Notices. Proposed rule
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BILLING CODE 4310-55-P 72 130 Monday, July 9, 2007 Proposed Rules Part IV Securities and Exchange Commission 17 CFR Parts 230, 232, and 239 Electronic Filing and Simplification of Form D; Proposed Rule SECURITIES AND EXCHANGE COMMISSION 17 CFR Parts 230, 232, and 239 [Release Nos. 33-8814; 34-55980; 39-2446; IC-27878; File No. S7-12-07] RIN 3235-AJ87 Electronic Filing and Simplification of Form D AGENCY: Securities and Exchange Commission. ACTION: Proposed rule. SUMMARY: The Securities and Exchange Commission is publishing for comment proposals that would mandate the electronic filing of information required by Securities Act of 1933 Form D.
We also are proposing revisions to Form D and to Regulation D in connection with the electronic filing proposals. The revisions would simplify and restructure Form D and update and revise its information requirements. The information required by Form D would be filed with us electronically through a new online filing system that would be accessible from any computer with Internet access. The data filed would be available on our Web site and would be interactive and easily searchable by regulators and members of the public who choose to access it.
DATES: Comments should be submitted on or before September 7, 2007. ADDRESSES: Comments may be submitted by any of the following methods: *Electronic Comments* • Use the Commission's *Internet comment form (http://www.sec.gov/rules/proposed.shtml)* ; or • Send an e-mail to *rule-comments@sec.gov.* Please include File Number S7-12-07 on the subject line; or • Use the Federal eRulemaking portal ( *http://www.regulations.gov* ). Follow the instructions for submitting comments. *Paper Comments* • Send paper comments in triplicate to Nancy M.
Morris, Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549-1090. All submissions should refer to File Number S7-12-07. This file number should be included on the subject line if e-mail is used. To help us process and review your comments more efficiently, please use only one method. We will post all comments on our Internet Web site ( *http://www.sec.gov/rules/proposed.shtml* ). Comments also are available for public inspection and copying in our Public Reference Room, 100 F Street, NE., Room 1580, Washington, DC 20549, on official business days between the hours of 10 a.m. and 3 p.m.
All comments received will be posted without change; we do not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. FOR FURTHER INFORMATION CONTACT: Questions about this release should be addressed to Gerald J. Laporte, Chief, 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 proposing revisions to Rules 100, 1 101, 2 104, 3 201, 4 and 202 5 of Regulation S-T, 6 Rules 502 7 and 503 8 of Regulation D, 9 and Form D 10 under the Securities Act of 1933 (“Securities Act”). 11 1 17 CFR 232.100. 2 17 CFR 232.101. 3 17 CFR 232.104. 4 17 CFR 232.201. 5 17 CFR 232.202. 6 17 CFR 232.10 *et seq.* 7 17 CFR 230.502. 8 17 CFR 230.503. 9 17 CFR 230.501-508. 10 17 CFR 239.500. 11 15 U.S.C. 77a *et seq.* Table of Contents I. Background A. History and Purpose of Form D B. Need to Update Form D and Require Electronic Filing 1. Eased Filing Burdens 2. Better Public Availability of Form D Information 3. Federal and State Uniformity and Coordination 4. Improved Collection of Data for Commission Enforcement and Rulemaking Efforts II. Discussion of Proposed Amendments A. Proposed Amendments to the Substantive Content of Form D 1. Basic Identifying and Content Information 2. Information About Issuer 3. Identification of Claimed Exemptions and Exclusions 4. Indication of Type of Filing a. Proposed Amendments b. Amendments to Form D 5. Information About Offering 6. Signature and Submission B. Required Electronic Filing of Form D C. General Solicitation and General Advertising Issues Presented by Electronic Filing of Form D III. Electronic Filing Procedure A. Mechanics B. Database Capabilities of Electronic Form D Repository C. System Implementation IV. General Request for Comment V. Paperwork Reduction Act Analysis VI. Cost-Benefit Analysis VII. Consideration of Impact on Competition and Promotion of Efficiency, Competition and Capital Formation VIII. Initial Regulatory Flexibility Act Analysis IX. Small Business Regulatory Enforcement Fairness Act X. Statutory Basis and Text of Proposed Amendments I. Background A. History and Purpose of Form D 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. 12 Both public and nonpublic companies file information using this form. 12 Regulation D contains several separate exemptions for limited offerings. Form D also is to be used by issuers making offerings of securities without registration in reliance on the exemption contained in Section 4(6) of the Securities Act [15 U.S.C. 77d(6)]. Although we primarily discuss Regulation D in this release, the revised Form D also would continue to apply to Section 4(6) offerings. Regardless of the type of offering to which revised Form D would apply, it would be required to be filed electronically. 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. 13 At the time, we intended the Form D filing requirement in Rule 503 of Regulation D to serve an important data collection objective. 14 We expected that the empirical data provided in the Form D filings would enable us to 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. 15 13 We adopted Form D and Regulation D in 1982. Release No. 33-6389 (Mar. 8, 1982) [47 FR 11251] (adopting Form D as a replacement for Forms 4(6), 146, 240 and 242). They had been proposed in the previous year. Release No. 33-6339 (Aug. 7, 1981) [46 FR 41791] (proposing Regulation D and Form D). 14 We stated in the proposing release: “An important purpose of the notice * * * is to collect empirical data which will provide a basis for further action by the Commission either in terms of amending existing rules and regulations or proposing new ones. * * * Further, the proposed Form would allow the Commission to elicit information necessary in assessing the effectiveness of Regulation D as a capital raising device for small businesses.” *Id.* 15 Release No. 33-6339 (Aug. 7, 1981) [46 FR 41791]. 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. 16 This effort was undertaken with the cooperation of the North American Securities Administrators Association, the organization of state securities regulators, as part of the Commission's efforts to reduce the costs of capital formation for small business and to promote uniformity between federal and state securities regulation. 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 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. 17 16 Release 33-6663 (Oct. 2, 1986) [51 FR 36385]. 17 17 CFR 230.503. In 1989, we amended the Regulation D exemptions to eliminate the filing of Form D information as a condition to the availability of the exemptions. 18 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 exemptions. 19 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. Consequently, an issuer has an incentive to make a Form D filing to avoid the possibility that a court would enjoin the issuer for violating Rule 503 and, as a result, disqualify the issuer from using a Regulation D exemption in the future. 18 Release No. 33-6825 (Mar. 15, 1989) [54 FR 11369]. 19 *Id.* In 1996, we proposed to eliminate the Form D filing requirement and replace it with an issuer responsibility to complete a Form D and retain it for a period of time. 20 At the time, our Task Force on Disclosure Simplification had suggested that the Commission consider the continued need for a Form D filing requirement. 21 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. 22 In 1998, we solicited public comment on, but did not propose, requiring electronic filing of the Form D notice. 23 Commenters 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 with the Commission's electronic filing system, called the Electronic Data Gathering, Analysis and Retrieval or “EDGAR” system. 20 Release No. 33-7301 (May 31, 1996) [61 FR 30405]. 21 SEC Task Force on Disclosure Simplification, Final Report 17 (Mar. 5, 1996), available at *http://www.sec.gov/news/studies/smpl.txt.* 22 Release No. 33-7431, at 5 (July 18, 1997) [62 FR 39755, 39756]. 23 Release No. 33-7541 (May 21, 1998) [63 FR 29168]. In summary, our previous statements on Form D have suggested that, at the federal regulatory level, the Form D filing serves primarily as a notification document that serves two primary purposes: • Collection of data for use in the Commission's rulemaking efforts; and • enforcement of the federal securities laws, including enforcement of the exemptions in Regulation D. 24 24 Release No. 33-6389 (Mar. 8, 1982) [47 FR 11251]; Release No. 33-7431 (July 18, 1997) [62 FR 39755]. The information submitted in Form D filings also is useful for other purposes. The staffs of state securities regulators and NASD, formerly the National Association of Securities Dealers, also use Form D information to enforce federal and state securities laws and the rules of securities self-regulatory organizations. Form D filings also have become a source of disclosure 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.” 25 Our staff suggests that investors considering an investment in a Regulation D offering check the issuer's Form D filing if they are seeking a public source of information about the issuer and the offering. In addition, the information in Form D filings serves as a source of business intelligence for commercial information vendors, as well as for practitioners in the venture capital, private equity, and other industries that rely on Regulation D offerings and for competitors of issuers who file Form D information. Academic researchers use Form D information to conduct empirical research aimed at improving the workings of these industries. 26 Journalists use Form D information to report on capital-raising in these industries. 27 25 See *http://www.sec.gov/answers/formd.htm* . 26 For a discussion of how academic researchers are using available data on private investments to improve the workings of the venture capital industry, see A. Ginsberg, *Truth, or Consequences: Academic Researchers Are Helping Policy Makers and Practitioners Understand the Problems Facing the Venture Capital Industry* , Innovation Review 8 (Berkley Center for Entrepreneurial Studies, Fall 2002). 27 See, e.g., R.J. Terry and B. Hammer, NEA Closes $2.5 Billion Fund, Baltimore Bus. Journal, July 10, 2006. B. Need To Update Form D and Require Electronic Filing Currently, much of the information required by Form D appears to be useful and justified in the interests of investor protection and capital formation. 28 It also appears that some useful information that could be required by Form D currently is not required. 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 propose today would address deficiencies in the Form D data collection requirements. 29 28 For example, information provided in response to the requirement to check the applicable specified exemptions from registration claimed by the issuer helps the Commission monitor and evaluate use of the claimed exemptions in order to protect investors and facilitate the development of a private market in which to raise capital. 29 Additional changes to Regulation D are being proposed in a companion release on Regulation D which, if adopted, would result in exemption disqualification provisions in a new subparagraph
(e)of Rule 502 and a new exemption under a revised Rule 507 of Regulation D. On May 23, 2007, the Commission approved for issuance the companion proposing release. The proposed new Form D reflects that proposed exemption. 1. Eased Filing Burdens Our proposed rules are intended to ease the costs and burdens of preparing and filing Form D information. The informational requirements would be streamlined and updated. The instructions would be clarified and simplified. Issuers would file the Form D information electronically through a new online filing system that would be accessible from any computer with Internet access. Issuers would provide the information in data fields by responding to a series of discrete questions. It is expected that the fields would be checked automatically for appropriate characters and consistency with other fields and the questions would be accompanied by easily accessible links to instructions and other helpful information. We believe these system features, among others, would help facilitate a relatively easy-to-use filing process that would deliver accurate information quickly, reliably, and securely. 30 The Form D filing would continue to be required within 15 days of an issuer's first sale in an offering without Securities Act registration in reliance on one or more of the exemptions provided in Regulation D, and the rules would clarify when amendments are required. Paper filing of Form D would be eliminated. Currently, our rules require issuers to file five paper copies of the Form D with us by mail or physical delivery to Commission headquarters. 31 Our goal is to make filing Form D information as easy as many tasks commonly performed by people using the Internet today. 30 The new online filing system is discussed in further detail in Part III of this release. 31 17 CFR 230.503(a). The Commission received 25,239 Form D filings in its most recently ended fiscal year, fiscal year 2006. 2. Better Public Availability of Form D Information Requiring the electronic filing of Form D data would make the information filed more readily available to regulators and members of the public who choose to access it. 32 The information would be available on our Web site and, because the online filing system would automatically capture and tag data items, the data would be interactive and easily searchable. The system would 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. 32 Most filings made with us currently are filed through our EDGAR system. We began to make EDGAR filing mandatory in 1993. Initially, a number of forms—including Form D—were excluded from mandated electronic filing. Since the launch of the EDGAR system, we have increased the number of forms that are required to be filed on the EDGAR system, but Form D remains a paper-only filing. Unlike forms 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 through private vendors through the Internet and telephone requests. 3. Federal and State Uniformity and Coordination For over 20 years, Form D has served as a means to promote federal and state uniformity in securities regulation by providing a uniform notification form that can be filed with the Commission and with state securities regulators. 33 The contemplated electronic filing system for Form D information would continue that tradition and could enhance the utility of Form D as a means to promote uniformity between federal and state securities regulation. The system would include an electronic database that could be more easily searched for information needed by both federal and state securities regulators to monitor the exempt securities transaction markets. The system also would 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 would be able to access the information on our Web site to learn if new Form D information of interest to them has been filed. It is our hope that state securities regulators would permit “one-stop” filing with the Commission and rely on Commission filings as satisfying state law filing requirements for offerings covered by a federal Form D filing. 34 This would 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. 33 According to a unit of the American Bar Association, 48 states, the District of Columbia, Puerto Rico, and the U.S. Virgin Islands accept filings on Form D. New York prescribes its own Form 99. Florida does not require any filing for the types of transactions other jurisdictions require to be reported on Form D. See Report on Blue Sky Survey of the NSMIA Subcommittee, Committee on State Regulation of Securities, American Bar Association Business Law Section (Feb. 2006). 