In September 2008, the Securities and Exchange Commission (the “SEC”) adopted changes to Form D and Regulation D that: (1) simplify and restructure Form D and update and revise its information requirements, and (2) mandate the electronic filing of Form D through the Internet. Electronic filings are made through a new online filing system that will be accessible and searchable on the Internet. The new system became available in September 2008, and becomes mandatory for all Form D filings on March 16, 2009.
Below we outline the basics of the new electronic filing requirements, and the substantive amendments to Form D. In addition, issuers making continuous or longer-term (longer than one year) private offerings under Regulation D (e.g., hedge funds, funds of funds, etc.) should note that the new rules require, for the first time, regular annual updates to the issuer’s Form D filing. As a result, issuers currently conducting a Regulation D offering that have not made a Form D filing or amended Form D filing in the year prior to March 16, 2009, will need to make an electronic Form D filing on or before March 16, 2009.
The SEC is mandating electronic filing of the Form D notice through an online filing system that is accessible from any computer with Internet access. The information filed will be available on the SEC’s website, www.sec.gov, and, because the online filing system will automatically capture and tag data items, the data will be interactive and searchable. The SEC website enables users to view the information in an easy-to-read format, download the information into an existing application, or create an application to use the information.
The filing system allows issuers to file their initial Form D and amendments using a fill-in form with built-in guidance functions. Filing requires a Central Index Key (CIK) number (a unique ten digit number assigned by the SEC to electronic filers), and EDGAR access codes (assigned to issuers by the SEC in response to a Form ID request). To obtain a CIK number and receive EDGAR access codes, an issuer needs to submit a Form ID request (see https://www.filermanagement.edgarfiling.sec.gov/, choose “Press Here to Begin” and then “Apply for EDGAR Access (New)” in the top left corner).
REVISIONS TO FORM D CONTENT REQUIREMENTS
While the current Form D is comprised of five sections, designated “A” through “E”, the revised Form D is organized around 16 numbered “items” or categories of information. Instructions at the end of the form explain the requirements for each item. When using the online form, an issuer can access these instructions by clicking directly on particular items or terms. A summary of the key sections of the revised form is set forth below:
Basic Identifying and Contact Information
The SEC has revised Form D to permit filers to identify all issuers in multiple-issuer offerings on a single Form D. It permits, but does not require, business and telephone information for issuers other than the primary issuer in a multiple-issuer offering. Additionally, post office box numbers and “care of” addresses are no longer acceptable as place of business information. The revisions also delete the current requirement that issuers identify as “related persons” owners of 10 percent or more of a class of their equity securities. Finally, the requirement that issuers provide the name of the offering in Form D if the offering has a name has been deleted.
Additional Information About Issuer
The current Form D requires an issuer to provide a description of the issuer’s business, but the new Form D requires issuers to select their industry group from a specified list. Issuers that classify themselves in the industry group “hedge funds” or as pooled investment funds other than venture capital and private equity funds are asked to provide aggregate net asset value information. However, issuers opting to keep that information confidential will be able to choose a “Decline to Disclose” option.
Identification of Claimed Exemptions and Exclusions
The new Form D requires the issuer to identify the specific basis of the issuer’s exemption or exemptions being claimed for the offering.
Indication of Type of Filing – General Requirements
The new Form D requires that a new filing specify the date of first sale, or indicate that the first sale has yet to occur. For this purpose, the date of first sale is the date on which the first investor is irrevocably contractually committed to invest.
Information About Offering
Duration of the Offering. Item 8 requires the issuer to indicate whether it intends that the offering will last over a year.
Type of Securities Offered. Additional categories of securities have been added.
Business Combination Transaction. The new Form D requires the issuer to indicate whether the offering is being made in connection with a business combination such as an exchange (tender) offer, a merger or an acquisition, regardless of the type of offering.
Minimum Investment Amount. The new Form D requires specification of the minimum investment for outside investors only, so as to not adversely affect employee stock ownership incentive plans.
Sales Compensation. The new Form D requires the issuer to provide the CRD number of each person (broker-dealers and registered representatives) receiving sales compensation in the offering, provided the person has a CRD number. The instruction to this item clarifies that the compensation that can result in a reporting requirement can be cash or other consideration; a finder or other person that does not have a CRD number need not obtain one in order to be listed; and, conversely, a finder or other person is required to be listed where called for, regardless of whether the finder or other person has a CRD number.
Expenses and Uses of Proceeds of Offering. The new Form D simplifies the current items requiring information on expenses and use of proceeds by requiring substantially less information. It requires the issuer to provide only the amounts paid for sales commissions and, separately stated, finders’ fees in connection with the offering and the amount of the gross proceeds the issuer used or proposes to use for payments to related persons. The new Form D permits clarifications where necessary to prevent the information provided from being misleading.
Signature and Submission
The new Form D simplifies the filing by combining the federal and state signature requirements currently in Sections D and E of Form D into one signature requirement. It also modifies the state signature by including a consent to service of process.
AMENDMENT OF PREVIOUSLY FILED FORM D
The revisions clarify Form D to address when, how and why an amendment to a Form D may or must be filed. The SEC has revised Rule 503 and the instructions to and description of Form D to require amendments to Form D in the following instances only:
- To correct a material mistake of fact or error in the previously filed notice;
- To reflect a change in the information provided in a previously filed notice;
- To report the addition of executive officers, directors and promoters in all offerings (no exceptions will be provided from this requirement for offerings that last more than a year); and
- Annually on or before the first anniversary of the most recent Form D filing or amendment, if the offering is continuing at that time.
As noted above, beginning after March 16, 2009, all filers of continuous offerings will be required to file annual amendments, regardless of whether the latest filing used the old or new Form D or was filed on paper or electronically. Therefore, filers of continuous offerings whose latest filing or amendment was on or before March 16, 2008, must file an annual amendment by March 16, 2009. Filers of continuous offerings whose latest filing or amendment was after March 16, 2008 must file an amendment on or before the anniversary of the most recently filed Form D filing or amendment.
The revised Rule 503 also requires an issuer that files an amendment to provide current information in response to all requirements of Form D regardless of why the amendment is filed.