SEC Revises Form D; Mandates Electronic Filing

Michael L. Hermsen, Partner, Mayer Brown

Form D serves as the official notice of an offering of securities made without registration under the Securities Act of 1933 by either a public or a private company in reliance on an exemption provided by Regulation D. On February 6, 2008, the Securities and Exchange Commission announced that it had revised Form D to simplify and restructure its informational disclosure requirements. The SEC further announced that every Form D would be required to be filed with the SEC electronically through a new online filing system that would be accessible from any computer with internet access, with the data being both interactive and searchable (Release No. 33-8891; 34-57280; 39-2453; IC-28145). This is the first time in almost 20 years that the SEC has revised the Form D requirements.

Effective Date

The revisions to Form D are effective September 15, 2008. Beginning on that date, issuers will have the option of filing Form D either in paper copy or electronically. If a paper form is used, the issuer may use either the current form or a printed version of the new electronic form. Beginning March 16, 2009, every Form D must be filed with the SEC electronically.

Revisions to Form D

The revisions are intended to ease the costs and burdens of preparing and filing a Form D by streamlining and updating the disclosure requirements. Currently, Form D requires presentation of preliminary and other information in five sections. The revisions organize the information requirements around 16 numbered items, or categories, of information. Instructions at the end of the form explain the requirements for each item. With its changes, the SEC will:

  • Permit filers to identify all issuers in a multiple-issuer offering in one Form D filing;
  • Delete the current requirement to identify as "related persons" owners of 10% or more of a class of the issuer's equity securities, although executive officers, directors and promoters must continue to be identified;
  • Replace the current requirement to provide a business description of the issuer with a requirement to classify the issuer by industry from a pre-established list of industries contained in the Form;
  • Require revenue range information for the issuer or a specific statement that the issuer declines to provide this information; hedge funds and pooled investment vehicles will have the option of providing revenue range information, providing net asset value range information or declining to disclose this information;
  • Require more information as to the specific paragraph or subparagraph of any Rule 504 exemption claimed by the issuer as well as the specific paragraph of Section 3(c) of the Investment Company Act of 1940 claimed for any exclusion from the definition of "investment company";
  • Require reporting of the date of first sale in the offering, which is the date on which the first investor is irrevocably contractually committed to invest;
  • Specify that amendments to a previously filed Form D are required to be filed only in the following instances (but if an amendment is required to be filed, all disclosed information must be updated):
    • To correct a material mistake of fact or error in the previously filed notice (as soon as practicable after the discovery of the mistake or error);
    • Annually, on or before the first anniversary of the filing of the Form D or the filing of the most recent amendment, whichever is later, if the offering is continuing at that time; or
    • To reflect a change in the information provided in a previously filed notice (as soon as practicable after the change), except that no amendment is required to reflect a change that occurs after the offering terminates or a change that occurs solely in the following information:

        • The address or relationship to the issuer of a related person;

        • An issuer's revenues or aggregate net asset value;

        • The minimum investment amount, if the change is an increase, or if the change, together with all other changes in that amount since the previously filed notice, does not result in a decrease of more than 10%;

        • Any address or state(s) of solicitation identified;

        • The total offering amount, if the change is a decrease, or if the change, together with all other changes in that amount since the previously filed notice, does not result in an increase of 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

        • The amount of sales commissions, finders' fees or use of proceeds for payments to executive officers, directors or promoters, if the change is a decrease, or if the change, together with all other changes in that amount since the previously filed notice, does not result in an increase of more than 10%;

