# Conforming Version (To Conform to Release Published in the Federal Register) > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/agency%3Asec%3Ab68bac413a12df0d ## Record - **Collection:** Agency decision - **Document type:** Agency decision ## Text Conforming Version (To Conform to Release Published in the Federal Register) SECURITIES AND EXCHANGE COMMISSION 17 CFR Parts 230, 232, and 239 [RELEASE NOS. 33-8891; 34-57280; 39-2453; IC-28145; FILE NO. S7-12-07] RIN 3235-AJ87 ELECTRONIC FILING AND REVISION OF FORM D AGENCY: Securities and Exchange Commission. ACTION: Final rule. SUMMARY: The Securities and Exchange Commission is adopting rule amendments mandating the electronic filing of information required by Securities Act of 1933 Form D through the Internet. We also are adopting revisions to Form D and to Regulation D in connection with the electronic filing requirement. The revisions simplify and restructure Form D and update and revise its information requirements. The information required by Form D will be filed with us electronically through a new online filing system that will be accessible from any computer with Internet access. The data filed will be available on our Web site and will be interactive and searchable. EFFECTIVE DATE: September 15, 2008 except the amendments to § 232.101(c)(6) and § 232.201(a) are effective March 28, 2008, § 232.101(a)(1)(xiii) is effective March 16, 2009 and § 230.503T, § 232.101(b)(10) and § 239.500T are effective from September 15, 2008 to March 16, 2009. FOR FURTHER INFORMATION CONTACT: Questions about this release should be addressed to Gerald J. Laporte, Chief, or Corey A. Jennings, Attorney-Advisor, Office of Small Business Policy, Division of Corporation Finance, or Mark W. Green, Senior Special Counsel (Regulatory Policy), Division of Corporation Finance, Securities and Exchange Commission, 100 F Street, NE, Washington, DC 20549-3628, (202) 551-3460. SUPPLEMENTARY INFORMATION: We are adopting revisions to Rules 100,1 101,2 104,3 201,4 and 2025 of Regulation S-T,6 Rules 5027 and 5038 of Regulation D,9 and Form D10 under the Securities Act of 1933 (“Securities Act”).11 We also are adding temporary Rule 503T and Temporary Form D under the Securities Act and temporary Rule 101(b)(10) of Regulation S-T. TABLE OF CONTENTS I. EXECUTIVE SUMMARY AND BACKGROUND A. History and Purpose of Form D B. Need to Update Form D and Require Electronic Filing 1. 2. 3. 4. C. Easing Filing Burdens Better Public Availability of Form D Information Federal and State Uniformity and Coordination; One-Stop Filing Improved Collection of Data for Commission Enforcement and Rulemaking Efforts Summary of Adopted Amendments 1 17 CFR 232.100. 2 17 CFR 232.101. 3 17 CFR 232.104. 4 17 CFR 232.201. 5 17 CFR 232.202. 6 17 CFR 232.10 et seq. 7 17 CFR 230.502. 8 17 CFR 230.503. 9 17 CFR 230.501-508. 10 17 CFR 239.500. 11 15 U.S.C. 77a et seq. 2 II. DISCUSSION OF AMENDMENTS A. Amendments to Form D Content Requirements 1. 2. 3. 4. 5. 6. III. Basic Identifying and Contact Information Additional Information About Issuer Identification of Claimed Exemptions and Exclusions Indication of Type of Filing a. General Requirements b. Amendment of Previously Filed Form D Information About Offering Signature and Submission B. Electronic Filing of Form D C. General Solicitation and General Advertising Issues Presented by Electronic Filing of Form D ELECTRONIC FILING PROCEDURE A. Mechanics B. Database Capabilities of Electronic Form D Repository C. System Implementation IV. PAPERWORK REDUCTION ACT ANALYSIS V. COST-BENEFIT ANALYSIS VI. CONSIDERATION OF IMPACT ON COMPETITION AND PROMOTION OF EFFICIENCY, COMPETITION AND CAPITAL FORMATION VII. FINAL REGULATORY FLEXIBILITY ACT ANALYSIS VIII. STATUTORY BASIS AND TEXT OF AMENDMENTS 3 I. EXECUTIVE SUMMARY AND BACKGROUND A. History and Purpose of Form D On June 29, 2007, we issued a release in which we proposed for public comment rule amendments mandating the electronic filing of Form D through the Internet and revisions to that form.12 In this release, we are adopting the amendments substantially as proposed. As further described below, companies will be permitted to file Form D information voluntarily through the Internet when our new Form D electronic filing system becomes available on September 15, 2008 and will be required to file electronically through the Internet on and after March 16, 2009. Form D serves as the official notice of an offering of securities made without registration under the Securities Act in reliance on an exemption provided by Regulation D.13 Both public and nonpublic companies file information using this form. Regulation D was part of a Commission initiative in the early 1980s to provide a more coherent pattern of exemptive relief from the registration requirements of the Securities Act, and particularly to address the capital formation needs of small business.14 At the time, we intended the Form D filing requirement in Rule 503 of Regulation D to serve an important data collection objective.15 We expected that the empirical data derived from the Form D filings would enable 12 We proposed the amendments in Release No. 33-8814 (June 29, 2007) [72 FR 37376]. The comment letters we received in response to the proposing release were filed in File Number S7-12-07 and are available at http://www.sec.gov/comments/s7-12-07/s71207.shtml or from our Public Reference Room at 100 F Street, NE, Washington, DC 20549. 13 Regulation D contains separate exemptions for limited offerings in Rules 504, 505 and 506. Form D also is to be used by issuers making offerings of securities without registration in reliance on the exemption contained in Section 4(6) of the Securities Act [15 U.S.C. 77d(6)]. Although we primarily discuss Regulation D in this release, the revised Form D also will continue to apply to Section 4(6) offerings. Regardless of the type of offering to which revised Form D applies, it will be required to be filed electronically after a transition period during which we will allow either paper or electronic filing. 14 We adopted Form D and Regulation D in 1982. Release No. 33-6389 (Mar. 8, 1982) [47 FR 11251] (adopting Form D as a replacement for Forms 4(6), 146, 240 and 242). They had been proposed in the previous year. Release No. 33-6339 (Aug. 7, 1981) [46 FR 41791] (proposing Regulation D and Form D). 15 We stated in the proposing release for the original Rule 503: 4 us to better evaluate the effectiveness of Regulation D as a capital raising device and eventually to further tailor our rules to provide appropriate support for both capital formation, especially as it relates to small business, and investor protection.16 We modified the requirements relating to Form D in 1986, making Form D a uniform notification form that could be filed with state securities regulators.17 This effort was undertaken with the cooperation of the North American Securities Administrators Association (NASAA), the organization of state securities regulators, as part of the Commission’s efforts to reduce the costs of capital formation for small business and to promote uniformity between federal and state securities regulation. At that time, we also eliminated the requirement to amend a Form D filing for an offering every six months during the course of the offering and the requirement to make a final Form D filing within 30 days of the final sale in the offering. We left intact the requirement in Rule 503 to file a Form D notification within 15 days after the first sale of securities in an offering, leaving that as the sole current explicit requirement for a Form D filing.18 In 1989, we amended the Regulation D exemptions to eliminate the filing of Form D information as a condition to their availability.19 At that time, we also added Rule 507 to Regulation D to provide an incentive for issuers to make a Form D filing, even though it was no “An important purpose of the notice . . . is to collect empirical data which will provide a basis for further action by the Commission either in terms of amending existing rules and regulations or proposing new ones . . . . Further, the proposed Form would allow the Commission to elicit information necessary in assessing the effectiveness of Regulation D as a capital raising device for small businesses.” Release No. 33-6339 (Aug. 7, 1981) [46 FR 41791, 41799]. 16 Release No. 33-6339 (Aug. 7, 1981) [46 FR 41791, 471799]. 17 Release No. 33-6663 (Oct. 2, 1986) [51 FR 36385]. 18 17 CFR 230.503. 19 Release No. 33-6825 (Mar. 15, 1989) [54 FR 11369]. 5 longer a condition to the availability of the Regulation D exemptions.20 Specifically, Rule 507 disqualifies an issuer from using a Regulation D exemption in the future if it has been enjoined by a court for violating Rule 503 by failing to file the information required by Form D.21 Consequently, an issuer has an incentive to make a Form D filing to avoid the possibility that a court will enjoin the issuer for violating Rule 503 and, as a result, disqualify the issuer from using a Regulation D exemption in the future. In 1996, we proposed to eliminate the Form D filing requirement and replace it with an issuer obligation to complete a Form D and retain it for a period of time.22 At the time, our Task Force on Disclosure Simplification had suggested that the Commission consider the continued need for a Form D filing requirement.23 After reviewing comments on the proposal, we determined that the information collected in Form D filings was still useful to us “in conducting economic and other analyses of the private placement market” and retained the requirement.24 In 1998, we solicited public comment on, but did not propose, requiring electronic filing of the Form D notice.25 The public comments generally favored electronic filing in principle but 20 Id. 21 On August 3, 2007, we issued a release proposing changes to Regulation D. See Release No. 33-8828 (Aug. 3, 2007) [72 FR 45116]. Among those changes were moving Regulation D’s exemption disqualification provisions to a new subparagraph (e) of Rule 502 and adopting a new exemption that would appear in a revised Rule 507 of Regulation D. The Regulation D release also sought additional comment on the proposals we made in Release No. 33-8766 (Dec. 27, 2006) [72 FR 400] that concerned accredited investors in certain private pooled investment vehicles. Since we have not adopted and are still considering the changes proposed in the Regulation D release and the accredited investor changes proposed in the private pooled investment vehicle release, the new Form D and its implementing rules do not reflect those changes, as did the Form D in the Form D proposing release. We are still considering the proposed changes to Form D that would be necessary to reflect adoption of the Regulation D and private pooled investment vehicle changes, and may adopt the Form D changes if we adopt the Regulation D and private pooled investment vehicle changes. 22 Release No. 33-7301 (May 31, 1996) [61 FR 30405]. 23 SEC Task Force on Disclosure Simplification, Final Report 17 (Mar. 5, 1996), available at http://www.sec.gov/news/studies/smpl.txt. 24 Release No. 33-7431, at 5 (July 18, 1997) [62 FR 39755, 39756]. 25 Release No. 33-7541 (May 21, 1998) [63 FR 29168]. 6 expressed concern about Form D filers needing to follow the same procedures as then were required generally for filings through the Commission’s electronic filing system, called the Electronic Data Gathering, Analysis and Retrieval or “EDGAR” system. In summary, our previous statements on Form D have suggested that, at the federal regulatory level, the Form D filing serves two primary purposes: • collection of data for use in the Commission’s rulemaking efforts; and • enforcement of the federal securities laws, including enforcement of the exemptions in Regulation D.26 The information submitted in Form D filings also is useful for other purposes. The staffs of state securities regulators and the Financial Industry Regulatory Authority (FINRA), the successor to the member firm regulatory functions of the National Association of Securities Dealers, Inc. and NYSE Regulation, Inc., also use Form D information to enforce securities laws and the rules of securities self-regulatory organizations. Form D filings also have become a source of information for investors. Our Web site advises potential investors in Regulation D offerings to check whether the company making the offering has filed a Form D notice and advises that “[i]f the company has not filed a Form D, this should alert you that the company might not be in compliance with the federal securities laws.”27 In addition, the information in Form D filings serves as a source of business intelligence for commercial information vendors, as well as for participants in the venture capital, private equity, and other industries that rely on Regulation D offerings and for competitors of companies that file Form D information. Academic researchers use Form D information to conduct empirical research aimed at improving 26 Release No. 33-6389 (Mar. 8, 1982) [47 FR 11251] and Release No. 33-7431 (July 18, 1997) [62 FR 39755]. 27 See http://www.sec.gov/answers/formd.htm. 7 the workings of these industries.28 Journalists use Form D information to report on capital-raising in these industries.29 B. Need to Update Form D and Require Electronic Filing Currently, much of the information required by Form D appears to be useful and justified in the interests of investor protection and capital formation.30 It also appears that some useful information that could be required by Form D is not required currently. On the other hand, Form D currently requires some information that may no longer be useful. Our staff receives many inquiries from market participants suggesting that Form D could be clarified and simplified. Moreover, the absence of an electronic system for filing Form D information prevents issuers from filing through efficient modern methods and limits the usefulness of the information collected on Form D. The rules we adopt today address deficiencies in the Form D data collection requirements and process. 1. Easing Filing Burdens Our new Form D rules are intended to ease the costs and burdens of preparing and filing Form D information. The informational requirements will be streamlined and updated. The instructions will be clarified and simplified. Issuers will file Form D information electronically through a new online filing system that will be accessible from any computer with Internet access. Issuers will provide data by responding to discrete information requests. Appropriate 28 For a discussion of how academic researchers are using available data on private investments to improve the workings of the venture capital industry, see A. Ginsberg, Truth, or Consequences: Academic Researchers are Helping Policy Makers and Practitioners Understand the Problems Facing the Venture Capital Industry, Innovation Review 8 (Berkley Center for Entrepreneurial Studies, Fall 2002). 