34 The contemplated electronic filing system would not, however, collect any fee a state might charge on behalf of the state. 4. Improved Collection of Data for Commission Enforcement and Rulemaking Efforts The proposed conversion to electronic filing of Form D information in an interactive data format would result in creation of a database and allow us and others to better aggregate data on the private securities markets and the use of the various Regulation D exemptions. Further, the software we intend to use for the Form D electronic filings would require that filers address each required data field in the form, thus reducing incomplete filings. Because of these and other features, the Form D electronic filing system should assist in our enforcement efforts and ease our ability to make use of filed Form D information. The Form D information database would allow us to 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. II. Discussion of Proposed Amendments As noted above, we believe today's proposal would 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 proposed 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 form's requirements and instructions could be clarified and made less burdensome. The revisions we propose today would address these issues. In addition, the move to electronic filing necessitates several modifications. A. Proposed Amendments to the Substantive Content of Form D Currently, Form D requires presentation of preliminary information and other information required by five sections designated “A” through “E.” The proposed revisions organize the information requirements around 14 numbered “items” or categories of information. Instructions at the end of the form would explain the requirements for each item. On the online form, we plan that terms and items at the front of the form would be linked to the instructions at the back of the form which would be immediately available by clicking on a particular term or item. In this regard, we propose to add to the General Instructions a sentence that provides that terms used but not defined in the form that are defined in Regulation D or Rule 405 35 have the meanings given to them in Regulation D and Rule 405. The sentence would make explicit staff interpretive advice regarding Regulation D and, to the extent it defines the term “promoter,” Rule 405. 35 17 CFR 230.405. 1. Basic Identifying and Contact Information Item 1 would require basic identifying information, such as the name of the issuer of the securities, any previous names, type of legal entity and the issuer's year and place of incorporation or organization. 36 Item 2 would require issuers to provide place of business and telephone contact information. 37 Item 3 would require information about related persons (executive officers, directors, and promoters). 38 These requirements primarily are carried over from the current Form D, with restructuring to reflect the electronic form of the filing. We would, however, revise the form to provide specifically for the identification of multiple issuers in multiple issuer offerings. Form D currently does not provide for this, leading to confusion as to how multiple issuer offerings should be reported. 39 In addition, the form would ask for the Commission file number, if applicable. 36 Issuers would specify their legal entity type (e.g., corporation or limited partnership) from a dropdown menu. 37 Some information of the type that Items 2 and 3 would require might automatically appear in appropriate places when the filer accesses the new online filing system. The system may replicate information provided by the filer in the course of obtaining the codes needed to access the new online filing system or in updating such information. The issuer would be able to make changes to such information. 38 The instructions to Item 3 would clarify that disclosure would be required of each person who has functioned as a promoter of the issuer within the past five years of the later of the first sale of securities or the date upon which the Form D filing was required to be made. 39 Currently, in multiple issuer offerings, there is uncertainty as to whether all issuers can be listed in the same Form D or whether each issuer must submit essentially the same Form D. In this situation, the staff currently advises each issuer to submit a separate Form D notice because the forms are retrievable only by reference to the name of one issuer. The proposed changes would clarify the requirements of this item and eliminate the burden on issuers to file what are essentially duplicate forms in order to comply with the requirement to file Form D information. The new online filing system would be designed to support multiple issuer filings. As a result, all issuers easily could be identified in a single filing. The revised form would include instructions to clarify that post office box numbers and “care of” addresses are not acceptable as place of business information. The purpose of this information is to allow securities enforcement authorities to determine the location of the issuer's operations and personnel responsible for the offering. Post office box numbers and “care of” addresses do not provide this information. The proposed form would not provide for submission of more than one place of business or telephone number in multiple issuer offerings. 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. We propose to delete the current requirement that issuers identify owners of 10 percent or more of a class of their equity securities as “related persons.” Investors will continue to have access to this information, if it is material, in the private placement memorandum customarily supplied to them or in other information made available through the issuer. 40 We believe we can collect sufficient information to satisfy the regulatory objectives of Form D by requiring only the identification of executive officers, directors, and promoters. Moreover, issuers that are not reporting companies have raised privacy concerns with respect to the requirement to identify 10 percent equity owners who are not executive officers, directors, or promoters when the issuers are private companies, because they do not already have to disclose this information. From time to time issuers have asked us to grant confidential treatment to this information under Securities Act Rule 406, 41 but we have denied such requests consistently because the information currently is required by Form D. We estimate that about 95% of the companies filing Form D notices last year were private companies. With the electronic filing of the Form D information, the widespread availability of such data on our Web site may raise additional privacy concerns of issuers seeking to raise capital through a private offering. 40 Under some circumstances, an issuer must provide, rather than merely make available, beneficial holder information. For example, an issuer that offers securities to non-accredited investors without registration under the Securities Act in reliance on an exemption provided by Rules 505 [17 CFR 230.505) or 506 [17 CFR 230.506] must provide beneficial holder information under the circumstances specified by Rule 502(b) [17 CFR 230.502(b)]. 41 17 CFR 230.406. We also propose to delete the requirement that issuers provide the name of the offering, because naming offerings reported on Form D is not as common today as it was before the 1986 tax reforms, 42 when the current Form D requirement was adopted. As such, we understand issuers have found this requirement to be unclear. The proposed form also would omit the current requirement to indicate whether a limited partnership issuer already has been formed or is in formation. We believe sufficient information will be obtained from the requirement to provide an issuer's year of incorporation or organization. 42 Tax Reform Act of 1986, Pub. L. 99-514, 100 Stat. 2085 (Oct. 22, 1986). 2. Information About Issuer The form would ask for basic information about the issuer in Items 4 and 5. Issuers would identify their industry group and their revenue range from dropdown menus. 43 The industry group information would replace the current requirement in Form D to provide a description of the issuer's business. 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. 44 43 As proposed, the revenue range would be for the most recently completed fiscal year. Where an issuer has been in existence for less than a year, it would identify its revenues to date. 44 The instruction to Item 4 would provide that an issuer or issuers that could be categorized in more than one industry group should be categorized based on the industry group that most accurately reflects the use of the bulk of the offering proceeds. The instruction also would provide that, for purposes of responding to Item 4, the issuer should “use the ordinary dictionary and commonly understood meanings of the terms identifying the industry groups.” If an issuer selected the checkbox for “Pooled Investment Fund,” pop-ups would require the issuer also to select from among lower level checkboxes designating a specific type of pooled investment fund and to select between “yes” and “no” checkboxes as to whether the issuer is registered as an investment company under the Investment Company Act of 1940 (“Investment Company Act”) [15 U.S.C. 80a-1 *et seq.* ]. Information on revenues was required in Form D before 1986. 45 Because Form D was submitted on paper, however, that information was not able to be efficiently used for rulemaking purposes. We propose to include revenue range information in the Form D filing to help determine the types and sizes of issuers that rely on the Regulation D and Section 4(6) exemptions. For instance, this information would 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. The proposed item does, however, provide a “Decline to Disclose” option, which might be used if a private company considered its revenue range to be confidential information. 45 Release No. 33-6663 (Oct. 2, 1986) [51 FR 36385]. 3. Identification of Claimed Exemptions and Exclusions Item 6 would require the issuer to identify the exemption or exemptions being claimed for the offering, from among Rule 504's 46 paragraphs and subparagraphs, Rule 505, Rule 506, Rule 507 and Section 4(6), as applicable. This requirement, in general, is carried over from the current Form D requirement, but with a reference to proposed Rule 507 47 and 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) 48 which the issuer claims for an exclusion from the definition of “investment company” under the Investment Company Act. 49 We propose to require this increased level of specificity and additional type of information because of the need for data 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 need this information to determine the extent of their jurisdiction over the offering. 50 Unlike current Form D, however, Item 6 would 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 are inclined to believe that the ULOE box causes confusion and burdens for companies completing Form Ds without resulting in a significant amount of useful information. Most, if not all, companies claiming a ULOE exemption also will check the Rule 505 box, because Rule 505 is the Commission's companion exemption to the ULOE exemption. 51 Similarly, revised Form D would omit 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 are inclined to believe that this information is burdensome to provide without sufficient benefits. 52 46 17 CFR 230.504. 47 As previously noted, a companion release proposes a new exemption under a revised Rule 507. 48 15 U.S.C. 80a-3(c). 49 The issuer would be able to select all the exclusions on which it relies. Regulation D provides an exemption from the Securities Act and not an exclusion from the definition of the term “investment company” under the Investment Company Act. Some companies that use a Regulation D exemption, however, also are excluded from the definition of investment company under the Investment Company Act. 50 Section 102(a) of the National Securities Markets Improvement Act of 1996 (“NSMIA”) [Pub. L. 104-290, 110 Stat. 3416 (Oct. 11, 1996)] enacted new Section 18 of the Securities Act [15 U.S.C. 77r], which limits the authority of the states to regulate offerings exempt under Commission “rules or regulations issued under section 4(2)” of the Act [15 U.S.C. 77d(2)], which includes Rule 506 but not Rules 504 or 505, and offers and sales to “qualified purchasers” as defined by the Commission under the Securities Act, which term would include persons specified in proposed Rule 146(c) of our companion release in which revised Rule 507 is proposed. 51 See Release No. 33-7644 (Feb. 25 , 1999) [64 FR 11090]. 52 We note, however, that Section 18(c)(2)(A) of the Securities Act [15 U.S.C. 77r(c)(2)(A)] generally provides that nothing under Section 18 prohibits “any State from requiring the filing of any document filed with the Commission [under the Securities Act], together with annual or periodic reports of the value of securities sold or offered to be sold to persons located in the State (if such sales data is not included in documents filed with the Commission), solely for notice purposes and the assessment of any fee, together with a consent to service of process and any required fee.” 4. Indication of Type of Filing a. Proposed Amendments We propose to carry over in new Item 7 the current Form D requirement to indicate whether the filing is a new filing or an amendment. Item 7 also would be used to designate the states to which the Form D is directed. 53 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 through an amendment. In addition, as discussed immediately below, we intend to clarify the circumstances where amendments are required. 53 We propose to permit issuers to designate the states to which the Form D is directed, on the assumption that some states would adopt one-stop filing and allow filings that specify that they are directed to those states to constitute filings with those states. b. Amendments to Form D We recognize that some uncertainty may exist about when, how, and why an amendment to a Form D may or must be filed because those issues are not expressly addressed in the form. While both Rule 503 and the instructions to the current Form D discuss the information that is required when an amendment is filed, 54 neither explicitly requires the filing of an amendment. In certain offerings and situations, however, an issuer may have made a mistake of fact 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. 