Electronic Filing and Revision of Form DAGENCY: 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 232.101(c)(6) and 232.201(a) are effective [30 days after publication of this release in the Federal Register], 232.101(a)(1)(xiii) is effective March 16, 2009 and 230.503T, 232.101(b)(10)T and 239.500T are effective from September 15, 2008 to March 16, 2009. The primary result of these effective dates will be to enable issuers to file the information required by Form D in electronic or paper format from September 15, 2008 until March 16, 2009 when electronic filing becomes mandatory. 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 100,1 101,2 104,3 201,4and 2025 of Regulation S-T,6Rules 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)T of Regulation S-T.
I. EXECUTIVE SUMMARY AND BACKGROUNDA. History and Purpose of Form DOn 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 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 Commissions 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 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 expressed concern about Form D filers needing to follow the same procedures as then were required generally for filings through the Commissions 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:
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 B. Need to Update Form D and Require Electronic FilingCurrently, 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 BurdensOur 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 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 issuers 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 InformationRequiring 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 Commissions 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 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 FilingFor 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 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 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 EffortsThe 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 AmendmentsIn sum, the amendments will:
II. DISCUSSION OF AMENDMENTSAs 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 forms 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 RequirementsCurrently, 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 InformationNew 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 issuers 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 issuers 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 systems 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 entitys 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 issuers 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 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
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:
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 companys 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 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 IssuerItem 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 issuers 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 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. 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. 3. Identification of Claimed Exemptions and ExclusionsItem 6 requires the issuer to identify the exemption or exemptions being claimed for the offering, from among Rule 504s77 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 Commissions 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 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 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 Filinga. General RequirementsNew 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 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 staffs 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 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 investors subscription agreement or check. b. Amendment of Previously Filed Form DAs 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 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 Commissions staff often is asked to assist issuers in determining how to calculate an offerings aggregate offering price and when an amendment to the Form D should be filed. The staffs 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:
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 forms 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
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 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 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 forms 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 commenters 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 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 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 OfferingItems 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 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 majority-owned subsidiaries, or majority-owned subsidiaries of the issuers 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 persons 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-dealers 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 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 brokers or broker-dealers 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 Ds 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 Ds 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 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 12s sales compensation recipient disclosure requirement will apply to foreign sales.122 Consistent with Preliminary Note 7 to Regulation D, Regulation Ds requirements and, as a result, Form Ds 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 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 proceeds information that serves the forms 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 Commissions 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 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 SubmissionWe 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
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 that persons 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 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 requirements 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 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 forms 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 provisions 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 DWe 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 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 commenters 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 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 rules 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, 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 issuers 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 would be due on a weekend or holiday it be deemed due on the next business day. We are not aware of the current deadlines 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 505 to provide an undertaking on its Form D to provide specified information to the Commission upon the staffs 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 DRule 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 issuers 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, 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 Ds 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 Ds requirements. 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:
Two commenters urged that we provide additional safeguards to support the ban on general solicitation and general advertising.178 Both commenters suggested prominent warnings in connection with the display of Form D information. One of them also favored limiting public access to some types of information, clarifying in connection with adopting the amendments that electronic filing does not eliminate the ban and amending Regulation D to require companies to return any unsolicited payments submitted to purchase securities.179 We believe that limiting the types and amount of information in Form D filings and providing a carefully tailored safe harbor should prevent the electronic availability of Form D filings from undermining the ban. III. ELECTRONIC FILING PROCEDUREWe are mandating electronic filing of the Form D notice through an online filing system in development that will be accessible from any computer with Internet access. The information filed 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. Our Web site 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. As discussed above, our objectives in converting Form D filings to an electronic format include lessening the burden on issuers of filing the Form D notice, enhancing federal and state coordination, increasing the information available regarding the effectiveness of our Securities Act exemptions and increasing the information available to researchers using Form D data to conduct empirical research aimed at improving the efficiency and effectiveness of our private markets. We believe our approach to filing and dissemination formats will make it relatively easy to file, access and analyze Form D information. As discussed in the proposing release, using this system will result in the Form D information being filed in the standard format of eXtensible Markup Language (XML) and we would disseminate the information in a format that provides normal text for reading and XML-tagged data for analysis. Three commenters suggested that the system tag the Form D information with the eXtensible Business Reporting Language (XBRL) system rather than the standard format of XML.180 XBRL is an XML-based language that is intended to tag a wide range of business data. Because Form D information consists of relatively simple facts, XML is a sufficient technological solution, and we expect the information tagged in XML will be compatible with systems designed for more sophisticated XBRL reporting. The Commission can also take advantage of its experience in developing data tags for information filed under Section 16, which is currently filed with the Commission using XML technology. A. MechanicsThe new online filing system for Form D information will be accessible from any computer with Internet access. An issuer will be able to both submit and amend its Form D filing through this system.181 The Form D itself will include guidance functions to assist in completing the form.182 In order to file, issuers will need the same codes as are required to file on our electronic filing system, EDGAR, today. An issuer that does not already have EDGAR filing codes, and to which the Commission has not previously assigned a user identification number, which we call a "Central Index Key (CIK)" code, will obtain the codes by filing electronically a Form ID183 at https://www.filermanagement.edgarfiling.sec.gov and filing, in paper by fax within two business days before or after filing the Form ID, a notarized authenticating document. The authenticating document will be manually signed by the applicant over the applicants typed signature, include the information contained in the Form ID, confirm the authenticity of the Form ID184 and, if filed after electronically filing the Form ID, include the accession number assigned to the electronically filed Form ID as a result of its filing.185 Under the online system, if the Form D filing is made on behalf of multiple issuers, each issuer will be required to have its own CIK code and a confirming code, which we call a "CIK Confirmation Code (CCC)," for validation. Two commenters expressed concern about the need for an issuer to obtain access codes through the Form ID process in order to file through the new online system.186 We plan to consider ways to simplify the authentication process in order to replace the requirement to fax the notarized authenticating document, and expect that a more simplified process may be available by the time electronic Form D filing is mandated.187 To access and file a Form D through the new online system, issuers will begin by having a valid identification number, confirming code and separate password, which we call a "Password" and logging on to the system. The identification number, confirming code and password, together with a password modification authorization code, are referred to as "EDGAR access codes." Data entry will be required to be performed quickly enough to avoid time-outs that end the session. A time-out most likely will occur no less than one hour following the users last activity on the system. Time-outs will be implemented due to cost and technical limitations, but it would be possible to extend a session with any keystroke.188 Two commenters suggested that the system provide a way to save an incomplete form and one of them stated that it would be desirable as a practical matter for the system to enable an issuer to prepare a filing offline and then access the system to submit it.189 One commenter stated that a saving feature was needed to avoid time-outs.190 The other commenter stated that the absence of a saving feature would virtually require that a careful filer prepare a Form D offline on a specially created template and then input all the information again online and, as a result, would risk inputting incorrect information and waste time and money.191 We agree that it would be useful to filers to be able to avoid the need to provide all of the required information both online and in a single session. Contrary to our earlier expectation, we anticipate that the system will provide a way to avoid the need to provide all of the required information both online and in a single session. For example, the system may permit the issuer to prepare the filing offline and submit it online or to save an incomplete form online from session to session for a short period of time, such as six calendar days, between sessions.192 An issuer will be able to prepare an amendment based on the content of a previously filed form.193 The system will validate as many fields as possible for data type and required fields while the filer fills in the fields on the screen. Issuers will have an opportunity to correct errors and verify the accuracy of the information before submitting the filing. Links will be available to enable issuers to access information, such as the instructions to Form D. The issuer will be able to download and print the filing before and after submission.194 Once the filing is submitted, the system will indicate receipt of the filing. In many cases, the system will display a unique number assigned to the submission, which we call an "accession number" but, in any event, the accession number will follow in an e-mail notification to the filer. A filer will be able to see the filing on our Web site shortly after filing. Upon filing of the Form D notice with the Commission, state securities regulators will be able to identify on our Web site Form D filings that specify their states.195 Filers generally would specify one or more states in response to proposed Items 1 (jurisdiction of incorporation or organization), 2 (principal place of business and contact information), 3 (related person addresses) and 12 (addresses of recipients of sales compensation) of Form D.196 State specification information will be interactive and searchable because the new online filing system will automatically capture and tag that information as it will other Form D filing information. Most Form D filings currently are made by law firms on behalf of issuers.197 We expect that the simplification and restructuring of Form D and the conversion of Form D filings to an electronic system may decrease legal fees to make Form D filings and perhaps allow more issuers to file a Form D notice themselves without the assistance of a law firm. B. Database Capabilities of Electronic Form D RepositoryA review of Form D filings by our Division of Corporation Finance uncovered errors and omissions in the information provided.198 In an effort to enhance the quality of the data collected by the proposed electronic Form D, we are including internal checks in the new online system that should decrease the number of errors and omissions in Form D filings. The system will prevent an issuer from submitting Form D information electronically unless all necessary data fields are completed in a manner consistent with the nature of each field199 |
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