29 See, e.g., R.J. Terry and B. Hammer, NEA Closes $2.5 Billion Fund, Baltimore Bus. Journal, July 10, 2006. 30 For example, information provided in response to the requirement to check the applicable specified exemptions from registration claimed by the issuer helps the Commission monitor and better evaluate use of the claimed exemptions in order to protect investors and facilitate the development of private and limited markets in which to raise capital. 8 data entries will be reviewed automatically for proper characters and consistency with entries in other fields. Data entry fields will be accompanied by links to instructions and other helpful information. We believe these system features, among others, will help facilitate a relatively easy-to-use filing process that will deliver accurate information quickly, reliably, and securely.31 The Form D filing will continue to be required within 15 days of an issuer’s first sale in an offering without Securities Act registration in reliance on one or more of the exemptions provided in Regulation D, and the rules will clarify when amendments are required. Paper filing of Form D information will be eliminated after a transition period in which the information may be filed either electronically through the Internet or in paper.32 2. Better Public Availability of Form D Information Requiring the electronic filing of Form D data through the Internet will make the information filed more readily available to regulators and members of the public.33 The information will be available on our Web site and, because the online filing system will automatically capture and tag data items, the data will be interactive and searchable. The Commission’s public Web site at www.sec.gov will enable users to view the information in an easy-to-read format, download the information into an existing application, or create an 31 The new online filing system is discussed in further detail in Part III of this release. 32 Rule 101 of Regulation S-T, Rule 503 of Regulation D and the description of Form D will mandate electronic filing of Form D information subject to varied effective dates and temporary provisions, which together will permit the information to be filed either electronically through the Internet or in paper during the transition period. The transition period is discussed more fully in Part III.C below. Currently, our rules require issuers to file five paper copies of the Form D with us by mail or physical delivery to Commission headquarters. 17 CFR 230.503(a). The Commission received 27,843 Form D filings in its most recently ended fiscal year, 2007. 33 Most filings made with us currently are filed electronically through our EDGAR system. We began to make EDGAR electronic filing mandatory in 1993. Initially, a number of forms – including Form D – were excluded from mandated electronic filing. Since the launch of the EDGAR system, we have increased the number of forms that are required to be filed electronically, but Form D has remained a paper-only filing. It will continue to remain so until the September 15, 2008 effective date of voluntary electronic filing, when companies will be able to file Form D information either in paper or electronically until the end of the phase-in period on March 16, 2009. Beginning on that date, Form D information will be required to be filed electronically through the Internet. 9 application to use the information. Unlike information filed with us electronically, paper filings are available from us only in person in our Public Reference Room or by means of a mail request. We charge a nominal fee for copies of Form D filings. Some Form D filings are available at higher cost from private vendors through the Internet and telephone requests. 3. Federal and State Uniformity and Coordination; One-Stop Filing For over 20 years, Form D has served as a means to promote federal and state uniformity and coordination in securities regulation by providing a uniform notification form that can be filed with the Commission and with state securities regulators.34 The contemplated electronic filing system for Form D information will continue that tradition and can enhance the utility of Form D as a means to promote uniformity and coordination between federal and state securities regulation. The availability of Form D information filed with us through a searchable electronic database will enable both federal and state securities regulators to monitor the exempt securities transaction markets more effectively. The system also will permit improved coordination among federal and state regulators, which is essential to efficient and effective capital formation through exempt transactions, especially by smaller companies, and to investor protection. State securities regulators will be able to access the information on our Web site to learn if new Form D information of interest to them has been filed. The system will enhance uniformity and coordination even more if it results in “one-stop filing,” an approach we and NASAA are exploring. One-stop filing will enable companies to file 34 According to a unit of the American Bar Association, 48 states, the District of Columbia, Puerto Rico, and the U.S. Virgin Islands accept filings on Form D. New York prescribes its own Form 99. Florida does not require any filing for the types of transactions other jurisdictions require to be reported on Form D. See Report on Blue Sky Survey of the NSMIA Subcommittee, Committee on State Regulation of Securities, American Bar Association Business Law Section (Feb. 2006). 10 Form D information both with us and with the states they designate in one electronic transaction. While that capability will not be available when Form D electronic filing with the Commission begins, we have been working actively with NASAA to achieve that capability as soon as practicable. We understand that NASAA is considering establishing its own new electronic system that would interface with our system and would receive filings and collect fees on behalf of participating state securities regulators.35 One-stop filing will reduce significantly the costs and burdens of preparing and filing Form D information with the Commission and with state securities regulators. This could represent a substantial savings for small businesses and others filing Form D information. The commenters that responded to our Form D proposing release that addressed one-stop filing supported it,36 but some made suggestions and some expressed concerns.37 NASAA stated that it envisions a system that would direct issuers to a NASAA-hosted Web site that lists the fees for states a filer selects and enables the filer to make an electronic payment to those states that would include a modest service charge to defray costs of the site and service.38 NASAA also stated that it envisions that the electronic payment would be made by means of an electronic funds transfer or credit card transaction. NASAA further envisions that, after payment, the system would allow a completed Form D to be filed with the Commission and distributed by the NASAA-hosted site to the states selected by the filer. Finally, NASAA anticipates that the 35 The Commission’s electronic filing system will not collect fees on behalf of any states. 36 One commenter, for example, stated that if one-stop filing were implemented properly, it would reduce significantly the costs and burdens of preparing and filing Form D with the Commission and the states. See letter from American Bar Association, Section of Business Law, Committees on Federal Regulation of Securities and State Regulation of Securities (ABA). 37 See letters from ABA, Coalition of Private Investment Companies (CPIC), Connecticut Department of Banking (Connecticut), Managed Funds Association (MFA), Massachusetts Securities Division (Massachusetts), NASAA and Pennsylvania Securities Commission (Pennsylvania). 38 See letter from NASAA. 11 Commission would have no direct involvement or responsibility for the state distribution and payment system. Two commenters expressed concerns about one-stop filing, relating primarily to the prospects for timely state adoption39 and, in one case, the use of the electronic system as it relates to the National Securities Markets Improvement Act of 1996.40 Finally, one commenter expressed hope that companies would continue to be able to file a Form D notice with a particular state or states and not with the Commission where the company is comfortable relying on the Section 4(2) exemption from registration at the federal level and no federal Form D would be required.41 We have considered these comments and will continue to consider them as we work with NASAA in an effort to establish one-stop filing. 4. Improved Collection of Data for Commission Enforcement and Rulemaking Efforts The conversion to electronic filing of Form D information through the Internet in an interactive data format will result in creation of a database of Form D information and allow us and others to better aggregate data on the private and limited offering securities markets and the use of the various Regulation D exemptions. Further, the software we will use for the Form D electronic filings will require that filers address each required data field in the form, thus reducing incomplete filings. Because of these and other features, our Form D electronic filing system should assist in our enforcement efforts and enhance our ability to use filed Form D information. The Form D information database will allow us to better evaluate our exemptive 39 See letters from ABA and MFA. 40 See letter from ABA (“There are several aspects of ‘one-stop’ filing about which we have particular reservations emanating . . . partly from a desire to delineate clear boundaries as a result of federal preemption under the National Securities Markets Improvement Act of 1996 . . . .”). Section 102(a) of the National Securities Markets Improvement Act of 1996 (“NSMIA”) [Pub. L. No. 104-290 110 Stat. 3416 (Oct. 11, 1996)] enacted new Section 18 of the Securities Act [15 U.S.C. 77r], which, in part, limits the authority of the states to regulate offers and sales of securities exempt under “rules or regulations issued under section 4(2)” of the Act [15 U.S.C. 77d(2)], which includes Rule 506 but not Rules 504 or 505 of Regulation D. 41 See letter from ABA. 12 schemes on a continuing basis in order to facilitate capital formation in a manner consistent with investor protection. The evaluation could lead to improvements that would result in significant benefits to companies that rely on the Regulation D exemptions, especially smaller companies, as well as benefits to investors. C. Summary of Adopted Amendments In sum, the amendments will: • mandate electronic filing of Form D information: o after a phase-in period during which electronic filing will be voluntary; and o through an online filing system that will ƒ be accessible from any computer with Internet access; and ƒ capture and tag data items, so that the data will be interactive and viewable in an easy-to-read format; and • revise Form D’s information requirements by: o permitting filers to identify all issuers in a multiple-issuer offering in one Form D filing; o deleting the current requirement to identify as “related persons” owners of 10 percent or more of a class of the issuer’s equity securities; o replacing 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; o requiring revenue range information for the issuer, or net asset value range information in the case of hedge funds (subject to an option to decline to disclose); 13 o requiring more specific information on the registration exemption claimed by the issuer in the Form D notice as well information on any exclusion claimed from the definition of “investment company” under the Investment Company Act of 1940 (“Investment Company Act);42 o requiring reporting of the date of first sale in the offering; o specifying when amendments to a previously filed Form D notice are required by reason of mistakes of fact, errors or changes to information in a previously filed notice or the passage of a calendar year; o requiring reporting of whether the offering is expected to last over a year; o limiting reporting of the minimum investment amount accepted in the offering to the amount accepted from outside investors, so as not to affect employee stock ownership incentive plans adversely; o requiring CRD numbers for both individual recipients of sales compensation and associated broker-dealers; o replacing the current requirement to disclose information on a wide variety of expenses and applications 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; o replacing the current federal and state signature requirements with a combined signature requirement that includes an undertaking to provide offering documents to regulators on request (subject to applicable law), a consent to 42 15 U.S.C. 80a-1 et seq. 14 service of process and a certification that the issuer is not disqualified by rule from relying on an exemption claimed; and o permitting a limited amount of free writing in “clarification” fields to the extent necessary to clarify certain information provided. The principal changes from the proposing release include: • permitting free writing to clarify responses to a total of five requests for information; • specifying that amendments to a previously filed Form D notice are required only for material mistakes of fact or errors, and not for any mistake of fact; • providing additional exceptions from changes that otherwise would require amendments to a previously filed Form D notice; • requiring an annual amendment to a Form D notice only if an entire calendar year has passed since the last filing, and not every year between January 1 and February 14; and • requiring expense and use of proceeds information on amounts paid for sales commissions, finders’ fees, and payments to executive officers, directors and promoters, instead of eliminating those requirements. II. DISCUSSION OF AMENDMENTS As noted above, we believe the revisions we adopt today will have a positive effect in many areas of interest to the Commission, state securities regulators, investors, and companies that rely on Regulation D exemptions. The revisions generally involve simplifying Form D, easing the burdens of complying with the requirements of the form, and modernizing the information capture process. For each offering of securities that is made without Securities Act registration in reliance on a claimed exemption under Regulation D, the issuer must file the information required by 15 Form D with the Commission no later than 15 days after the first sale of securities. The form calls for issuers to provide basic identifying information and fundamental information about the offering. Some of the requirements of Form D have become outdated with the passage of time since the Commission adopted them. Further, some of the current form’s requirements and instructions could be clarified and made less burdensome. The revisions we adopt today address these issues. In addition, the move to electronic filing necessitates several modifications. We generally are adopting the amendments substantially as proposed. Where we are not, we so note below. A. Amendments to Form D Content Requirements Currently, Form D requires presentation of preliminary and other information required by five sections designated “A” through “E.” 