Preparing for Year-End: Securities—Publicly Traded and Privately Held Companies

During this period of turmoil in the financial markets, it is important to remember that a number of key changes to filing requirements, reporting procedures and shareholder-communication rules are scheduled to take effect over the next several months. While some of these modifications will not go into force until the spring of 2009, both publicly traded and privately held companies should begin preparing now in order to ensure that appropriate internal procedures are in place.

Electronic Filing of Form D

In light of the current economic crisis that has dramatically reduced the rate of stock market equity financings, more companies are considering raising funds through private securities offerings. Beginning on September 15, 2008, companies engaging in private offerings were given the option of filing the required report on Form D electronically via the Internet, as opposed to mailing a paper filing to the Securities and Exchange Commission (SEC). On March 16, 2009, electronic filing will become mandatory. Under Regulation D of the Securities Act of 1933, Form D is required to be filed within 15 days after the first sale of a security. Prior to making an electronic filing, issuers will now be required to obtain certain electronic filing codes. In addition, the revised Form D will require some new information, such as disclosure of finders' fees. Accordingly, companies will have to begin the process of preparing Form D further in advance than under the currently applicable rules.

SEC Guidance on Website Postings

In conjunction with the changes described above, the SEC recently issued guidance encouraging the use of company websites to disseminate information to investors. Among other issues, the guidance clarifies the circumstances under which posting information on a website constitutes "public disclosure" under Regulation FD (which generally requires that information must be furnished to the entire marketplace if it is furnished at all). The guidance also contains advice on minimizing liability for information previously published on a website that may be superseded by current information and for third-party hyperlinks. Additionally, it addresses participation by company officers and employees in company-sponsored blogs and electronic shareholder forums.

eProxy Rules

On January 1, 2009, amendments to the rules requiring that publicly traded companies deliver a proxy statement to their shareholders in connection with annual and special meetings will become effective. Known as the "eProxy rules," these amendments require issuers to (a) post proxy materials on a publicly accessible website and (b) mail to shareholders either (i) a notice that the materials are available together with instructions on how to access them or (ii) a full set of proxy materials similar to the traditional method of proxy delivery. Intermediaries such as banks, brokers and other soliciting persons are also required to follow the new rules. Among other issues, the eProxy rules will likely have an effect on a company's ability to achieve a quorum, especially those companies with a substantial number of retail shareholders. Public companies that have not already done so should begin making plans with their web developers and site-hosting vendors to ensure compliance with the specific provisions of the rules. It is also important to review and update company calendars with respect to year-end reporting—including preparation of Form 10-K, the annual report and proxy materials—to ensure adequate time to draft and mail all required documents. Finally, advance notice by-law provisions should be reviewed for consistency with the new timeline.

Communicating with Stakeholders

Very few companies have not been touched by the recent crisis in the financial markets and the repercussions will almost certainly continue to affect businesses in many respects. Publicly traded companies should focus on disclosing not only the impact of these issues on their operations but also potential future consequences to their businesses. These disclosures should be presented as risk factors in Annual Reports on Form 10-K, discussed in the Business and Management's Discussion and Analysis portions of the 10-K, and potentially addressed on issuer websites. Privately held companies may also wish to consider a written communication to their investors to provide reassurance, or at least set realistic expectations for the near future. Of course, any such statements should be accompanied by appropriate cautionary language regarding the provision of forward-looking information.

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