54 Rule 503(d) states that amendments to Form D “need only report the issuer's name and the information required by Part C and any material change in the facts from those set forth in Parts A and B.” The instructions to Form D set forth the information required in an amendment as only “the name of the issuer and offering, any changes thereto, the information requested in Part C, and any material changes from the information previously supplied in Parts A and B.” The staff has received questions regarding offerings of extended duration, and how to determine whether and how to file Form D amendments. For example, when offerings are expected to continue for an extended period, the Commission's staff often is asked to assist issuers in determining how to calculate an offering's aggregate offering price and when an amendment to the Form D should be filed. The staff's practice in this regard has been to advise issuers to use a good faith and reasonable belief standard to calculate the aggregate offering price and to amend the Form D annually. We propose to revise Rule 503 and the instructions to and description of Form D to require amendments to Form D in the following three instances only: • To correct a mistake of fact in the previously filed notice (as soon as practicable after discovery of the mistake); • To reflect a change in the information provided in a previously filed notice (as soon as practicable after the change), except that no amendment would be required to reflect a change that occurs after the offering terminates or a change that occurs in the following only: 55 55 We believe the specified changes should not require an amendment because changes of this type are expected to occur in the course of an offering. It is not necessary to report them for Form D to serve its primary function as a notice of an exempt offering. ○ An issuer's revenues; ○ The amount of securities sold in the offering; ○ The total offering amount, if the change, together with all other changes in that amount since the previously filed notice, does not result in an increase of more than 10%; ○ The number of accredited investors who have invested in the offering; ○ The number of non-accredited investors who have invested in the offering (as long as the change does not increase the number to more than 35); ○ In offerings that last more than a year, information on related persons, 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; and • In offerings that last more than a year, annually, between January 1 and February 14, to reflect information about the offering on or before its termination since the later of the filing of the Form D or the filing of the most recent amendment. Rule 503 also would 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 would be relatively easy to provide such current information in most instances due to the form's streamlined information requirements, the likelihood that much of the information would not require change, and the expectation that the new online filing system would 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. 5. Information About Offering Items 8 through 14 would 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 would 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 would 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 would provide more clarity. The rest of the additional categories would identify types of securities, the specification of which we believe would help facilitate our rulemaking efforts. 56 The issuer would 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. 57 56 The new categories would be “Security to be Acquired Upon Exercise of Option, Warrant or Other Right to Acquire Security,” “Pooled Investment Fund Interests,” “Tennant-in-Common Securities,” and “Mineral Property Securities.” 57 If, for example, an issuer were filing a Form D as to the offering of both immediately exercisable options and their underlying common stock, the issuer would specify the categories “Option, Warrant or Other Right to Acquire Another Security” and “Security to be Acquired Upon Exercise of Option, Warrant or Other Right to Acquire Security.” In contrast, if the issuer were filing a Form D as to the offering of options exercisable over a year after purchase but not as to the offering of the underlying common stock, the issuer only would specify the category “Option, Warrant or Other Right to Acquire Another Security.” *Business Combination Transaction.* Form D currently requires that the issuer indicate only whether the offering is an exchange offer. Item 10, however, would require the issuer to indicate whether the offering is being made in connection with a business combination transaction such as a merger, acquisition or exchange offer regardless of the type of offering. 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 often give rise to policy concerns. *Minimum Investment Amount.* Item 11 would 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. *Sales Compensation.* Item 12 generally would carry over but reformat and, as a result, simplify the response to the requirements in Form D related to information on sales compensation. It would, however, add a requirement to provide the CRD number of each recipient named in response to Item 12. A CRD number corresponds to a broker or broker-dealer's record located in the Central Registration Depository, a computer database of brokers and broker-dealers owned jointly by state regulators and NASD. We believe it should be relatively easy for an issuer to obtain the CRD numbers from the brokers and broker-dealers it retains. Requiring disclosure of the CRD numbers would facilitate checking the brokers or broker-dealers' records. 58 58 Issuers and investors can check a broker's CRD record by accessing *http://brokercheck.nasd.com* or by calling a state regulator or the NASD's public disclosure hotline at 800-289-9999. See *http://www.nasaa.org/Investor_Education/Investor_Alerts_Tips/292.cfm* . *Offering and Sales Amounts.* Item 13 would carry over the current requirements to provide the amount of total sales and the total offering amount, but in a restructured, simplified format. Instructions would be 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. *Investors.* Item 14 would 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, as well as the number of accredited investors who already have purchased securities in the offering. The form currently requires this information because it affects how we and state securities evaluate claimed exemptions. *Other Information.* We propose to eliminate the items requiring information on use of proceeds and expenses of the offering because they do not yield information necessary for an evaluation of the claimed exemption or for rulemaking efforts. Many, if not most, Form D filings do not provide information that serves the form's purposes, because they specify only that the majority of proceeds will be used for “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. 6. Signature and Submission We propose to combine the federal and state signature requirements currently in Sections D and E of Form D into one signature requirement. This would simplify the filing and make it consistent with other signature requirements of Commission forms. We propose to incorporate into the signature block the consent to service currently in Form U-2, which is required to be filed separately but simultaneously with a Form D by many states. We are mindful in making these changes that the signature block continues to be of significance to state securities regulators. Our intention with these proposed changes is to maintain this usefulness in a manner that is consistent with easing burdens on filers. The combined signature requirement, in general, would provide that each issuer signing the revised Form D 59 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 is 60 59 Each issuer in a multiple-issuer offering would be required to sign the Form D. If all issuers authorized the same person to sign on their behalf, however, only that person would need to sign. 60 Both the current federal and state signature requirements expressly provide that the issuer has duly caused the Form D to be signed on its behalf by the undersigned duly authorized person. Only the current state signature requirement, however, expressly provides that the issuer has read the Form D and knows the contents to be true. • Notifying the Commission and the states in which the Form D is filed of the offering and undertaking to furnish to them, on written request, the information provided by each issuer to offerees; • Consenting to service of process on individuals holding specified positions; and • Certifying that it is not disqualified from relying on Regulation D for one of the reasons stated in proposed Rule 502(e). 61 61 As previously noted, a companion release proposes that exemption disqualification provisions appear in a new subparagraph
(e)of Rule 502. If the new subparagraph were not adopted, the certification would address the current disqualification provisions in Regulation D, as applicable. In undertaking to furnish to the states in which the Form D is filed, on written request, the information provided to offerees, the issuer would not be affecting any limits NSMIA imposes on the ability of these states to require information. 62 62 See Section 18 under the Securities Act. The proposed signature requirement would be more extensive than the current federal signature requirement and would differ in various ways from the current state and Form U-2 signature requirements. The proposed signature requirement would be more extensive than the current state signature requirement, for example, by requiring a consent to service of process. The proposed signature requirement would be less extensive than the current state signature requirement principally because it would not ask whether any party described in Rule 262 63 currently was subject to any of the disqualification provisions of that rule. 64 The principal difference between the proposed signature requirement and the Form U-2 signature requirement is that Form U-2 requires the notarized signature of a corporate officer (or that person's equivalent in the case of other entities) and requires a consent to jurisdiction and venue as well as a consent to service. 65 63 17 CFR 230.262. 64 The proposed signature requirement, unlike the current state signature requirement, would omit both an undertaking to provide a Form D to specified state administrators and a representation regarding ULOE. As noted above, however, under the proposed signature requirement, issuers would undertake to furnish to the states in which the Form D is filed, on written request, the information provided by each issuer to offerees. Also as noted above, revised Form D would omit all references to ULOE and the provisions that, in general, require specified information on a state-by-state basis in an appendix to the form and require specified representations and undertakings. 65 The proposed signature requirement's addressing consent to service but not consent to jurisdiction or venue would be consistent with the signature requirement in Form ADV [17 CFR 279.1],which can satisfy both federal and state filing requirements for investment adviser registration. Request for Comment • Would the proposed presentation of the revised Form D, together with linked instructions, be generally understandable, sensible, and helpful to individuals completing the form? Should all terms that need to be defined to facilitate compliance with the form's requirements, such as the term “promoter,” appear in Regulation D? • Should other items of information be required to be submitted in a Form D filing? Would requiring the CUSIP number of securities that have a CUSIP number be appropriate? Would requiring the trading symbol of securities that have a trading symbol be appropriate? Should we provide for the submission of a separate address for each issuer in multiple-issuer offerings to help assure securities regulators can contact the responsible personnel? Should we require issuers to provide information on ten percent or greater holders? Is such information useful to the public and other regulators and does it serve the purposes of the Form D filing requirement? If multiple types of securities are offered, should we require information about each type of security? Should we permit issuers to check an exemption box for ULOE or “None” and, if so, why? Should we require or permit issuers to provide the items of information current Form D requires on a state-by-state basis in an appendix to the form? Should we require or permit issuers to describe potential waivers to minimum investment amounts or minimum investment amounts based on the identify of the offeree? 66 Should we require issuers that are pooled investment vehicles to disclose whether their advisers are registered as investment advisers under the Investment Advisers Act of 1940? 67 Should we require such issuers to disclose the number of their knowledgeable employees purchasing in the offering? 68 66 For example, an issuer might set a lower minimum investment amount for its management than it would for an offeree with no prior relationship to the issuer. 67 15 U.S.C. 80b-1 *et seq.* 68 We use the term “knowledgeable employees” as defined in Rule 3c-5 [17 CFR 270.3c-5] under the Investment Company Act. • Should we eliminate any items of information that we propose to request in the revised Form D? Should we not require specified information because it does not provide sufficiently useful information or because providing it is unnecessarily burdensome? Should we retain any information requirements from the current Form D that we propose to eliminate? For example, should we retain, because it would provide useful information, the part of the current state signature requirement that asks whether any party described in Rule 262 currently was subject to any of the disqualification provisions of that rule? Should we require information that we have not proposed to require? For example, should we require an issuer to disclose information about the value of its assets such as the range of the value of its total assets or whether the value of its total assets was $5 million or less on the last day of its most recently ended fiscal year? 69 Is requiring a reporting company's Commission file number appropriate or might it be unduly burdensome without resulting in the collection of significant, useful information? 69 An issuer other than an investment company that had total assets of $5 million or less on the last day of its most recently ended fiscal year is, as further described in Part VIII, a small entity under the Securities Exchange Act of 1934 (“Exchange Act”) [15 U.S.C. 78a *et seq.* ] and may be under the Securities Act for purposes of the Regulatory Flexibility Act [5 U.S.C. 603]. As a result, our receipt of such information may facilitate our regulatory flexibility analysis in future rulemaking. • Are the revised instructions on filing amendments to a Form D filing clear and appropriate? For example, should the proposed requirements to file an amendment to correct a mistake of fact or reflect specified changes be limited to material matters explicitly? Should amendments be required under other circumstances? For example, should an amendment be required to report the termination of an offering that lasts more than a year? Should the obligation to amend for a mistake end at a specified time and, if so, when? For offerings that last more than a year, should an issuer be permitted to wait at least a year since the later of the filing of the Form D or the filing of the most recent amendment if, as proposed, it otherwise would be required to file an annual amendment between January 1 and February 14? Should an issuer that files an amendment be permitted to provide responses only to some items of proposed Form D? If an issuer were permitted to respond to only some items, to which items should the issuer be required to respond? • Should Form D filings for offerings that last more than a year be required to be updated over time? Should the proposed annual update requirement apply to offerings that have not lasted over a year as of the proposed February 14 annual update due date? Should an annual update be required within a specified number of days of the anniversary of an offering rather than by February 14? • Would the proposed requirement that an issuer identify its industry group(s), in lieu of providing a description of its business, provide data useful to the public and other regulators regarding the types of businesses that rely upon Regulation D? • Would the proposed addition of Item 5 requiring an issuer to specify its revenue range provide useful data to the public and other regulators regarding the sizes of businesses that rely upon Regulation D? Is it necessary to provide an option to decline to disclose their revenue range for both companies that are and are not reporting companies under the Exchange Act? 70 70 A reporting company is a company that files reports under Section 13(a) [15 U.S.C. 78o] or 15(d) [15 U.S.C. 78m] of the Exchange Act. • Would the proposed addition in Item 12 of a requirement to provide each broker's CRD number provide useful information to the public and other regulators with minimal burden on the issuer? • Should proposed Item 13 permit an issuer to state that the amount of total sales and total offering amount are undetermined rather than, as proposed, provide a good faith estimate, where the securities are offered in exchange for property other than cash and the value of the property cannot be determined without unreasonable effort or expense? • Should we include language in Form D clarifying that an issuer's undertaking in the signature block to furnish information to states in which the Form D is filed does not affect any limits NSMIA imposes on the ability of these states to require information? • Do the current requirements for information on use of proceeds and expenses in the Form D, which would be eliminated, provide useful information to the public and other regulators? • Would the proposed combined federal and state signature requirement be adequate to replace the current state signature requirement and make it unnecessary for issuers to file Form U-2? • Do issuers and others have an interest in “one-stop” filing with the Commission, in which states would rely on Commission filings as satisfying state law filing requirements for an offering covered by a Form D filing? Should such a one-stop filing service include the centralized collection of state filing fees? Would issuers be willing to pay a fee to the Commission or to an organization of state regulators for one-stop filing, if the collection of such a fee were properly authorized? How much would issuers be willing to pay for one-stop filing services? B. Required Electronic Filing of Form D We propose to amend Regulation S-T, 71 Rule 503 of Regulation D, and Form D to implement a requirement for issuers to file the information required by Form D with us electronically through an online filing system. 72 71 Regulation S-T is the Commission's general regulation governing electronic filing. 72 The online filing system would automatically capture and tag data items and is discussed in further detail in Part III of this release. Rule 101(c)(6) of Regulation S-T 73 currently requires the information required by Form D to be filed in paper. The proposed amendments would delete the reference to Form D from Rule 101(c)(6) and would revise subparagraph (a)(1) of Rule 101 74 to add a new subparagraph