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. On the online form, terms and items at the front of the form will be linked to the instructions at the back, which will be available immediately by clicking on a particular term or item. In this regard, we are adding to the General Instructions a sentence that provides that terms used but not defined in the form that are defined in Rule 40543 or Rule 50144 have the meanings given to them in those rules. The sentence will clarify the application of Rule 501 and, to the extent it defines the term “promoter,” Rule 405.45 1. Basic Identifying and Contact Information New Form D generally carries over the requirements from current Form D for basic identifying and contact information and information about related persons, but modifies or omits 43 17 CFR 230.405. 44 17 CFR 230.501. 45 One commenter expressly supported defining the term “promoter” in the instructions. See letter from Connecticut. 16 some of these types of requirements. The requirements carried over, however, are restructured to reflect the electronic character of the filing. Item 1, similar to current Form D, requires basic identifying information, such as the name of the issuer of the securities, any previous names, the type of legal entity and the issuer’s year and place of incorporation or organization.46 We are revising the form to provide specifically for the identification of multiple issuers in multiple-issuer offerings. Form D currently does not provide for this, sometimes raising questions as to how multiple-issuer offerings should be reported.47 Although we proposed to add to the form a requirement to supply the issuer’s Commission file number, if any, we have decided not to adopt that requirement. We believe requiring the Commission file number would add a burden but would provide limited benefits because most Form D filers are nonpublic companies and, as a result, would not have a Commission file number. Furthermore, it is possible to use other required information to aid in identifying issuers. With regard to identifying issuers, two commenters responded to our solicitation of comment on whether Form D should require CUSIP numbers and trading symbols. One commenter favored adding such a requirement in order to help parse information and facilitate automating filing notices.48 The other commenter, however, opposed adding the requirement as burdensome to issuers and resulting in information that is not useful.49 We believe that the 46 Issuers will specify their legal entity type (e.g., corporation or limited partnership). 47 Currently, the Form D instructions do not specify whether all issuers in a multiple-issuer offering can be listed in the same Form D notice or whether each issuer must submit essentially the same notice. In this situation, the staff currently advises each issuer to submit a separate Form D notice because the filings are retrievable in our filing system only by reference to the name of one issuer. The changes clarify the requirements of this item and eliminate the burden on issuers to file what are essentially duplicate notices in order to comply with the requirement to file Form D information. The new online filing system will support multiple-issuer filings. As a result, all issuers easily can be identified in a single filing. 48 See letter from Pink Sheets LLC. 49 See letter from ABA. 17 system’s data tagging features will facilitate parsing information and obtaining filing notices to such an extent that the burden of requiring CUSIP numbers and trading symbols would not be justified by the benefits to be gained. In response to a comment letter,50 we have provided a place to identify an issuer as “yet to be formed” instead of providing a year of organization. The current Form D provides this alternative. Two commenters expressed concern as to whether a filer would be able to specify its particular foreign place of incorporation or organization rather than just be able to indicate that the location is foreign.51 We confirm that the online filing system will enable issuers to specify particular foreign jurisdictions. Item 2, similar to current Form D, requires filers to provide place of business and telephone contact information.52 The revised form will include instructions to clarify that post office box numbers and “care of” addresses are not acceptable as place of business information. One commenter asked that an issuer be permitted to provide a “care of” address because mail might not otherwise be delivered to the issuer where, for example, the issuer operates out of another entity’s office and a separate address listing is precluded by lease restrictions or practical concerns.53 We acknowledge the concern, but reiterate our statement in the proposing release that this information is not collected for mailing purposes. The purpose of this information is to allow 50 See id. 51 See letters from ABA and Connecticut. 52 Some information of the type that Items 2 and 3 require will automatically appear in appropriate places when the filer accesses the new online filing system. The system will replicate information provided by the filer in the course of obtaining the identifying information needed to access the new online filing system or in updating such information. The filer will be able to make changes to such information. 53 See letter from ABA. 18 securities enforcement authorities to determine the location of the issuer’s operations and personnel responsible for the offering. Post office box numbers and “care of” addresses do not provide this information. In instances in which lease restrictions or other practical concerns arise, the issuer must make arrangements to provide acceptable place of business and contact information. The revised form will differ from the proposed form as to place of business and telephone contact information. The proposed version would have required place of business and telephone contact information in a multiple-issuer offering only for the primary issuer and would not have permitted such information for the other issuers. In the proposing release, we reasoned that issuers in multiple-issuer transactions typically have the same place of business, and we generally do not need more than one address to contact the responsible personnel for enforcement purposes. In this regard and upon further consideration after reviewing the public comment letters, we have decided that the revised form will differ in one respect – it will permit, but not require, such information for issuers other than the primary issuer in a multiple-issuer offering. In so revising the form, we believe we address the concerns expressed by two commenters. One commenter asked that we require such information for all the issuers in multiple-issuer offerings to accommodate states that currently require a separate Form D from every issuer in a multi-issuer offering, or alternatively, that we require a separate Form D from each of the issuers.54 The other commenter asked that we permit multiple issuers to provide separate addresses to avoid the implication that issuers are affiliated when they are not.55 We believe these concerns are adequately addressed by permitting all issuers to provide the information because that enables issuers that are filing with states that otherwise would require 54 See letter from Pennsylvania. 55 See letter from ABA. 19 separate Forms D to include the information if they wish to avoid filing the separate forms, if permitted by state law. One commenter asked that Form D require the name of a contact person for the primary issuer and any other issuers in a multiple-issuer offering.56 The commenter stated that contact might be necessary in connection with the filing itself or in regard to litigation or enforcement or for other purposes. We believe, however, that address and telephone number information would be sufficient to make an initial contact and that it should be possible to proceed from that point to locate the most appropriate person based on the nature of the contact. Item 3, similar to current Form D, requires information about related persons (executive officers, directors, and promoters).57 As proposed, however, we are deleting the current requirement that issuers identify as “related persons” owners of 10 percent or more of a class of their equity securities.58 In so proposing, we reasoned that • investors should continue to have access to this information, if it is material, in the private placement memorandum customarily supplied to them or in other information made available through the issuer;59 56 See letter from NASAA. 57 The instructions to Item 3 clarify that disclosure will be required of each person who has functioned as a promoter of the issuer within the past five years of the later of the first sale of securities or the date upon which the Form D filing was required to be made. 58 We also are revising Item 3 to enable an issuer to clarify its response. This change is discussed more fully in Part II.C below. 59 Under some circumstances, an issuer must provide, rather than merely make available, beneficial holder information. For example, an issuer that offers securities to non-accredited investors without registration under the Securities Act in reliance on an exemption provided by Rule 505 [17 CFR 230.505] or 506 [17 CFR 230.506] must provide beneficial holder information under the circumstances specified by Rule 502(b) [17 CFR 230.502(b)]. 20 • we believe we can collect sufficient information to satisfy the regulatory objectives of Form D by requiring only the identification of executive officers, directors, and promoters; and • issuers that are not reporting companies have raised privacy concerns with respect to the requirement to identify 10 percent equity owners who are not executive officers, directors, or promoters because they do not already have to disclose this information, and the widespread availability of the information on our Web site may raise additional privacy concerns for these companies as they seek to raise capital through a private offering.60 Two commenters explicitly supported the proposal to delete the requirement to report publicly the names and addresses of 10 percent or greater equity holders.61 Both commenters cited privacy concerns. One of the commenters also stated that individual investors would have access to the information to the extent relevant and omitting the information would save time and eliminate filing burdens.62 Four commenters objected to the proposal to delete the requirement to disclose 10 percent or greater holders, citing the usefulness of the information and, in some cases, questioning the validity of privacy concerns.63 These commenters asserted, in essence, that the information is useful to: 60 As we stated in the proposing release, from time to time issuers have asked us to grant confidential treatment to this information under Securities Act Rule 406 [17 CFR 230.406], but we have denied such requests consistently because the information currently is required by Form D. We estimated in the proposing release that about 95% of the companies filing Form D notices in 2006 were private companies, which frequently are not required to make public the names of their equity owners in accordance with the laws of the state or other jurisdiction of their organization. 61 See letters from ABA and MFA. 62 See letter from ABA. 63 See letters from Chris Evans (claiming to represent the views of the vast majority of news organizations), Massachusetts, NASAA and Pennsylvania. 21 • state regulators because, for example, it enables them to determine whether the specified persons are disqualified from conducting an offering or have an enforcement history that warrants additional information and disclosure;64 • the general public because it reveals the investment activity of public sector entities;65 and • investors because this degree of ownership control is material and it cannot be assumed this information will be provided even if material, especially where disclosure or fraud may be an issue.66 We have considered the differing views on whether to retain the requirement to report publicly the names and addresses of 10 percent or greater equity holders. We still believe it is appropriate to delete the requirement for the reasons discussed above and in the proposing release. In this regard, we note that Item 3 will continue the current Form D requirement to report executive officers and directors based on the functions people perform rather than their titles. Issuers are required to report the names and addresses of promoters whether they act directly or indirectly.67 We have modified the instructions to Item 3 slightly from the language proposed to clarify these requirements. As a result, the requirements should result in public reporting of all of a company’s principal policymakers. As proposed, we are deleting the requirement that issuers provide the name of the offering in Form D if the offering has a name. In so proposing, we stated that naming offerings 64 See letters citing one or more of these examples from Massachusetts, NASAA and Pennsylvania. 65 See letter from Chris Evans. 66 See letters from Massachusetts and NASAA. 67 The words “directly or indirectly” are used in the applicable definition of the term “promoter” in Rule 405. 22 reported on Form D is not as common today as it was before the 1986 tax reforms,68 when the current Form D requirement was adopted. We understand that some issuers have found this requirement to be unclear. For these reasons, we are deleting the requirement. 2. Additional Information About Issuer Item 4 of the new Form D requires issuers to identify their industry group from a specified list. The requirement to provide industry group information replaces the current requirement in Form D to provide a description of the issuer’s business.69 We believe simply selecting an industry group classification from a pre-established list is less burdensome for issuers and more useful for the regulatory purposes underlying the Form D filing requirement. The industry group classifications will provide us better, and more easily retrievable, information about industries and offerings where we may have identified policy issues.70 As proposed, if a company selects the “Pooled Investment Fund” option, pop-up or other data fields will require the issuer also to select from among lower level options designating a specific type of pooled investment fund and to select between “yes” and “no” as to whether the issuer is registered as an investment company under the Investment Company Act. We proposed that Item 5 would require all issuers, regardless of industry group, to either include revenue range information in the Form D filing or choose the “Decline to Disclose” option, which might be used if a private company considered its revenue range to be confidential 68 Tax Reform Act of 1986, Pub. L. 99-514, 100 Stat. 2085 (Oct. 22, 1986). 69 The industry group list in the new form differs from the one in the proposing release primarily in two ways. First, the new form’s list provides for additional choices under the heading “Energy” in order to reduce the number of issuers that would need to choose the less helpful alternative of “Other Energy.” Second, the new form’s list omits the specific choices that had been under the heading “Business Services” because we believe greater specificity is not necessary for issuers in that industry group. 70 The instruction to Item 4 provides that an issuer or issuers that can be categorized in more than one industry group should be categorized based on the industry group that most accurately reflects the use of the bulk of the offering proceeds. The instruction also provides that, for purposes of responding to Item 4, the issuer should “use the ordinary dictionary and commonly understood meanings of the terms identifying the industry groups.” 23 information.71 We further proposed that, if the business were not intended to produce revenue, such as a fund that seeks asset appreciation, it could select the “Not Applicable” option. We continue to believe that this information will help us to determine the types and sizes of most issuers that rely on the Regulation D and Section 4(6) exemptions. For instance, as noted in the proposing release, this information will increase significantly the effectiveness of the data collected as a tool for assessing the use of the Regulation D exemptions for small businesses and other different sizes of issuers. We are adopting Item 5, as proposed, except as it will apply to issuers that classify themselves in Item 4 in the industry group “hedge funds” or as pooled investment funds other than venture capital and private equity funds. In order to obtain information on the size of these issuers, Item 5 will request them to provide aggregate net asset value range information.72 Consistent with the revenue range requirement applicable to other issuers, however, these issuers will be given the option to “Decline to Disclose” that information or to specify that such information is “Not Applicable.” This addition responds to a comment letter stating that “assets under management” is a more meaningful measure of the size of such issuers than revenues.73 We believe we can obtain adequate size information about venture capital and private equity funds from the information on the total offering amount supplied in response to Item 13, because these types of funds typically do not engage in continuous offerings of indefinite amount, unlike hedge funds and some other types of pooled investment funds. 71 The revenue range will be for the most recently completed fiscal year. Where an issuer has been in existence for less than a year, it will identify its revenues to date. 72 The aggregate net asset value will be requested as of the most recent practicable date. 73 See letter from MFA. Similarly, in commenting on Rel. No. 33-8766 (Dec. 27, 2006) [72 FR 399], another commenter stated that it believed it would be useful to the Commission and investors if Form D would require information on pooled investment funds’ assets under management. See letter from CPIC. 24 One commenter suggested that we eliminate the “Decline to Disclose” option from the proposed revenue range requirement74 and another suggested that we eliminate the revenue range requirement entirely.75 The commenter that suggested we eliminate the “Decline to Disclose” option reasoned that elimination would be necessary to make the requirement effective as an information collection tool. The commenter that suggested that we eliminate the requirement entirely reasoned that many companies will opt out, reducing the integrity of the information collected and possibly causing people to draw negative inferences about the company. The commenter went on to state that revenue information is not necessary for a notice filing, and requiring it is inconsistent with the prohibition on general solicitation and general advertising that applies to many offerings required to be reported on Form D.76 We recognize that adopting the “Decline to Disclose” option will reduce the amount of information that we receive. We also recognize, however, that some companies may regard this type of information as confidential. Weighing these countervailing considerations in light of the importance of the information, we believe that, on balance, it is best to provide filing companies the option to decline to disclose their revenue range. Commenters did not specify any negative consequences that a company may suffer if it chooses to decline to disclose its revenue range. We believe the information will be useful for the reasons described above. Finally, we believe that revenue information in range form would not likely itself, or in combination with the other information the new form requires, raise general solicitation or general advertising issues. 74 See letter from NASAA. 75 See letter from ABA. 76 See id. The ABA also stated that the form should not require asset value information for essentially the same reasons. A third commenter asked whether most private companies would decline to disclose, “thus calling into question the purpose of [the item].” The commenter did not suggest deleting the option to decline or deleting the entire requirement. See letter from Connecticut. 25 3. Identification of Claimed Exemptions and Exclusions Item 6 requires the issuer to identify the exemption or exemptions being claimed for the offering, from among Rule 504’s77 paragraphs and subparagraphs, Rule 505, Rule 506, and Section 4(6), as applicable. This requirement, in general, is carried over from the current Form D requirement with added specificity, requiring the issuer to identify the specific paragraph or subparagraph of any Rule 504 exemption being claimed as well as any specific paragraph of Investment Company Act Section 3(c)78 that the issuer claims for an exclusion from the definition of “investment company” under the Investment Company Act.79 We are requiring this increased level of specificity and additional type of information in order to assist our policymaking and rulemaking efforts in various areas. Identification of a claimed exemption or exclusion often is key to analysis of the appropriateness of the claim. State securities regulators also use this information to determine the extent of their jurisdiction over the offering under NSMIA. Unlike the requirement in current Form D, however, Item 6 does not enable the issuer to check a box to indicate a claim to the Uniform Limited Offering Exemption (ULOE) from state securities law requirements. We believe that the ULOE box causes confusion and burdens for companies completing Form Ds without resulting in a significant amount of useful information. Most, if not all, companies claiming a ULOE exemption also will check the Rule 505 box, because Rule 505 is the Commission’s companion exemption to the ULOE exemption.80 Similarly, revised Form D omits all other references to ULOE and the provisions 77 17 CFR 230.504. 78 15 U.S.C. 80a-3(c). 79 The issuer will be able to select all the exclusions on which it relies. Regulation D provides an exemption from the Securities Act and not an exclusion from the definition of the term “investment company” under the Investment Company Act. Some companies that use a Regulation D exemption, however, also are excluded from the definition of investment company under the Investment Company Act. 80 See Release No. 33-7644 (Feb. 25, 1999) [64 FR 11090]. 26 that, in general, require specified information on a state-by-state basis in an appendix to the form and require specified representations and undertakings. We believe that this information is burdensome to provide without sufficient benefits in terms of furthering the purposes of Form D.81 One commenter supported our proposal to delete the appendix portion of current Form D, asserting that it is burdensome and without sufficient benefits, but two other commenters objected.82 Another commenter, without expressly addressing the appendix, suggested that the form require related information.83 One commenter objected to deleting any part of the appendix, claiming that the information required provides macro-level ownership information valuable to the Commission and other regulators in analyzing fund flows and capital sources in an otherwise opaque area.84 One commenter stated that it did not advocate retaining the appendix in its current form but that the appendix requires information such as the amount of securities sold by state and the number and type of investors (accredited/non-accredited) that is useful to state regulators for enforcement purposes.85 Finally, one commenter offered the related suggestion that the form should require issuers to specify the states in which they propose to offer or sell securities because that would provide useful information to state regulators in their efforts to uncover notice filing violations and other problems.86 We believe the burden that would be imposed by a requirement to provide all information called for by the appendix or similar information is not justified by the value of the information 81 One commenter expressed general agreement with our views regarding ULOE. See letter from ABA. 82 See letters from ABA, Chris Evans and Connecticut, respectively. 83 See letter from Massachusetts. 84 See letters from Chris Evans. 85 See letter from Connecticut. 86 See letter from Massachusetts. 27 in furthering the purposes of Form D. In this regard, under appropriate circumstances, state regulators still would be able to require this type of information.87 At present, the Commission does not require filing of information called for by the appendix, and most Form D filers do not file the appendix with us. They file appendix information only with those states that require it. We assume that states that require filing of appendix information that they are entitled to require may continue to do so. We also assume that the one-stop filing system that we are exploring with NASAA may facilitate the filing of this information with state regulators. 4. Indication of Type of Filing a. General Requirements New Item 7 carries over the current Form D requirement to indicate whether the filing is a new filing or an amendment. Including identification of a filing as new or an amendment is appropriate because the form permits amendments and issuers may have valid reasons to wish to update or correct information previously provided in a Form D filing. In addition, as discussed in the section immediately below, we intend to clarify the circumstances where amendments are required. As proposed, Item 7 requires that a new filing specify the date of first sale or indicate that the first sale has yet to occur. We believe that this information will be useful to regulators because it relates to the timeliness of the filing and helps to establish a context in which to evaluate other information provided. Item 7 will differ from what we proposed in that it will not permit an issuer to designate the states to which the Form D is directed. As more fully discussed above, our system will not 87 We note that, even where NSMIA applies, Section 18(c)(2)(A) of the Securities Act [15 U.S.C. 77r(c)(2)(A)] generally provides as to the offer and sale of non-exchange-listed securities that nothing under Section 18 prohibits “any State from requiring the filing of any document filed with the Commission [under the Securities Act], together with annual or periodic reports of the value of securities sold or offered to be sold to persons located in the State (if such sales data is not included in documents filed with the Commission), solely for notice purposes and the assessment of any fee, together with a consent to service of process and any required fee.” 28 be capable of receiving filings directed to specific states when new Form D becomes effective for federal purposes, although we have been working actively with NASAA in an effort to achieve that capability.88 In the interim, we expect that filers will direct filings to the states by mail, overnight delivery, fax or whatever means are permitted or required by the respective states. We expect that some states may permit issuers to file a printed copy of a new Form D filed with us. One commenter objected to adding the requirement to report date of first sale information.89 The commenter asserted that the definition of “first sale” is unclear and a failure to file in the timeframe Form D requires may be used by states to extract late filing penalties or attempt to circumvent the limits NSMIA imposes by claiming that an exemption under Rule 506 is unavailable due to non-compliance with the filing requirement of Rule 503(a), even though filing a Form D is not a condition to an exemption under Regulation D. We believe, however, that providing the date of first sale involves little burden and that it is not the reporting of the date that underlies the state-related concerns but rather the date itself in relation to the date of filing. Two commenters objected to using the date of first sale as the trigger for the Form D filing deadline.90 Both commenters based their objection on the Commission staff’s previously stated view that, solely for purposes of triggering the Form D filing requirement, in a minimum-maximum offering where the subscription funds are held in escrow pending receipt of 88 We had proposed to permit issuers to designate the states to which the Form D is directed, on the assumption that some states would adopt one-stop filing and allow filings that specify that they are directed to those states to constitute filings with those states. 