Blue Sky Filings
Best Practice Summary
for Certain Exempt Transactions

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Blue sky laws are state securities laws that require issuers of new securities (whether stock, warrants, options, debt or partnership or LLC interests) to register the offering of such securities with the state and provide certain financial details so that investors can make investment decisions based on complete and trustworthy information. Analysis of blue sky filing requirements can be complex. The governing blue sky law for each sale of securities is the state of residence of the investor, not the issuer. The blue sky laws of each state in which a sale is being made must be analyzed carefully to determine if a blue sky filing is necessary, or if the offering needs to be limited in any way. Please note that many provisions of blue sky laws have been preempted by the National Securities Markets Improvement Act of 1996 (NSMIA) and that most offerings that comply with Regulation D under the federal Securities Act of 1933 will be exempt from registration in all states, although the states may continue to impose filing and fee requirements.

THE INFORMATION WHICH FOLLOWS APPLIES ONLY TO TRANSACTIONS THAT ARE EXEMPT UNDER REGULATION D.

IF THE ISSUER IS RELYING ON RULE 504 OR RULE 505, FILINGS MAY BE REQUIRED AS MUCH AS TEN (10) BUSINESS DAYS IN ADVANCE OF ANY SALE IN CERTAIN STATES.

State filing requirements generally include a Form D (the entire form including the Appendix is generally filed with the states, while the SEC receives pages 1-5 only), Form U-2 and a state-specific filing fee. Some states may require a state-specific form in addition to or instead of Form D, and required filings to be made pre-offer or pre-sale rather than post-sale. The text of state securities laws, exemptions and regulations, state securities administrators information, filing fee amounts and state-mandated forms are available online and compiled on LeapLaw's Securities Connection.

Additional resources and case summaries are compiled in CCH’s Blue Sky Law Reporter which is available by subscription as a multi-volume loose-leaf, on Lexis (CCH/CCH SEC) and Westlaw (CCH-BSLR) and in the business edition of the subscription-based CCH Internet Research Network.

Blue Sky-Related Information

The following information will need to be collected from the issuer in order to perform the Blue Sky analysis:

• The federal exemption being relied upon for the transaction.
  
  
• Timing of the transaction (to determine whether or not it is too late to make "pre-offer filings.")
  
  
• Nature of expected purchasers, whether or not they are "accredited investors" under Rule 501 of Regulation D, entities to whom special counting rules may apply under Regulation D, etc.
  
  
• List of potential investors, with residential addresses for individuals or principal places of business for entities, in order to determine applicable state laws.
  
  
• Any investors who are current stockholders.
  
  
• Whether there is a broker-dealer involved in the transaction. If so, lists of states where broker is soliciting sales and states where the broker is registered must be compiled.
  
  
• Contact information for a person at the issuer's office who can answer additional questions.

Private Placement Memorandum and other Documentation

If the offering is made under Rule 505 or Rule 506 of Regulation D to any persons who are not "accredited investors", extensive information about the issuer must be provided to such investors. Such information is typically provided in a private placement memorandum.

A private placement memorandum (PPM) discloses everything investors need to know in order to wise investment decisions. This information will include: the structure of the offering structure, general company information including capitalization, operations and management of the company, SEC disclosures about the shares being offered, potential risks involved, use of proceeds, information on certain transactions that could affect the investor, and investor suitability data. A stock subscription agreement is typically included in the PPM.

A blue sky memorandum is a way of documenting the blue sky treatment for the file and is typically drafted with any transaction, and sometimes brokers want memos in connection with private placements. Blue sky memorandums are very transaction-specific, and the reasons for exemption/registration vary greatly. Generally, memorandums should cover the federal exemption being relied upon, whether there is a broker involved, whether all the investors are accredited, whether advice as to local definition of institutional investors is required, etc.

Subscriptions

In transactions in which the investors will be submitting subscriptions and consideration over a period of time rather than at a single closing, it is necessary to monitor the timing of the receipt of such materials in order to determine the "date of first sale" for both SEC and blue sky purposes, as that date triggers the filing deadlines.

NOTE: Under Regulation D, a sale occurs on the EARLIER of the date of receipt of a signed subscription agreement or date of receipt of consideration, even if the transaction has not yet closed.

Form D Form Preparation, Filing Procedures and Mechanics

• Five (5) copies of Form D (FIRST 5 PAGES ONLY) must be filed with the SEC no later than fifteen days (15) days after the Issuer receives the first signed subscription or consideration for stock.
  
  
• One copy of the Form D must be filed online with the SEC.

Filing Fee: No filing fee is required to the SEC.

Filing Date: The filing date for Form D is either:

(a) the date the Form D is received by the SEC in Washington DC; or

(b) if the Form D is received after the date on which it is due, the date on which the notice was mailed via certified or registered mail to the SEC's Washington, DC office.

State Filing Procedures

• Form D revisions and preparations include:
  

  NOTE: Prior to making state filings in connection with Rule 506 transactions, page 6 of Form D should be modified to indicate that the four statements on that page are subject to NSMIA. You may do this by striking out ALL questions on the state signature page (pg. 6 of the Form D) and inserting a note above the signature block stating:
  
  "Items 1,2,3 and 4 above have been deleted pursuant to the National Securities Market Improvement Act of 1996."

  Appendix Instructions: Fill in the empty box in Column 3 just under the printed heading with "Series A Preferred" or whatever type of securities are being offered and "X" all states where sales were made. Answer "Yes" or "No" in Column 2. Answer Column 4 for each state where sales have been made. DO NOT ANSWER COLUMN 5.
  
  
• Prepare Form U-2; Uniform Corporate Resolutions to be filed within 15 days of first sale.
  
  
• Obtain state fee and filing information and, if necessary, obtain filing fees from client.
  

  Note: Form U-2A, a form of certified corporate resolution, still required in connection with some broker-dealer filings and state applications for registration of securities. It is never required in connection with a Form D, although occasionally, Louisiana is known to ask for it. If required, you may modify the form as necessary to reflect the actual underlying corporate action taken for private placements.

• Any post-offering filings or sales reports required by state securities law.

The forms, along with a cover letter and the applicable filing fees, if any, may be sent via Fedex registered or certified mail, return receipt requested and should include a request of proof of delivery, such as a prepaid reply envelope and extra copy of the cover letter that can be date-stamped.

Filing Fees

To determine the fee and to whom the check should be made payable, consult the contact information at LeapLaw's Securities Connection.

New York Requirements:

NOTE: New York requirements (the "Martin Act") are unlike those of any other state and must be carefully reviewed. For offerings relying on Rule 504 or 505 for a federal exemption, filings must be made and approved PRIOR TO ANY OFFER MADE IN NEW YORK. The forms and addresses below are provided for easy reference purposes only.

Offering literature must be included in the M-11 or Form 99 filings. However, there is no NY requirement for such literature to be prepared. If there is none, none need be submitted but it must be stated in that filing that no such literature exists.

For Rule 506 offerings only, send Form D and Form 99 to:

For Securities Offerings, send Form M-11 to:

Department of Law
Bureau of Investor Protection and Securities
120 Broadway, 23rd Floor
New York, New York 10271

Form U-2, NY State Notice and Further State Notice with separate checks for filing fees are sent to: