Commission
received 238 ABS offerings registering over $241 billion dollars worth of
securities.
82 Form S-3 permits the use of
such form for all investment grade rated ABS offerings, thereby qualifying
for "shelf" treatment pursuant to Rule 415.
83 Survey response of
Cadwalader, Wickersham & Taft.
84 Survey response of NASAA.
85 This exemption is often
referred to as the "IDB (industrial revenue bond) exclusion" from federal
registration.
86 Survey response of NASAA.
87 Survey response of Skadden,
Arps, Slate, Meagher & Flom LLP.
88 Survey response of Gardner,
Carton & Douglas and Skadden, Arps, Slate, Meagher & Flom LLP.
89 Survey response of
BellSouth Corporation.
90 Survey response of Exigent
International, Inc.
91 Survey response of Drinker
Biddle & Reath.
92 Survey response of the
Venture Law Group.
93 E.g. , Survey
response of Douglas Pollitt for Schulte Roth & Zabel. In comparing a
Rule 506-exempt offering before and after the enactment of NSMIA, this
respondent indicated that the legal and paralegal hours required to comply
with blue-sky requirements decreased from 146 hours to 41.7 hours.
94 The Survey response of
NASAA states:
Over thirty states
introduced legislation to amend their codes in light of NSMIA. NASAA is
pleased to report that nearly 20 states adopted legislation to implement
NSMIA. A number of state legislatures will not meet until late 1997 or
early 1998. Others were able to implement the provisions of NSMIA by
regulation.
95 Survey response of Rushall
& McGeever, attached as Appendix G, with respect to "state position on
federally covered securities following NSMIA." See also Survey
response of NASAA.
96 E.g. , Survey
response of the State of Florida.
97 Survey response of
Wohlforth, Argetsinger, Johnson & Brecht.
98 Survey response of Drinker,
Biddle & Reath, including memorandum of Joseph J. Kornblum regarding
"Current State Filing Requirements for SEC Rule 506 Offerings." This
memorandum is attached as Appendix H, as an example of some concerns that
have been expressed.
99 Section 18(b)(4)(D)
includes as "covered securities" those securities that are issued in an
offering that is exempt from Securities Act registration under "rules or
regulations issued under Section 4(2)" of the Securities Act. The only
rule that the Commission has issued under Section 4(2) is Rule 506 of
Regulation D. While securities offered under Rule 506 are, therefore,
"covered securities," Section 18(b)(4)(D) specifically preserves the right
of a state to impose "notice filing requirements that are substantially
similar to those required by rule or regulation under section 4(2)" of the
Securities Act.
100 NASAA Reports (CCH)
4876.307 and 4876.307.15.
101 Survey response of Drinker,
Biddle & Reath.
102 Id .
103 Id .
104 Id .
105 Some respondents noted a
lack of uniformity regarding the meaning of "substantially similar" in
Section 18(b). These respondents indicate that some states still ask for
offering materials (which are not required by Form D) in Rule 506
offerings. Further, some states have indicated the view that filing of a
notice before an offering is "substantially similar" to filing of a notice
within 15 days after the first sale.
106 E.g. , Survey
response of Cadwalader, Wickersham & Taft.
107 Examples of these manuals
include Moody's and Standard & Poor's.
108 Survey response of the SIA.
109 Survey responses of
Sullivan & Cromwell and Skadden, Arps, Slate, Meagher & Flom LLP.
110 Survey response of
BellSouth Corporation.
111 Survey responses of
Sullivan & Cromwell; Douglas Pollitt for Schulte; Roth & Zabel;
Reid & Priest; and Skadden, Arps, Slate, Meagher & Flom, LLP.
112 Many respondents have
raised a particular concern about the New York blue-sky statute, the
Martin Act [Y.Y. Gen. Bus. L. art, 23A, §352 at seq . (1996)]. The
Martin Act does not regulate securities offerings directly, except for
real estate and theater syndications. It does regulate those who
distribute securities, i.e. "dealers." Except for firm commitment
underwritings and non-public sales, issuers in most securities offerings
fall within the definition of dealer, and historically have either
registered on Form M-11 or sought exemption under Section 359-f(2) of the
Martin Act. Many respondents noted the fact that the New York Department
of Law did not consider New York blue-sky law to be preempted by NSMIA.
See Survey response of Rushall & McGeever, above; also see
Mark A. Sargent, Blue-Sky Mysteries of the National Securities Markets
Improvements Act.
113 Survey response of the
Venture Law Group.
This survey
response is not available electronically. It may be found in Comment File
S7-20-97, which may be obtained from the SEC's Public Reference Room: tel.
292-942-8090; electronic mail publicinfo@sec.gov
Surveys prepared by the
Commission staff for Securities Adminstrators, Issuers, Broker-Dealers and
Counsel
NSMIA Uniformity Study
Questions
1. Please generally
describe your state's regulatory approach to the review of securities
offerings, i.e., anti-fraud, full disclosure or merit review. If a
combination of these approaches is applied, please indicate and describe
the approach.
2. Please discuss
your state's approach to the review, if any, of offerings of securities
that are registered in your state. For example, under what circumstances
does your state review and comment upon offerings that are required to be
registered under the Securities Act of 1933 and those offerings that are
exempt from the registration requirements of that Act. Please discuss
whether your state allows registration by coordination or qualification,
or both. When commenting, please discuss the timing of issuance of
comments. Please describe any areas in which your state does or does not
comment.
3. Please discuss
your state's approach to the review, if any, of offerings that are exempt
from registration in your state. For example, what, in general, are your
exemptive provisions? Do you require notice filings for exempt offerings?
Do you review and comment upon exempt offerings?
4. Please indicate
whether your state has adopted ULOE or whether it has made changes to the
model ULOE adopted by NASAA.
5. Please list any
NASAA "Statements of Policy" which have been adopted by your state. Please
describe other disclosure standards applied by your state.
6. Does your state
participate, or plan to participate, in a coordinated equity review
program with other states?
7. Has your state
adopted, or does it plan to adopt, SCOR? If yes, is there a SCOR regional
review program in your region? If not, are there efforts to create this
program? Please explain. If there is a program in your region, does your
state participate in the program? If yes, please discuss your experience
with the program.
8. Has your state
adopted, or does it plan to adopt, "test the waters?"