89 See letter from ABA. 90 See letters from ABA and Society of Corporate Secretaries and Governance Professionals (SCSGP). 29 minimum subscriptions, the date of first sale occurs when the first subscription agreement is received and first funds are deposited into escrow.91 We believe that the cited interpretation of the date of first sale is correct for purposes of triggering the Form D filing requirement. We believe the interpretation appropriately focuses on when the purchaser makes an investment decision and commits to purchase the securities offered. We also believe that it can be useful for regulatory purposes if an issuer files a Form D before an offering closes to enable regulators to consider the information provided before the offering process ends. If regulatory action is appropriate, earlier consideration potentially could cause it to be more timely and effective.92 We have added language to the instructions to Form D clarifying this meaning of date of first sale in accordance with this interpretation. Specifically, the instructions will state 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. b. Amendment of Previously Filed Form D As proposed, we are clarifying Form D to address when, how, and why an amendment to a Form D may or must be filed. Those issues are not addressed expressly in the current form. While both Rule 503 and the instructions to the current Form D discuss the information that is required when an amendment is filed,93 neither explicitly requires the filing of an amendment. In 91 See Release No. 33-6455, at Question 82 (Mar. 4, 1983) [48 FR 10045]. 92 For example, one commenter noted that state regulators use Form D information for screening purposes to help prevent offerings by those subject to disqualification and aid enforcement efforts. See letter from NASAA. 93 Current Rule 503(d) states that amendments to Form D “need only report the issuer’s name and the information required by Part C and any material change in the facts from those set forth in Parts A and B.” The current instructions to Form D set forth the information required in an amendment as only “the name of the issuer and offering, any changes thereto, the information requested in Part C, and any material changes from the information previously supplied in Parts A and B.” 30 certain offerings and situations, however, an issuer may have made a material mistake of fact or committed another material error in the filed Form D. Situations also arise where changes occur and the initially filed Form D may not be an accurate expression of the current facts in an ongoing offering. Our staff currently interprets Rule 503 and the Form D instructions to require amendments in ongoing offerings where there has been a material change in information filed about the offering and where basic information previously submitted about the issuer has materially changed. The staff has received questions regarding offerings of extended duration, and how to determine whether and how to file Form D amendments. For example, when offerings are expected to continue for an extended period, the Commission’s staff often is asked to assist issuers in determining how to calculate an offering’s aggregate offering price and when an amendment to the Form D should be filed. The staff’s practice in this regard has been to advise issuers to use a good faith and reasonable belief standard to calculate the aggregate offering price and to amend the Form D annually. We are revising Rule 503 and the instructions to and description of Form D to require amendments to the Form D notice in the following three instances only: • to correct a material mistake of fact or error in the previously filed notice (as soon as practicable after discovery of the mistake or error); • 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 31 that occurs after the offering terminates or a change that occurs solely in the following information:94 o the address or relationship to the issuer of a related person identified in response to Item 3 of Form D; o an issuer’s revenues or aggregate net asset value; o 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%; o any address or state(s) of solicitation shown in response to Item 12 of Form D; o 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%; o the amount of securities sold in the offering or the amount remaining to be sold; o 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; o the total number of investors who have invested in the offering; o 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%; and 94 We believe the specified changes should not require an amendment because the burden would not justify the resulting benefits in terms of furthering the purposes of the form. Consequently, it is not necessary to report them for Form D to serve its primary function as a notice of an exempt offering. 32 • 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. Rule 503 also will require an issuer that files an amendment to provide current information in response to all requirements of Form D regardless of why the amendment is filed. We believe it will be relatively easy to provide such current information in most instances due to the form’s streamlined information requirements, the likelihood that much of the information would not require change, and the fact that the new online filing system will make available to the issuer the version of the Form D to be amended to enable the issuer to respond only to the changed items. The amendment requirements differ from what we proposed in that they will • provide expressly that a mistake of fact or error in the information provided in a previously filed notice only requires an amendment when material; • provide exceptions for changes in o the address or relationship to the issuer of a related person identified in response to Item 3 of Form D; o an issuer’s aggregate net asset value;95 o 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%; o any address or state(s) of solicitation shown in response to Item 12 of Form D; o the total offering amount, if the change is a decrease; 96 95 We had proposed an exception for changes in issuer size as measured by revenue consistent with proposed Item 5’s requesting that issuers provide their revenue range. We are adopting an exception for changes in issuer size that relates to both revenue and aggregate net asset value to conform the exception to new Item 5. As previously discussed, new Item 5, as adopted, requests that issuers provide either their revenue range or aggregate net asset value, depending on their industry group. 33 o the amount of securities in the offering that remain to be sold;97 o the total number of investors who have invested in the offering;98 o 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%;99 • require amendments to report the addition of executive officers, directors and promoters in all offerings, and not provide an exception from this requirement for offerings that last more than a year in some circumstances; and • prescribe that annual amendments are due on or before the first anniversary of the most recently filed Form D filing or amendment, if the offering is continuing at that time, rather than each year between January 1 and February 14. We have expressly subjected the mistake of fact or error in information amendment requirements to a materiality standard in response to comments received to make explicit what 96 We had proposed an exception for a change in the total offering amount, if the change, together with all other changes in that amount since the previously filed notice of sales on Form D, would not result in an increase of more than 10%. We believe that decreases in the total offering amount need not trigger an amendment requirement. 97 We had proposed an exception for a change in the amount of securities sold in the offering. An exception is similarly appropriate for the amount of securities that remain to be sold because that amount varies inversely with changes in the amount of securities sold. 98 We had proposed an exception for changes in the number of accredited investors who have invested in the offering consistent with proposed Item 14’s requiring a report of the number of accredited investors who have invested in the offering. We are adopting the exception relating to the total number of investors rather than the number of accredited investors to conform the exception to new Item 14. New Item 14, as adopted, requires disclosure of the total number of investors rather than the number of accredited investors who have invested in the offering. 99 We believe that the additional specified exceptions should not require an amendment because, similar to the other exceptions proposed and adopted, the burden would not justify the resulting benefits in terms of furthering the purposes of the form. Consequently, it is not necessary to report them for Form D to serve its primary function as a notice of an exempt offering. 34 we intended.100 We have required amendments upon the addition of related persons (executive officers, directors and promoters) without exception in order to limit the ability to circumvent the purpose of the Form D notice. We have adopted the one calendar year amendment requirement to clarify the due date in response to a comment101 and provide flexibility.102 One commenter supported the amendment provisions as proposed,103 one commenter objected to the requirement that every amendment contain current information,104 one commenter both objected to the annual amendment requirement and suggested changes in the other amendment requirements105 and one commenter said that it would be helpful to state regulators to add a requirement to file an amendment to report termination of offerings that last over a year.106 The commenter that objected to the requirement to provide current information in every amendment stated that the requirement seems unnecessary, might cause inadvertent errors in re-entering unchanged information and make it difficult to determine what had changed.107 The 100 Three commenters suggested that we clarify that only a material mistake of fact or change can trigger an amendment requirement. See letters from ABA, MFA and SCSGP. We did not add a materiality reference to the amendment provision regarding changes in the information reported. We believe that such a reference would be inappropriate because any changes other than those specified as not requiring an amendment would be information regulators need to perform their regulatory functions. 101 One commenter stated that the due date for the proposed annual amendment was unclear. See letter from ABA. 102 The omission of a January/February filing window from the adopted annual amendment requirement will provide flexibility by, for example, permitting a series of issuers to be placed on the same administratively convenient annual amendment schedule in which they file outside of the January/February window proposed to be mandated. 103 The commenter stated that the amendment requirements would ensure that available information would be relatively current and enable state regulators to screen, and provide responses to the public regarding, offerings conducted in their states more effectively. See letter from NASAA. 104 See letter from SCSGP. 105 See letter from ABA. 106 See letter from Connecticut. 107 See letter from ABA. 35 commenter suggested that, instead, amendments only should require information that has changed materially. As discussed above, we believe it will be relatively easy to provide such current information in most instances due to the form’s streamlined information requirements, the likelihood that much of the information would not require change, and the fact that the new online filing system will make available to the issuer the version of the Form D to be amended to enable the issuer to respond only to the changed items. We also believe that it will be relatively easy to determine what has changed due to the limited amount of information required by the form and the ability to use the data tagging features to help determine changes. We believe that presentation only of those items that have changed materially would result in information being presented out of context and might transform a relatively light burden on the issuer to a relatively heavier burden on each user who accesses the information. The commenter that objected to the annual amendment requirement did so primarily based on the commenter’s assertions that it would be inconsistent with efforts to ease burdens and simplify. We believe the annual amendment requirement viewed in the context of the online filing system generally is consistent with efforts to ease burdens and simplify. We believe it will be relatively easy to file annual amendments in most instances for the reasons discussed above. We also believe that the express annual amendment requirement is clear and, to that extent, will serve to simplify the form. The commenter that objected to the annual amendment requirement also stated that amendments should not be required when an issuer adds recipients of sales compensation or related persons.108 Consistent with the requirements of the current form, we believe that requiring the names of additional recipients of sales compensation and related persons is 108 See letter from ABA. 36 appropriate for a notice form and provides important information about the offering for regulatory purposes. The same commenter essentially asked that that the proposed exception from the amendment requirements for additions of related persons be broadened.109 As proposed, in offerings that last more than a year, a change in information on related persons would not trigger an amendment, if the change was due solely to the filling of a vacant position upon the death or departure in the ordinary course of business of the previous occupant of the position.110 Upon further consideration, we believe the exception for offerings that last more than a year may permit easy circumvention of the intent of the requirement. As adopted, the rule amendments will require a Form D amendment upon the addition of any related person, but will not require amendments to report changes of addresses of related persons. The same commenter stated that an amendment should not be needed for an issuer to file with an additional state or states during an ongoing offering.111 The amendment provisions would not require an amendment solely because an issuer wished to file with an additional state or states. Finally, one commenter suggested that the new annual and other amendment rules not apply to paper Form D filings, asserting that, as to such filings, filing amendments would be overly burdensome because there would be no existing electronic version on the system to use as a starting point.112 As further discussed below, there will be a period during which the amendments we adopt in this release would be effective except that electronic filing would be 109 See letter from ABA. 110 For example, a change in information regarding related persons that occurs in connection with a change a change in control would not be in the ordinary course of business. 