SEC Adopts Revised Form D and Requires Electronic Filing

The Securities and Exchange Commission (SEC) recently published amendments that revise the disclosure requirements and mandate the electronic filing of Form D.[1]Among other things, the rule amendments, issued on February 6, 2008, (1) revise Form D to obtain information related to continuous offerings, such as the date of first offering and the expected length of offering, (2) clarify when amendments are required for Form D, (3) require annual amendments of Form D for continuing offerings regardless of when the initial filing was made, and (4) require the electronic filing of Form D on a new online filing system. Issuers may voluntarily file Form D electronically beginning September 15, 2008, and will be required to file Form D electronically using the revised version beginning on March 16, 2009. Until March 16, 2009, issuers may continue to make paper filings using the current version of Form D. Any person who files a Form D using the revised form after September 15, 2008, will be subject to the new amendment rules for such Form D filing.  

Revised Form D

Issuers may begin using the revised Form D on September 15, 2008, and are required to use the revised Form D beginning March 16, 2009. Revised Form D will solicit the following additional information—

  • the date of first sale of the offering
  • the Central Registration Depository (CRD) number, if applicable, for each person who has acted as a promoter of the issuer’s securities within the past five years
  • whether the offering is expected to last more than one year
  • the revenue range for the most recently completed fiscal year or the net asset value as of the most reasonably practicable date (the issuer may elect not to provide)
  • the minimum offering amount
  • the provision of Regulation D and, if applicable, the Investment Company Act of 1940, as amended (ICA), on which the issuer is relying for the offering and its business
  • expenses relating to sales commissions or any amounts paid to directors, officers or promoters out of the proceeds of the offering of securities
  • information for multiple issuers, if applicable, if engaging in a combined offering
  • the type of business carried on by the issuer.

The SEC also revised Form D to remove the requirement to report owners of 10 percent of the securities of an issuer and offering expenses, except as mentioned above. See Appendix A for an item-by-item comparison of the revised Form D versus the current Form D.

Revised Form D will include a revised signature block, which will combine the current federal signature block with the state signature block, and a truncated consent to jurisdiction, which may reduce the filings that will need to be made with state securities authorities if such authorities participate in the state electronic filing system, as described under the heading “Electronic Filing of Form D” below.

 

Amendments to Form D

The SEC also amended Rule 503 of Regulation D and the instructions to Form D to clarify the requirements for amending a previously filed Form D. Currently, Rule 503 requires an amendment to Form D if there has been a material change to previously filed information. Amended Rule 503 will require issuers in continuing offerings, such as hedge funds that do not close to new investment, to file updating amendments every year during the continuation of the offering. Such updating amendments must be filed on or before the anniversary of the earlier of the filing of the initial Form D or the latest amendment regardless of what information has changed. The requirement to file an annual updating amendment will apply to all continuing offerings irrespective of whether or not the offering commenced before the effectiveness of the rule amendments. If an amendment to Form D is required, the issuer will be required to provide current information and amend and restate the entire Form D related to the offering.

In addition, issuers may be required to amend their Form D more frequently than annually. Amended Rule 503 and the instructions to revised Form D state that an amendment is required as soon as practicable after (1) discovery of a material mistake or error or (2) a change in the information provided in the previously filed Form D. In a change from the prior requirements, an amendment is not required to be filed as soon as practicable for changes that fall within certain specific exceptions[2] (or if the offering has been terminated).

Note, however, that while the specified exceptions provide relief from filing an amendment as soon as practicable, the exceptions are very limited in scope and provide a bright-line test for when such an amendment is required. For example, a decrease of the minimum investment amount by no more than 10 percent or an increase of the minimum investment amount would not require an amendment of a previously filed Form D, but a decrease of the minimum investment amount by more than 10 percent would, by negative implication, require an amendment to be filed as soon as practicable after such change.

Any person who files Form D electronically or who files using the revised Form D after September 15, 2008, will be subject to the new amendment rules for such Form D filing. Any person filing the current version of Form D on paper will be able to follow amendment rules that are substantially similar to the current rules until March 16, 2009.

