On February 6, 2008, the Securities and Exchange Commission (the “SEC”) published rule amendments making the electronic filing of Form D with the SEC mandatory. Once filed, the information will be available and searchable on a new online system to be created by the SEC. The SEC also adopted other substantive revisions to Form D which change some of the information required to be disclosed on the form.
Issuers will be able to file information required by Form D in electronic or paper format from September 15, 2008 until March 15, 2009. On March 16, 2009, electronic filing will become mandatory for all issuers. As always, issuers will be required to file Form D within 15 calendar days of the first sale of securities in an offering.
The new online system will allow the SEC to capture and tag data from Form D’s filed electronically, creating an interactive and searchable system available to both the general public and federal and state securities regulators. The searchable system will allow securities regulators and securities self-regulatory organizations (“SROs”) to more effectively monitor private offerings and use the data gathered from Form D as an enforcement tool.
The North American Securities Administrators Association and the SEC are currently exploring a “one stop filing” approach that will enable companies to file Form D information with the SEC and the states they designate in one electronic transaction. “One stop filing,” however, will not be available when electronic filing becomes mandatory in March of 2009.
Issuers will need to obtain the same codes currently required in order to make filings with the SEC’s EDGAR system. These codes may be obtained from the SEC through an online application process.
Revisions to Form D
The SEC also adopted revisions restructuring Form D in connection with the electronic filing requirement. Some of the most important changes are summarized here:
- “Date of First Sale” in the Offering - the rule amendments require issuers to report the “date of first sale” in the offering. The “date of first sale” is the date on which the first investor is irrevocably contractually committed to invest, which, depending on the terms and conditions of the contract, could be the date on which the issuer receives the investor’s subscription agreement or check.
- Offerings Expected to Last Over One Year - the rule amendments require issuers to report whether the offering is expected to last over a year.
- Revenue Range Information – the rule amendments require issuers to either include revenue range information in the Form D filing or choose the “Decline to Disclose” option, which may be used if a private company, such as a hedge fund, considers its revenue range to be confidential information. The revenue range to be provided will be for the most recently completed fiscal year. In addition, if an issuer’s business is not intended to produce revenue, such as a fund that seeks asset appreciation, it may select the “Not Applicable” option. Instead of providing revenue range information, the issuer must provide aggregate net asset value range information, as of the most recent practicable date.
- Clarifying Registration Exemptions – the rule amendments require issuers to provide more specific information on the registration exemption they are claiming in the Form D notice than previously required. As usual, the issuer must identify the exemption being claimed from among Rule 504, Rule 505, Rule 506 and Section 4(6), as applicable. The amended rule demands additional specificity, requiring the issuer to identify the specific paragraph or subparagraph of any Rule 504 exemption being claimed, as well as any specific paragraph of Investment Company Act Section 3(c) that the issuer claims for an exclusion from the definition of “investment company” under the Investment Company Act.
- Amendments of a Previously Filed Form D – the rule amendments state that amendments to a previously filed Form D are required in three specific instances only:
- To correct a material mistake of fact or error in the previously filed notice (as soon as practicable after discovery of the mistake or error).
- Annually, on or before the first anniversary of the filing of the Form D or the filing of the most recent amendment, if the offering is continuing at that time.
- Subject to several exceptions, to reflect a change in the information provided in a previously filed notice (to be filed as soon as practicable after the change).
A few common examples of changes in information that do not require an amendment include changes to minimum investment amount, if the change is an increase, or if the change, together with all other changes in that amount since the previously filed notice, does not result in a decrease of more than 10%; changes to an issuer’s revenues or aggregate net asset value; and changes to the amount of securities sold in the offering or the amount remaining to be sold.
A number of changes continue to require an amendment. They include the addition of executive officers, directors and promoters in all offerings; there is no exception from this requirement for offerings lasting more than a year. Additionally, annual amendments are due on or before the first anniversary of the most recently filed Form D filing or amendment, if the offering is continuing at that time, rather than each year between January 1 and February 14. And importantly, issuers filing an amendment for any of the three specified purposes will now be required to provide current information in response to all requirements of Form D.
- Multiple Issuer Offerings – The rule amendments now permit filers to identify all issuers in a multiple-issuer offering in one Form D filing. Currently, the Form D instructions do not specify whether all issuers in a multiple-issuer offering can be listed in the same Form D notice or whether each issuer must submit essentially the same notice. The amendments clarify the requirements of this item and eliminate the burden on issuers to file essentially duplicate notices in order to comply with the requirement to file Form D information.
- Identifying 10% Owners as “Related Persons” – Under the rule amendments, issuers are no longer required to identify owners of 10 percent or more of a class of the issuer’s equity securities as “related persons.”
- Description of the Issuer – Under the rule amendments, issuers are no longer required to provide a business description of the issuer. Instead, issuers are classified by industry from a pre-established list of industries.
- Disclosure of Expenses and Applications of Proceeds – The rule amendments remove the current requirement to disclose information on a wide variety of expenses and applications of proceeds. Instead, issuers will be required to report expenses only as to amounts paid for sales commissions and finders’ fees, and to report use of proceeds only as to the amount of proceeds used to make payments to executive officers, directors and promoters.