[Federal Register: February 27, 2008 (Volume 73, Number 39)] [Rules and Regulations] [Page 10591-10642] From the Federal Register Online via GPO Access [wais.access.gpo.gov] [DOCID:fr27fe08-12] [[Page 10591]] ----------------------------------------------------------------------- Part IV Securities and Exchange Commission ----------------------------------------------------------------------- 17 CFR Parts 230, 232 and 239 Electronic Filing and Revision of Form D; Final Rule [[Page 10592]] ----------------------------------------------------------------------- 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. DATES: Effective Date: September 15, 2008 except the amendments to Sec. 232.101(c)(6) and Sec. 232.201(a) are effective March 28, 2008, Sec. 232.101(a)(1)(xiii) is effective March 16, 2009 and Sec. 230.503T, Sec. 232.101(b)(10) and Sec. 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 202 \5\ of Regulation S-T,\6\ Rules 502 \7\ and 503 \8\ of Regulation D,\9\ and Form D \10\ 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. --------------------------------------------------------------------------- \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. --------------------------------------------------------------------------- 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. Easing Filing Burdens 2. Better Public Availability of Form D Information 3. Federal and State Uniformity and Coordination; One-Stop Filing 4. Improved Collection of Data for Commission Enforcement and Rulemaking Efforts C. Summary of Adopted Amendments II. Discussion of Amendments A. Amendments to Form D Content Requirements 1. Basic Identifying and Contact Information 2. Additional Information About Issuer 3. Identification of Claimed Exemptions and Exclusions 4. Indication of Type of Filing a. General Requirements b. Amendment of Previously Filed Form D 5. Information About Offering 6. Signature and Submission B. Electronic Filing of Form D C. General Solicitation and General Advertising Issues Presented by Electronic Filing of Form D III. 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 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. --------------------------------------------------------------------------- \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. --------------------------------------------------------------------------- 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. --------------------------------------------------------------------------- \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. --------------------------------------------------------------------------- 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 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\ --------------------------------------------------------------------------- \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: ``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]. --------------------------------------------------------------------------- We modified the requirements relating to Form D in 1986, making Form D a uniform notification form that could be filed with state securities [[Page 10593]] 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\ --------------------------------------------------------------------------- \17\ Release No. 33-6663 (Oct. 2, 1986) [51 FR 36385]. \18\ 17 CFR 230.503. --------------------------------------------------------------------------- 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 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. --------------------------------------------------------------------------- \19\ Release No. 33-6825 (Mar. 15, 1989) [54 FR 11369]. \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. --------------------------------------------------------------------------- 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 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. --------------------------------------------------------------------------- \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]. --------------------------------------------------------------------------- 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\ --------------------------------------------------------------------------- \26\ Release No. 33-6389 (Mar. 8, 1982) [47 FR 11251] and Release No. 33-7431 (July 18, 1997) [62 FR 39755]. --------------------------------------------------------------------------- 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 the workings of these industries.\28\ Journalists use Form D information to report on capital-raising in these industries.\29\ --------------------------------------------------------------------------- \27\ See http://www.sec.gov/answers/formd.htm. \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. --------------------------------------------------------------------------- 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. --------------------------------------------------------------------------- \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. --------------------------------------------------------------------------- 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 [[Page 10594]] accessible from any computer with Internet access. Issuers will provide data by responding to discrete information requests. Appropriate 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\ --------------------------------------------------------------------------- \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. --------------------------------------------------------------------------- 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 http://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 application to use the information. --------------------------------------------------------------------------- \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. --------------------------------------------------------------------------- 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. --------------------------------------------------------------------------- \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). --------------------------------------------------------------------------- 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 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. --------------------------------------------------------------------------- \35\ The Commission's electronic filing system will not collect fees on behalf of any states. --------------------------------------------------------------------------- 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 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 adoption \39\ 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 [[Page 10595]] 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. --------------------------------------------------------------------------- \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. \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. --------------------------------------------------------------------------- 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 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: [cir] After a phase-in period during which electronic filing will be voluntary; and [cir] Through an online filing system that will 0 Be accessible from any computer with Internet access; and 0 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: [cir] Permitting filers to identify all issuers in a multiple- issuer offering in one Form D filing; [cir] Deleting the current requirement to identify as ``related persons'' owners of 10 percent or more of a class of the issuer's equity securities; [cir] 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; [cir] 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); [cir] Requiring more specific information on the registration exemption claimed by the issuer in the Form D notice as well as information on any exclusion claimed from the definition of ``investment company'' under the Investment Company Act of 1940 (``Investment Company Act); \42\ --------------------------------------------------------------------------- \42\ 15 U.S.C. 80a-1 et seq. --------------------------------------------------------------------------- [cir] Requiring reporting of the date of first sale in the offering; [cir] 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; [cir] Requiring