(xiii)that would add Form D to the rule's list of documents required to be filed electronically. 73 17 CFR 232.101(c)(6). 74 17 CFR 232.101(a)(1). Rule 100 of Regulation S-T, 75 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 would apply to non-reporting companies that would file Form D, the proposed amendments would revise paragraph
(a)of Rule 100 of Regulation S-T 76 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. 75 17 CFR 232.100. 76 17 CFR 232.100(a). We also propose to amend Regulation S-T to make hardship exemptions unavailable to Form D filings. The proposed amendments would revise subparagraph
(a)of Rules 201 77 and 202 78 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 and the limited value of paper filings. In proposing the conversion of the Form D filing from a paper system to an electronic system, we assume that issuers will have access to a computer and the Internet. In the absence of an issuer's having a personal or office computer and Internet access, public libraries around the country often have computer and Internet access that an issuer could use. We therefore do not envision the need for a hardship exemption to permit paper filing. 79 77 17 CFR 232.201(a). 78 17 CFR 232.202(a). 79 We also propose an amendment to Rule 104(a) of Regulation S-T [17 CFR 232.104(a)] to make it clear that unofficial PDF copy submissions are unavailable to Form D notices. The new online filing system, further described below, is expected to make filed Form D information available on our Web site in an easy-to-read format similar to that which could be provided through an unofficial PDF copy. The proposed amendments would revise Rule 503 of Regulation D and Form D in several ways related to electronic filing. The proposed amendments would 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)would continue to specify when a notice on Form D initially must be filed 80 and would be revised to specify also when an amendment to a Form D filing must or could be filed. 81 80 As proposed, Rule 503(a)(1) generally would provide that an issuer offering or selling securities in reliance on Rule 504, 505 or 506 must file a Form D for each new offering of securities no later than 15 calendar days after the first sale of securities in the offering. As previously noted, a companion release proposes a new exemption under a revised Rule 507. If that proposal were adopted, Rule 503(a)(1) would be revised to specify Rule 507 as well. 81 Subparagraph
(a)would continue to provide that an issuer must file the Form D no later than 15 calendar days after the first sale of securities in the offering. As currently, an issuer could, however, file the Form D at any time before that if it has determined to make the offering. Also as currently, a mandatory capital commitment call would not constitute a new offering, but would be made under the original offering, so no new Form D filing would be required solely as a result. See Part II.A.4.b of this release for a discussion of when an amendment must or could be filed. Subparagraph
(b)would continue to require a signature. Rule 302 of Regulation S-T 82 would specify the manner of signature for Form D as it does for electronic filings generally. 83 The proposed amendments also would add to subparagraph
(b)a statement that electronic Form D filing through our new online filing system is mandatory. In addition, the proposed amendments would 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 staff's written request. This paragraph no longer would be necessary because, as noted above, the proposed signature requirement would provide that each issuer signing the Form D would be undertaking to furnish to the Commission and the states specified on the Form D, on written request, the information provided by each issuer to offerees. Subparagraph (d), regarding amendments, no longer would be necessary because subparagraph
(a)would address when to file amendments and it is expected that the new online filing system would 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 would be necessary because Rule 13 of Regulation S-T 84 would specify the way to determine the filing date for a Form D filing as it does for electronic filings generally. 85 Finally, the proposed amendments similarly would revise the General Instructions of Form D regarding copies required, manual signatures, amendments, mandatory electronic filing and filing date. 82 17 CFR 232.302. 83 Rule 302 requires, in general, that electronic filings contain typed signatures, that each signer manually sign a signature page or other document confirming the typed signature by the time the filing is made, and that the issuer maintain the manually signed document for five years and make it available to the Commission and its staff upon their request. 84 17 CFR 232.13. Rule 13 generally provides that a filing by direct transmission beginning on or before 5:30 p.m. Eastern time on a business day is deemed filed that day and, if such a filing were to begin after that time, it would be deemed filed on the next business day. 85 The description of Form D at 17 CFR 239.500 is similar to Rule 503 and would be amended similarly. In this regard, if the proposed new exemption under a revised Rule 507, as proposed in the companion release, is adopted, the form description also would be amended to add revised Rule 507 to the list of Regulation D rules providing exemptions in the same manner as previously discussed above with respect to proposed Rule 503(a)(1). Request for Comment: • Would Form D filers of all sizes have easy access to the Internet? • Is it necessary or appropriate to provide for a hardship exemption? 86 86 See Part III of this release for details on the contemplated electronic filing procedure. • Are the proposed amendments intended to mandate electronic filing of Form D clear and appropriate? C. General Solicitation and General Advertising Issues Presented by Electronic Filing of Form D Rule 502(c) of Regulation D 87 sets forth the prohibition on general solicitation and general advertising applicable to most Regulation D offerings. Specifically, issuers and persons acting on the issuer's behalf are prohibited from offering or selling securities by any form of general solicitation or general advertising. Information filed using Form D has up to now been available to the general public. 88 The electronic filing and availability of Form D information, however, may present the concern that it is being used as a marketing document to generate interest in offerings because the information would be easily and broadly available. This, in turn, may raise concerns regarding compliance with Regulation D's prohibition on the use of general solicitation and general advertising. To address these compliance concerns, we propose to revise 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 electronically with the Commission if the information was provided in good faith and the issuer made reasonable efforts to comply with the requirements of Form D. An issuer that complied with the terms of the safe harbor would be assured that the electronic availability of its Form D filing would not, in and of itself, cause the issuer to have violated this prohibition. 87 17 CFR 230.502(c). 88 In 1998, we issued a release soliciting comment on a proposal to require the filing of an exhibit to certain Form D filings on a nonpublic basis. Release No. 33-7541 (May 21, 1998) [63 FR 29168]. We recognized that adoption of the proposal would raise issues under the Freedom of Information Act, 5 U.S.C. 552 *et seq.* , *Id.* [63 FR 29168, 29171]. Some of the proposals made in that release were adopted in 1999, but the nonpublic filing proposal was not acted upon. Release No. 33-7644 (Feb. 25, 1999) [64 FR 11090]. Such a safe harbor would not be warranted if it merely shielded activity that is, in fact, intended to generate interest in the offering. Accordingly, we propose to limit the amount of information submitted on the form 89 and limit the application of the safe harbor to where the information has been provided with a good faith and reasonable effort to comply with the requirements of Form D. Electronic Form D would not contain any place where “free writing” could occur. When submitting a paper filing, filers may insert information that is not required by the form, but that could be a vehicle for attracting investors. The electronic form would not permit such misuse. 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 6 90 to Regulation D, and Rule 508, 91 and the “notification” nature of Form D's requirements. 89 Similarly, current Rule 502(c) includes a safe harbor from the prohibition on general solicitation and general advertising for a notification in compliance with Rule 135c of an unregistered offering by an issuer required to file reports under Section 13 or 15(d) of the Exchange Act. The information allowed to be included in a Rule 135c notification is limited to very basic identifying information about the issuer and the offering. 90 Preliminary Note 6 to Regulation D provides, in part, that “Regulation D is not available to any issuer for any transaction or chain of transactions that, although in technical compliance with the these rules, is part of a plan or scheme to evade the registration provisions of the [Securities] Act.” 91 17 CFR 230.508. Rule 508 provides, in part, that “A failure to comply with a term, condition or requirement of [specified rules under Regulation D] will not result in the loss of [an] exemption * * * if the person relying on the exemption shows * * * [a] good faith and reasonable attempt was made to comply with all applicable terms, conditions and requirements of [such rules].” Request for Comment • How should the Commission address any general solicitation and general advertising issues related to filing Form D information electronically or the widespread availability of such information? • Do filers anticipate that the proposed omission from Form D of any place to provide information customarily placed in footnotes or otherwise to engage in “free writing” would inhibit their ability to file the information required by the form in accordance with applicable requirements? If so, are there particular types of additional information Form D could permit or require that would enable issuers to respond adequately consistent with our goal of not allowing Form D filings to be used as marketing documents that would raise issues of compliance with an applicable ban on general solicitation and general advertising? • Is the proposed safe harbor from the prohibition on general solicitation and general advertising necessary and appropriate? III. Electronic Filing Procedure We propose to mandate electronic filing of the Form D notice through an online filing system expected to be developed, which would be accessible from any computer with Internet access. The information filed would be available on our Web site and, because the online filing system would automatically capture and tag data items, the data would be interactive and easily searchable. The system would 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. 92 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 would make it relatively easy to file, access and analyze Form D information. 92 Using this system would result in the Form D information being filed in the standard format of XML. We would disseminate the information in two formats—normal textual and XML tagged. A. Mechanics We expect that the new online filing system for Form D information would be accessible from any computer with Internet access. An issuer could both submit and amend its Form D filing through this system. The new online system would permit an issuer, in Item 7, to designate the states to which the Form D is directed. The Form D itself would include drop-down menus and other guidance functions to assist in completing the form. In order to file, we expect that issuers would 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 an identification number, which we call a “Central Index Key (CIK)” code, would obtain the codes by filing electronically a Form ID 93 at *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 would be manually signed by the applicant over the applicant's typed signature, include the information contained in the Form ID, confirm the authenticity of the Form ID 94 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. 95 Under the online system, if the Form D filing is made on behalf of multiple issuers, each issuer most likely would be required to have its own CIK code and a confirming code, which we call a “CIK Confirmation Code (CCC)” for validation. 93 17 CFR 239.63, 249.446, 269.7 and 274.402. 94 An issuer could confirm the authenticity of a Form ID by, for example, stating that “[name of issuer] hereby confirms the authenticity of the Form ID [filed] [to be filed] on [specify date] containing the information contained in this document.” 95 17 CFR 232.10(b). An “accession number” is a unique number generated by EDGAR for each electronic submission. Assignment of an accession number does not mean that EDGAR has accepted a submission. To access and file a Form D through the new online system, issuers would begin by having a valid identification number, confirming code and password, which we call a “Password (PW)” and logging on to the system. The identification number, confirming code and password, together with a password modification authorization code, which we call a “Password Modification Authorization Code (PMAC),” we call “EDGAR access codes.” The issuer should have all necessary information available before going online to file. 96 Data entry would be required to be performed quickly enough to avoid time-outs that end the session. A time-out most likely would occur one hour following the user's last activity on the system. Time-outs would be implemented due to cost and technical limitations. The system would not provide a way to save an incomplete form online from session to session. 