9. Please indicate
whether your state exempts offers via the Internet under NASAA's Model
exemption for Internet offers? If not, do you plan to adopt this exemption
or do you otherwise exempt these offers? Please describe the conditions to
any existing or proposed exemption.
10. Does your state
allow, or plan to allow, computer matching networks (e.g., "ACE-Net")
without registration?
11. Has your state
adopted, or does it plan to adopt, NASAA's model accredited investor
exemption?
12. Please describe
any other steps taken, or planned to be taken, to increase uniformity of
your state registration procedures and state exemptions with those of
other states in connection with NSMIA or otherwise.
13. Please make any
additional comments with respect to uniformity of state regulation of
securities offerings that you consider important or matters that should be
considered for the NSMIA Uniformity Study.
NSMIA Uniformity Study
Questions
1. Please tell us
the name of your company. What is its principal business and what markets
are its securities traded upon?
2. Has your company
engaged, in the past two years, in one or more offerings of securities
that are NOT preempted under NSMIA (i.e., securities offerings which
remain subject to state registration and review)?
3. If yes, please
indicate the following for each offering:
Describe the type
of securities offered, (e.g., common stock, debt, asset-backed securities,
etc.).
4.
For each offering, please describe similarities and differences in
treatment by the states. Specific examples would be most helpful. The
areas which you may wish to address include:
5.
Have you noticed changes in state laws or regulations or the manner in
which the states apply their laws and regulations since the adoption of
NSMIA on October 11, 1996? If yes, please describe these changes.
6. Please make any
additional comments with respect to uniformity of state regulation of
securities offerings that you consider important or matters that should be
considered for the NSMIA Uniformity Study.
NSMIA Uniformity Study
Questions
1. Please tell us
the name of your firm or organization.
2. Please tell us
about your securities offering experience during the past two years by
indicating the following for each offering:
OR
[Note: If you have
participated in more than just a few offerings during this time period, a
representative sampling of offerings will suffice.]
3. For each
offering, please describe similarities and differences in treatment by the
states. Specific examples would be most helpful. The areas which you may
wish to address include:
4.
Have you noticed changes in state laws or regulations or the manner in
which the states apply their laws and regulations since the adoption of
NSMIA on October 11, 1996? If yes, please describe these changes.
5. Please make any
additional comments with respect to uniformity of state regulation of
securities offerings that you consider important or matters that should be
considered for the NSMIA Uniformity Study.
Summary of the Survey
Responses (excluding NASAA and the States)
II.
Specific Questions and Responses
Adler Pollock & Sheehan Inc. |
Adler Pollock |
Butler Snow O'Mara Stevens & Cannada, PLLC |
Butler Snow |
Cadwalader, Wickersham & Taft |
Cadwalader |
Jane Katz Crist |
Crist |
Drinker, Biddle & Reath LLP (2 responses) |
Drinker Biddle |
Gardner, Carton & Douglas |
Gardner Carton |
Housley Kantarian & Bronstein |
Housley Kantarian |
Kelley Drye & Warren |
Kelley Drye |
Kirkpatrick & Lockhart |
Kirkpatrick |
Krys Boyle Freedman Scott & Sawyer |
Krys Boyle |
Kutak Rock |
Kutak Rock |
Malizia, Spidi, Sloane & Fisch |
Malizia |
McDermott, Will & Emery (2 responses) |
McDermott |
Pileggi, Pileggi & Pileggi |
Pileggi |
Petillon & Hansen |
Petillon |
Douglas B. Pollitt for Schulte Roth & Zabel |
Pollitt for Schulte Roth |
Polsinelli, White, Vardeman & Shalton |
Polsinelli |
Seward & Kissel |
Seward |
Skadden Arps Slate Meagher & Flom |
Skadden Arps |
Sullivan & Cromwell |
Sullivan |
Reid & Priest |
Reid |
Rushall & McGeever |
Rushall |
Venture Law Group |
Venture |
Waller Lansden Dortch & Davis |
Waller Lansden |
Wohlforth, Argetsinger, Johnson & Brecht |
Wohlforth |
Argent Securities, Inc. |
Argent |
Capital West |
Capital West |
Federated Investors |
Federated |
Hanifen Imhoff Clearing Corp. |
Hanifen |
Lloyd Wade Securities, Inc. |
Lloyd Wade |
McFarland, Grossman & Co. |
McFarland |
Millennium Financial Group, Inc. |
Millennium |
J.C. Bradford & Co. |
J.C. Bradford |
Josephthal Lyon & Ross Inc. |
Josephthal |
Paragon Capital Corp. |
Paragon |
PaineWebber Inc. |
PaineWebber |
Paulson Investment Company, Inc. |
Paulson |
RAF Financial Corp. |
RAF |
Smartwood Hesse Inc. |
Smartwood |
Spelman & Co., Inc. |
Spelman |
ARCO Chemical Company |
ARCO |
Asia Satellite Telecommunications Co., Ltd. |
Asia Satellite |
BA Mortgage Securities, Inc. |
BA Mortgage |
Bank of America |
Bank of America |
BEA Systems, Inc. |
BEA Systems |
BellSouth Corp. |
BellSouth |
BIORA AB |
BIORA |
Biosense Inc. |
Biosense |
Bouygues Offshore |
Bouygues |
Bowlin Outdoor |
Bowlin |
Cragar Industries, Inc. |
Cragar |
Cross-Continent Auto Retailers Inc. |
Cross-Continent |
Daimler-Benz |
Daimler-Benz |
Digitale Telekabel Aktiengesellschaft |
DTA |
Eltek Ltd. |
Eltek |
Exigent International, Inc. |
Exigent |
First Mariner Bancorp, Inc. |
First Mariner |
FirstSpartan Financial Corp. |
FirstSpartan |
Four Media Company |
Four Media |
Infonow Corp. |
Infonow |
Independent Capital Trust I (by Elias Matz Tiernan) |
Independent Capital |
Irwin Financial Corp. |
Irwin Financial |
GS Financial Corp. |
GS Financial |
General Bearing Corp. |
General Bearing |
Keystone Financial Inc. |
Keystone |
Kideo Productions, Inc. |
Kideo |
Kilroy Realty Corporation |
Kilroy |
Maxim Pharmaceuticals, Inc. |
Maxim |
Mechala Group Jamaica, Ltd. |
Mechala |
Medical Manager Corp. |
Medical Manager |
Mentor Funds |
Mentor Funds |
Metro Information Services, Inc. |
Metro |
Metropolitan Mortgage & Securities Co., Inc. |
Metropolitan Mortgage |
MoneyGram Payment Systems, Inc. |
MoneyGram |
NACI Telecommunications Inc. |
NACI |
Nationwide Advisory Services, Inc. |
Nationwide |
Norwest Asset Securities Corporation |
Norwest Asset |
Obie Media Corporation |
Obie Media |
Old Guard Group, Inc. |
Old Guard |
Powerwave Technologies, Inc. |
Powerwave |
Precision Response Corp. |
Precision Response |
Q Clubs, Inc. |
Q Clubs |
Rambus Inc. |
Rambus |
Rayovac Corp. |
Rayovac |
Simulations Plus |