reporting of whether the offering is expected to last over a year; [cir] 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; [cir] Requiring CRD numbers for both individual recipients of sales compensation and associated broker-dealers; [cir] 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; [cir] 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 service of process and a certification that the issuer is not disqualified by rule from relying on an exemption claimed; and [cir] 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 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. [[Page 10596]] 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 405 \43\ or Rule 501 \44\ 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\ --------------------------------------------------------------------------- \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. --------------------------------------------------------------------------- 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 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. --------------------------------------------------------------------------- \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. --------------------------------------------------------------------------- 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 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. --------------------------------------------------------------------------- \48\ See letter from Pink Sheets LLC. \49\ See letter from ABA. --------------------------------------------------------------------------- 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. --------------------------------------------------------------------------- \50\ See id. --------------------------------------------------------------------------- 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. --------------------------------------------------------------------------- \51\ See letters from ABA and Connecticut. --------------------------------------------------------------------------- Item 2, similar to current Form D, requires filers to provide place of business and telephone contact information.\52\ --------------------------------------------------------------------------- \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. --------------------------------------------------------------------------- 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 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. --------------------------------------------------------------------------- \53\ See letter from ABA. --------------------------------------------------------------------------- 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 [[Page 10597]] because that enables issuers that are filing with states that otherwise would require separate Forms D to include the information if they wish to avoid filing the separate forms, if permitted by state law. --------------------------------------------------------------------------- \54\ See letter from Pennsylvania. \55\ See letter from ABA. --------------------------------------------------------------------------- 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. --------------------------------------------------------------------------- \56\ See letter from NASAA. --------------------------------------------------------------------------- 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 --------------------------------------------------------------------------- \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. --------------------------------------------------------------------------- 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\ --------------------------------------------------------------------------- \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)]. --------------------------------------------------------------------------- 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\ --------------------------------------------------------------------------- \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 percent 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. --------------------------------------------------------------------------- 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\ --------------------------------------------------------------------------- \61\ See letters from ABA and MFA. \62\ See letter from ABA. --------------------------------------------------------------------------- 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: --------------------------------------------------------------------------- \63\ See letters from Chris Evans (claiming to represent the views of the vast majority of news organizations), Massachusetts, NASAA and Pennsylvania. --------------------------------------------------------------------------- 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\ --------------------------------------------------------------------------- \64\ See letters citing one or more of these examples from Massachusetts, NASAA and Pennsylvania. --------------------------------------------------------------------------- The general public because it reveals the investment activity of public sector entities; \65\ and --------------------------------------------------------------------------- \65\ See letter from Chris Evans. --------------------------------------------------------------------------- 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\ --------------------------------------------------------------------------- \66\ See letters from Massachusetts and NASAA. --------------------------------------------------------------------------- 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. --------------------------------------------------------------------------- \67\ The words ``directly or indirectly'' are used in the applicable definition of the term ``promoter'' in Rule 405. --------------------------------------------------------------------------- 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 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. --------------------------------------------------------------------------- \68\ Tax Reform Act of 1986, Pub. L. 99-514, 100 Stat. 2085 (Oct. 22, 1986). --------------------------------------------------------------------------- 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 [[Page 10598]] 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. --------------------------------------------------------------------------- \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.'' --------------------------------------------------------------------------- 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 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. --------------------------------------------------------------------------- \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. --------------------------------------------------------------------------- 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. --------------------------------------------------------------------------- \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. --------------------------------------------------------------------------- One commenter suggested that we eliminate the ``Decline to Disclose'' option from the proposed revenue range requirement \74\ 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. --------------------------------------------------------------------------- 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's \77\ 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 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\ --------------------------------------------------------------------------- \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]. \81\ One commenter expressed general agreement with our views regarding ULOE. See letter from ABA. --------------------------------------------------------------------------- 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 [[Page 10599]] 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\ --------------------------------------------------------------------------- \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. --------------------------------------------------------------------------- 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 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