09.15.2008

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Updates

Earlier this year, the SEC amended its rules to revise the information required to be furnished on Form D and, after a transition period, to require the form to be filed electronically.

The amendments take effect on September 15, 2008. Electronic filing will become mandatory on March 16, 2009.

Background of Form D

Sections 4(2) and 4(6) of the Securities Act of 1933, as amended, provide a private placement exemption from registration for any offer or sale of a security that does not involve a public offering. Regulation D under the Securities Act, adopted in 1982, is a safe harbor that assures companies that comply with its rules that the exemption is available. Rule 503 of Regulation D requires a company to file Form D with the SEC within 15 days after its first sale of securities.

In designing the 2008 amendments, the SEC's goal was to update Form D by

  • streamlining and clarifying the instructions for filing,
  • making sure the information required to be reported is useful to the SEC and others, and
  • allowing the public easy access to reported information.

Amendments Simplify Form

Completing Forms Will Be Easier. The SEC intends the new Form D to be easier for companies to use. Information requests on the new Form D are accompanied by links to instructions and helpful interpretive information. Many entry fields have drop-down menus or check boxes for easier completion.

Accessing Forms Will Be Easier. Because companies must file Form D electronically, all information filed on the form will be readily available to the public. The data will be interactive and searchable by anyone with Internet access. The amendments include a safe harbor to insulate a Form D filing from Regulation D's prohibition on "general solicitation" and "general advertising." However, the safe harbor is not available if a company uses the filing to create interest in an offering. In part to limit the use of Form D for this purpose, as well as to satisfy the SEC's goal of simplifying use of the form, the new form does not permit footnotes or other free writing except under certain items: Items 3 (Related Persons), 10 (Business Combination Transaction), 13 (Offering and Sales Amounts), 15 (Sales Commissions and Finders' Fees Expenses), and 16 (Use of Proceeds).

Companies Can Revise Forms. Forms must be complete prior to filing. However, a company can download and print the form before and after filing to correct errors and verify information. Following submission, the filing system will confirm receipt and issue a confirmation code.

Practical Tip

The mechanics of the new Form D's signature requirements are the same as for any electronic SEC filing -- a "typed" signature is filed and the issuer is required to retain a manually signed copy of the form for five years. 

SEC Has Changed Reportable Information

The SEC has eliminated some information requirements and added others in an effort to make the information more useful to the SEC's enforcement staff, state regulators, investors, industry participants, journalists and other members of the public.

The following table highlights revisions made by the amendments:

Type of Information (Item Number on New Form D)

Information Required on Current Form D

Changes Pursuant to the Amendments

Basic Identifying Information (Item 1)

Name of issuer, previous names, type of legal entity and issuer's year and place of incorporation or organization

A name for the offering is no longer required; multiple issuers may be identified in one filing

Related Persons (Item 3)

Names of related persons, such as executive officers, directors and promoters

Related persons no longer include owners of 10% or more of a class of the issuer's securities

Business Description (Item 4)

Description of the issuer's business

Description supplied by selection of an industry group from a drop-down list

Revenue Range (Item 5)

Currently not required

The form requests disclosure of the issuer's range of revenues or net asset value from a drop-down list, with "Decline to Disclose" and "Not Applicable" options available

Claimed Exemptions and Exclusions (Item 6)

Identification of the type of exemption being claimed under Regulation D

Issuer must identify the exemption made by checking the box(es) that apply; references to the Uniform Limited Offering Exemption and the state appendix to the federal Form D are eliminated

New Filing or Amendment (Item 7)

Check the box to indicate new filing or amendment

Date of first sale is now required, although reporting "first sale yet to occur" is an option (if chosen, this information must be updated by amendment)

Duration of Offering (Item 8)

Currently not required

Issuer must indicate whether the offering is expected to last more than one year

Type of Securities Offered (Item 9)

Identification of the type of securities being offered (such as debt or equity)

Issuer must specify the type of securities by checking the box(es) that apply

Business Combination Transaction (Item 10)

Currently not required

Issuer must indicate whether the offering is made in connection with a business combination transaction

Minimum Investment Amount (Item 11)

Identification of the minimum investment amount the issuer will accept from each investor

Disclosure is required only for investment by outside investors

Sales Compensation (Item 12)

