Stephen H. Bier
New York +1 212 698 3889
Amendments to Form D (“Adopting Release”), the form required to be filed by issuers making private placements in the United States in reliance on Regulation D promulgated under the Securities Act of 1933, as amended (“Securities Act”), were adopted by the Securities and Exchange Commission(“SEC”)onFebruary6, 2008.1 The amendments revise the information issuers are required to furnish in Form D and mandate the electronic filing of Form D through the Electronic Data Gathering, Analysis, and Retrieval (“EDGAR”) system. Electronic filing of a temporary version of the revised Form D will begin on a voluntary basis on September 15, 2008, with electronic filing becoming mandatory on March 16, 2009.
Revisions and Amendments to Form D
Issuers completing the online form will find that this form will be “smart” in the sense that it does not allow incomplete filings and will prevent inconsistent answers. The Adopting Release details all of the changes to Form D. Some of the most significant changes affecting investment companies (“funds”) are discussed below.
When Amendments to Form D Are Required to Be Filed
The Adopting Release lists specific instances in which an amendment to a previously filed Form D is required. Amendments are only required where:
Once an event that triggers the filing of an amendment occurs, an issuer is required to provide current information as to the entirety of Form D. For continuous offerings, this means that all information included in Form D will be required to be updated on an annual basis.
On March 16, 2009, issuers will be required to file Form D electronically within 15 calendar days of the “date of first sale” of securities in a Regulation D offering.5 Issuers should take note that the phrase “date of first sale” is defined as the “date on which the first investor is irrevocably contractually committed to invest” and is designed to focus on when the investor makes an investment decision and commits to purchase the securities offered. To the extent that an is- suer’s application materials create an irrevocable commitment to invest once executed and submitted but prior to the dealing day, this definition may affect the issuer’s deadline to file Form D.
First You Need to Obtain a CIK Code
Use of the online filing system requires a filer to have a “Central Index Key” (“CIK”) code.6 Issuers that do not have a CIK code will need to file a Form ID elec- tronically7 and to fax a “notarized authenticating document,” which is a manually signed Form ID with a statement to the effect that the issuer confirms the authenticity of the Form ID filed on its behalf.
Note that if the Form D filing is made on behalf of multiple issuers, each issuer will be required to have its own CIK code and a confirming code referred to as a “CIK Confirmation Code (CCC).”
One-Stop Filing and Greater Transparency
The electronic filing process raises the possibility of a “one-stop” filing system that would also satisfy state law requirements that parallel Regulation D. Because the EDGAR system will not collect fees on behalf of states that charge for such filings, the North American Securities Administrators Association is actively working with the SEC to establish its own system that may “interface” with EDGAR to provide such one-stop filing capability. Issuers would likely realize significant time and cost savings should this happen in the near future.
Once electronic filing begins, information in the Forms D about an issuer will be easily searchable though a publicly accessible internet database. Entered data would be “tagged” and searchable by field; thus, for example, state securities regulators could search for all electronic Form D filings that identified their states in response to Items 1 (jurisdiction of incorporation/organization), 2 (principal place of business and contact information), 3 (related person addresses), and 12 (addresses of recipients of sales compensation). From a regulator’s perspective, the system will also allow greater state monitoring of exempt securities transactions and federal/state cooperation.
Safe Harbor from the “General Solicitation” and “General Advertising” Prohibitions
Rule 502(c) of Regulation D under the Securities Act requires that issuers relying on most Regulation D exemptions for private placements refrain from “general solicitation” and “general advertising” as the SEC has interpreted those terms. With the information required by Form D to become more freely available to the public, commentators to the proposed amendments8 expressed concerns that these prohibitions would be violated by the public availability of the data included in the amended Form D, thus precluding an issuer from relying on Regulation D. Rule 502(c) will be amended to provide that if an issuer makes reasonable efforts to comply with the requirements of Form D and provides the required information in good faith, no general solicitation or advertisement has oc- curred.
“Free writing” with respect to clarification of Items 3, 10, 13, 15, and 16 will also be within the safe harbor. However, the amendments seek to limit the amount of free writing by allowing for only explanatory or “textual” responses. Furthermore, the use of Form D in an attempt to shield activity intended to create interest in an offering would not be within the safe harbor.
The adopted amendments do much to simplify, clarify, and modernize the Form D filing process. Issuers, however, should be aware of how changes in require- ments, instructions, and definitions may affect the information that they must disclose and when they must disclose it. The financial industry should expect further commentary and clarification from both the SEC and state regulators on how to complete and submit amended Form D before September 2008.
We will monitor and alert you on any further developments.
This update was authored by Steve Bier (+1 212 698 3889; firstname.lastname@example.org), Roderick Cruz (+1 212 698 3644; email@example.com), and Alan Rosenblat (+1 202 261 3332; firstname.lastname@example.org). Research assistance was provided by Chris Carlson (+1 202 261 7722; email@example.com).
1) Electronic Filing and Revision of Form D, SEC Release No. 33-8891 (February 6, 2008). See Dechert OnPoint: SEC Revises Form D and Mandates Electronic Filing (February 2008).
2) The term “promoter” includes: (i) Any person who, acting alone or in conjunction with one or more other persons, directly or indirectly takes initiative in founding and organising the business or enterprise of an issuer; or (ii) Any person who, in connection with the founding and organising of the business or enterprise of an issuer, di- rectly or indirectly receives in consideration of services or property, or both services and property, 10 percent or more of any class of securities of the issuer or 10 percent or more of the proceeds from the sale of any class of such securities. However, a person who receives such securities or proceeds either solely as underwriting commissions or solely in consideration of property shall not be deemed a promoter within the meaning of this paragraph if such person does not otherwise take part in founding and organising the enterprise.
3) The requirement extends to entities that are not natural persons and to “finders,” regardless of whether they have a CRD number. Such disclosure may galvanize the registered broker-dealer versus “finder” debate and lead to commentary in the near future regarding how forthcoming issuers will be in disclosing the use of unregistered placement agents and what actions the SEC may take against issuers and their unregistered placement agents.
4) See Adopting Release at note 123 and accompanying text (“Form D’s requirements . . . will apply to foreign sales to the extent the issuer seeks to rely on an exemption under Regulation D for such foreign sales”).
5) Rule 503 requires a Form D filing no later than 15 days after the first sale of securities made in reliance on Rules 504, 505 or 506 of Regulation D.
6) Use of the SEC’s EDGAR system requires codes and passwords obtained from the SEC. If you do not currently have these, Dechert can assist in obtaining the necessary codes and passwords.
7) To complete Form ID, the issuer should go to https://www.filermanagement.edgarfiling.sec.gov.
8) Electronic Filing and SImplification of Form D, Sec Release No. 33-8814 (June 29, 2007).