Simulations |
Strayer Education, Inc. |
Strayer |
Summit Securities, Inc. |
Summit Securities |
Suncoast Motion Picture Company, Inc. |
Suncoast |
Sun Hill Industries, Inc. |
Sun Hill |
TEAMAmerica Corp. |
TEAMAmerica |
TeleTech Holdings, Inc. |
TeleTech |
Telco Communications Group |
Telco |
Trusted Information Systems, Inc. |
Trusted Information |
TV Azteca, S.A. de C.V., P. Manzurb |
TV Azteca |
Versatility Inc. |
Versatility |
Viisage Technology, Inc. |
Viisage |
Westfield America, Inc. |
Westfield |
West TeleServices Corp. |
West TeleServices |
World Heart Corp. |
World Heart |
WMS Industries Inc. |
WMS |
W.R. Grace & Co. |
W.R. Grace |
Securities Industry Association |
SIA |
Boston Stock Exchange |
BSE |
Edward H. Hawkins
Michael Rogawski
Donald Sutherland
On October 11,
1996, the National Securities Markets Improvement Act of 1996 ("NSMIA")
was enacted into law. 1
Title I to that statute relating to "Capital Markets," amended Section 18
of the Securities Act of 1933 ("Securities Act")
2
to include significant provisions that realigned the regulatory
partnership between federal and state regulators. NSMIA amended the
Securities Act to preempt state blue-sky registration and review of
specified securities and offerings. NSMIA also requires the U.S.
Securities and Exchange Commission ("SEC" or "Commission") to conduct a
study and submit a report to Congress by October 11, 1997 on the extent to
which uniformity of state regulatory requirements for securities or
securities transactions has been achieved for securities that are not
preempted under NSMIA (the "Uniformity Study").
3
NSMIA amended
Section 18 of the Securities Act to preempt state blue-sky registration
and review of offerings of "covered securities."
4
The term "covered securities" generally refers to issuer offerings of
securities listed on the New York Stock Exchange ("NYSE"), the American
Stock Exchange ("AMEX") and Nasdaq National Market System ("Nasdaq NMS").
Also preempted are issuer offerings of registered investment company
securities, most exempt securities and many private placements, 5
although the states may still require certain notices and fees for these
offerings. 6
Many issuer securities offerings, however, are not preempted and remain
subject to state regulation. These offerings include, among others:
As part of the
Uniformity Study, the Commission sent out a survey to state securities
administrators, various issuers, broker-dealers and counsel concerning the
extent to which uniformity of state regulatory requirements for securities
or securities transactions has been achieved for securities that are
not preempted by NSMIA (the "Surveys"). 10
The Surveys were also posted on the Commission's Internet Web Site which
also generated responses. In addition, the Commission conducted its own
review of certain blue-sky provisions. The following is a summary of the
responses to the Uniformity Study Survey. This summary does not include
the responses of the state securities administrators or NASAA. The state
responses are summarized separately.
Law firms were
asked to respond to five questions, which were:
Question 1.
Please tell
us the name of your firm or organization.
Question 2
. Please
tell us about your securities offering experience during the past two
years by indicating the following for each offering:
[Note: If you have
participated in more than just a few offerings during this time period, a
representative sampling of offerings will suffice.]
Question 3.
For each
offering, please describe similarities and differences in treatment by the
states. Specific examples would be most helpful. The areas which you may
wish to address include:
Question 4. Have you noticed changes in
state laws or regulations or the manner in which the states apply their
laws and regulations since the adoption of NSMIA on October 11, 1996? If
yes, please describe these changes.
Question 5.
Please make
any additional comments with respect to uniformity of state regulation of
securities offerings that you consider important or matters that should be
considered for the NSMIA Uniformity Study.
a. Question 1.
Twenty-five
law firms and lawyers provided responses to the survey.
b. Question 2.
Nine law
firms reported substantial experience acting as counsel to issuers and
underwriters in securities offerings registered and exempt from
registration under the Securities Act. 11
These firms did not describe specific representative offerings. One
attorney for Kutak Rock (Robert Bunton) indicated his experience was
mainly in securities litigation, not securities offerings. Another three
firms, Skadden Arps, Sullivan and Rushall, did not describe specific
offerings in response to this question.
Four law firms
described Rule 506 exempt offerings as representative offerings. These
offerings were primarily conducted at the state level in reliance upon
state exemptions, including the Uniform Limited Offering Exemption
("ULOE"). These firms were Adler Pollock, Butler Snow, Crist, and Housley
Kantarian. Pileggi indicated that its experience in the past two years was
primarily with private offerings exempt from registration under Regulation
D. Wohlforth also indicated that most of its experience involved offerings
exempt under the Securities Act.
Cadwalader
described one representative offering - an offering of limited partnership
interests in a commodity pool - and offerings of asset-backed securities
generally. The commodity pool offering was registered with the SEC and in
48 states and the securities were not traded on any market. The
asset-backed securities were issued in registered and unregistered
offerings under the Securities Act and sold at the state level under
institutional investor exemptions and through state registration.
Housley Kantarian
described two offerings registered under the Securities Act. The
securities in one offering were quoted on Nasdaq NMS and the issuer relied
on self-executing NMS exemptions in 20 states and registered as an
issuer-dealer in New York. The second offering described by this
respondent was an offering of securities traded on the NASD's OTC Bulletin
Board. The offering was registered in eight states and exempt in several
other states. The issuer registered as an issuer-dealer in New York.
Krys Boyle
described an equity offering by an oil and mining company registered with
the SEC and registered in 14 states. The securities of the issuer were
quoted on the Nasdaq SmallCap market.