 

Electronic Filing of Form D

Beginning September 15, 2008, issuers may file Form D electronically with the SEC on a new online filing system that the SEC is developing. Issuers claiming an exemption under Regulation D will be required to file Form D electronically with the SEC beginning March 16, 2009.

To file a Form D electronically, issuers will use the same Central Index Key (CIK) and CIK Confirmation Code (CCC) codes that they currently use in connection with the SEC’s Electronic Data Gathering, Analysis, and Retrieval (EDGAR) system for Schedule 13D/G or Form 3, 4 or 5 filings. If an issuer does not have CIK and CCC codes, it will need to request the codes by using the SEC Form ID.

The SEC is coordinating with the North American Securities Administrators Association (NASAA) to allow filing of Form D and payment of related fees electronically with state securities authorities through a website linked with the SEC’s new online filing system. Until the state electronic system is completed, issuers will have to file the Form D electronically with the SEC and mail a printed copy of the Form D to the appropriate state securities authorities.

 

Conclusion

The SEC’s amendments to Form D and the requirement that Form D be filed electronically will have a significant impact on compliance procedures for private placements by hedge funds and private equity funds. Among other things, the amendments will require issuers to report the date of first offering, the CRD number of promoters, minimum offering amounts and, if applicable, the exemption from the ICA on which the issuer relies. In addition, funds that are open to new investment will need to monitor changes to their offering terms in order to determine if an amendment is required as soon as practicable after such change or if the change will need to be reflected on the annual amendment.

After electronic filing of Form D becomes mandatory on March 16, 2009, regulators and the public will be able to easily view and search Form Ds. To prepare for electronic filing, issuers should ensure that the existing Form D contains updated information. Issuers should also obtain filing codes from the SEC so they are ready to file Form D electronically.

 

Appendix A

 

Revised Form D Current Form D
Item No. Information Required Item No.

[3]

Difference between Current Form D and Revised Form D

1.

Name and previous name of each issuer, jurisdiction of formation, type of entity and year of formation for each issuer.

A.1.

Current Form D requires the month and year of formation and allows estimation of formation year. Current Form D does not allow for multiple issuers to use the same form.

2.

Address of principal place of business and telephone numbers for each issuer.

A.1.

Current Form D requires both the address of the executive offices and the principal place of business and does not allow multiple issuers to use the same form.

3.

Name and address of each executive officer, director or promoter.

A.2.

Current Form D requires the name and address of beneficial owners of more than 10 percent of the voting securities of an issuer.

4.

Industry group (chosen by dropdown).

A.1.

Current Form D requires a “brief description of business.”

5.

Revenue range for all issuers other than hedge fund issuers and net asset value range for hedge fund issuers (may decline to disclose).

--

Not required on Current Form D.

6.

Federal exemption(s) and exclusions claimed, including Rule 504(b)(1), 504(b)(1)(i), 504(b)(1)(ii), 504(b)(1)(iii), 505, 506 or Section 4(6) of the Securities Act, and, if applicable, Section 3(c)(1)-(14) of the ICA.

Top of Form

Current Form D does not require the selection of a sub-paragraph of Rule 504 or the section of the ICA but includes an option for the Uniform Limited Offering Exemption.

7.

Type of filing—new notice or amendment—and, if a new notice is being filed, the date of first sale.

Top of Form

Current Form D allows filing of an amendment but does not require date of first sale.

8.

Whether offering is intended to last more than one year (chosen by dropdown).

--

Not required on Current Form D.

9.

Type of securities offered.

C.1.

Type of securities offered is required, but the aggregate offering price and amount already sold is required for each category of securities.

10.

Whether the offering is made in connection with a business combination transaction, such as a merger, acquisition or exchange offer.

C.1.

Current Form D includes a check box if the offering is an exchange offering.

11.

Minimum investment accepted from any outside investor.

B.2.

Current Form D requests the minimum investment amount accepted from any individual.

12.

Sales compensation recipients, including CRD number, associated broker-dealer, said broker-dealer’s CRD number, street address of recipients and state of solicitation.

B.4.

Current Form D does not request the CRD number of the broker-dealer or the associated firm.

13.

Total offering amount (with a check box to indicate if amount is indefinite), total amount sold and total remaining to be sold (with a check box to indicate if amount is indefinite).

C.1.