  • Require reporting of whether the offering is expected to last over a year;
  • Increase the categories of securities being offered that can be selected by the issuer;
  • Revise the current disclosure of whether the offering is an exchange offer to clarify whether the offering is being made in connection with a business combination, such as an exchange (tender) offer, a merger or acquisition;
  • Limit reporting of the minimum investment amount per investor accepted in the offering to the amount accepted from outside investors (i.e., investors other than employees, officers, directors, general partners, trustees, consultants, advisors or vendors of the issuer, its parents, its majority-owned subsidiaries, or majority-owned subsidiaries of the issuer's parent);
  • Require disclosure of CRD numbers for both individual recipients of sales compensation and associated broker-dealers, provided that the person has such a number (a CRD number is the number corresponding to an individual broker or broker-dealer's record located in the Central Registration Depository, a computer database maintained by the Financial Industry Regulatory Authority or FINRA);
  • Replace the current requirement to disclose information on a wide variety of expenses and application of proceeds with a requirement to report expenses only as to amounts paid for sales commissions and, separately stated, finders' fees, and report use of proceeds only as to the amount of proceeds used to make payments to executive officers, directors and promoters;
  • Replace the current separate federal and state signature requirements with a combined signature requirement that includes an undertaking to provide offering documents to regulators upon request (subject to applicable law), a consent to service of process and a certification that the issuer is not disqualified by rule from relying on an exemption claimed; and
  • Permit a limited amount of free writing in clarification fields in the Form D to the extent necessary to clarify certain information otherwise required to be provided.

The Form D will continue to be filed with the SEC not later than 15 days after the first sale of securities in reliance on the exemption.

Timing of New Amendment Provisions

If an issuer must amend a Form D that was filed before September 15, 2008, it can continue to comply with the current amendment provisions until March 15, 2009. Beginning September 15, 2008, the issuer has the option of complying with the new amendment provisions discussed above, and between September 15, 2008, and March 15, 2009, it has the option to file the amendment in either paper or electronic form. If an issuer must amend a Form D that was filed after September 14, 2008, it must comply with the new amendment provisions, although it still has the option of filing the amendment in paper form or electronic form until March 15, 2009.

Beginning March 16, 2009, all issuers must comply with the new amendment provisions and all amendments must be filed in electronic form.

Electronic Filing of Form D

The electronically filed forms will be available on the SEC's web site, accessible from any computer with internet access, fully interactive and searchable. The filing system, currently in development, will enable 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. Issuers will be able to submit and amend the forms on this system.

Although not part of the EDGAR system that public companies use, in order to file the Form D, issuers will need the same codes as are required to file electronically on EDGAR. As currently contemplated, to the extent that an issuer does not have such codes, it will have to file a Form ID with the SEC, although the SEC is currently reviewing this to determine whether to make a more simplified process available to Form D filers. If there are multiple issuers, each issuer will need its own set of EDGAR filing codes.

The terms and items at the front of the online Form D will be linked to the instructions at the back, which will be available immediately by clicking on a particular term or item.

Issuers will continue to make filings with the various states in connection with their private offerings in the whatever format is prescribed by the state, most often by the filing of a copy of the Form D. But it is important to note that the SEC and the North American Securities Administrators Association are exploring whether to coordinate the filing requirements in a form of "one-stop filing."

General Solicitation and General Advertising Concerns

Rule 502(c) of Regulation D prohibits issuers and persons acting on the issuer's behalf from offering or selling securities by any form of general solicitation or general advertising. The electronic filing and availability of Form D information may raise the concern that the filing could be used as a marketing document to generate interest in offerings because the information would be easily and broadly available. The SEC has revised Rule 502(c) to include a safe harbor from the prohibition on general solicitation and general advertising for information provided in a Form D if the information is provided in good faith and the issuer makes reasonable efforts to comply with the requirements of Form D.

Michael Hermsen has an extensive corporate and transactional practice that focuses on securities matters. He represents issuers, underwriters and securityholders in connection with public and private offerings of equity and debt securities. Mike also represents corporate clients in connection with Securities Act and Exchange Act compliance and reporting and compliance with NYSE and Nasdaq regulations, and counsels companies, board of directors and management on stock purchases, executive compensation reporting and other corporate governance matters.

In the area of mergers and acquisitions, Mike represents buyers and sellers in connection with public and private acquisitions and divestitures, mergers, tender offers, exchange offers and consent solicitations.

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This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.