Malizia indicated
that it specializes in the financial institution industry and works on
transactional and regulatory matters. This respondent described an
offering of holding company securities in connection with a conversion of
a mutual savings and loan association to a stock association. The
securities were traded on Nasdaq SmallCap market and the offering was
registered in seven states and exempt in five others.
Kirkpatrick
indicated substantial experience in offerings by investment companies
registered with the SEC and with the states. Pollitt for Schulte Roth
indicated substantial experience in offerings by investment companies,
including private investment partnerships. This firm described a pre-NSMIA
closed-end investment company registered under the Investment Company Act
of 1940 (the "1940 Act") whose securities were sold under Rule 506 of the
Securities Act and various state exemptions, including institutional
investor exemptions and ULOE, and a post-NSMIA investment company
registered under the 1940 Act, sold under Rule 506 and registered in
several state jurisdictions.
Polsinelli, while
indicating substantial general experience in securities offerings,
described one offering under Rule 504 which was registered in Kansas and
Missouri.
c. Question 3
Rule 505 Offerings. Four law firm respondents
(Drinker Biddle, Pollitt for Schulte Roth, Venture, and Waller Lansden)
indicated that there is substantial non-uniformity among state exemptions
used in connection with offerings exempt from federal registration under
Rule 505 of Regulation D.
Drinker Biddle
reported non-uniformity among the states with respect to Rule 505
offerings in the following areas:
The
Venture law firm reported that significant non-uniformity remains among
state limited offering exemptions and isolated purchaser exemptions after
NSMIA. This respondent indicated, "[t]he criteria for such exemptions, and
applicable disclosure and filing requirements, vary from state to state.
Special difficulties are posed by pre-transaction requirements that can
have the effect of delaying fast-paced transactions."
Another firm,
Pollitt for Schulte Roth, indicated that there have been few, if any,
changes in the uniformity of treatment for non-covered securities. This
firm indicated that the disparate treatment of Rule 506 offerings before
NSMIA continues with respect to Rule 505 offerings after NSMIA. Waller
Lansden, another law firm, agreed with this response although it noted
that "some states now treat Rule 505 offerings the same as Rule 506
offerings."
Registered
Small Company Offerings. Housley Kantarian noted
that, with respect to small company offerings, there have been no changes
in the number or type of blue-sky filings or the approach by the states
toward these offerings.
Kelly Drye reported
substantial non-uniformity among the states in an offering by a small
company registered under the Securities Act and with 20 larger market
states. This respondent noted a wide variety of reviews with the merit
review states applying non-uniform standards regarding such issues as
cheap stock and escrow requirements. This respondent believes these
different standards may cause withdrawal of state registrations.
Krys Boyle
indicated that, in a registered offering of securities traded on the
Nasdaq SmallCap market, three of 15 states issued merit comments and the
offering had to be withdrawn in two of the three states. Two of the three
states issued comments more than a month after filing and all three sought
to impose suitability or sophistication standards.
In a registered
offering of securities quoted on the Nasdaq SmallCap market, Malizia
reported that, among the seven states in which the offering was
registered, the length of review time differed greatly with some states
taking a month to issue comments. This respondent noted that some states
didn't clear the offering in time and the issuer had to withdraw the
registration in those states.
Small Company
Offering Registration ("SCOR"). Wohlforth reported no
significant differences or delays in state registrations other than one
state which questioned whether the SCOR form could be used for limited
liability company interests.
Polsinelli
indicated that, with respect to a Rule 504 offering registered in Kansas
and Missouri and processed under a joint review agreement, Kansas acted as
the lead state and the review process was extremely professional and
timely.
Asset-Backed
Securities. Cadwalader commented on
asset-backed securities with respect to several issues. Although the
Commission permits the shelf registration of investment grade asset-backed
securities, many states do not recognize shelf offerings. This respondent
noted that several states do not recognize shelf offerings and require
separate filings and fees for each series that is offered under the shelf.
Cadwalader also noted that NASAA's Statement of Policy regarding
asset-backed securities applies in part to investment grade securities
which may add substantial review time and costs to an offering.
Miscellaneous
Areas. Drinker Biddle noted that
NSMIA provides that no filing or fee under state registration requirements
is permitted with respect to securities listed on the NYSE, AMEX or Nasdaq
NMS. This firm indicated that interests in the employee benefit plans of
these issuers, however, are not covered securities, and the states may
require notice and fees under exemptions for these securities.
With respect to the
issuance of securities listed on the NYSE, AMEX or Nasdaq NMS, which are
covered securities under NSMIA, some states are requiring issuer-dealer or
agent registration of the issuer in mergers and acquisitions, noted
Drinker Biddle.
Gardner Carton
reported that, in conduit financings in which a municipal security is
issued to provide funds for charitable entities, partial preemption does
not prevent the states from requiring notice and fees. Gardner Carton also
said that New York has imposed issuer-dealer registration in a merger of a
NYSE-listed company.
Petillon noted that
there are substantial differences among state exemptions for offerings to
existing security holders both as to the availability of and conditions to
the exemptions. Some of these exemptions require notices while others are
self-executing. This respondent also observed inconsistencies among the
interpretation of the 90 day period in the model exemption adopted by most
states.
The Venture law
firm noted that there is still significant non-uniformity in non-covered
securities transactions after NSMIA, including limited offering
exemptions, isolated purchaser exemptions and state exemptions for Rule
701 offerings. This respondent indicated that the availability and
criteria of state exemptions vary with respect to Rule 701 offerings.
Rule 506
Offerings. Adler Pollock noted no
significant differences among the states with respect to Rule 506 except
that New York required the registration of the issuer as an issuer-agent.
Likewise, Butler Snow reported that in Rule 506 offerings, most of the
states follow NSMIA and require notice filings and fees. Most of the
states still require consent to service of process filings. Housely
Kantarian indicated that NSMIA has made a big improvement in uniformity
among the states in Rule 506 offerings. Petillon reported a significant
change in Rule 506 notice filing requirements.
Ten law firms
observed non-uniformity among the states with respect to Rule 506
offerings. These firms were: Cadwalader, Drinker Biddle, Kelley Drye,
McDermott, Reid, Rushall, Seward, Skadden Arps, Venture and Waller
Lansden.