96 Some information provided by the filer in the course of obtaining EDGAR access codes or updating such information might automatically appear in appropriate places when the filer accesses the new online filing system. As a result, in order to make changes to such information, it might be necessary to do so through an updating process through the main EDGAR system rather than the Form D online filing system. The updating process is a well-established typically online process applicable to EDGAR filers generally that would be relatively easy to complete. An issuer most likely would be able to prepare an amendment based on the content of a previously filed form. 97 The system would validate as many fields as possible for data type and required fields while the filer fills in the fields on the screen. Issuers would have an opportunity to correct errors and verify the accuracy of the information before submitting the filing. An online help function likely would be available. 98 97 When an issuer files an amendment to a Form D filing, it most likely would access its Form D filing on the online filing system and type over the inaccurate information. In that case, the online filing system would replace the inaccurate information with the new information, save the revised version of the Form D filing in its amended state causing it be an amendment and a new filing, and record the date of amendment. The information in the Form D that was accessed for purposes of the amendment would, however, remain unchanged on the system accessible to the public. 98 The new online filing system technically would be part of EDGAR but would be similar to the online filing system for Forms 3 [17 CFR 249.103 and 274.202], 4 [17 CFR 249.104 and 274.203], and 5 [17 CFR 249.105] filed under Section 16(a) [15 U.S.C. 78p(a)] of the Exchange Act, in general, by officers, directors and principal security holders of reporting companies that have a class of equity securities registered under Section 12 [15 U.S.C. 781] of the Exchange Act . Form D filers would access the online filing system and, essentially, prepare the filing by responding to questions and filling in blanks. The Form D online filing system, unlike the online filing system for Forms 3, 4 and 5, likely would not, however, provide Form D filers the alternative of preparing their Form D filings before accessing the system and then submitting them through, rather than preparing them on, the online system. The issuer would be able to download and print the filing before and after submission. Once the filing is submitted, the system would indicate receipt of the filing. In many cases, the system would display a unique number assigned to the submission, which we call an “accession number” but, in any event, the accession number would follow in an e-mail notification to the filer. A filer would be able to see the filing on our Web site shortly after filing. Consistent with our prior goals for the Form D and interaction with the states, upon filing of the Form D notice with the Commission, state securities regulators would be able to identify on our Web site Form D filings that specify their states. 99 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), 7 (states to which Form D directed) and 12 (addresses of recipients of sales compensation) of Form D. State specification information would be interactive and easily searchable because the new online filing system would automatically capture and tag that information as it would other Form D filing information. 99 In Release No. 33-6339 (Aug. 18, 1981) [46 FR 41791], the Commission stated the following in its discussion of Rule 503: “It should be noted that, although the revised filing requirements do not require that the user also file a notice with the state(s) in which the offering is to be sold, it is anticipated that the Commission will routinely furnish copies of the notice forms to the appropriate state commissions.” Most Form D filings currently are made by law firms on behalf of issuers. 100 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. 100 Our Division of Corporation Finance conducted a one-month review of Form D filings and determined that, based primarily on the cover letters that accompany most Form D filings, about 75% of the forms were filed by law firms on behalf of issuers. B. Database Capabilities of Electronic Form D Repository A review of Form D filings by our Division of Corporation Finance uncovered errors and omissions in the information provided. 101 In an effort to enhance the quality of the data collected by the proposed electronic Form D, we anticipate including internal checks in the new online system that would decrease the number of errors and omissions in Form D filings. Such a system would prevent an issuer from submitting Form D information electronically unless all necessary data fields were completed in a manner consistent with the nature of each field 102 and the logical relationships between or among the fields. 103 This would not only promote the integrity of the data collected by the Form D repository, but would also make it easier for issuers to complete or amend their filings. 101 Some of the most frequent errors were failures to indicate whether a filing is an amendment or a new filing and claims that do not match the facts described (for example, issuers claiming that an offering is limited to accredited investors and then including information regarding participation of non-accredited investors in the offering). 102 The system would check, for example, to make sure that number characters were used in responding to the field in proposed Item 13 for the offering and sales amounts. 103 The system would check, for example, whether the filer has specified Rule 505 or Rule 506 as a claimed exemption in response to proposed Item 6 but also has specified that there have been over 35 non-accredited investor purchasers in response to proposed Item 14. If the filer has done so, a pop-up would warn that only 35 non-accredited investors are permitted in these types of offerings and would require the filer to select “OK” before proceeding. C. System Implementation We expect that the new online system would begin receiving mandated filings on a specified date if we were to adopt a final rule mandating electronic filing of Form D information. We are considering a period before that date during which we would permit voluntary electronic filing of Form D information using the new online filing system and form to enable issuers to become familiar with them. This period also would help alert us to any problems in the electronic Form D filing process. Issuers that chose not to file electronically during the transition period could use the current paper form. Although the information in proposed new Form D is somewhat different from that in current paper Form D, we believe a short period when either version of the form could be used may be appropriate. Request for Comment: • Do filers of Form D anticipate any burdens of filing electronically that we have not addressed in this release and should consider? • What information, if any, included on the Form D filing should be unavailable for the public to view online? • We would like comments regarding the availability of technology required to complete the form online. We also would like comments on any possible additional burdens an electronic filing requirement may place upon issuers that may prevent them from making Form D filings. • Should any field in the proposed Form D be optional because it may not be applicable to certain issuers or offerings? • What types of data should the database be able to sort and ascertain about the use of Form D and reliance upon Regulation D? • Would a voluntary period be needed for electronic Form D filing? Would the need depend upon the length of time between any adoption and effectiveness of mandated electronic filing? If a voluntary period were needed, how long should it last? Would issuers be likely to volunteer during this period? • Should public companies be phased in to mandated electronic filing of Form D sooner than private companies? • Where a Form D is filed on behalf of multiple issuers, would it be unduly burdensome to require all of the issuers to have EDGAR access codes and, if they do not already have them, require them to file a Form ID authenticated by a faxed notarized document? Should only one issuer specified in such a filing be required to obtain EDGAR access codes? • Is the Form ID authenticating process unduly burdensome for the purpose of filing a Form D notice? Would other less burdensome processes provide adequate security measures? Should issuers that only file Form D with the Commission be able to authenticate a Form ID by providing to the Commission a copy of a local business license rather than by faxing the otherwise required notarized authenticating document? Would this be easier for issuers? • In the future, should public companies be exempted from the Form D filing requirement in Rule 503 and instead be required to file Form D information as part of their periodic annual and quarterly reports? Should these companies be exempted from the Form D filing requirement and instead be required to include that information on a current report on Form 8-K? 104 If these companies were required to include that information as part of their periodic annual and quarterly reports or on a current report on Form 8-K, should the companies also be required to tag the information in a manner consistent with the automatic tagging that would occur as to Form D filings made on the new online system in order to realize the benefits of uniformly tagged Form D information? 104 17 CFR 249.308. IV. General Request for Comment The Commission is proposing these revisions to Form D and Regulation D to improve the functioning and efficiency of Regulation D. We welcome your comments. We solicit comment, both specific and general, upon each component of the proposals. We request and encourage any interested person to submit comments regarding: • The proposals that are the subject of this release; • Additional or different changes relating to Form D; and • Other matters that may have an effect on the proposals contained in this release. Comment is solicited from the point of view of both issuers and investors, as well as of capital formation facilitators, such as brokers-dealers, and other regulatory bodies, such as state securities regulators. Any interested person wishing to submit written comments on any aspect of the proposal is requested to do so. V. Paperwork Reduction Act Analysis The proposed amendments would affect two forms that contain “collection of information” requirements within the meaning of the Paperwork Reduction Act of 1995 (“PRA”). 105 The titles of the affected information collections are Form D (OMB Control No. 3235-0076) and Form ID (OMB Control No. 3235-0328). The purposes of the proposed amendments are, in general, to clarify, simplify and update the information requirements of Form D and modernize the related information capture process. We are submitting the revisions to the Form ID collection of information to the Office of Management and Budget (“OMB”) for review under 44 U.S.C. 3507(d) and 5 CFR 1320.11. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information requirement unless it displays a currently valid control number. Compliance with the collections of information as proposed to be revised would be mandatory. The information required by the collection of information in Form D as proposed to be revised would not be kept confidential by the Commission; the information required by Form ID would be kept non-public, subject to a request under the Freedom of Information Act. 106 105 44 U.S.C. 3501 *et seq.* 106 5 U.S.C. 552. The Commission's regulations that implement that statute are at 17 CFR 200.80 *et seq.* Form D is filed by issuers as a notice of sales without registration under the Securities Act based on claims of exemption under Regulation D and Section 4(6) of the Securities Act. Form ID is filed by registrants, individuals, third-party filers or their agents to request the assignment of access codes that permit the filing of securities documents on EDGAR. 107 This form enables the Commission to assign an identification number (CIK), confirmation code (CCC), password
(PW)and password modification authorization code
(PMAC)to each EDGAR filer, each of which is essential to the security of the EDGAR system. We expect that, if adopted, the proposed amendments would not affect the number of Form D filings made and, on balance, would obligate issuers to report on Form D essentially the same amount of information as they are required to report on Form D today. We therefore believe that the overall information collection burden of Form D would remain approximately the same as it is today. 108 107 17 CFR 239.63, 249.446, 269.7 and 274.402. 108 We estimate the burden of Form D to be 4.0 hours per response of which one hour is borne internally and three hours are borne externally. We estimate that approximately 196,800 respondents file Form ID each year at an estimated burden of .15 hours per response, all of which is borne internally by the respondent for a total annual burden of 29,520 hours. We expect that, if adopted, the proposed amendments would cause an additional 18,600 respondents to file a Form ID each year and, as a result, would cause an additional annual burden of 2790 hours. 109 109 We arrived at our estimate that an additional 18,600 respondents would file a Form ID each year based on the following information and analysis. In 2006, 16,829 companies made 25,239 Form D filings. Of these companies, 15,914 (94.6%) did not report under the Exchange Act and 915 (5.4%) did report under the Exchange Act. The annual number of Forms D filings rose from 17,390 in 2002 to 25,239 in 2006 for an average increase of approximately 2000 Form D filings per year. Assuming the number of Form D filings continues to increase by 2000 filings per year for each of the next three years, the average number of Form D filings in each of the next three years would be about 29,300. Assuming that the ratio of the number of companies that make a Form D filing to the number of Form D filings in 2006 remains constant over the next three years, an average of about 19,600 companies would make Form D filings in each of the next three years. Assuming also that the ratio between the number of non-reporting and reporting companies under the Exchange Act that made Form D filings in 2006 remains constant over the next three years, an average of about 18,600 non-reporting and 1000 reporting companies would make Form D filings in each of the next three years. Assuming further that all non-reporting companies that would make a Form D filing would not already have EDGAR access codes and, as a result, would be required to file a Form ID, the number of companies that would need to file a Form ID as a result of the proposed amendments would on average be about 18,600 per year over the next three years. Because each Form ID filing is estimated to require .15 hours, the total additional burden would, on average, be about 2790 hours per year over the next three years (18,600 Forms ID × .15 hours per Form ID). We consider the average number of Form ID filings expected to be made per year over the next three years because the PRA requires that our estimates represent the average yearly burden over a three-year period. We solicit comment on the expected Paperwork Reduction Act effects of the proposed rule amendments, including the following: • The accuracy of our estimates of the additional burden hours that would result from adoption of the proposed amendments; • Whether the proposed changes to the collections of information are necessary for the proper performance of the functions of the Commission, including whether the information will have practical utility; • Ways to enhance the quality, utility and clarity of the information to be collected; • Ways to minimize the burden of the collections of information on those who respond, including through the use of automated collection techniques or other forms of information technology; and • Any effects of the proposed amendments on any other collections of information not previously identified. Any member of the public may direct to us any comments concerning these burden estimates and suggestions for reducing the burdens. Persons submitting comments on the collection of information requirements should direct their comments to the OMB, Attention: Desk Officer for the Securities and Exchange Commission, Office of Information and Regulatory Affairs, Washington, DC 20503, and send a copy of the comments to Nancy M. Morris, Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549-9303, with reference to File No. [S7-12-07]. Requests for materials submitted to OMB by the Commission with regard to these collections of information should be in writing, refer to File No. [S7-12-07], and be submitted to the Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549. OMB is required to make a decision concerning the collection of information between 30 and 60 days after publication of this release. Consequently, a comment to OMB is best assured of having its full effect if OMB receives it within 30 days of publication. VI. Cost-Benefit Analysis A. Background The proposed amendments, if adopted, would restructure and mandate the electronic filing of the information required by Form D. Currently, much of the information required by Form D appears to be useful and justified in the interests of investor protection and capital formation. It also appears that some useful information that could be required by Form D currently is not required. 