111 See letter from ABA. 112 Id. 37 optional rather than mandatory for a period of time after the electronic system becomes available. During that time, in general, an issuer will be able to file new Form D in either paper or electronic format or file current Form D in paper format. Also during that time, the new annual and other amendment rules will apply to all new Form D filings regardless of format and the current amendment requirements will apply to all current Form D filings in paper format. We believe that during the transition period this approach will provide adequate flexibility to issuers and consistency between the current and new versions of Form D and their respective amendment requirements. Once the transition period ends, all federal filings will be required to be on new Form D in electronic format and, accordingly, the new amendment rules will apply. We believe that applying the new amendment rules at that time even as to prior filings of current Form D in paper format would not create a significant additional burden due to the lack of a previous electronic version on the system and that confusion likely would result from the lack of a uniform approach to post-transition period amendments that itself could impose a burden. 5. Information About Offering Items 8 through 16 will require factual information about the offering itself. Most of the information sought currently is required by Sections B and C of Form D. Duration of Offering. Item 8 will require the issuer to indicate whether it intends that the offering will last over a year. Such information currently is not specifically required by Form D. The absence of an information requirement of this type has presented compliance questions because regulators may not know whether an offering may span an extended period of time based on the information currently required by Form D. Type of Securities Offered. Item 9 will carry over the current requirement to specify the type of securities being offered, such as debt or equity, with additional categories of securities added. Some of the additional categories will provide more clarity. The rest of the additional 38 categories will identify types of securities, the specification of which we believe will help facilitate our rulemaking efforts.113 The issuer will be required to specify all categories that apply to the securities that are the subject of the exemption(s) specified in response to Item 6. Business Combination Transaction. Form D currently requires that the issuer indicate only whether the offering is an exchange offer. New Item 10 will require the issuer to indicate whether the offering is being made in connection with a business combination such as an exchange (tender) offer, a merger or acquisition, regardless of the type of offering.114 We believe that, for purposes of Form D, it is important to identify whether an offering is being made in connection with a business combination transaction, whether structured as an exchange or in some other manner, because such transactions sometimes give rise to policy concerns.115 Minimum Investment Amount. Item 11 will, as proposed, carry over the requirement in Form D to specify the minimum investment amount per investor. We are maintaining this requirement because offerings that have low minimum investment amounts have presented particular enforcement challenges in the past. We have changed Item 11 from what we proposed to require specification of the minimum investment for outside investors only, so as not to affect employee stock ownership incentive plans adversely. Investors will be considered outside investors if they are not employees, officers, directors, general partners, trustees (where the issuer is a business trust), consultants, advisors or vendors of the issuer, its parents, its 113 The new categories would be “Security to be Acquired Upon Exercise of Option, Warrant or Other Right to Acquire Security,” “Pooled Investment Fund Interests,” “Tenant-in-Common Securities,” and “Mineral Property Securities.” 114 We also are revising Item 10 to enable an issuer to clarify its response. We discuss this change more fully in Part II.C below. 115 For example, business combination transactions may raise some of the types of policy concerns we intended to address in adopting rules and rule amendments relating to filings by reporting shell companies. Release No. 33-8587 (July 15, 2005) [70 FR 42234]. 39 majority-owned subsidiaries, or majority-owned subsidiaries of the issuer’s parent.116 We believe that low investment amounts are more likely to present enforcement challenges when offered to outside investors, and have changed the requirement as a result. Sales Compensation. Item 12 generally will carry over but simplify the response to the requirements in Form D related to information on sales compensation, as we proposed. In addition, also as proposed, it will add a requirement to provide the CRD number of each person that is a compensation recipient named in response to Item 12, provided the person has a CRD number.117 In addition and as a complement to what we proposed, Item 12 also will require that when both a person that receives sales compensation and the person’s associated broker-dealer are reported, the issuer must provide the CRD number, if any, for both. Also in addition to what we proposed, the instruction to Item 12 will clarify that the compensation that can result in a reporting requirement can be cash or other consideration; a finder or other person that does not have a CRD number need not obtain one in order to be listed; and, conversely, a finder or other person is required to be listed where called for, regardless whether the finder or other person has a CRD number.118 A CRD number corresponds to a broker or broker-dealer’s record located in the Central Registration Depository, a computer database of brokers and broker-dealers that FINRA maintains. It should be relatively easy for an issuer to obtain the CRD numbers from the 116 The standard for determining who is an “outside investor” is similar to the standard in Securities Act Rule 701 [17 CFR 230.701] and Securities Act Form S-8 [17 CFR 239.16b] for determining who is an eligible investor, except that for Form D purposes vendors are included and certain family members are excluded. 117 The instruction to new Item 12 uses the term “person” rather than the proposed term “individual” to describe the sales compensation recipients that an issuer must list. The term “person” is used in order to clarify that, as intended in the proposed instruction, new Item 12 carries over the requirement in current Form D that references the term “person” to identify recipients of sales compensation regardless of whether the recipient is a natural person. 118 We believe this clarification generally would be responsive to several comments related to Item 12. One commenter suggested that the form clarify that cash and non-cash compensation could trigger a reporting requirement and not every person has a CRD number. See letter from Connecticut. Another commenter suggested that the form clarify that issuers must report the names of persons regardless whether they have CRD numbers. See letter from NASAA. 40 brokers and broker-dealers it retains. We have added instructions to Form D informing filers where to obtain CRD numbers on the Internet.119 Requiring reporting of the CRD numbers will facilitate checking a broker’s or broker-dealer’s records. Requiring reporting of the CRD numbers of listed persons as well as any associated broker-dealers will enhance the informational value of the item. Two commenters supported requiring CRD numbers in particular,120 while one commenter objected to Item 12 as proposed, stating that the item could discourage users from using Regulation D, should not require the names of individual recipients of sales compensation and, if it did require their names, it should not require their CRD numbers.121 Consistent with current Form D’s requirement to name up to five persons associated with a particular broker-dealer that receive compensation in connection with sales of securities in an offering and any associated broker-dealer, we continue to believe that such information is important. Also consistent with current Form D’s requirements, we continue to believe that it is useful to have the names of individuals regardless of whether they are associated with a broker-dealer. Once more than five individuals associated with the same broker-dealer otherwise would be named, however, the burden of listing additional names does not justify the benefit and it is sufficient in that case to have the name of the associated broker-dealer alone. We believe that the new sales compensation disclosure requirements will not discourage issuers from using Regulation D any more than the current sales compensation reporting requirements do. The concern about discouraging issuers from using Regulation D appears to be 119 Anyone with access to the Internet can check a broker’s CRD number and record by visiting http://brokercheck.finra.org. CRD numbers also can be obtained by calling a state regulator or FINRA’s public disclosure hotline at 800-289-9999. See http://www.nasaa.org/Investor_Education/Investor_Alerts___Tips/292.cfm. 120 See letters from Massachusetts and NASAA. 121 See letter from ABA. 41 rooted in a concern about regulator background checks on named persons. In this regard, we note that background checks are possible under the requirements of current Form D, and the only additional sales compensation requirement under the new form, CRD numbers, merely would facilitate that check. Finally, one commenter asked us to clarify the extent to which new Item 12’s sales compensation recipient disclosure requirement will apply to foreign sales.122 Consistent with Preliminary Note 7 to Regulation D, Regulation D’s requirements and, as a result, Form D’s requirements, including new Item 12, will apply to foreign sales to the extent the issuer seeks to rely on an exemption under Regulation D for such foreign sales.123 Offering and Sales Amounts. Item 13 will carry over the current requirements to provide the amount of total sales and the total offering amount, but in a restructured, simplified format. Instructions have been added to clarify interpretive issues that have arisen in completing the form, such as how to respond to this requirement if the amount of an offering is undetermined when the Form D filing is made.124 One commenter suggested that the form require a final report of actual sales results and be due not later than 15 business days after the close of the offering.125 The commenter asserted that this would better meet the practical needs of issuers in terms of determining the trigger date for the Form D filing requirement, coordinating the filing of 122 See letter from ABA. 123 Preliminary Note 7 to Regulation D provides as follows: “Securities offered and sold outside the United States in accordance with Regulation S need not be registered under the [Securities] Act. See Release No. 33-6863. Regulation S may be relied upon for such offers and sales even if coincident offers and sales are made in accordance with Regulation D inside the United States. Thus, for example, persons who are offered and sold securities in accordance with Regulation S would not be counted in the calculation of the number of purchasers under Regulation D. Similarly, proceeds from such sales would not be included in the aggregate offering price. The provisions of this note, however, do not apply if the issuer elects to rely solely on Regulation D for offers or sales to persons made outside the United States.” 124 We also are revising Item 13 to enable an issuer to clarify its response. We discuss this change more fully in Part II.C below. 125 See letter from Stephen A. Marcus. 