Mandatory Electronic Filing of Form D Commences on March 16, 2009
Date: February 5, 2013
Issuers offering securities in private placement transactions are required to file a Form D with the Securities and Exchange Commission (the “SEC”) and also often are required to file Form D and other materials with state securities regulators in order to secure a private offering exemption. Traditionally, Form D filings have been paper-based. However, pursuant to new rules adopted by the SEC in February 2008, issuers of securities will be required to file Form D in a new electronic format beginning March 16, 2009.[1]
The new rules also require issuers of pre-existing continuing private placement offerings to update Form D filings using the new electronic format. The deadline to make these updating filings will depend on the date the last filing of Form D was made with the SEC.
Set forth below is a brief overview of Regulation D and a summary of the new electronic filing requirements.
Overview
Form D is the notice required to be filed with the SEC by issuers that have sold securities without registration under the Securities Act of 1933 (the “Securities Act”) in reliance on an exemption from registration under Regulation D.[2]Form D requires an issuer to disclose specific information about itself as well as relevant information about the offering and the exemption claimed. Issuers that rely on an exemption under Regulation D are required to file a Form D with the SEC within 15 calendar days following the initial sale of securities in the exempt offering.[3]
Since the passage of the National Securities Markets Improvement Act of 1996 (“NSMIA”), Rule 506 offerings have been “covered securities” within the meaning of § 18(b)(4)(D) of the Securities Act and thus preempted from state securities registration or qualification requirements. As permitted by NSMIA, many states require the issuer to file a copy of Form D as a notice in connection with sales of securities made in reliance on Rule 506 to investors located in the state, together with a fee and a consent to service of process form.
Filing Electronic Form D with the SEC
On September 15, 2008, the SEC's new Form D electronic filing system became available for electronic filing on a voluntary basis from any computer with Internet access. On March 16, 2009, electronic filing of Form D becomes mandatory.[4]During the transition period ending on March 15, 2009, issuers may continue to make a paper filing using either slightly revised temporary version of current Form D or a paper version of the new electronic form.
To access new Form D, issuers must apply online for access codes to the SEC's EDGAR system, namely (1) a user identification number, called a Central Index Key (“CIK”), (2) a CIK Confirmation Code (“CCC”), and (3) a password. To obtain a CIK, an issuer must file with the SEC (a) a Form ID electronically at https://www.filermanagement.edgarfiling.sec.gov and (b) a signed and notarized document authenticating the Form ID by fax within two business days before or after filing the Form ID.
Once an issuer has obtained a CIK number and EDGAR access codes, an issuer can both submit and amend the Form D through the SEC's EDGAR system. The system requires data field entries in response to discrete requests for each item on the form, and checks those entries for errors and consistency with entries in other fields.[5]For reference, links to instructions and other helpful information accompany most data entry fields. The system also requires that necessary Form D data fields be completed prior to accepting the Form D for filing, thus reducing the possibility of incomplete filings.[6]Before submission, an issuer has an opportunity to verify the accuracy of the information. After submission, the issuer can download and print a copy of the Form D, and EDGAR will indicate receipt of the filing.
The SEC now makes electronic Form D filings available to the public on its Internet site, www.sec.gov, where the data is searchable and downloadable into other computer applications, as is the case with other EDGAR filings. Currently, paper-based Form D information is available only through service providers or by visiting the SEC's Public Reference Room.[7] The public availability of form D filings should become an important new source of information about domestic private offering activity.
State Filing Requirements
In the adopting release, the SEC expressed the hope that the transition to electronic filing will lead to “one-stop filing,” whereby issuers will be able to file Form D information with both the SEC and applicable state agencies in one electronic transmission. The SEC is collaborating with the North American Securities Administrators Association to realize this goal. However, developing a coordinated filing system presents technical and practical hurdles that need to be worked out. In the meantime, issuers will continue to make paper filings of new Form D in most states.[8]
Revisions to Form D Requirements
Electronic Form D requires much the same information as the traditional paper version of Form D, but also requires additional information in a new format. Some of the more notable changes include:
- Permitting filers to identify all issuers in a multiple-issuer offering in one Form D filing.