Seward reported
that there remains a lack of uniformity with respect to Rule 506
offerings. This respondent noted differences in the following areas:
Rushall also indicated
differences among Rule 506 offerings. This firm reported that four states
require Form D to be filed in a time period different than Regulation D,
three states require the filing of offering materials, and New York
requires a special state filing, consent to service of process and Form D
before offers and sales can be made in the state.
Cadwalader,
although noting a favorable trend among the states to conform to NSMIA,
observed the following differences:
Drinker Biddle reported that
29 states require filing of Form D in accordance with NSMIA, i.e., no
later than 15 days after the first sale. However, this firm also noted the
following departures from NSMIA:
Kelley Drye noted that
certain states are requiring broker-dealer registration of an issuer or
its personnel in self-underwritten Rule 506 offerings. This firm also
stated that some states are slow to conform with NSMIA's notice and fee
requirements.
McDermott reported
that New York does not comply with NSMIA because it requires the filing of
Form 99 which is not "substantially similar" to Form D. Several other
states continue to request pre-sale filings of Form D notices in Rule 506
offerings. McDermott also noted that the states appear to be more narrowly
construing their broker-dealer exemptions after NSMIA.
Reid reported
substantial diversity among the states in Rule 506 offerings. The
"substantially similar" notice filing requirement in Section 18 is unclear
which has led to non-uniform state responses. Some states still require
pre-sale and post-closing Forms D, and some states require issuers to
register as issuer-dealers although before NSMIA these issuers were exempt
from such registration.
Skadden Arps
reported that certain states are requiring agent registration of an
issuer's employees in Rule 506 offerings. This respondent also noted that
one state requires registration of Rule 506 offerings.
The Venture law
firm noted that New York requires issuer-dealer registration and imposes
notice filing requirements different than Regulation D. This respondent
also indicated that some states are requiring additional forms and
documentation besides Form D.
Waller Lansden said
that Rule 506 offerings are generally uniform except as to timing of
filings and fees. This respondent said that New York does not recognize
federal preemption. It noted that certain states are requiring notice
filings for transactions previously conducted under exemptions which had
no notice requirements.
Investment
Companies. Pollitt for Schulte Roth
indicated that, in the case of an offering by an investment company under
Rule 506, because fees after NSMIA are required on the same schedule as
before NSMIA, issuers made Form D filings and paid fees pre-offer in six
states and pre-sale in 14 states. However, it was noted that some of these
jurisdictions are now requiring notices to be filed after sale. Issuers
also have to register as issuer-dealers in New York.
d. Question 4
Securities That Are Not "Covered Securities". Many commenters observed
differences between the states regarding non-covered securities, including
offerings of Nasdaq SmallCap market securities and other over-the-counter
traded securities, offerings exempt under the Securities Act but
registered with the states, and Rule 505 offerings which are exempt from
registration with the states. These differences are summarized above under
Question 3.
"Covered
Securities". Several respondents cited
differences among the states in treatment of Rule 506 offerings. These
respondents generally noted differences with respect to the type and
timing of filing requirements and requirements for issuer-dealer or agent
registration. These comments are summarized above under Question 3.
Skadden Arps
observed that some states are imposing notice requirements and new or
increased fees with respect to covered securities which are either exempt
securities under Section 3(a) or sold in exempt transactions under Section
4(1), 4(3) or 4(4) of the Securities Act. Nationwide surveys still have to
be conducted to determine the jurisdictions that impose fee requirements
for these covered securities. This respondent asserted that NSMIA permits
the states to impose filing or registration fees only for offerings by
mutual funds and for Rule 506 offerings, not for other types of covered
securities.
In acquisitions,
Venture law firm noted that NSMIA has had some detrimental effect because
the Section 3(a)(10) exemption under the Securities Act based on a state
fairness hearing is no longer available. The unavailability of the
exemption has required registration under the Securities Act.
e. Question 5.
Butler Snow
reported that Rule 504 was generally useless unless issuers were able to
"test the waters" to determine that there is sufficient interest in their
securities to justify the time and expense of registering securities.
Small issuers can not afford state registration if no sales can be made in
a state, argued this respondent.
Polsinelli has
observed an increase in the development of regional registration review
arrangements for SCOR and Regulation A offerings.
Housley Kantarian
advocated extending preemption to transactions with existing security
holders, reorganizations and mergers because some states require fees and
notices for these exemptions although no substantive reviews are performed
by the states. Because no state review is conducted, investor protection
is not heightened.
Three law firms
asserted that small issuers are hurt more than larger issuers by
non-uniformity among state laws. Krys Boyle said small issuers have
limited access to public markets because their offering expenses are
higher relative to the amount of the offering, the states impose arbitrary
rules against small issuers and the inclusion fees for Nasdaq are higher.
Malizia asserted that Nasdaq SmallCap market securities should be covered
securities because smaller companies may spend large amounts on
registration fees only to encounter state delays in processing or
inability to sell the securities. This respondent also recommended that
the states publish tables or charts showing the requirements for each
state exemption. Petillon asserted that non-uniformity results in
substantial delays and significant legal fees for smaller start-up or
developmental stage companies, which can not afford these delays and fees.
Pollitt for Schulte
Roth suggested that the phrase "substantially similar" in Section
18(b)(4)(D) should be clarified that it does not include the state
signature page of Form D. States should clarify that issuer employees
representing issuers in offerings are not agents, as recommended by NASAA.
The term "Qualified Purchaser" under Section 18(b)(3) should be defined to
increase uniformity among state institutional exemptions and for
exclusions from registration for both broker-dealers and investment
advisors.
Polsinelli noted
that state regulation serves an important function in protecting investors
but that the lack of uniformity has created unnecessary costs in raising
capital. This respondent believes that coordinated review programs will
greatly enhance uniformity. This firm also believes that the SEC and the
states should have uniform definitions of securities so that instruments
are treated consistently under federal and state laws.
Sullivan made
several comments on Rule 506 offerings including:
This respondent also said
states should include QIBs under Rule 144A as institutional investors
under their exemptions for these investors and should eliminate notice and
fee requirements for secondary trading in securities of reporting
companies since these securities are "covered securities" in secondary
trading.
Waller Lansden
recommended that Rule 505 offerings be included as "covered securities" in
the same manner as NSMIA treats Rule 506 offerings.
Wohlforth noted
that the SCOR form shows considerable promise for small businesses to
raise capital in a public offering without using a broker-dealer.
