This Securities Briefing provides an overview of the SEC’s final rules:
This Securities Briefing is intended only as a summary of the SEC rules discussed and you are encouraged to review the full text of the final rules.
The SEC has adopted final rules amending Form D, Regulation D and Regulation S-T to impose a mandatory requirement to electronically file the Form D effective March 16, 2009. Companies may begin electronically filing Form D on a voluntary basis beginning on September 15, 2008. A Form D filing is required by any company making a private offering in reliance on the exemptions available under Regulation D or Section 4(6) of the Securities Act of 1933, referred to as the Securities Act. The final rules also include a number of changes to the Form D to simplify, update and revise its content. The revised Form D will be filed with the SEC on a new online system that will be accessible from any computer with Internet access. The Form D information filed electronically will be available on the SEC’s web site in an “interactive and easily searchable” format for use or review by regulators and any one else that wishes to access the data.
In the adopting release, the SEC indicated that mandating electronic filing of Form D could “promote uniformity between federal and state securities regulation” of private offerings and assist the regulators with better monitoring of those offerings. SEC plans for the future include upgrading the Form D filing system to accept “one-stop” filing of the Form D with the SEC and one or more states. As discussed further below in “Changes to Form D – Identification of claimed exemptions or exclusions and type of filing – Item 7,” this capability will not be available when the new Form D first becomes effective. The SEC believes that converting to an electronic filing of Form D will create a useful database to assist the SEC in its enforcement efforts, and its evaluation of the effectiveness of exemptions under the Securities Act “in order to facilitate capital formation in a manner consistent with investor protection.”
The final rules are effective on September 15, 2008 at which time issuers may begin voluntarily filing the new Form D electronically. Beginning March 16, 2009, the new Form D must be filed electronically by all issuers. During the transition period of September 15, 2008 to March 16, 2009, issuers may make initial or amended paper filings of the Form D on either the current or new Form D.
The new online filing system for Form D will be accessible from any computer with Internet access. Both the initial filing of the Form D and any required amendments to it will be made through the new system. The SEC expects that the Form D will have drop-down menus and other guidance functions to assist with the completion of the Form D.
The Form D will continue to be due within 15 days of the first sale of the issuer’s securities in reliance on one or more of the exemptions available under Regulation D or Section 4(6) of the Securities Act. The final rules revise Rule 503(a)(1) to clarify that when the filing date falls on a weekend or holiday, the Form D will be due the next business day. The final rules also clarify when an amendment to Form D must be filed (discussed below in “Changes to Form D Content – Identification of claimed exemptions or exclusions and type of filing – Item 7”).
The proposed rules indicated that the online Form D filing system would not have a way to save an incomplete Form D online from session to session. In response to comments about the burden placed on issuers to assemble all information for the Form D before going online so that it could be prepared and filed in one session, the SEC anticipates that the filing system will permit issuers to either prepare the filing offline and submit it online or to save an incomplete Form D online for multiple sessions occurring over a short period of time. Data entry will need to occur at a pace that will prevent a time-out from occurring during the session. The SEC currently expects that time-outs will occur one hour following a user’s last activity on the system. Issuers will be able to correct errors and verify the correctness of information provided in the Form D before filing it. A company will be able to download and print the Form D before and after it is filed. Once the filing is made, the system will indicate receipt of the filing and provide an “accession number” (or unique number assigned to the filing) in an email notification to the filer. A company will be able to view its Form D on the SEC’s web site shortly after it is filed with the SEC.
A company electronically filing a Form D will need the same access codes as are required to file on the SEC’s EDGAR system. If a company does not have these EDGAR access codes, it must obtain them by electronically filing a Form ID at http://www.sec.gov/edgar.shtml and filing, in paper by fax within two business days before or after filing of the Form ID, a notarized authenticating document. The EDGAR access codes include the following:
In response to comments, the SEC plans to consider ways to simplify the issuer authenticating process and hopes to implement these changes on or before the date electronic filing of Form D becomes mandatory.
It is possible that a nonreporting company that has filed a Form D since early 2002 has already been assigned a CIK code by the SEC even though the company has not completed the Form ID application process. Nonreporting companies should avoid having multiple CIK codes assigned, and should check the SEC’s website to determine if a CIK code has already been assigned to it. Please contact your GPM Securities Team member (see contact information listed at the end of this Securities Briefing) if you need assistance in obtaining your EDGAR access codes or verifying whether or not a CIK code has already been assigned.
In general, the SEC’s final rules adopt the changes to Form D substantially in the form proposed. The final rules reorganize and simplify the Form D into 16 numbered items. There will be instructions at the end of the new Form D to explain the requirements for each item. Among other things, the new Form D reduces the amount of information on the use of proceeds and expenses of the offering because this information is not needed to evaluate whether the claimed exemption is available to the issuer.
Basic identifying and contact information. Items 1-3 of the new Form D essentially reflects the information required by the current Form D:
As proposed, the new Form D also eliminates the requirement to provide a name of the offering because the current requirement is unclear and is outdated.
Information about the issuer. Items 4 and 5 of the new Form D cover information about the issuer:
Identification of claimed exemptions or exclusions and type of filing. Items 6 and 7 cover additional information required by the current form with some changes:
The SEC wants this more detailed information on Rule 504 offerings to support its “policymaking and rulemaking efforts in various areas.”
As proposed, the final rules eliminate all references to ULOE in the new Form D because it believes the ULOE box and appendix in the current Form D is confusing and does not result in a significant amount of useful information.