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 propose today would address deficiencies in the Form D data collection requirements. We believe the amendments, in general, would provide benefits by clarifying, simplifying and updating the information requirements of Form D and modernizing the related information capture process. B. Benefits The proposed amendments should benefit issuers, regulators and members of the public who choose to access Form D information. In particular, the proposed amendments should • Ease filing burdens; • Result in better public availability of Form D information; • Enhance the utility of Form D as a means to promote federal and state uniformity and coordination; and • Improve collection of data for Commission enforcement and rulemaking efforts. The proposed amendments should ease filing burdens because filers would find it easier to respond to the revised information requirements of Form D and easier to file the responsive information. 110 It should be easier to respond to the revised information requirements of Form D because they would be clarified, simplified and updated. It should be easier to file the responsive information because issuers could use efficient modern methods of information transfer through electronic filing. Issuers would provide the information in data fields by responding to a series of discrete requests for information. It is expected that the fields would be checked automatically for appropriate characters and consistency with other fields and the questions would be accompanied by easily accessible links to clear instructions and other helpful information. It is intended that these system features, among others, would help to facilitate a relatively easy-to-use filing process that would deliver accurate information quickly, reliably, and securely. 110 Although we believe it would be easier to respond to the revised information requirements of Form D, as discussed in Part V regarding the PRA, we believe the overall collection of information burden of Form D would remain approximately the same as it is today. Requiring the electronic filing of Form D data would result in increased public availability of Form D information because it would make the information filed more readily available to regulators and members of the public who choose to access it. The information would be available on our Web site and, because the Form D filing system would automatically capture and tag data items, the data would be interactive and easily searchable. The filing system would 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 through private vendors over the Internet and through telephone requests. The required electronic filing of Form D information could enhance the utility of Form D as a means to promote federal and state uniformity and coordination. For over 20 years, Form D has served as a means to promote federal and state uniformity in securities regulation by providing a uniform notification form that can be filed with the Commission and with state securities regulators. The electronic filing system would include an electronic database that could be more easily searched for information needed by both federal and state securities regulators to monitor the exempt securities transaction markets. The system also would 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 would be able to access the information on our Web site to learn if new Form D information of interest to them has been filed. It is our hope that state securities regulators would permit “one-stop” filing with the Commission and rely on Commission filings as satisfying state law filing requirements for offerings covered by a federal Form D filing. This would 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 proposed conversion to electronic filing of Form D information in an interactive data format should improve collection of data for Commission enforcement and rulemaking efforts. We expect that electronic filing would result in creation of a database and allow us and others to better aggregate data on the private securities markets and the use of the various Regulation D exemptions. Further, the software we intend to use for the Form D electronic filings would require that filers address each required data field in the form, thus reducing incomplete filings. Because of these and other features, the Form D electronic filing system should assist in our enforcement efforts and ease our ability to make use of filed Form D information. The Form D information database would allow us to 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. Costs We expect that, if adopted, the proposed amendments would result in some initial and ongoing costs to issuers. We also expect, however, that many issuers would not bear the full range of costs that would result from the amendments for the reasons described below. Initial costs are those associated with filing a Form ID in order to obtain the access codes needed to file Form D information electronically and otherwise preparing to make an initial filing of Form D information. 111 In order to file a Form ID, an issuer would need to learn the related electronic filing requirements, obtain access to a computer and the Internet, use the computer to access the Commission's EDGAR Filer Management Web site, respond to Form ID's information requirements and fax to the Commission a notarized authenticating document. 112 Similarly, in order otherwise to prepare to make an initial electronic filing of Form D information, an issuer would need to learn about the revised Form D information content and electronic filing requirements, obtain access to a computer and the Internet, use the computer to access the Form D filing system and respond to Form D's information requirements. 111 Issuers that already have EDGAR access codes would not need to file a Form ID. As further discussed in Part V, however, we assume that about 95% of Form D filers would not already have the codes. 112 As discussed in Part V regarding the PRA , the Commission estimates that approximately 196,800 respondents file Form ID each year at an estimated burden of .15 hours per response, all of which is borne internally by the respondent, for a total annual burden of 29,520 hours. As also discussed in Part V, we expect that, if adopted, the proposed amendments would cause an additional 18,600 respondents to file a Form ID each year and, as a result, cause an additional annual burden of 2790 hours. Assuming a cost of $175 per hour for in-house professional staff, we estimate the current Form ID burden cost at $5,166,000 per year (29,520 hours per year × $175 per hour), the additional Form ID burden cost that would result from adoption of the proposed amendments at $488,250 per year (2790 hours per year × $175 per hour) and the total Form ID burden cost that would result from adding the estimated additional Form ID burden cost to the estimated current Form ID burden cost would be $5,654,250 per year ((29,520 hours per year + 2790 hours per year) = 32,310 hours per year; 32,310 hours per year × $175 per hour = $5,654,250 per year). Ongoing costs are those associated with maintaining the framework developed through the initial costs (for example, updating information required by Form ID) and additional costs arising from each subsequent filing of Form D information. We expect that the vast majority of issuers would need to incur few, if any, additional costs related to obtaining computer and Internet access. We believe that the vast majority of issuers already would have access to a computer and the Internet. 113 113 A person from an issuer that did not already own a computer with Internet access could, for example, go to a public library to use its computer and obtain Internet access. D. Requests for Comments We request comment on all aspects of the cost-benefit analysis, including identification of any additional costs or benefits of, or suggested alternatives to, the proposed amendments. We also request that those submitting comments provide empirical data and other factual support for their views to the extent possible. VII. Consideration of Impact on Competition and Promotion of Efficiency, Competition and Capital Formation Section 23(a)(2) of the Exchange Act 114 requires us, when adopting rules under the Exchange Act, to consider the impact that any new rule would have on competition. In addition, Section 23(a)(2) prohibits us from adopting any rule that would impose a burden on competition not necessary or appropriate in furtherance of the purposes of the Exchange Act. Furthermore, Section 2(b) of the Securities Act, 115 Section 3(f) of the Exchange Act, 116 and Section 2(c) of the Investment Company Act 117 require us, when engaged in rulemaking where we are required to consider or determine whether an action is necessary or appropriate in the public interest, to consider, in addition to the protection of investors, whether the action will promote efficiency, competition and capital formation. 114 15 U.S.C. 78w(a)(2). 115 15 U.S.C. 77b(b). 116 15 U.S.C. 78c(f). 117 15 U.S.C. 80a-2(c). The proposed amendments, if adopted, would restructure and mandate the electronic filing of the information required by Form D. We believe the amendments, in general, would provide benefits by clarifying, simplifying and updating the information requirements of Form D and modernizing the related information capture process. In particular, as discussed in further detail above, the proposed amendments should: • Ease filing burdens; • Result in better public availability of Form D information; • Enhance the utility of Form D as a means to promote federal and state uniformity and coordination; and • Improve collection of data for Commission enforcement and rulemaking efforts. We understand that private sector businesses currently make Form D information available to the public for a fee. Although the ready accessibility of this information at no cost would affect these businesses, we believe that the interactive online system that would be used for Form D information would not discourage the development by private sector businesses of additional features that the new online system would not provide. Consequently, we believe that the proposed amendments would not have a burden on competition that is not necessary or appropriate and might promote competition in providing Form D information through additional features including those related to the tagged data aspect of the system. Eased filing burdens and better public availability of information resulting from the proposed amendments would promote efficiency. For example, the expected online system would enable issuers to provide Form D information with modern, rapid and accurate methods and would enable users of the system to access Form D information more quickly and easily than through a review of paper documents. Improved collection of data for Commission enforcement and rulemaking efforts resulting from the proposed amendments would create a Form D information database that would allow us to evaluate our exemptive schemes on a continuing basis in order to facilitate capital formation in a manner consistent with investor protection and the evaluation could lead to improvements that would promote our capital markets. Similarly, the enhanced utility of Form D as a means to promote federal and state uniformity and coordination resulting from the proposed amendments could lead to improved coordination which would promote capital formation. We request comment on whether the proposed amendments, if adopted, would impose a burden on competition. We also request comment on whether the proposed amendments, if adopted, would promote efficiency, competition and capital formation. Finally, we request commenters to provide empirical data and other factual support for their views if possible. VIII. Initial Regulatory Flexibility Act Analysis This Initial Regulatory Flexibility Analysis has been prepared in accordance with 5 U.S.C. 603. It relates to proposed amendments regarding the content and mandated electronic filing of information required by Form D. A. Reasons for, and Objectives of, the Proposed Action The main purpose of the proposed amendments is to address deficiencies in the Form D data collection process. Currently, much of the information required by Form D appears to be useful and justified in the interests of investor protection and capital formation. It also appears that some useful information that could be required by Form D currently is not required. 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. We believe the amendments, in general, would address the deficiencies in the Form D data collection process by clarifying, simplifying and updating the information requirements of Form D and modernizing the related information capture process. B. Legal Basis We are proposing the amendments under the authority in Sections 2(a), 3(b), 4(2), 19(a), 19(d) and 28 of the Securities Act, 118 Sections 3(b), 23(a) and 35A of the Exchange Act, 119 Section 319(a) of the Trust Indenture Act, 120 and Section 38 of the Investment Company Act. 121 118 15 U.S.C. 77b(a), 77c(b), 77d(2), 77s(a), 77s(d) and 77z-3. 119 15 U.S.C. 78c(b), 78w(a) and 78 *ll* . 120 15 U.S.C. 77sss(a). 121 15 U.S.C. 80a-37. C. Small Entities Subject to the Proposed Rules The proposed amendments would affect issuers that are small entities. Exchange Act Rule 0-10(a) 122 defines an issuer, other than an investment company, to be a “small business” or “small organization” for purposes of the Regulatory Flexibility Act if it had total assets of $5 million or less on the last day of its most recent fiscal year. 123 Investment Company Act Rule 0-10(a) defines an investment company as a “small business” or “small organization” for purposes of the Regulatory Flexibility Act if it, together with other investment companies in the same group of related investment companies, had net assets of $50 million or less as of the end of its most recent fiscal year. 124 The proposed amendments would apply to all issuers that file Form D. 122 17 CFR 240.0-10(a). 