Broker-dealers were
asked the same questions as were asked to law firms. Please refer to
Section III.B.1. above for the text of these questions.
a. Question 1.
Fifteen
broker-dealers and the SIA responded to the survey.
b. Question 2
. Eleven
broker-dealers described offerings in which they acted as sole or
co-managing underwriter or placement agent. 12
Some of these offerings were registered under the Securities Act and some
were exempt from registration under Regulation D, Regulation A or Section
4(2) of the Securities Act. Certain securities in these offerings were
traded on the Nasdaq NMS or SmallCap markets, the AMEX, the BSE or the
Pacific Stock Exchange. These offerings were registered in the states or
conducted under available state exemptions, including exchange exemptions.
J.C. Bradford
limited its underwriting activities to offerings of securities either
listed on an exchange or quoted on Nasdaq NMS, in order to qualify for
exemptions from state securities registration.
One broker-dealer,
Federated Investors, limited its sales activities to mutual fund offerings
which were always registered with the SEC and registered in all states
except one, in which a "Blue Chip" exemption was relied upon.
Three
broker-dealers said they had not participated in offerings during the past
two years as an underwriter. 13
One respondent indicated that her experience primarily involved investment
company securities which are covered securities under NSMIA and not the
subject of the Uniformity Study. 14
c. Question 3.
Paragon
observed that the majority of states, except for about 11, review on a
full merit or semi-merit basis. Most states follow NASAA's merit
guidelines. This broker-dealer indicated that it sought to avoid state
review by selling to only persons meeting "super suitability" standards.
Federated
Investors, which deals only with mutual funds, reported that two states
had requested affidavits or letters. The states were informed that they
could not require those documents and the states dropped their requests.
Capital West
reported that, in an offering registered under the Securities Act and in
21 states, ten states required escrow of offering proceeds with various
escrow time periods. The securities in that offering were quoted on the
Nasdaq SmallCap market.
Nine broker-dealers
did not respond or indicated that they had insufficient experience to
respond to this question.
d. Question 4.
Federated
Investors noted that one state substantially increased its fees for mutual
fund registrations following NSMIA. Other changes observed by this
respondent following NSMIA included changes in prospectus filing
requirements with the states and changes in the registration periods.
Paragon Capital
reported that most states after NSMIA require non-merit post-sale filings
in private placements, instead of merit-reviewed, pre-sale filings.
Two broker-dealers
indicated that they had not observed changes since NSMIA. Ten
broker-dealers indicated that they had insufficient experience to answer
this question or gave no response to this question.
The SIA noted that
NSMIA preserves the states' rights to impose fees and notices for most
covered securities and that it is unclear whether those rights extend to
secondary transactions involving covered securities. Because of this
uncertainty, the securities industry has continued to rely on non-uniform
state law exemptions for secondary trading, rather than Section
18(b)(4)(A). The SIA noted that one state has adopted a new statutory
provision requiring filing of a notice and a consent to service of process
and pay a $500 filing fee, among other requirements, in order to rely on
the preemption afforded by Section 18(b)(4)(A). The SIA observed that
state requirements such as the new provision effectively nullify the
federal preemption for these transactions. This respondent also noted that
12 other states have adopted legislation authorizing filing requirements
by rule or order. In addition, the SIA encouraged uniformity among state
exemptions for secondary trading in securities of companies that do not
report under the Securities Exchange Act of 1934.
The SIA also
indicated that new state requirements (regarding notice, other filings and
fees) effectively nullify the preemption provided by Section 18(b)(4)(C)
for certain Section 3(a) securities. In addition, this respondent
expressed concern that the states would attempt to diminish the usefulness
of federal preemption of offers and sales to "Qualified Purchasers" under
Section 18(b)(3) if notices, consents, other filings or fees are imposed
by the states in these transactions.
e. Question 5.
Four
broker-dealers indicated that state registration and review of offerings
is very expensive for small companies. 15
Argent suggested
that securities quoted on the Nasdaq SmallCap market be included as
federally covered securities so that the states would be preempted from
registration of these offerings.
Spelman indicated
that it may withdraw from underwriting offerings of less than $10 million
because of the cost and difficulty in obtaining approval from all
securities regulators.
Eight respondents
did not answer this question or indicated "Not Applicable."
The SIA urged
uniformity among state registration requirements for investment grade,
asset-backed securities offerings and encouraged the states to adopt
NASAA's Statement of Policy for these offerings. The SIA recommended that
the definition of "covered security" be expanded to include rights and
warrants for the purchase of securities listed on the NYSE, AMEX or Nasdaq
NMS. States also should strive to increase uniformity for offerings by
foreign companies. NASAA's World Class Issuer Exemption should be revised
to lessen the exemption's "excessively restrictive criteria."
Companies were
asked to respond to six questions, as follows:
Question 1
. Please
tell us the name of your company. What is its principal business and what
markets are its securities traded upon?
Question 2.
Has your
company engaged, in the past two years, in one or more offerings of
securities that are NOT preempted under NSMIA (i.e., securities offerings
which remain subject to state registration and review)?
Question 3.
If yes,
please indicate the following for each offering:
Describe the type
of securities offered, (e.g., common stock, debt, asset-backed securities,
etc.).
Question 4. For each offering, please
describe similarities and differences in treatment by the states. Specific
examples would be most helpful. The areas which you may wish to address
include:
Question 5. Have you noticed changes in
state laws or regulations or the manner in which the states apply their
laws and regulations since the adoption of NSMIA on October 11, 1996? If
yes, please describe these changes.
Question 6.
Please make
any additional comments with respect to uniformity of state regulation of
securities offerings that you consider important or matters that should be
considered for the NSMIA Uniformity Study.
Nine companies indicated
that they were unable to respond to the survey for
various reasons.
16 An additional 28 companies
indicated that, during the past two years, they had not offered securities
that would be subject to registration and review by the states after NSMIA
and either responded negatively or "Not Applicable" to the remaining
questions. 17
These companies have been excluded from the discussion of the responses
which follows.
a. Question 1
.
