Release No. 33-6663

October 2, 1986

Regulation D Revisions

ACTION: Final rules.

SUMMARY: The Commission, with acknowledgement of the cooperation of the North American Securities Administrators Association, Inc. ("NASAA"), ¹ announces the adoption of various revisions to Form D and Regulation D under the Securities Act of 1933 (the "Securities Act") designed to make the Form a uniform notification form that can be filed with the Commission and with the states. Certain revisions to the Form which are being adopted affect various items of disclosure which have previously been required in the filing. In addition, the provisions requiring the Form to be updated every six months until the offering is completed, and requiring a final filing within thirty days of the final sale or the completion of the offering, have been eliminated.

EFFECTIVE DATE: November 10, 1986.

FOR FURTHER INFORMATION CONTACT: Karen OBrien, (202) 272-2644, Office of Small Business Policy, Division of Corporation Finance, Securities and Exchange Commission, 450 5th Street, N.W., Washington, D.C. 20549.

SUPPLEMENTARY INFORMATION: On June 5, 1986, the Commission with the cooperation of NASAA published for comment ² several proposed amendments to Form D and the description of Form D, ³ the notification Form required to be filed by issuers relying on the exemptions from the registration provisions of the Securities Act provided by Regulation D ⁴ thereunder and Section 4(6) of the Securities Act. ⁵

The proposed revisions to the Form allow for a uniform notification form that can be filed with the Commission and with the States. Other revisions revise or eliminate certain item requirements from the Form and eliminate the federal requirements to update the Form every six months and to file a final form upon the completion of the offering. These proposals mark a continuation of the Commissions efforts to reduce the costs of capital formation for small issuers and to promote uniformity between federal and state securities regulation. Having considered the comments received from the public, the Commission is adopting the revisions substantially proposed.

Table of Contents

I. Revisions to Form D

Form D is required to be filed whenever any of the Regulation D exemptions or Section 4(6) exemption from the registration requirements of the Securities Act is relied upon. Due to the relationship between Regulation D and the Uniform Limited Offering Exemption ("ULOE") which has been adopted by more than half of the states, there has been substantial uniformity for certain exempt securities transactions at both the federal and state levels. The proposed revisions to Form D were designed in part to encourage more states to adopt ULOE. The revisions also will be beneficial to the states which have already adopted ULOE. As amended, the Form provides for special instructions for the federal and state filing, including a separate appendix keyed to specific items of the form on a state-by-state basis. There is also a separate federal and state signature page. Thus, it will now be possible for an issuer to fill in and sign a single Form D and then duplicate the appropriate number of copies for filing with the Commission and the states.

Substantively, the Form no longer requires certain disclosures about the issuer, such as gross revenues, total assets and numbers of shareholders. Information about the use of proceeds and expenses of the offering have been made parallel to those requirements in Form SR ⁶ and Item 504 of Regulation S-K. ⁷ In the area of disclosure about affiliates, Form D now only requires identification of an issuers executive officers, directors, general partners, promoters and persons beneficially owning 10 percent or more of a class of equity securities, rather than all affiliates.

Certain technical, format changes have been made in the layout and organization of the Form, which make no substantive changes to the Form D proposed for comment but are intended to make the Form clearer and easier to fill out.

II. Revisions to the Filing Requirements

The Commission also has revised the Instructions to Form D and Rule 503 to eliminate the requirements to file with the Commission six month updates and the final notification on Form D. The initial notice is still required to be filed with the Commission within 15 days of the first sale of securities in an offering under Regulation D or Section 4(6). Issuers must determine the filing requirements of each state where the Form can be used.

III. Public Comments Regarding the Proposals

The Commission received 13 comment letters regarding the proposals, all of which supported the basis revisions to the Form D and the concept of having a single notification form available for both federal and state filing purposes. ⁸ A number of the commentators recommended the inclusion of certain additional or clarifying information in the Form which the Commission has considered and adopted in certain instances. For example, the issuer as well as the offering is now identified on the cover page of the Form. It was also noted that the state of Washington was omitted from the Appendix and that Column 4 of such Appendix was incorrectly constituted. These matters have been rectified. Generally, however, the scope of the information sought by Form D has remained as proposed for comment.

Three commentators, representing the state securities regulators in Alabama, Texas and Washington, opposed elimination of the final filing requirement. These commentators are concerned that their monitoring activities may be impaired without the information contained in the last filing, which in turn may hurt their efforts to enforce compliance with Regulation D. With regard to the elimination of the final filing requirement, the Commission gave careful consideration to the concerns of the commentators, in balance with the needs of investors and the costs imposed upon affected persons. The information contained in the original notification has proved sufficient for the Commissions enforcement surveillance for compliance with the requirements of Regulation D. No significant administrative or enforcement proceedings have resulted from final Form D filings made with the Commission. Thus, in view of the tremendous volume of final filings (7,414 in 1985, or over 27% of all filings that year), even at a nominal expense to both the preparing party and the Commission, it is apparent that significant cost savings may be had with negligible consequence to investors through elimination of the final filing requirement.