123 Securities Act Rule 157(a) [ 17 CFR 230.157(a)] generally defines an issuer, other than an investment company, to be a “small business” or “small entity” for purposes of the Regulatory Flexibility Act if it had total assets of $5 million or less on the last day of its most recent fiscal year and it is conducting or proposing to conduct a securities offering of $5 million or less. For purposes of our analysis of issuers other than investment companies in this Part VIII of the release, however, we use the Exchange Act definition of “small business” or “small entity” because that definition includes more issuers than does the Securities Act definition and, as a result, assures that the definition we use would not itself lead to an understatement of the impact of the proposed amendments on small entities. 124 17 CFR 270.0-10(a). As previously noted, in 2006, 16,829 issuers filed a Form D. We believe that many of these issuers are small entities but we currently we do not collect information on total assets to determine if they are small entities for purposes of this analysis. 125 125 We do, however, solicit comment in Part II on whether proposed Form D should require an issuer to disclose whether the value of its total assets was $5 million or less on the last day of its most recently ended fiscal year. D. Reporting, Recordkeeping and Other Compliance Requirements Currently, issuers must file Form D information in paper. The proposed amendments would require all issuers, including small entities, to submit somewhat different Form D information online using the Internet. These issuers also would need to file a Form ID electronically to obtain the access codes needed to use the Form D filing system if they did not already have the codes. 126 The only additional professional skills required would be those required to file electronically. 127 126 As further discussed in Part V, however, we assume that about 95% of Form D filers would not already have the codes. 127 Although we believe it would be easier to respond to the revised information requirements of Form D, as discussed in Part V, we believe the overall collection of information burden of the form would remain approximately the same. We expect that filing electronically would increase initial and ongoing costs incurred by some small entities. We also expect, however, that many small entities would not bear the full range of costs that would result from the amendments for the reasons described below. Initial costs are those associated with filing a Form ID in order to obtain the access codes needed to file Form D information electronically and otherwise preparing to make an initial filing of Form D information. In order to file a Form ID, an issuer would need to learn the related electronic filing requirements, obtain access to a computer and the Internet, use the computer to access the Commission's EDGAR Filer Management Web site, respond to Form ID's information requirements and fax to the Commission a notarized authenticating document. 128 Similarly, in order otherwise to prepare to make an initial electronic filing of Form D information, an issuer would need to learn about the revised Form D information content and electronic filing requirements, obtain access to a computer and the Internet, use the computer to access the Form D filing system and respond to Form D's information requirements. 128 As discussed in Part V, the Commission has estimated the collection of information burden of Form ID as .15 hours per response, all of which is borne internally by the respondent. Ongoing costs are those associated with maintaining the framework developed through the initial costs (for example, updating information required by Form ID) and additional costs arising from each subsequent filing of Form D information. We expect that the vast majority of small entities would need to incur few, if any, additional costs related to obtaining computer and Internet access. We believe that the vast majority of small entities already would have access to a computer and the Internet. 129 129 A person from a small entity that did not already own a computer with Internet access could, for example, go to a public library to use its computer and obtain Internet access. E. Duplicative, Overlapping or Conflicting Federal Rules We believe that the proposed amendments would not duplicate, or overlap or conflict with, other federal rules. F. Significant Alternatives The Regulatory Flexibility Act directs us to consider significant alternatives that would accomplish the stated objective, while minimizing any significant adverse impact on small entities. In connection with the proposed amendments, we considered several alternatives, including the following: • Establishing different compliance or reporting requirements or timetables that take into account the resources available to small entities; • Further clarifying, consolidating or simplifying the proposed requirements; • Using performance rather than design standards; and • Providing an exemption from the proposed requirements, or any part of them, for small entities. We believe that, as to small entities, differing compliance, reporting or timetable requirements, a partial or complete exemption from the proposed requirements or the use of performance rather than design standards would be inappropriate because these approaches would detract from the completeness and uniformity of the Form D database and, as a result, reduce the expected benefits of better public availability of Form D information, enhanced utility of Form D as a means to promote federal and state uniformity and improved collection of data for Commission enforcement and rulemaking efforts. Further, we believe the proposed Form D filing system would be relatively easy to use. 130 We solicit comment, however, on whether differing compliance, reporting or timetable requirements, a partial or complete exemption, or the use of performance rather than design standards would be consistent with our described main goal of addressing deficiencies in the Form D data collection process. 131 130 As discussed in Part III.C, we are considering a period during which we would permit voluntary electronic filing of Form D information using the new electronic filing system and form to enable issuers to become familiar with them. Small entities would be able to take advantage of any such period. 131 In this regard, in Part III of this release, we solicit comment on the availability of technology to complete Form D online and whether public companies should be phased in to mandated electronic Form D filing sooner than private companies (presumably, many of the small entities that would file Form D would be private companies). We considered further clarifying, consolidating or simplifying the proposed Form D information and electronic filing requirements. During 2003, the Commission's Office of Small Business Policy (“OSBP”) reviewed the types of errors, omissions, and misstatements more commonly found in Form D filings, as well as the types of questions typically received through phone calls from the public associated with the form. We also have considered the electronic filing requirements related to Exchange Act Forms 3, 4 and 5, the manner in which their online filing system has operated and the suitability of that system as a model for the expected online system for Form D information. Based in part on OSBP's review and our consideration of the electronic filing of Forms 3, 4 and 5, we believe that the proposed Form D information and electronic filing requirements are clear and straightforward (although, we seek comment on this). G. Solicitation of Comment We encourage comments with respect to any aspect of this Initial Regulatory Flexibility Analysis. In particular, we request comments regarding: • The number of small entities that may be affected by the proposed amendments; • The existence or nature of the potential impact of the proposed amendments on small entities as discussed in this analysis; and • How to quantify the impact of the proposed amendments. We ask those submitting comments to describe the nature of any impact and provide empirical data supporting the extent of the impact. These comments will be considered in the preparation of the Final Regulatory Flexibility Analysis, if the proposed amendments are adopted, and will be placed in the same public file as comments on the proposed amendments themselves. IX. Small Business Regulatory Enforcement Fairness Act For purposes of the Small Business Regulatory Enforcement Fairness Act of 1996, 132 a rule is “major” if it has resulted, or is likely to result in: 132 Pub. L. 104-121, Title II, 110 Stat. 857 (1996). • An annual effect on the economy of $100 million or more; • A major increase in costs or prices for consumers or individual industries; or • Significant adverse effects on competition, investment or innovation. In connection with this analysis, we solicit comment and empirical data on: • The potential effect of the proposals on the U.S. economy on an annual basis; • Any potential increase in costs or prices for consumers or individual industries resulting from the proposals; and • Any potential effect of the proposals on competition, investment or innovation. X. Statutory Basis and Text of Proposed Amendments We are proposing the amendments to Rules 100, 101, 104, 201, and 202 of Regulation S-T, Securities Act Rules 502 and 503 and the description and content of Securities Act Form D under the authority in sections 2(a), 3(b), 4(2), 19(a), 19(d), and 28 of the Securities Act, 133 sections 3(b), 23(a), and 35A of the Exchange Act, 134 section 319(a) of the Trust Indenture Act, 135 and section 38 of the Investment Company Act. 136 133 15 U.S.C. 77b(a), 77c(b), 77d(2), 77s(a), 77s(d), and 77z-3. 134 15 U.S.C. 78c(b), 78w(a), and 78 *ll.* 135 15 U.S.C. 77sss(a). 136 15 U.S.C. 80a-37. List of Subjects in 17 CFR Parts 230, 232 and 239 Reporting and recordkeeping requirements, Securities. Text of Proposed Amendments For the reasons set out in the preamble, we propose to amend Title 17, Chapter II of the Code of Federal Regulations as follows: PART 230—GENERAL RULES AND REGULATIONS, SECURITIES ACT OF 1933 1. The general authority citation for Part 230 continues to read in part as follows: Authority: 15 U.S.C. 77b, 77c, 77d, 77f, 77g, 77h, 77j, 77r, 77s, 77z-3, 77sss, 78c, 78d, 78j, 78l, 78m, 78n, 78o, 78t, 78w, 78ll(d), 78mm, 80a-8, 80a-24, 80a-28, 80a-29, 80a-30, and 80a-37, unless otherwise noted. 2. Amend § 230.502 by revising paragraph
(c)to read as follows: § 230.502 General conditions to be met.
(c)*Limitation on manner of offering.* Except as provided in § 230.504(b)(1), neither the issuer nor any person acting on its behalf shall offer or sell the securities by any form of general solicitation or general advertising, including, but not limited to, the following:
(1)Any advertisement, article, notice or other communication published in any newspaper, magazine, or similar media or broadcast over television or radio; and
(2)Any seminar or meeting whose attendees have been invited by any general solicitation or general advertising; *Provided, however,* that publication by an issuer of a notice in accordance with § 230.135c or filing with the Commission by an issuer of a notice of sales on Form D (17 CFR 239.500) in which the issuer has made a good faith and reasonable attempt to comply with the requirements of such form, shall not be deemed to constitute general solicitation or general advertising for purposes of this section; *Provided further,* that, if the requirements of § 230.135e are satisfied, providing any journalist with access to press conferences held outside of the United States, to meetings with issuer or selling security holder representatives conducted outside of the United States, or to written press-related materials released outside the United States, at or in which a present or proposed offering of securities is discussed, will not be deemed to constitute general solicitation or general advertising for purposes of this section. 3. Revise § 230.503 to read as follows: § 230.503 Filing of notice of sales.
(a)*When notice of sales on Form D must be filed.*
(1)An issuer offering or selling securities in reliance on § 230.504, § 230.505, or § 230.506 must file with the Commission a notice of sales on Form D (17 CFR 239.500) for each new offering of securities no later than 15 calendar days after the first sale of securities in the offering.
(2)An issuer may file an amendment to a previously filed notice of sales on Form D at any time.
(3)An issuer must file an amendment to a previously filed notice of sales on Form D for an offering:
(i)To correct a mistake of fact in the previously filed notice of sales on Form D, as soon as practicable after discovery of the mistake;
(ii)To reflect a change in the information provided in the previously filed notice of sales on Form D, as soon as practicable after the change, except that no amendment is required to reflect a change that occurs after the offering terminates or a change that occurs in the following only:
(A)An issuer's revenues,
(B)The amount of securities sold in the offering,
(C)The total offering amount, if the change, together with all other changes in that amount since the previously filed notice of sales on Form D, does not result in an increase of more than 10%,
(D)The number of accredited investors who have invested in the offering,
(E)The number of non-accredited investors who have invested in the offering, as long as the change does not increase the number to more than 35, or
(F)In offerings that last more than a year, information on related persons 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; and
(iii)In offerings that last more than a year, annually, between January 1 and February 14, to reflect information about the offering on or before its termination since the later of the filing of the notice of sales on Form D or the most recent amendment to the notice of sales on Form D.
(4)An issuer that files an amendment to a previously filed notice of sales on Form D must provide current information in response to all requirements of the notice of sales on Form D regardless of why the amendment is filed.
(b)*How notice of sales on Form D must be filed and signed.*
(1)A notice of sales on Form D must be filed with the Commission in electronic format by means of the Commission's Electronic Data Gathering Analysis and Retrieval System (EDGAR) in accordance with EDGAR rules set forth in Regulation S-T (17 CFR Part 232).
(2)Every notice of sales on Form D must be signed by a person duly authorized by the issuer. PART 232—REGULATION S-T—GENERAL RULES AND REGULATIONS FOR ELECTRONIC FILINGS 4. The general authority citation for Part 232 continues to read as follows: Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s(a), 77sss(a), 78c(b), 78l, 78m, 78n, 78o(d), 78w(a), 78ll(d), 80a-8, 80a-29, 80a-30, and 80a-37, and 7201 *et seq.* ; and 18 U.S.C. 1350. 5. Amend § 232.100 by revising paragraph
(a)to read as follows: § 232.100 Persons and entities subject to mandated electronic filing.
(a)Registrants and other entities whose filings are subject to review by the Division of Corporation Finance; 6. Amend § 232.101 by: a. Removing the word “and” at the end of paragraph (a)(1)(xi); b. Removing the period and adding “and” at the end of paragraph (a)(1)(xii); c. Adding paragraph (a)(1)(xiii); and d. Removing “, Regulation D (§§ 230.501-230.506 of this chapter)” from paragraph (c)(6). The addition reads as follows: § 232.101 Mandated electronic submissions and exceptions.
(a)* * *
(1)* * *
(xiii)Form D (§ 239.500 of this chapter). 7. Amend § 232.104 by revising paragraph
(a)to read as follows: § 232.104 Unofficial PDF copies included in an electronic submission.
(a)An electronic submission, other than a Form 3 (§ 249.103 of this chapter), a Form 4 (§ 249.104 of this chapter), a Form 5 (§ 249.105 of this chapter), a Form ID (§§ 239.63, 249.446, 269.7 and 274.402 of this chapter), a Form TA-1 (§ 249.100 of this chapter), a Form TA-2 (§ 249.102 of this chapter), a Form TA-W (§ 249.101 of this chapter) or a Form D (§ 239.500 of this chapter), may include one unofficial PDF copy of each electronic document contained within that submission, tagged in the format required by the EDGAR Filer Manual. 8. Amend § 232.201 by revising paragraph
(a)introductory text to read as follows: § 232.201 Temporary hardship exemption.