The SEC has added language to the instructions of new Form D to clarify that the date of first sale is the date on which “the first investor is irrevocably contractually committed to invest, which, depending on the terms and conditions of the contract, could be the date on which the issuer receives the investor’s subscription agreement or check.”
For a minimum-maximum offering with an escrow account, this means the date of first sale occurs when the first subscription agreement is received and first funds are deposited into the escrow account.
Item 7 in the new Form D differs from the proposed Item 7 in that it will not permit the issuer to designate the states to which the Form D is directed because the filing system will not have this capability when the new Form D becomes effective. However, the SEC is working with the North American Securities Administrators Association to achieve this capability in the future in an effort to achieve “one-stop filing” for the Form D.
The SEC’s final rules make changes to Rule 503 to clarify the circumstances under which an amendment to Form D is required. An amendment to Form D will be required in the following three cases:
Under the revised Rule 503, any amended Form D must provide current information for each item of the amended Form D regardless of why the amendment was filed.
Information about offering. In general, Items 8-16 expand on the information required about the offering:
Signature and submission of Form D. The new Form D combines the federal and state signature sections into one signature block that also incorporates portions of the current Form U-2 consent to service of process provisions; it includes a consent to service of process but omits a consent to jurisdiction and venue. The combined signature block also includes an undertaking to furnish copies of offering materials to the SEC and each state in which the notice is filed upon a written request if the request is in accordance with applicable law. The new combined signature block omits the undertaking to provide a Form D to state administrators and a representation regarding the ULOE. Each issuer in a multiple-issuer offering will be required to sign the Form D. If all issuers authorize the same person to sign the Form D on their behalf, however, only that person must sign the Form D.
General Solicitation and General Advertising. Comments on the proposed changes to Form D raised the issue that electronic availability of the Form D might prompt some issuers to use it as a marketing document to generate interest in the offering. The SEC believes this tactic would be contrary to the Regulation D prohibition against the use of general advertising and general solicitation applicable to most Regulation D offerings. In response to this concern, the SEC has revised Rule 502(c) to provide a safe harbor from the prohibition against general solicitation and general advertising for information included in the new Form D “if the information is provided in good faith and the issuer makes reasonable efforts to comply with the requirements of Form D.” The safe harbor language attempts to address the legitimate needs to provide adequate information responsive to the Form D requirements and impermissible efforts to generate interest in the offering through the Form D.
Free Writing. As proposed, the Form D did not permit any place where “free writing” could occur to limit the ability of issuers to use the Form D as a marketing document. In response to comments, the new Form D permits issuers to engage in a limited amount of free writing to clarify responses to the following items:
A copy of the final SEC rules revising Form D and mandating electronic filing is available on the SEC’s website at www.sec.gov by selecting Final Rule: Electronic Filing and Revision of Form D or by going to http://www.sec.gov/rules/final/2008/33-8891.pdf
Effective February 4, 2008, the SEC has switched the bank providing lockbox depository services from Mellon Bank, N.A. to U. S. Bank, N. A. In addition, the SEC has amended rules under the Securities Act of 1933, Securities Exchange Act of 1934 and Investment Company Act of 1940 to clarify that SEC filing fees may be paid by wire transfer, certified check, bank cashier’s check, United States postal money order or bank money order and to eliminate the ability to pay these fees by cash or personal check.
Information on how to pay the SEC’s filing fees by wire transfer is available on the SEC’s website at http://www.sec.gov/info/edgar/fedwire.htm.
U. S. Bank, N. A. will not accept walk-in deliveries of checks or money orders by individuals. Instead, checks and money orders must be mailed to U.S. Bank, N.A. through the U. S. Postal Service addressed to the Securities and Exchange Commission, P.O. Box 979081, St. Louis, MO 63197-9000 or if another common carrier is used, then addressed to U. S Bank, Government Lockbox 979081, 1005 Convention Plaza, SL-MO-C2-GL, St. Louis, MO 63101.
A copy of the final SEC rules amending the procedures for paying SEC filing fees is available on the SEC’s website at www.sec.gov by selecting Final Rule: Amendment of Procedures for Payment of Fees or by going to http://www.sec.gov/rules/final/2008/33-8885.pdf
Attorneys on the Securities Team include:
J.C. Anderson (612) 632-3002
Lindley S. Branson (612) 632-3024
Maxwell J. Bremer (612) 632-3056
Christopher A. Carlisle (612) 632-3033
Barry F. Clegg (612) 632-3220
Jean M. Davis, Chair (612) 632-3048
Gene H. Hennig (612) 632-3202
Alyssa J. Hirschfeld (612) 632-3316
Inchan Hwang (612) 632-3310
Julia S. Offenhauser (612) 632-3067
Douglas M. Ramler (612) 632-3324
Michael P. Sullivan, Jr. (612) 632-3350
Daniel R. Tenenbaum (612) 632-3050
Mark D. Williamson (612) 632-3379
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This newsletter is a periodic publication of Gray, Plant, Mooty, Mooty & Bennett, P.A. that should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general information purposes only, and you are urged to consult legal counsel concerning your situation and any specific legal questions you may have.
Copyright. 2008. All rights reserved.
Gray, Plant, Mooty, Mooty & Bennett, P.A.
This article is provided for general informational purposes only and should not be construed as legal advice or legal opinion on any specific facts or circumstances. You are urged to consult a lawyer concerning any specific legal questions you may have.
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