Two state securities regulators, representing Alabama and Washington, were also concerned about the revision of the required identification of affiliates item. These commentators believe the information is useful in their enforcement efforts, particularly in the area of disqualified parties involved in the offering of securities. The Commission believes that the revised item continues to encompass the major affiliates of an issuer. No specific examples of affiliates who are material that would be left undisclosed were cited in these or other commentators letters.

IV. NASAA Cooperation

In connection with its publication of the proposed revisions to Form D, the Commission acknowledged the cooperation of NASAA and particularly its Small Business Financing Committee. The Commission understands that following its adoption of the revisions to Form D, the NASAA Committee will recommend adoption by NASAA of appropriate modifications to ULOE to provide for the uniform form. With respect to the elimination of the final reporting requirement, the Committee has taken no position and will not recommend either for or against this provision. The Commission appreciates the cooperation of NASAA and the members of its Committee in connection with the revisions to Form D. The Commission looks forward to continued cooperation between NASAAs members and the Commission to achieve greater uniformity between the federal and state systems of securities regulation, and thus to promote efficient capital formation consistent with the protection of investors.

V. Availability of Final Regulatory Flexibility Analysis

A final Regulatory Flexibility Analysis in accordance with the Regulatory Flexibility Act regarding the amendments has been prepared. A summary of the corresponding Initial Regulatory Flexibility Analysis was included in the proposing release. Members of the public who wish to obtain a copy of the Final Regulatory Flexibility Analysis should contact Karen OBrien as specified above.

VI. Cost-Benefit Analysis

While no specific data was provided on the Commissions request for costs and benefits of the proposals, many of the commentators suggested that there would be some cost savings from the proposed revisions including elimination of the six month updates and final filing requirements. It is worth noting again that had these provisions not been in effect during 1985, approximately 37% of the Form D filings that year would have been avoided. The Commission believes that the benefits from the required initial filing and the information contained therein will be sufficient for purposes of investor protection.

VII. Statutory Basis and Text of the Amendments

The amendments to the Commissions Forms and rule are being adopted pursuant to Sections 3(b), 4(2), 19(a) and 19(c)(3) of the Securities Act.

List of Subjects in 17 CFR Parts 230 and 239.

Reporting and recordkeeping requirements, securities.

TEXT OF AMENDMENTS

Accordingly, Title 17, Chapter II of the Code of Federal Regulations is amended as follows:

Part 230--GENERAL RULES AND REGULATIONS, SECURITIES ACT OF 1933

1. The authority citation for Part 230 continues to read, in part as follows:

Authority: Sections 230.100 to 230.174 issued under Sec. 19,48 Stat. 85, as amended; 15 U.S.C. 77s * * *

2. Section 230.503 is revised to read as follows:

Section 230.503 Filing of notice of sales.

(a) The issuer shall file with the Commission five copies of a notice on Form D (17 CFR 239.500) no later than 15 days after the first sale of securities in an offering under Regulation D.

(b) One copy of every notice on Form D shall be manually signed by a person duly authorized by the issuer.

(c) If sales are made under §230.505, the notice shall contain an undertaking by the issuer to furnish to the Commission, upon the written request of its staff, the information furnished by the issuer under §230.502(b)(2) to any purchaser that is not an accredited investor.

(d) Amendments to notices filed under paragraph (a) of this §230.503 need only report the issuers name and the information required by Part C and any material change in the facts from those set forth in Parts A and B.

(e) A notice on Form D shall be considered filed with the Commission under paragraph (a) of this §230.503:

(1) As of the date on which it is received at the Commissions principal office in Washington, D.C.; or

(2) As of the date on which the notice is mailed by means of United States registered or certified mail to the Commissions principal office in Washington, D.C., if the notice is delivered to such office after the date on which it is required to be filed.

PART 239--FORMS PRESCRIBED UNDER THE SECURITIES ACT OF 1933

3. The authority citation for Part 239 continues to read, in part, as follows:

Authority: The Securities Act of 1933, 15 U.S.C. 77a, et seq. * * *

4. By revising Form D described in §239.500 as follows. (Note: Form D does not appear in the Code of Federal Regulations).

By the Commission.

Jonathan G. Katz

Secretary

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*** Graph omitted ***

¹ NASAA is an association of securities administrators from each of the 50 states, the District of Columbia, Puerto Rico and several of the Canadian provinces.

² Release No. 33-6650 (June 5, 1986) 51 FR 21378.

³ 17 CFR 239.500.

⁴ 17 CFR 230.501-506.

⁵ 15 U.S.C. 77d(6).

⁶ 17 CFR 239.61. The Commission has under consideration several proposals which could change the information requirements in Form SR. If such form is changed in this regard, it is currently projected that parallel changes would also be made to Form D.

⁷ 17 CFR 229.504.

⁸ The comment letters and a summary of comments (File No. S7-13-86) are available for public inspection and copying at the Commissions Public Reference Room, 450 5th Street, N.W., Washington, D.C. 20549.