The Securities and Exchange Commission (the “SEC”) has adopted changes to Form D, mandating, among other things, electronic filing of Form D beginning March 16, 2009. In addition to requiring electronic filing, the SEC revised Form D by changing the information required to be disclosed and clarified when a Form D must be amended. This client update summarizes these recent changes.
ELECTRONIC FILING
As of March 16, 2009, both public and private companies will be required to file Form D notices of unregistered offerings electronically. Although the filing system is web-based, prior to filing or amending a Form D electronically, a company must have its own filer identification number (called a “Central Index Key” or “CIK” number) and a set of access codes allowing it to access the SEC’s EDGAR electronic filing system.
Whether a company needs to take steps to obtain a CIK number and EDGAR access codes depends on whether it currently submits SEC filings electronically or has previously filed a Form D or other SEC forms in paper format.
- If a company currently submits SEC filings electronically, it already has a CIK number and EDGAR access codes and can file a Form D electronically using those.
- If a company has not previously submitted SEC filings electronically, but has filed a Form D or other SEC forms in paper format, it already has a CIK number and will only need to apply to obtain EDGAR access codes prior to filing a Form D electronically.
- If a company has never previously filed a Form D or any other filing with the SEC, it will need to apply to obtain both a CIK number and EDGAR access codes.
To apply for a CIK number and EDGAR access codes, a company must complete a Form ID, which provides the SEC with basic information about the company. A Form ID can be submitted electronically at: https://www.filermanagement.edgarfiling. sec.gov/. A company’s CIK number can be obtained by entering the company’s name in the Company Database Search function at: http://www.sec.gov/edgar/searchedgar/ companysearch.html.
Private companies not otherwise required to file reports with the SEC are encouraged to obtain a CIK number and EDGAR access codes in order to be in a position to timely file Form D notices once the requirement to file electronically becomes applicable.
NEW ELECTRONIC FORM D
Although the new electronic Form D includes most of the information currently required in the paper Form D, the new electronic Form D does require some additional information, including:
- reporting the date of first sale (this is defined as the date on which the first investor is irrevocably contractually committed to invest);
- industry group information from a pre-established list (instead of the current requirement for a business description);
- whether the offering will continue for more than a year;
- revenue range information for operating companies and net asset value range information for hedge funds (subject to an option to decline to disclose);
- the specific exclusion upon which the company is relying if the issuer claims an exclusion from being an “investment company” under Section 3(c) of the Investment Company Act of 1940; and
- a CRD (a broker/dealer Central Registration Depository) number to be listed for each person listed on Form D as receiving compensation from the sale of securities, including brokers, dealers and finders, if applicable.
NEW AMENDMENT FILING REQUIREMENTS
Currently, an amendment must be filed to Form D to reflect any “material changes” in information. The new requirements maintain the same level of materiality, but also specify circumstances which are not deemed to be material and thus do not require an amendment. As of March 16, 2009 the SEC will require an amendment to Form D filings in the following circumstances:
- to correct material mistakes of fact or error in a previously filed Form D (as soon as practicable after discovery of the mistake);
- to update information in a previously filed Form D if there have been any changes in that information, other than certain changes specified in the new rules; and
- for ongoing or continuous offerings (lasting more than one year), at least annually on or before the anniversary of the most recent Form D filed with the SEC for that offering.
The last item requires an annual amendment in the case of issuers engaged in ongoing offerings lasting over a year, even if no information has changed on the Form D that otherwise necessitates the filing of an amendment.
Under the new rule no amendment is required for changes to the following:
- the address or relationship to the issuer of a related person identified in response to Item 3 on electronic Form D;
- an issuer’s revenues or aggregate net asset value;
- an increase in the minimum investment amount, or a decrease which, together with all other changes since the last filed Form D is not more than 10%;
- any address or state(s) of solicitation shown in response to Item 12 on electronic Form D;
- a decrease in the total offering amount, or an increase which, together with all other changes since the last filed Form D is not more than 10%;
- the amount of securities sold in the offering or the amount remaining to be sold;
- the number of non-accredited investors who have invested in the offering, as long as the change does not increase the number to more than 35;
- the total number of investors who have invested in the offering; or
- a decrease in the amount of sales commissions, finders’ fees or use of proceeds for payments to executive officers, directors or promoters, or an increase which, together with all other changes since the last filed Form D, is not more than 10%.
Every issuer which has previously filed a paper copy of a Form D with the SEC must make an electronic filing of the new Form D, as an “amendment” to the paper Form D, with current information thereon, by March 15, 2009, if the offering is ongoing at that time, in order to be in compliance with the revised Rule 503 when it becomes effective on March 16, 2009. Thus, issuers which will have, as of March 16, 2009, offerings that have been ongoing for at least one year, must prepare and file an electronic Form D with the SEC, on the new filing system, at some point prior to March 16, 2009 (which date will then set the timing for subsequent annual amendments).
Where an issuer last filed a Form D with the SEC after March 16, 2008, the issuer may be required to file an electronic amendment prior to the anniversary date of such prior filing where there have been changes to information requiring an amendment under the new rules.
IMPACT ON STATE FILING
Prior to the enactment of the new SEC rules, most states required issuers to file manually signed copies of Form D, together with state filing fees and a Consent to Service of Process form. Although the SEC indicated that its new electronic system could also be a one-stop filing center for Regulation D notice filings with the states, only a few states have actually adopted regulations to permit such electronic filing. Currently there is no organized electronic system to coordinate filing of Form D with the states, whether by the SEC online filing system or otherwise. Thus, for the foreseeable future, issuers selling to investors in most states must file electronically with the SEC and make a separate paper filing with the states, using printed-out copies of new electronic Form D. ©2009 Hinc