Twenty-four companies provided substantive responses to the survey
questions. The securities of one company, BellSouth, were traded on the
NYSE plus a few regional exchanges. One company, Cragar, had securities
traded on the BSE and the Nasdaq SmallCap market. Five companies had
securities quoted on the Nasdaq NMS. 18
The securities of three companies were quoted on Nasdaq (Old Guard, Rambus
and Trusted Information) without specifying whether NMS or SmallCap. The
securities of five companies were quoted on the Nasdaq SmallCap market
(General Bearing, Kideo, Obie Media, Simulations and World Heart) and the
securities of two companies were quoted on the NASD's OTC Bulletin Board
(Exigent and Infonow). Four respondents or their affiliates issued
mortgage- or asset-backed securities that were traded on the
over-the-counter market. These companies were Bank of America,
Metropolitan Mortgage, Norwest Asset and Summit Securities. One respondent
was a mutual fund family whose securities were traded on the
over-the-counter market, Mentor Funds. One respondent was an investment
advisor to mutual funds, Nationwide. First Mariner, a bank holding
company, did not specify the market on which its securities were traded,
if any.
b. Question 2.
Seventeen
of the 24 companies indicated that they had engaged in a non-preempted
offering in the past two years. 19
c. Question 3.
Six
companies described the offering of common equity in an initial public
offering ("IPO") registered under the Securities Act within the past two
years. 20
Three of these offerings were registered in several states; one offering
was registered in four states. One offering of securities approved for
quotation on the Nasdaq NMS which occurred before NSMIA was conducted
pursuant to state registration exemptions based on the Nasdaq NMS listing.
Another four companies described common equity offerings registered under
the Securities Act, although they did not characterize the offerings as
IPOs. 21
Two companies
(BellSouth and Exigent) described offerings of participations or interests
in employee benefit plans that were registered under the Securities Act.
Two companies described offerings registered under the Securities Act of
debt and preferred stock backed by mortgages and other receivables.
Two respondents
described offerings of mortgage-backed pass-through trust certificates
registered under the Securities Act. The offerings of one company were
registered in a number of states. The offerings of the other respondent
were generally exempt from state registration under the Secondary Mortgage
Market Enhancement Act of 1984 or sold under institutional investor
exemptions, except in New York where the offerings were registered under
the New York Real Estate Syndicate Act.
One company
(Infonow) described a selling securityholder offering following a private
placement under section 4(2) of the Securities Act.
Powerwave described
a Section 4(2) private placement offering not registered in any state.
d. Question 4.
With
respect to the IPO common equity offerings, the companies had the
following responses: One company (Cragar) said the states registration
requirements were very different. The time for review varied greatly, from
days to weeks. The comments raised were different based on divergent
disclosure issues and disparate sophistication and suitability
requirements. However, this respondent noted that the issuer undertakings
and representations were not dissimilar. Kideo indicated that New Jersey
had denied secondary trading based on the company's insolvency before its
IPO. Another company, Simulations, said two of 20 states where the
offering was registered required responses. Fees and response times varied
widely. Two IPO issuers did not respond to this question.
One company in the
other common equity offerings noted that certain states requested more
disclosure changes than other states. One company (Obie Media) said the
state requirements were very different. This issuer said some states seem
to approach an offering with the perspective that the offering would never
go effective. Review times were different among the states and the
offering was withdrawn from several states since comments could not be
resolved.
With respect to
state blue-sky regulation of interests in employee benefit plans,
BellSouth noted that one state required registration and one state
required application for an exemption. This respondent indicated that
there was a significant delay in the state registration and exemption
approval process. Exigent said that all states had self-executing
exemptions for offerings in connection with employee benefit plans, except
for one state (Maryland).
Metropolitan
Mortgage and Summit Securities, issuers of debt and preferred stock backed
by mortgages and other receivables, indicated that the states followed
different suitability guidelines and that they do not register in certain
western states due to overly burdensome requirements.
One mortgage-backed
trust certificate sponsor (Norwest Asset) which had registered its
offerings in several states indicated that the states had requested
similar documents and reviewed the filings in timely fashion. The other
issuers (sponsored by Bank of America) were able to rely on exemptions at
the state level except in New York which required registration.
Infonow, which
registered the selling security holder offering, reported that California
had required proof of viability in light of the auditor's going concern
opinion and also required several changes in the company's by-laws. The
company was unable to comply with these requirements and withdrew the
offering from California.
Mentor Funds, a
mutual fund family, indicated that, although most states accept uniform
Form NF, New York does not recognize the date of receipt as the effective
date. Also, two states requested broker-dealer information and one state
required an affidavit that no sales had occurred.
Five companies
reported no significant similarities or differences in response to this
question.
e. Question 5.
One
respondent (Norwest Asset) noted that several states have changed
requirements calling for the filing of final documents or closing reports
in offerings of asset-backed securities. In these offerings, some states
only require notice filings and do not require a review.
One company (Old
Guard) said some states have not revised their statutes and rules for
NSMIA and that it was still necessary to conduct a blue-sky survey to
ensure compliance with state requirements. Two issuers (Powerwave
Technologies and Rambus) noted significant changes from pre-NSMIA
requirements.
One mutual fund
respondent noted the elimination of merit review (Mentor Funds) and
another reported that the majority of states accept uniform Form NF
(Nationwide).
One company noted
that there appears to be an easing of secondary market trading
restrictions (Obie Media).
Thirteen
respondents indicated that there have been no changes since NSMIA. Another
three indicated that they did not have sufficient knowledge and experience
to respond to this question.
f. Question 6.
Exigent
asserted that interests in employee benefit plans should be exempted from
state registration and review by self-executing exemptions, i.e.,
exemptions not requiring notice filings or fees. BellSouth, whose
securities are quoted on the NYSE and are therefore "covered securities"
and exempt from state registration requirements, recommended that
interests in employee benefit plans should be "covered securities" and
exempt from state registration and review if the employer's securities are
"covered securities."
Simulations
asserted that state blue-sky costs decrease the assets of securities
issuers to the detriment of investors. Strayer noted that some states
appear to be motivated economically by requiring fees and filings. This
respondent suggested that all states should follow the same laws with
respect to registration of securities.
With respect to
investment companies, Nationwide recommended that all registration periods
terminate two months following the end of the fiscal year and that fees
should be paid on sales from the previous year. Mentor Funds questioned
whether New York could fail to recognize the date of receipt of Form NF as
the effective date.
Regarding
asset-backed securities, Norwest Asset suggested that the states should be
encouraged not to require closing reports at the end of each reporting
period.
Thirteen companies
gave no response to this question.
The BSE noted the
application of coordinated review procedures by the states after NSMIA.