Current Form D does not allow an issuer to check that an offering is indefinite and requires offering amounts for each type of security being sold.

14.

Check box if securities have been or may be sold to non-accredited investors, the number of non-accredited investors that have already invested and the total number of investors that have already invested.

B.1. and Appendix.

Current Form D requires the number of accredited and non-accredited investors by state.

15.

Sales commissions and finder’s fees (with a check box to indicate if number is an estimate).

C.4.a.

Current Form D also requires expenses allocable to transfer agents, printing costs, legal fees, accounting fees and engineering fees.

16.

The amount of gross proceeds used or to be allocated to executive officers, directors or promoters. The issuer may indicate if such number is an estimate and provide further explanation.

C.4.a.

Current Form D also requires expenses allocable to transfer agents, printing costs, legal fees, accounting fees and engineering fees.

Signature Block

The issuer undertakes to provide offering materials to state securities administrators and federal regulators upon request, appoints the SEC or the appropriate state officer as agent for service of process and certifies that the issuer is not disqualified from relying on Rule 505 if applicable. Notes to signature block clarify that state securities administrators cannot routinely require the provision of securities offering materials unless fraud is suspected.

D. and E.

Current Form D does not include an undertaking to provide offering materials to federal government for offering other than Rule 505 offerings nor does it include a consent to jurisdiction. Current Form D does not clarify the ability of state securities administrators to require offering materials.

 

 

 


 

[1] Form D is the notice that issuers file with the SEC to notify the SEC of a private placement or limited offering of securities in reliance on Regulation D under the Securities Act of 1933, as amended. Form D are also filed with state securities authorities as notice filings under state securities laws, also known as “Blue Sky” laws.

[2] A change in the following information does not necessitate the filing of an amendment as soon as practicable after the change: (1) the address or relationship of the issuer to an executive officer, director or promoter identified in Form D, (2) the issuer’s revenues or aggregate net asset value, (3) the minimum investment amount, if the change is an increase, or if the change does not result in an aggregate decrease in minimum investment amount of more than 10 percent, together with all other decreases, (4) any address or state of solicitation, (5) the total offering amount if the change is a decrease, or if the change does not result in an aggregate increase in the total offering amount of more than 10 percent, together with all other increases, (6) the amount of sales commissions, finder’s fees or proceeds of the offering directed to executive officers, directors or promoters, if the change is a decrease, or if the change does not result in an aggregate increase in such amount of more than 10 percent, together with all other increases, (7) the amount of securities sold in the offering or remaining to be sold, (8) the number of non-accredited investors who have invested in the offering so long as an increase does not increase the number to more than 35, or (9) the total number of investors in the offering.

[3] The information contained in the current Form D may correspond to several items in the revised Form D.

 

CONTACT INFORMATION

If you have any questions regarding this topic, please contact:



Mark H. Barth

mbarth@akingump.com 212.872.1065 New York
David M. Billings dbillings@akingump.com 44.20.7012.9620 London
J.P. Bruynes jbruynes@akingump.com 212.872.7457 New York
James A. Deeken jdeeken@akingump.com 214.969.4788 Dallas
Christopher Gorman-Evans cgorman-evans@akingump.com 44.20.7012.9656   London

Barry Y. Greenberg

bgreenberg@akingump.com 214.969.2707 Dallas
Ira Kustin ikustin@akingump.com 212.872.1021 New York
Arina Lekhel alekhel@akingump.com 212.872.8018 New York
Burke A. McDavid bmcdavid@akingump.com 214.969.4295 Dallas
Prakash Mehta pmehta@akingump.com 202.887.4248 Washington, D.C.
Lisa A. Peterson lpeterson@akingump.com 817.886.5070 Dallas
Eliot D. Raffkind eraffkind@akingump.com 214.969.4667 Dallas
Fadi G. Samman fsamman@akingump.com 202.887.4317 Washington, D.C.
William L. Sturman wsturman@akingump.com 212.872.1035 New York
Ann E. Tadajweski atadajweski@akingump.com 212.872.1087 New York
Simon W. Thomas swthomas@akingump.com 44.20.7012.9627 London
Stephen M. Vine svine@akingump.com 212.872.1030 New York