Beginning on March 16, issuers in limited and private securities offerings are required to file electronically with the SEC new and amended Form D notices pursuant to Regulation D under the Securities Act. The SEC adopted significant amendments to the reporting requirements of Regulation D and related rules in early 2008. A six-month transition period for effectiveness of the amendments, which began on September 15, 2008, has now ended, and compliance with the new requirements is mandatory as of March 16. In addition to requiring electronic filing of Form D through the SEC’s EDGAR filing system, which will provide the public with immediate online access to the notice, the amendments modify the form’s disclosure requirements and require annual amendments and potentially more frequent interim amendments of the Form D information. The electronic filing requirement and related revisions to Form D are described in Release No. 33-8891.
Rule 503 under Regulation D requires an issuer to file a Form D notice disclosing that the issuer has sold securities in reliance on a Regulation D “safe harbor” from Securities Act registration for limited and private offerings. (Form D also must be filed for unregistered offerings made in reliance on the exemption contained in Section 4(6) of the Securities Act.) Form D requires specified information about the issuer of the securities and the offering. The company does not forfeit its claim of an exemption for an offering if it fails to file the Form D or fails to file the form in a timely manner. Rule 507 of Regulation D, however, disqualifies an issuer from using a Regulation D exemption for a future offering if a court enjoins it from doing so because the issuer has violated Rule 503 by failing to make a Form D filing. Although both private companies and issuers subject to Exchange Act reporting requirements must file Form D with respect to limited or private offerings, the SEC indicates that about 95% of the Form D filings in a recent year were made by private issuers.
The revisions to Form D eliminate paper filings of Form D and instead require the form to be filed electronically via EDGAR. The other revisions modify the Form D disclosures and overhaul the form’s amendment requirements to specify annual amendment filings for continuous offerings and amendment triggers that may require interim amendments to be made earlier or more frequently than under the previous reporting regime.
Electronic Filing of Form D
All initial filings of Form D and amended filings of Form D previously made in paper format must now be made electronically through the SEC’s EDGAR filing system. To file, each issuer must have obtained the standard EDGAR access codes, which are requested by application to the SEC, as described in the adopting release for the Form D amendments. The required codes include a user identification number, called a Central Index Key (CIK) code, and a confirming code, called a CIK Confirmation Code (CCC), for validation. Issuers subject to Exchange Act reporting requirements must use their regular EDGAR access codes. Non-reporting issuers should obtain the codes well in advance of any required filing to avoid a filing delay. Non-reporting issuers that previously filed Form D in paper format already have been issued an SEC-assigned CIK code, but still must obtain the CIK Confirmation Code before they can file the form electronically. To authorize their counsel and other persons to sign Form D electronically on their behalf, issuers must submit a manually signed power of attorney, which should accompany the filer’s application for the EDGAR access codes.
To access and file a Form D through the online EDGAR system, issuers will log on to the system and enter the data specified in the form. The issuer will have an opportunity to correct errors and verify the accuracy of the information before submitting the filing. Links will be available to enable the issuer to access information, such as the instructions to Form D. The issuer will be able to download and print the filing before and after submission. Once the filing is submitted, the system will indicate receipt of the filing. The unique number assigned to the submission, called an accession number, will follow in an e-mail notification to the filer.
Once filed, the Form D notice will be accessible on the SEC’s public web site at www.sec.gov. Because the online filing system will automatically capture and tag data items, the data will be interactive and searchable. Users will be able to download the Form D information into an existing application or create an application to use the information.
Some commenters on the proposed rule changes expressed concern that the broader public availability of a Form D notice in electronic form could generate investor interest in the reported offering and potentially constitute a form of “general solicitation or general advertising” that is prohibited in most Regulation D offerings by Rule 502(c). The SEC responded to this concern by revising Rule 502(c) to include a “safe harbor” from the prohibition for information provided in a Form D if the issuer makes a “good faith and reasonable attempt” to comply with the form’s requirements. Accordingly, an issuer that complies with the terms of the safe harbor would not violate this prohibition solely because it has filed information about the offering on Form D. Issuers, however, will have to be careful in responding to inquiries about the offering that may result from a filing, since post-filing communications are not covered by the safe harbor and may raise general solicitation issues.
Information in New Form D
New Form D organizes the presentation of information concerning the issuer and the offering around 16 numbered “items” or categories of information. The presentation is intended to reflect the electronic character of the filing and to convey the data in an interactive format. Instructions at the end of the form explain the requirements for each item.
New Form D introduces a number of changes to the identifying and contact information that must be supplied by the filing issuer. In a departure from the old form, the new form permits the identification of multiple issuers in a multiple-issuer offering, such as offerings of debt securities that are guaranteed by the obligor’s affiliate. The new form eliminates some information required by the old form, including identification of “related persons” owning 10% or more of a class of the issuer’s equity securities. The new form also adds some disclosure items, such as information about the issuer’s revenues (or, in the case of hedge funds and other pooled investment funds, net assets), which, however, the issuer may elect not to furnish by checking a “Decline to Disclose” option. The new form replaces the previous requirement to provide a business description of the issuer with a new requirement to classify the issuer by industry from a pre-established list of industries.