- Deleting the current requirement to identify as “related persons” owners of 10% or more of a class of the issuer's equity securities.
- Replacing the current requirement to provide a business description of the issuer with one to classify the issuer by industry group from a provided list of industry groups.
- Requiring revenue range information for the issuer, or net asset value range information in the case of hedge funds.
- However, issuers may “Decline to Disclose” that information or to specify that such information is “Not Applicable.”
- Requiring more specific information on the registration exemption claimed by the issuer.
- Unlike the current Form D, there is no option to claim a Uniform Limited Offering Exemption.
- Issuers claiming an exemption from registration as an “investment company” must specify the specific section of § 3(c) of the Investment Company Act of 1940 under which the issuer claims its exemption.
- Requiring reporting of the date of first sale in the offering.
- The instructions to revised Form D provide that the date of first sale is the date on which the first investor is irrevocably contractually committed to invest.
- Requiring reporting of whether the offering is expected to last over one year.
- Specifying that an amendment to a previously filed Form D is required:
- To correct a material mistake of fact or error in the previously filed notice;
- Where there has been a material change in information provided in a previously filed notice (with some exceptions[9] ); or
- 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.
- An issuer must update all of the information on new electronic Form D whenever an amendment is filed, regardless of the reason for the amendment.
- Limiting reporting of the minimum investment amount accepted in the offering to the amount accepted from outside investors, so as not to adversely affect employee stock ownership incentive plans.
- Requiring Central Registry Depository numbers for both individual recipients of sales compensation and associated broker-dealers.
- Replacing the current requirement to disclose information on a wide variety of expenses and applications of proceeds with one to report:
- Expenses only as to amounts paid for sales commissions and, separately stated, finders' fees; and
- Use of proceeds only as to the amount of proceeds used to make payments to executive officers, directors and promoters.
- Replacing the current federal and state signature requirements with a combined signature requirement, including the issuer's: (i) commitment to provide offering documents to regulators on request (subject to applicable law); (ii) a consent to service of process; and (iii) certification that the issuer is not disqualified by rule from relying on a claimed exemption.
What to Do?
Since electronic filing of Form D is mandated by March 16, 2009, issuers that have ongoing offerings or that are contemplating a private offering should be preparing for this new requirement, including obtaining all necessary EDGAR filing codes if they have not already done so.
The annual amendment requirement represents a major change to Regulation D. Many issuers have never filed amendments to their Old Form D's, on the basis that there have been no “material change” triggering such filings. Due to the fact that Electronic Form D filings pose a number of potential challenges to issuers and, in particular, hedge funds and other private issuers effecting continuing offerings (for example, coping with the EDGAR system), issuers with continuing offerings should contact counsel in order to ensure that a Form D amendment is filed on a timely basis.
1. Securities Act Release No. 8891, (Feb 6, 2008), File No. S7-12-07, available at www.sec.gov/rules/final.shtml.
2. The SEC requires an issuer to file a Form D for the exemptions under Rules 504, 505, and 506 of Regulation D and Section 4(6) of the Securities Act.
3. While not a condition to an exemption under Regulation D, Rule 503 of Regulation D requires the filing of Form D. As of March 16, 2009 the SEC will require an amendment to Form D updating all the information on the form at least once a year for offerings lasting more than one year. Because of this requirement, all issuers making ongoing offerings that have not filed a Form D with the SEC in the previous year are required to file an amendment on new electronic Form D no later than March 16, 2009.
4. Regulation S-T has been amended to make hardship exemptions unavailable for Form D filings.
5. For example, an issuer claiming an exemption under Rule 505 or 506 in response to Form D Item 6 that specifies more than 35 non-accredited investors in response to Item 14 will receive a warning message from the system that only 35 non-accredited investors are permitted under those offering exceptions.
6. An issuer has only one hour after completing the data entry to make the filing.
7. The SEC is in the process of uploading PDF versions of previously filed Form Ds to the EDGAR system.
8. In Maryland and Virginia, issuers will continue to make paper filings. Since new electronic Form D continues a consent to service of process, there should no longer be a need to file a Form U-2 in most states.
9. Securities Act Release No. 8891 at 32. An amendment will not be required solely because and issuer wishes to file with an additional state or states.
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