On December 11, 2007, the Securities and Exchange Commission (“SEC”) adopted revised rules that will modernize and simplify Form D. These revised rules also will require the electronic filing of all Forms D through a new web-based filing system.
Regulation D was adopted in 1982 to facilitate capital formation by smaller companies, although companies of all sizes now take advantage of Regulation D. Regulation D is a series of safe harbors that allow companies to issue securities in a private placement without complying with the registration requirements of the Securities Act of 1933. Securities Act Rule 503 requires companies taking advantage of Regulation D to file with the SEC a Form D no later than 15 days after the first sale of securities is made in reliance on Regulation D. Currently, all Forms D are filed in paper, but they are not confidential and are open to review by anyone requesting a copy. As such, Forms D have been used by commercial information vendors to monitor the venture capital and private equity markets. For the most part, the SEC has used Forms D to monitor trends in the private placement market. Since Form D is also a uniform notification form for state securities regulators, state securities regulators have used Forms D to monitor the sales of securities within their states. Approximately 95 percent of all Forms D are filed by private companies.
Revised Form D
ontent – Revised Form D would retain the requirements to provide basic identifying information about the offering, the issuer and its executive officers, directors and promoters. However, there are a few significant changes. Issuers will now be required to identify their industry group from a list of pre-selected choices, rather than providing their own business description, and to specify the amount of revenue they generate. Issuers will be required to provide information about the offering, including:
- The specific Regulation D exemption claimed for the offering;
- The date of the first sale of securities as part of the offering;
- The duration of the offering;
- The types of securities offered;
- Whether the offering is being made in connection with a business combination;
- The minimum investment amount for outside investors;
- Total offer and sale amounts;
- Sales commissions and finders’ fees; and
- Whether sales will be made to persons who do not qualify as accredited investors. Issuers will also be permitted to include a limited amount of “free writing” to clarify their responses to these items.
Revised Form D will no longer require issuers to identify their ten percent stockholders; to specify the expenses of the offering (other than sales commissions and finders’ fees); or to specify the use of the proceeds from the offering (other than proceeds to be used as a payment to a related person). The SEC has also clarified and expanded the events that trigger the filing of an amendment to a previously filed Form D.
Electronic Filing – Beginning September 15, 2008, issuers will be permitted to file their Forms D electronically on a voluntary basis as part of a six-month phase-in period. Beginning March 16, 2009, all issuers will be required to file their Forms D electronically. Issuers will file their Forms D through a new web-based filing system that will not require issuers to use the complicated filing software that is needed to file documents through the SEC’s EDGAR filing system. Forms D filed electronically will be available to the general public through the SEC’s website and will be searchable. The SEC is working with the North American Securities Administrators Association to link the SEC’s Form D website with each state’s securities regulator to eliminate the need for issuers to file Forms D with both the SEC and with state regulators.
The SEC expects that electronic filing will provide more useful information about the private securities markets. The SEC’s new filing system will tag data submitted on Forms D and will include search features that will allow the public to gather significant information about the private securities market. The SEC’s hope is that this data will allow researchers to conduct studies that will ultimately make the securities markets more efficient. However, electronic filing will greatly reduce the ability of an issuer to keep an ongoing offering confidential after the Form D is filed. For issuers that are followed by the press or are in newsworthy industries, electronic filing could result in unwanted publicity for a private offering.
Recognizing concerns about whether the filing of a Form D during the pendency of an offering would constitute general solicitation or general advertising, which are, for the most part, prohibited in Regulation D offerings, Rule 502 was amended to include a safe harbor from the prohibition against general solicitation for the electronic filing of a Form D.
The SEC also believes that “one stop filing” with the SEC and the states will reduce the time, effort and expense of filing Forms D with multiple state securities regulators while enhancing the ability of state securities regulators to monitor securities transactions, possibly increasing their ability to bring enforcement actions. In August 2007, the SEC proposed rules that would revise and update a number of aspects of Regulation D. The SEC is expected to act on these proposed rules in early 2008. It remains to be seen how the modernization of Form D will mesh with the amendments to Regulation D itself.
The revisions to Form D will become effective September 15, 2008, and the electronic filing phase-in period will begin that day.