Information on sales compensation

Issuer must identify recipients and associated broker or dealer

Offering and Sales Amounts (Item 13)

Amount of total sales and total offering amount

Under an SEC interpretation, issuers may estimate the total offering amount if that amount is undetermined at time of filing

Investors; Sales Commissions and Finders' Fees Expenses; and Use of Proceeds (Items 14, 15 and 16)

Number of accredited and nonaccredited investors and information on expenses and use of proceeds

Most offering expenses and uses of proceeds are no longer reportable; issuers must now specify the total number of investors as of the filing date and list or estimate any sales commissions and finders' fees (Item 15) and amount of gross proceeds payable to persons reported under Item 3 (Item 16)

Signature

Federal and state signatures in different sections

Federal and state signature requirements are now combined in one signature block

Electronic Filing Is Not Mandatory Yet

Companies May File Electronically Prior to Deadline. Between September 15, 2008, when the amendments become effective, and March 15, 2009, companies may file the new Form D in either electronic or paper format. Paper filing is not permitted after March 15, 2009.

Practical Tip

While electronic filing is not required until March 2009, companies should begin to file electronically before then to ensure that their EDGAR filing codes provide proper access and to become familiar with the process. A company that does not currently have EDGAR filing codes and an SEC-assigned Central Index Key, or CIK, code can obtain them by (i) filing a Form ID electronically at https://www.filermanagement.edgarfiling.sec.gov and (ii) filing a notarized authenticating document on paper within two business days of filing the electronic Form ID. 

Companies Must File Electronically Following the Deadline.

As part of the final rule release, the SEC amended Regulation S-T to eliminate the current hardship exemption available to Form D filers. A company that makes a good faith attempt to comply with the rule and experiences technical difficulties beyond the company's control may request a filing date adjustment from the SEC. Other delays in electronic filing will not be in compliance with Rule 503.

Practical Tip

As now, Form D must be filed no later than 15 calendar days after the first sale in an offering, unless the end of that period falls on a weekend or holiday, when the period is extended to the next business day. The date of first sale is the date on which the first investor is irrevocably committed to invest, which may be the date on which the issuer receives the subscription agreement or funds. The date of first sale could be when funds are initially deposited in escrow, before the closing of the offering.

SEC Clarifies When Amendments Are Required

The SEC acknowledged a lack of clarity under the current rule as to when a filed Form D requires amendment. To provide guidance, the amendments now make clear that mandatory amendments are required in only three situations:

  • To correct a material mistake of fact;
  • Annually on or before the first anniversary of the Form D filing for offerings that continue for more than one year; and
  • To reflect a change in information previously filed, except that no amendment is required after the offering terminates, and the following information does not require amendment:
    • The address or relationship of a related person;
    • The company's revenues or aggregate net asset value (if the company has opted to report this information);
    • The minimum investment amount if the change is an increase or, if taken cumulatively, a decrease of less than 10% from the originally reported minimum;
    • The address or state of solicitation of recipients of sales compensation;
    • The total offering amount if the change is a decrease or, if taken cumulatively, an increase of less than 10% from the originally reported total offering amount;
    • The amount of securities sold or remaining to be sold;
    • The number of nonaccredited investors that have purchased securities;
    • The total number of investors that have purchased securities; or
    • The amount of sales commissions, finders' fees or payments to executive officers, director or promoters if the change is a decrease or, if taken cumulatively, an increase of less than 10% from the originally reported amount.

Regardless of these exceptions, if an amendment of any kind is required, all reported information must be brought current.

State Filing Requirements Remain Unchanged

The SEC's amendments do not affect any state Form D filing requirements. For state filing information, go to www.NASAA.org. The SEC continues to work with state securities administrators to try to eliminate separate state filings. One solution may be to create a one-stop filing system to allow companies to file Form D with the SEC and the states they designate in one electronic transmission. State securities administrators are also considering establishing a separate electronic filing system that would interface with the SEC's system and collect fees on behalf of the states. At this time, however, state rules regarding separate notification filings are still in effect.

Additional Information

This Update is intended to provide a general summary of the final rule release. You can read the full text of the release at http://www.sec.gov/rules/final/2008/33-8891.pdf. You can find discussions of other recent cases, laws, regulations and rule proposals of interest on our Web site.


 

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