42 Form D with the Commission with state filing and fee calculation requirements, and determining the need for amendments as the sales process proceeds. As previously noted, we believe that it can be useful for regulatory purposes if an issuer files a Form D before an offering closes to enable regulators to consider the information provided before the offering process ends. If regulatory action is appropriate, earlier consideration potentially could cause it to be more timely and effective. We also believe that issuers have been and will continue to be able to coordinate their federal Form D and state filings without requiring Form D to contain final sale information rather than offering information as of an earlier time. Finally, we believe that any uncertainties as to when to amend will be substantially resolved by the provisions we are adding to the form requirements. Investors. Item 14 will elicit information on whether the issuer intends to sell securities to persons who do not qualify as accredited investors and the number of such persons who already have invested. It will elicit information on the total number of investors who already have purchased securities in the offering. The form currently requires this information because it affects how we and state securities regulators evaluate claimed exemptions and allocate enforcement resources. We have modified Item 14 slightly from the proposed version by requiring the issuer to specify the total number of investors in the offering, rather than the number of accredited investors, so that examiners can readily see that number, rather than being required to add the numbers of accredited and non-accredited investors, as was the case in the proposed version. Expenses and Use of Proceeds of Offering. We proposed to eliminate the items requiring information on expenses and use of proceeds of the offering. The current requirements frequently do not yield information necessary for an evaluation of the claimed exemption or for enforcement or rulemaking efforts. Many, if not most, Form D filings do not provide use of 43 proceeds information that serves the form’s purposes, because they specify only that the majority of proceeds will be used for “working capital” or “general corporate purposes.” In addition, because of the diversity in use of proceeds in Regulation D offerings, attempting to standardize responses to provide searchable data may be challenging and not worthwhile. Commenters expressed mixed views on eliminating the requirements for information on expenses and use of proceeds of the offering. One commenter agreed with the Commission’s view that the information is not necessary and stated that providing the information is problematic because of issuer burden, lack of applicable accounting standards and category definitions, and estimated amounts.126 Commenters that objected to deleting the requirements essentially stated that the information helps to enable state regulators to screen offerings for potential problems.127 One of these commenters addressed the issues of burden and lack of specificity as to use of proceeds information by suggesting that the form provide more checkboxes but exclude from those checkboxes one that provides for general corporate purposes.128 We have considered the comments and, as a result, rather than deleting the current expenses and use of proceeds requirements in their entirety, we are deleting most of them and adopting the rest of them in new Items 15 and 16. New Item 15 will require the issuer to provide only the amounts paid for sales commissions and, separately stated, finders’ fees in connection with the offering. New Item 16 will require reporting of the amount of the gross proceeds the issuer used or proposes to use for payments to related persons.129 New Items 15 and 16 will 126 See letter from ABA. 127 See letters from Connecticut, Massachusetts, NASAA and Pennsylvania. 128 See letter from NASAA. 129 For purposes of new Item 15, “Related Persons” are those persons new Item 3 requires the issuer to report in the Form D notice. 44 permit clarification where necessary to prevent the information supplied from being misleading.130 Both items will require substantially less information relating to offering expenses and use of proceeds and, thereby, result in a substantially reduced burden. The information new Items 15 and 16 will require is limited to expenses in connection with the offering process and payments to related persons. We believe that these types of expenses and payments are most likely to be of regulatory interest. Consequently, we believe the benefits from providing this information will justify the burdens in relation to information necessary for regulatory purposes. 6. Signature and Submission We are combining the federal and state signature requirements currently in Sections D and E of Form D into one signature requirement. This will simplify the filing and make it consistent with other signature requirements of Commission forms. We are incorporating into the signature block a consent to service of process similar to the one currently in Form U-2, which is required to be filed separately but simultaneously with a Form D by many states. Our intention in making these changes is to maintain the usefulness of the signature block to regulators in a manner that is consistent with easing burdens on filers. The combined signature requirement, in general, provides that each issuer signing the revised Form D131 has read the Form D, knows the contents to be true, has duly caused the Form D to be signed on its behalf by the undersigned duly authorized person, and is132 130 We discuss the ability to clarify items in Part II.C below. 131 Each issuer in a multiple-issuer offering will be required to sign the Form D. If all issuers authorize the same person to sign on their behalf, however, only that person will need to sign. 132 Both the current federal and state signature requirements expressly provide that the issuer has duly caused the Form D to be signed on its behalf by the undersigned duly authorized person. Only the current state signature requirement, however, expressly provides that the issuer has read the Form D and knows the contents to be true. 45 • notifying the Commission and the states in which the Form D is filed of the offering and undertaking to furnish to them, on written request, the information provided by each issuer to offerees in accordance with applicable law; • consenting to service of process on individuals holding specified positions; and • certifying that, if the issuer is claiming a Rule 505 exemption, it is not disqualified from relying on Rule 505 for one of the reasons stated in Rule 505(b)(2)(iii). In undertaking to furnish to the states in which the Form D is filed, on written request, the information provided to offerees, the issuer will not be affecting any legal limits on the ability of these states to require information.133 The signature requirement will be more extensive than the current federal signature requirement and will differ in various ways from the current state signature requirement. The proposed signature requirement will be more extensive than the current state signature requirement, for example, by including a consent to service of process. The signature requirement also will be less extensive than the current state signature requirement in several ways.134 The signature requirement also will differ in several ways from the Form U-2 signature requirement. The principal difference between the signature requirement and the Form U-2 signature requirement is that Form U-2 requires the notarized signature of a corporate officer (or 133 See Section 18 under the Securities Act as discussed in Part I.B.3. 134 The new signature requirement, unlike the current state signature requirement, will omit both an undertaking to provide a Form D to specified state administrators and a representation regarding ULOE. As noted above, however, under the new signature requirement, issuers will undertake to furnish to the states in which the Form D filing is made, on written request, the information provided by each issuer to offerees. Also as noted above, revised Form D will omit all references to ULOE and the provisions that, in general, require specified information on a state-by-state basis in an appendix to the form and require specified representations and undertakings. 46 that person’s equivalent in the case of other entities) and requires a consent to jurisdiction and venue as well as a consent to service of process.135 Some commenters expressly supported a combined signature requirement,136 but they and other commenters expressed concerns. Two commenters expressed the concern that the undertaking to provide offering materials could be read in a manner inconsistent with NSMIA,137 one commenter asked for clarification regarding the application of NSMIA,138 and two commenters expressed the concern that the combined signature requirement was too narrow because it did not contain all that is contained in the current state signature requirement and Form U-2.139 The commenters that expressed the concern that the undertaking to provide offering materials could be read in a manner inconsistent with NSMIA stated that the undertaking could be misunderstood to mean that, as a result of the undertaking, states could require the offering materials in all instances regardless of the limits NSMIA otherwise would impose on their ability to do so.140 Both of these commenters suggested that Commission could resolve the concern by omitting the undertaking, and one of these commenters141 suggested that, in the alternative, the Commission could clarify that the undertaking would be inapplicable to offerings under Rule 506. In response to these concerns, the new form will clarify in the context of the offering 135 The new signature requirement’s addressing consent to service but not consent to jurisdiction or venue is consistent with the signature requirement in Form ADV [17 CFR 279.1], which can satisfy both federal and state filing requirements for investment adviser registration. 136 See letters from ABA and NASAA. 137 See letters from ABA and MFA. 138 See letter from ABA. 139 See letters from Connecticut and NASAA. 140 See letters from ABA and MFA. 141 See letter from ABA. 47 materials undertaking that where securities that are the subject of the Form D are covered securities under NSMIA, whether in all instances or due to the nature of the offering that is the subject of the Form D, the states cannot routinely require the offering materials under the undertaking or otherwise and can require the offering materials only to the extent Section 18(c)(1) permits them to do so under its preservation of their anti-fraud authority. Also, we have added language to the undertaking specifying that it only applies to written requests made “in accordance with applicable law.” The commenter that requested the NSMIA-related clarification asked that we clarify the relationship between Section 18(c)(2)(A) and the new signature requirement’s consent to service provision in particular and between Section 18(b)(4)(D) and new Form D in general. Section 18(c)(2)(A) generally provides, in relevant part, that the states retain the right under NSMIA to obtain a consent to service of process from an issuer engaged in an offering under Rule 506 of Regulation D. Section 18(b)(4)(D) generally provides that the states retain the right under NSMIA to impose on an issuer engaged in an offering under Rule 506 “notice filing requirements that are substantially similar to those required by rule or regulation under section 4(2) that are in effect on September 1, 1996.” Similarly to what we noted above in regard to the undertaking to provide offering materials, neither the consent to service provision nor anything else related to new Form D affects any legal limits on the ability of the states to require information. Both commenters that expressed the narrowness concern addressed the consent to service provision. One commenter stated that the consent to service should be broadened to include consents to jurisdiction and venue as are contained in Form U-2 to eliminate fully the need to file Form U-2 and enable investors to avoid needing to plead and prove jurisdiction as an issuer 48 should that wants to offer or sell in a state.142 The other commenter stated that the consent to service provision should be broadened to apply to a broader array of acts, as does Form U-2, and to include the Rule 262 disqualification provision we proposed to delete.143 The commenter reasoned that the form should include the Rule 262 disqualification provision because state bad actor provisions might apply to offerings under Rule 504 or 505. We believe that the consent to service provision as proposed and adopted strikes the right balance between regulatory benefit and issuer burden. We acknowledge that the consent to service will not be as broad in effect as Form U-2 because that form’s consent to service applies to a somewhat broader array of acts and that form also contains consents to jurisdiction and venue. We believe, however, that the Form D consent provision’s application to a somewhat narrower array of facts is appropriate because the facts it applies to are tailored to the subject matter of Form D. The Form D consent to service provision generally applies to “any activity in connection with the offering of securities that is the subject of this [Form D].” In contrast, the Form U-2 consent to service provision generally applies to actions relating to “the sale of securities.” Finally, although Form D will not require consents to jurisdiction and venue, we note that under appropriate circumstances, state regulators still would be able to require this type of information. B. Electronic Filing of Form D We are amending Regulation S-T,144 Rule 503 of Regulation D, and Form D to implement the requirement for issuers to file the information required by Form D with us 142 See letter from NASAA. 143 See letter from Connecticut. 144 Regulation S-T is the Commission’s general regulation governing electronic filing. 49 electronically through an online filing system.145 A large majority of commenters supported electronic filing, but some expressed concern about whether electronic filing would impose more burdens on issuers146 or raise general solicitation issues.147 The concerns regarding burdens generally related to the operation of the online system, and we address those concerns below where we discuss the operation of the system in more detail.148 One commenter expressed the concern that, even though Forms D currently are publicly accessible, their increased public accessibility as a result of mandated electronic filing would encourage third parties to use Form D for purposes beyond its original intent or current use and might result in issuers making less use of Form D than they do now and, thereby, deprive them of the benefits of the use of Regulation D and cause the Commission to receive less information than it does now.149 The commenter suggested that, as an alternative, the Commission permit Form D filings to be confidential for a specified amount of time, such as a year, if the issuer has made no public disclosure of the offering. The Form D would, however, be available to the Commission and states with which it was filed during that time. We acknowledge the commenter’s concerns. As we discussed in the proposing release and above, however, public availability of Form D provides a measure of investor disclosure and serves other useful purposes. In addition, as a practical matter, even if we were to permit confidential filing, Forms D would be subject to requests under the Freedom of Information Act (“FOIA”).150 145 The online filing system will automatically capture and tag data items and is discussed in further detail in Part III of this release. 146 See letters from ABA, Stephen A. Marcus and SCSGP. 147 See letters from Connecticut, Massachusetts and NASAA. 148 We address the concerns relating to general solicitation issues in Part II.C below. 