The new form contains some noteworthy changes to required information about the offering. Issuers are now required to indicate with more specificity the Securities Act exemption (and for some issuers, the Investment Company Act exemption) on which they are relying, as well as whether the offering will continue for more than one year and whether the offering is being made in connection with a business combination. The new form solicits additional information about the payment of sales compensation, but eliminates a number of the previous disclosures relating to offering expenses and use of offering proceeds.
Revised Form D permits a limited amount of “free writing,” by which the issuer may insert information not required by the form in order to clarify required disclosures. Responses to only five of the form’s 16 items may be supplemented in this fashion.
The new form’s disclosure requirements have resulted in numerous inquiries to the SEC staff. The SEC’s Division of Corporation Finance recently has published guidance regarding a number of these questions to assist filers to complete the form properly, and expects to monitor the need for additional guidance.
Timetable for Initial and Amended Filings
The initial Form D filing will be required within 15 calendar days after the date of an issuer’s first sale in an offering in reliance on a Regulation D exemption (unless the end of the 15-day period falls on a Saturday, Sunday or holiday, in which case the due date will be the first following business day). In its adopting release, the SEC clarified that the “date of first sale” triggering a Form D filing is the date on which the first investor becomes “irrevocably contractually committed” to the investment, which could be the date on which the issuer receives the investor’s subscription agreement or check. As a result, the date of first sale may be earlier than the date on which the initial closing and funding of the offering occurs. Recognizing the compliance concerns some issuers have had in the past concerning the timing of an initial filing, the SEC staff has indicated that issuers may file the form at the outset of an offering even before any sale could be deemed to have occurred.
As amended, Rule 503 now requires (1) annual amendments to Form D for continuous offerings that last more than one year and (2) other amendments if specified events occur.
- Annual Amendments. The Form D must be amended annually, on or before the first anniversary of the initial filing of the Form D or the filing of the most recent amendment, if the offering is continuing at that time. If an issuer’s most recent Form D or Form D amendment for an offering which continues beyond March 16, 2009 was filed with the SEC before March 16, 2008 and the offering is continuing, an amendment was due to be filed on March 16, 2009. An amendment in electronic form is required even if the prior filing was in paper format.
- Other Amendments. Other amendments are required in two circumstances:
- To correct a “material mistake of fact or error” in the previously filed Form D. The issuer must file the amendment “as soon as practicable after discovery of the mistake or error.”
- To reflect a change in the previously filed Form D information in specified circumstances. No amendment is required to reflect (a) a change that occurs after the offering terminates or (b) a change that occurs solely in items of information identified in Rule 503 as not triggering an amendment. An amendment will be required as a result of, among other changes, an increase in the offering size by more than 10% or any change in the issuer’s officers or directors. The issuer must file the amendment “as soon as practicable after the change.”
Regardless of its nature, each amendment must provide current information in response to all of the form’s requirements. Accordingly, although some changes to previously disclosed information may not trigger an amendment, the issuer will have to reflect all changes in the amended filing.
The “hardship exemption” under Regulation S-T is unavailable for Form D filings. The SEC noted, however, that an issuer who has failed to file a Form D in a timely manner because of technical difficulties beyond its control may request the SEC staff to grant an adjustment of the form’s filing date in accordance with Rule 13(b) of Regulation S-T.
Filings With State Securities Regulators
The amendments to Form D have not changed the obligation of an issuer offering securities pursuant to Regulation D to make a claim of exemption from the state securities or “blue sky” laws otherwise applicable to the offering. In addition to being filed with the SEC, Form D is a uniform notification form that can be filed with state securities regulators to claim an exemption. The state regulators, however, have not yet developed electronic filing systems that can accept Form D filings through the Internet. The SEC indicates that, until the states are able to accept electronic filing of the new form, it expects that issuers will submit their filings to the states by mail, overnight delivery, fax or other permitted means, as determined on a stateby- state basis. Although the state regulators generally will accept paper copies of the electronic version of the Form D as filed with the SEC, some states require submission of a manually signed (rather than an electronically signed) version of the form. Only some of the states have abandoned the requirement that issuers file a supplemental U-2 form for consent to service of process, even though new Form D contains substantially the same undertaking as the U-2 form. In addition, the state regulators have not uniformly adopted the SEC’s annual amendment filing requirements, and many states do not require amendment filings at all. Because of the potential state-law implications of the new SEC requirements, and the possibility of changes to existing state filing requirements, it will continue to be important for issuers to consider blue sky requirements early in the offering process to ensure compliance at the state as well as federal level.