Mr. Edward Hawkins,
an individual respondent, was formerly the Secretary and a director of
Eyre Trading Group, Ltd., a start-up company which is not a reporting
company and whose securities are traded on the OTC Electronic Bulletin
Board. He indicated that Eyre conducted a Rule 504 offering sold in
Colorado and to foreign nationals in August 1996. He noted some changes in
state blue-sky law since NSMIA but none involving small issuers. Mr.
Hawkins believed that the state laws are "absolutely non-uniform." He
recommended the complete preemption of state blue-sky law except for
intra-state offerings. Michael Rogawksi, M.D., responded as an individual
investor and indicated that the SEC should have solicited investor input
for the Uniformity Study. He indicated that he has participated in
thousand of exempt and non-exempt offerings over the past 15 years. He
advocated that Nasdaq SmallCap securities be exempted from state
registration. In his view, the full disclosure requirements under the
Securities Act provide adequate investor protection. The non-uniformity of
state laws raises the costs of issuers and unnecessarily limits investor's
access to investment opportunities.
Donald Sutherland,
an environmental management systems consultant, indicated that there is an
overall mixed practice of enforcement and knowledge of environmental GAAP
to be followed by reporting companies. A "devolution" in the SEC's
regulatory and enforcement authority to "state bodies will bring about
regional mixed practice and a wider scope for accounting departure."
1 Public Law 104-290, 110
Stat. 3416 (October 11, 1996).
2 15 U.S.C. 77a. et
seq.
3 NSMIA requires the
Commission to "conduct a study, after consultation with the states,
issuers, brokers, and dealers, on the extent to which uniformity of state
regulatory requirements for securities or securities transactions has been
achieved for securities that are not covered securities..." [Section
102(b) of Title I of NSMIA].
4 NSMIA replaced the
pre-existing Section 18 of the Securities Act that preserved the
jurisdiction of the states with a new Section 18 that preempts most state
authority to regulate many securities offerings. With respect to "covered
securities," the states are prohibited from requiring registration or
qualification, from imposing any conditions on the use of any offering
document prepared by the issuer, or engaging in any merit regulation.
5 NSMIA preempts state
registration requirements with respect to certain transactions exempt
under the Securities Act, including (i) transactions exempt under Section
4(1) [15 U.S.C.§77d(3)(1994] (i.e., by persons other than an issuer,
underwriter or dealer) and Section 4(3)(i.e., dealer transactions) [15
U.S.C. § 77 d(3)(1994)] in securities of reporting issuers; (ii)
transactions exempt under Section 4(4) [15 U.S.C. §77 d(4) (1994)] (i.e.,
brokers' transaction); (iii) transactions in securities exempt under
Section 3(a) [15 U.S.C. §77 c(a)(1994)], except for securities of
religious or charitable organizations, securities issued in intrastate
offerings, and municipal securities insofar as they are offered in the
state in which the issuer of such security is located; and (iv) private
placements pursuant to rules issued under Section 4(2) [15 U.S.C. §77d
(2)(1994)] (i.e., transactions exempt under Rule 506 of Regulation D [17
C.F.R. § 230.506 (1996)].
6 NSMIA preserves the
authority of the states to require notice filings and fees with respect to
filings (except for those relating to listed securities), and to suspend
the offer and sale of securities within a state as a result of the failure
to submit a required filing or fee. 15 U.S.C. 77r (c)(2)(1997).
7 17 C.F.R. § 230.504 (1996).
8 17 C.F.R. § 230.505 (1996).
9 17 C.F.R. § 230.251-263
(1997).
10 The Commission prepared
three separate Surveys for state securities administrators, issuers, and
broker-dealers and counsel, respectively. Surveys were sent out to all 51
securities administrators, 1083 issuers, 220 broker-dealers and 587 law
firms. The Commission received responses from 46 securities
administrators, 60 issuers, 15 broker-dealers, 25 law firms, 3
individuals, the Boston Stock Exchange, the North American Securities
Administrators Association ("NASAA") and the Securities Industry
Association ("SIA"). NASAA is an association of securities administrators
from each of the 50 states, the District of Columbia, Puerto Rico, Mexico
and several of the Canadian provinces. The SIA is an association
representing about 700 securities firms, including investment banks,
broker-dealers, specialists and mutual funds. The responses to the Survey
are available for inspection and copying in the Commission's public
reference room. Refer to File No. S-7-20-97.
11 Drinker Biddle, Gardner
Carton, Kelley Drye, McDermott, Pettilon, Seward, Reid, Venture, and
Waller Lansden.
12 Argent, Capital West,
Federated Investors, McFarland, Josephthal, J.C. Bradford, Paragon,
Paulson, RAF, Smartwood and Spelman.
13 Hanifen Imhoff, Lloyd Wade
and Millennium.
14 PaineWebber.
15 Argent, Capital West,
Smartwood and Spelman.
16 ARCO, BA Mortgage,
Biosense, Bowlin, FirstSpartan, Mechala, Q Clubs, Sun Hill, and TV Azteca.
17 Asia Satellite, BEA
Systems, BIORA, Bouygues, Cross-Continent, Daimler-Benz, DTA, Eltek, Four
Media, Irwin Financial, GS Financial, Keystone, Kilroy, Medical Manager,
Maxim, MoneyGram, NACI, Rayovac, Suncoast, TEAMAmerica, TeleTech, Telco,
Versatility, Viisage, Westfield, West TeleServices, Midway and W.R. Grace.
18 Independent Capital, Metro,
Powerwave, Precision Response and Strayer.
19 The companies which
indicated that they had not engaged in offerings were First Mariner,
Independent Capital, Mentor Funds, Metro and Old Guard. Rambus did not
respond to this question.
20 Cragar, General Bearing,
Precision Response, Rambus, Simulations and Strayer.
21 General Bearing, Obie
Media, Trusted Information and World Heart.
The materials in
appendices D, E, and F are not available electronically. They are part of
the hard copy of the Uniformity Study, which may be obtained from
the SEC's Public Reference Room: tel. 292-942-8090; electronic mail publicinfo@sec.gov
The materials in
appendices G and H are not available electronically. They may be found in
Comment File S7-20-97, which may be obtained from the SEC's Public
Reference Room: tel. 292-942-8090; electronic mail publicinfo@sec.gov
http://www.sec.gov/news/studies/uniformy.htm
Modified:06/15/98 |