149 See letter from ABA. 150 5 U.S.C. 552 et seq. The Commission’s regulations that implement that statute are at 17 CFR 200.80 et seq. 50 Rule 101(c)(6) of Regulation S-T151 currently requires the information required by Form D to be filed in paper format. The amendments will delete the reference to Form D from Rule 101(c)(6) and will revise subparagraph (a)(1) of Rule 101152 to add a new subparagraph (xiii) that will add Form D to the rule’s list of documents required to be filed electronically. Rule 100 of Regulation S-T,153 which specifies the persons or entities subject to the electronic filing requirements of Regulation S-T, expressly includes, among others, Exchange Act reporting companies whose filings (such as Form D) are subject to review by the Division of Corporation Finance. In order to assure that Rule 100 also will apply to non-reporting companies that file Form D, the amendments revise paragraph (a) of Rule 100 of Regulation S-T154 to add a reference to entities that are not Exchange Act reporting companies but whose filings are subject to review by the Division of Corporation Finance. We also are amending Regulation S-T, as proposed, to make hardship exemptions unavailable for Form D filings.155 The amendments revise subparagraph (a) of Rules 201156 and 202157 to exclude Form D from the filings for which hardship exemptions are available. We believe hardship exemptions should not be available for Form D filings because of the relative ease of electronic filing, the limited value of paper filings and the utility of a uniform, 151 17 CFR 232.101(c)(6). 152 17 CFR 232.101(a)(1). 153 17 CFR 232.100. 154 17 CFR 232.100(a). 155 We note, however, that a filer may request a filing date adjustment under Rule 13(b) of Regulation S-T [17 CFR 232.13(b)]. This rule addresses circumstances where an electronic filer attempts in good faith to file a document with the Commission in a timely manner but the filing is delayed due to technical difficulties beyond the filer’s control. In those instances, the filer may request an adjustment of the document’s filing date. The staff may grant the request if it appears that the adjustment is appropriate and consistent with the public interest and the protection of investors. 156 17 CFR 232.201(a). 157 17 CFR 232.202(a). 51 comprehensive database. In adopting the conversion of the Form D filing from a paper system to an electronic system, we assume that issuers will have access to a computer and the Internet. In the absence of an issuer’s having a personal or office computer and Internet access, public libraries around the country often have computer and Internet access that an issuer could use. We therefore do not envision the need for a hardship exemption to permit paper filing.158 The amendments revise Rule 503 of Regulation D and Form D in several ways related to electronic filing. The amendments delete from Rule 503 references to the paper-based concept of copies in subparagraphs (a) and (b) and a manual signature in subparagraph (b). Subparagraph (a) will continue to specify when a notice on Form D initially must be filed and will be revised to specify also when an amendment to a Form D filing must or could be filed.159 One commenter160 suggested that we ease burdens by extending the filing deadline to at least 30 days from the date of first sale,161 defining the date of first sale as the consummation of the first closing of a sale of securities in the offering, extending the cut-off time for electronic filing from 5:30 to 10:00 p.m. Eastern time162 and providing that when a Form D otherwise 158 We also are adopting an amendment to Rule 104(a) of Regulation S-T [17 CFR 232.104(a)] to make it clear that unofficial PDF copy submissions are unavailable for Form D notices. The new online filing system, further described below, will make filed Form D information available on our Web site in what we believe will be an easy-to-read format similar to that which could be provided through an unofficial PDF copy. 159 Subparagraph (a) will continue to provide that an issuer must file the Form D no later than 15 calendar days after the first sale of securities in the offering. As currently, an issuer could file the Form D at any time before that if it has determined to make the offering. Also as currently, a mandatory capital commitment call would not constitute a new offering, but would be made under the original offering, so no new Form D filing would be required solely as a result. See Part II.A.4.b of this release for a discussion of when an amendment must or could be filed. 160 See letter from ABA. 161 As discussed above in connection with Item 13 in Part II.A.5, another commenter suggested that the form require a final report of actual sales results and be due not later than 15 business days after the close of the offering. 162 Rule 13 of Regulation S-T [17 CFR 232.13] generally provides that a filing by direct transmission beginning on or before 5:30 p.m. Eastern time on a business day is deemed filed that day and, if such a filing were to begin after that time, it would be deemed filed on the next business day. Rule 13 also provides, however, that a 10:00 p.m. deadline applies for registration statements and post-effective amendments filed under Rule 462(b) [17 CFR 230.462(b)] and beneficial ownership reports filed 52 would be due on a weekend or holiday it be deemed due on the next business day. We are not aware of the current deadline’s having been difficult to meet in the past and believe that carrying it forward is not likely to cause problems in the future. For the same reasons, we believe that it is not necessary to extend the cut-off time from 5:30 to 10:00 p.m. In this regard, we note that filings under Rule 462(b) and Section 16(a) to which the extended cut-off time applies typically must be made much more quickly than a filing on Form D.163 We are, however, further revising Rule 503(a)(1) to provide that when a Form D filing otherwise would be due on a weekend or holiday it will be deemed due on the next business day. This approach is consistent with the way Exchange Act Rule 0-3(a)164 generally treats filing deadlines under the Exchange Act.165 Subparagraph (b) of Rule 503 will continue to require a signature. Rule 302 of Regulation S-T,166 which governs the manner of signature for electronic filings, will apply to Form D.167 The amendments also add to subparagraph (b) a statement that electronic Form D filing through our new online filing system is mandatory. In addition, the amendments delete subparagraphs (c), (d), and (e). Subparagraph (c) requires an issuer that makes sales under Rule under Section 16(a) [15 U.S.C. 78p(a)], in general, by officers, directors and principal security holders of reporting companies that have a class of equity securities registered under Section 12 [15 U.S.C. 78l] of the Exchange Act. 163 For example, Section 16(a)(2)(C) [15 U.S.C. 78p(a)(2)(C)] generally requires that insiders file reports of changes in beneficial ownership within two business days of the change. 164 17 CFR 240.0-3(a). 165 As the commenter that raised the weekend/holiday issue pointed out, current Rule 503(e)(2) addresses the issue by providing that a Form D we do not physically receive by the end of the 15-day period is deemed filed on the date it is sent by certified or registered U.S. mail. Consequently, an issuer currently may send a Form D as late as the end of the 15-day period. In proposing to delete Rule 503(e)(2), it was not our intention to shorten the Form D filing deadline. 166 17 CFR 232.302. 167 Rule 302 requires, in general, that electronic filings contain typed signatures, that each signer manually sign a signature page or other document confirming the typed signature by the time the filing is made, and that the issuer maintain the manually signed document for five years and make it available to the Commission and its staff upon their request. We also are adding to Form D’s signature instruction a summary of Rule 302’s requirements as a convenience. 53 505 to provide an undertaking on its Form D to provide specified information to the Commission upon the staff’s written request. This paragraph no longer will be necessary because, as noted above, the revised signature requirement will provide that each issuer signing the Form D will be undertaking to furnish to the Commission and the states with which the Form D is filed, on written request, the information provided by each issuer to offerees. Subparagraph (d), regarding amendments, no longer will be necessary because subparagraph (a) will address when to file amendments and the new online filing system will make available to the issuer the version of the Form D to be amended to enable the issuer to key in only the changes. Subparagraph (e), regarding the date a Form D filing is considered filed, no longer will be necessary because Rule 13 of Regulation S-T will specify the way to determine the filing date for a Form D filing as it does for electronic filings generally and new Rule 503(a)(1) will provide that when a Form D otherwise would be due on a weekend or holiday it will be deemed due on the next business day.168 Finally, the amendments similarly will revise the General Instructions of Form D regarding copies required, manual signatures, amendments, mandatory electronic filing and filing date. C. General Solicitation and General Advertising Issues Presented by Electronic Filing of Form D Rule 502(c) of Regulation D169 sets forth the prohibition on general solicitation and general advertising applicable to most Regulation D offerings. Specifically, issuers and persons acting on the issuer’s behalf are prohibited from offering or selling securities by any form of general solicitation or general advertising. Information filed using Form D has up to now been available to the general public. The electronic filing and availability of Form D information, 168 The description of Form D at 17 CFR 239.500 is similar to Rule 503 and is being amended similarly. 169 17 CFR 230.502(c). 54 however, may present 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. This, in turn, may raise concerns regarding compliance with Regulation D’s prohibition on the use of general solicitation and general advertising. To address these compliance concerns, we are revising Rule 502(c) to include a safe harbor from the prohibition on “general solicitation” and “general advertising” for information provided in a Form D filed with the Commission if the information is provided in good faith and the issuer makes reasonable efforts to comply with the requirements of Form D. An issuer that complies with the terms of the safe harbor is assured that the electronic availability of its Form D filing would not, in and of itself, cause the issuer to have violated this prohibition. Such a safe harbor would not be warranted if it merely shielded activity that is, in fact, intended to generate interest in the offering in violation of law. Accordingly, we are limiting the amount of information submitted on the form and limiting the application of the safe harbor to where the information is provided with a good faith and reasonable effort to comply with the requirements of Form D.170 Limiting the safe harbor to information provided with a good faith and reasonable effort to comply with the requirements of Form D would be consistent with Preliminary Note 6171 to Regulation D, Rule 508,172 and the “notification” nature of Form D’s requirements. 170 Similarly, current Rule 502(c) includes a safe harbor from the prohibition on general solicitation and general advertising for a notification in compliance with Rule 135c of an unregistered offering by an issuer required to file reports under Section 13 or 15(d) of the Exchange Act. The information allowed to be included in a Rule 135c notification is limited to very basic identifying information about the issuer and the offering. 171 Preliminary Note 6 to Regulation D provides, in part, that “Regulation D is not available to any issuer for any transaction or chain of transactions that, although in technical compliance with the these rules, is part of a plan or scheme to evade the registration provisions of the [Securities] Act.” 172 17 CFR 230.508. Rule 508 provides, in part, that “A failure to comply with a term, condition or requirement of [specified rules under Regulation D] will not result in the loss of [an] exemption . . . if the 55 As proposed, electronic Form D would not have contained any place where “free writing” could occur.173 When submitting a paper filing, filers may insert information that is not required by the form, but that could be a vehicle for soliciting investors illegally. Prohibiting free writing in the electronic form would prevent such misuse. One commenter favored the total bar against free writing as necessary to safeguard against this misuse.174 Another commenter, however, favored allowing issuers to clarify responses, asserting that permitting issuers to do so would avoid a disincentive to filing by enabling issuers to present more accurate information that would be more useful.175 The commenter also asserted that permitting clarification to ensure accuracy would not transform the Form D into a marketing document and would be consistent with the proposed safe harbor because the information would be provided with a good faith and reasonable effort to comply with the requirements of Form D. We are persuaded that, on balance, it is appropriate to permit issuers to engage in a limited amount of free writing to the extent necessary to clarify responses as consistent with the safe harbor. In order to limit the amount of free writing, however, we are reducing the need for it by offering additional response choices for some items176 and permitting free writing to clarify responses in separate fields using a limited number of characters only for those items for which it seems appropriate. Accordingly, and as noted above in the context of discussing particular items of new Form D, we will permit free writing to clarify responses to the following items: person relying on the exemption shows . . . [a] good faith and reasonable attempt was made to comply with all applicable terms, conditions and requirements of [such rules].” 173 As proposed and adopted, however, Form D will require an issuer to provide further detail in a textual response if the issuer must choose “Other” in response to Item 1 regarding legal entity type or Item 9 regarding security type. 174 See letter from NASAA. 175 See letter from ABA. 176 For example, we have modified the proposed version of Item 1 to permit an issuer to choose “yet to be formed” in [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/agency%3Asec%3Ab68bac413a12df0d. Public record. Not legal advice.