(a)If an electronic filer experiences unanticipated technical difficulties preventing the timely preparation and submission of an electronic filing, other than a Form 3 (§ 249.103 of this chapter), a Form 4 (§ 249.104 of this chapter), a Form 5 (§ 249.105 of this chapter), a Form ID (§§ 239.63, 249.446, 269.7 and 274.402 of this chapter), a Form TA-1 (§ 249.100 of this chapter), a Form TA-2 (§ 249.102 of this chapter), a Form TA-W (§ 249.101 of this chapter) or a Form D (§ 239.500 of this chapter), the electronic filer may file the subject filing, under cover of Form TH (§§ 239.65, 249.447, 269.10 and 274.404 of this chapter), in paper format no later than one business day after the date on which the filing was to be made. 9. Amend § 232.202 by revising paragraph
(a)introductory text to read as follows: § 232.202 Continuing hardship exemption.
(a)An electronic filer may apply in writing for a continuing hardship exemption if all or part of a filing or group of filings, other than a Form ID (§§ 239.63, 249.446, 269.7 and 274.402 of this chapter) or a Form D (§ 239.500 of this chapter), otherwise to be filed in electronic format cannot be so filed without undue burden or expense. Such written application shall be made at least ten business days prior to the required due date of the filing(s) or the proposed filing date, as appropriate, or within such shorter period as may be permitted. The written application shall contain the information set forth in paragraph
(b)of this section. PART 239—FORMS PRESCRIBED UNDER THE SECURITIES ACT OF 1933 10. The general authority citation for Part 239 continues to read as follows: Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s, 77z-2, 77z-3, 77sss, 78c, 78j, 78l, 78m, 78n, 78o(d), 78u-5, 78w(a), 78ll(d), 78mm, 80a-2(a), 80a-3, 80a-8, 80a-9, 80a-10, 80a-13, 80a-24, 80a-26, 80a-29, 80a-30, and 80a-37, unless otherwise noted. 11. Revise § 239.500 to read as follows: § 239.500 Form D, notice of sales of securities under Regulation D and section 4(6) of the Securities Act of 1933.
(a)*When notice of sales on Form D must be filed.*
(1)An issuer offering or selling securities in reliance on § 230.504, § 230.505, or § 230.506 of this chapter or section 4(6) of the Securities Act of 1933 must file with the Commission a notice of sales on Form D (17 CFR 239.500) for each new offering of securities no later than 15 calendar days after the first sale of securities in the offering.
(2)An issuer may file an amendment to a previously filed notice of sales on Form D at any time.
(3)An issuer must file an amendment to a previously filed notice of sales on Form D for an offering:
(i)To correct a mistake of fact in the previously filed notice of sales on Form D, as soon as practicable after discovery of the mistake;
(ii)To reflect a change in the information provided in the previously filed notice of sales on Form D, as soon as practicable after the change, except that no amendment is required to reflect a change that occurs after the offering terminates or a change that occurs in the following only:
(A)An issuer's revenues,
(B)The amount of securities sold in the offering,
(C)The total offering amount, if the change, together with all other changes in that amount since the previously filed notice of sales on Form D, does not result in an increase of more than 10%,
(D)The number of accredited investors who have invested in the offering,
(E)The number of non-accredited investors who have invested in the offering, as long as the change does not increase the number to more than 35, or
(F)In offerings that last more than a year, information on related persons 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; and
(iii)In offerings that last more than a year, annually, between January 1 and February 14, to reflect information about the offering on or before its termination date since the later of the filing of the notice of sales on Form D or the most recent amendment to the notice of sales on Form D.
(4)An issuer that files an amendment to a previously filed notice of sales on Form D must provide current information in response to all requirements of the notice of sales on Form D regardless of why the amendment is filed.
(b)*How notice of sales on Form D must be filed and signed.*
(1)A notice of sales on Form D must be filed with the Commission in electronic format by means of the Commission's Electronic Data Gathering Analysis and Retrieval System (EDGAR) in accordance with EDGAR rules set forth in Regulation S-T (17 CFR Part 232).
(2)Every notice of sales on Form D must be signed by a person duly authorized by the issuer. 12. Revise Form D (referenced in § 239.500) to read as follows: Note. The text of Form D does not and this amendment will not appear in the Code of Federal Regulations. BILLING CODE 8010-01-P EP09JY07.010 EP09JY07.011 EP09JY07.012 EP09JY07.013 EP09JY07.014 EP09JY07.015 EP09JY07.016 EP09JY07.017 EP09JY07.018 EP09JY07.019 Dated: June 29, 2007. By the Commission. Florence E. Harmon, Deputy Secretary. [FR Doc. E7-13018 Filed 7-6-07; 8:45 am] BILLING CODE 8010-01-C 72 130 Monday, July 9, 2007 Proposed Rules Part V Department of Commerce National Oceanic and Atmospheric Administration 50 CFR Part 216 Taking and Importing Marine Mammals; Taking Marine Mammals Incidental to the U.S. Navy Operations of Surveillance Towed Array Sensor System Low Frequency Active Sonar; Proposed Rule DEPARTMENT OF COMMERCE National Oceanic and Atmospheric Administration 50 CFR Part 216 [Docket No. 070703226-7226-01; I.D. 062206A] RIN 0648-AT80 Taking and Importing Marine Mammals; Taking Marine Mammals Incidental to the U.S. Navy Operations of Surveillance Towed Array Sensor System Low Frequency Active Sonar AGENCY: National Marine Fisheries Service (NMFS), National Oceanic and Atmospheric Administration (NOAA), Commerce. ACTION: Proposed rule; request for comments. SUMMARY: NMFS has received a request from the U.S. Navy for an authorization under the Marine Mammal Protection Act
(MMPA)to take marine mammals, by harassment, incidental to conducting operations of Surveillance Towed Array Sensor System (SURTASS) Low Frequency Active
(LFA)sonar from August 16, 2007, through August 15, 2012. By this document, NMFS is proposing regulations to govern that take. In order to issue Letters of Authorization
(LOAs)and final regulations governing the take, NMFS must determine that the taking will have a negligible impact on the affected species or stocks of marine mammals. NMFS regulations must set forth the permissible methods of take and other means of effecting the least practicable adverse impact on the affected species or stocks of marine mammals and their habitat. NMFS invites comment on the proposed regulations and findings. DATES: Comments and information must be received by July 24, 2007. ADDRESSES: You may submit comments on the application and proposed rule, using the identifier 062206A, by any of the following methods: • E-mail: *PR1.062306A@noaa.gov* . • Federal e-Rulemaking Portal: *http://www.regulations.gov* . • Hand-delivery or mailing of paper, disk, or CD-ROM comments should be addressed to: P. Michael Payne, Chief, Permits, Conservation and Education Division, Office of Protected Resources, National Marine Fisheries Service, 1315 East-West Highway, Silver Spring, MD 20910-3225. A copy of the application, containing a list of references used in this document, and other documents cited herein, may be obtained by writing to the above address, by telephoning one of the contacts listed under FOR FURTHER INFORMATION CONTACT , or at: *http://www.nmfs.noaa.gov/pr/permits/incidental.htm* . A copy of the Navy's Final Supplemental Environmental Impact Statement (Final SEIS) and the Final Environmental Impact Statement (Final EIS) can be downloaded at: *http://www.surtass-lfa-eis.com* . Documents cited in this proposed rule may also be viewed, by appointment, during regular business hours at this address. FOR FURTHER INFORMATION CONTACT: Kenneth Hollingshead, NMFS, at 301-713-2289, ext 128. SUPPLEMENTARY INFORMATION: Background Section 101(a)(5)(A) of the Marine Mammal Protection Act (16 U.S.C. 1361 *et seq.* )
(MMPA)directs the Secretary of Commerce (Secretary) to allow, upon request, the incidental, but not intentional taking of marine mammals by U.S. citizens who engage in a military readiness activity if certain findings are made and regulations are issued. An authorization may be granted for periods of 5 years or less if the Secretary finds that the total taking will have a negligible impact on the affected species or stock(s), will not have an unmitigable adverse impact on the availability of the species or stock(s) for certain subsistence uses. The Secretary must also issue regulations setting forth the permissible methods of taking and other means of effecting the least practicable adverse impact, including a consideration of personnel safety, the practicality of implementation of any mitigation, and the impact on the effectiveness of the subject military readiness activity, and the requirements pertaining to the monitoring and reporting of such taking. NMFS authorizes the incidental take through “letters of authorization”
(LOAs)(50 CFR 216.106) NMFS has defined “negligible impact” in 50 CFR 216.103 as “an impact resulting from the specified activity that cannot be reasonably expected to, and is not reasonably likely to, adversely affect the species or stock through effects on annual rates of recruitment or survival.” For the purposes of “military readiness activities” harassment is defined as:
(i)any act that injures or has the significant potential to injure a marine mammal or marine mammal stock in the wild [Level A harassment]; or
(ii)any act that disturbs or is likely to disturb a marine mammal or marine mammal stock in the wild by causing disruption of natural behavioral patterns, including, but not limited to, migration, surfacing, nursing, breeding, feeding, or sheltering, to a point where such behavioral patterns are abandoned or significantly altered [Level B harassment]. The term “military readiness activity” is defined in Public Law 107-314 (16 U.S.C. 703 note) to include all training and operations of the Armed Forces that relate to combat; and the adequate and realistic testing of military equipment, vehicles, weapons and sensors for proper operation and suitability for combat use. The term expressly does not include the routine operation of installation operating support functions, such as military offices, military exchanges, commissaries, water treatment facilities, storage facilities, schools, housing, motor pools, laundries, morale, welfare and recreation activities, shops, and mess halls; the operation of industrial activities; or the construction or demolition of facilities used for a military readiness activity. Summary of Request On May 12, 2006, NMFS received an application from the U.S. Navy requesting an authorization under section 101(a)(5)(A) of the MMPA for the taking of marine mammals incidental to deploying the SURTASS LFA sonar system for military readiness activities to include training, testing and routine military operations within the world's oceans (except for Arctic and Antarctic waters, coastal regions as specified in this proposed rule, and offshore biologically important areas (OBIAs)) for a period of time not to exceed 5 years. According to the Navy application, SURTASS LFA sonar would operate a maximum of 4 ship systems in areas of the Pacific, Atlantic, and Indian oceans and the Mediterranean Sea in which SURTASS LFA sonar could potentially operate. The purpose of SURTASS LFA sonar is to provide the Navy with a reliable and dependable system for long-range detection of quieter, harder-to-find submarines. Low-frequency
(LF)sound travels in seawater for greater distances than higher frequency sound used by most other active sonars. According to the Navy, the SURTASS LFA sonar system would meet the Navy's need for improved detection and tracking of new-generation submarines at a longer range. This would maximize the opportunity for U.S. armed forces to safely react to, and defend against, potential submarine threats while remaining a safe distance beyond a submarine's effective weapons range. NMFS and the Navy have determined that the Navy's SURTASS LFA sonar testing and training operations constitute a military readiness activity because those activities constitute “training and operations of the Armed Forces that relate to combat” and constitute “adequate and realistic testing of military equipment, vehicles, weapons and sensors for proper operation and suitability for combat use.” NMFS' current regulations governing takings incidental to SURTASS LFA sonar activities and the current LOA expire on August 16, 2007. On September 28, 2006 (71 FR 56965), NMFS published a Notice of Receipt of Application on the U.S. Navy application and invited interested persons to submit comments, information, and suggestions concerning the application and the structure and contents of regulations. These comments were considered in the development of this proposed rule. Prior Litigation, Involving LFA Sonar On August 7, 2002, the Natural Resources Defense Council, the U.S. Humane Society and four other plaintiffs filed suit against the Navy and NMFS over SURTASS LFA sonar use and permitting. The U.S. District Court for the Northern District of California (Court) issued its Opinion and Order on the parties' motions for summary judgment in the SURTASS LFA litigation on August 26, 2003. The Court found deficiencies in Navy and NMFS compliance with the MMPA, Endangered Species Act (ESA), and National Environmental Policy Act (NEPA). The Court determined that an injunction was warranted but did not order a complete ban on the use of SURTASS LFA sonar. Specifically, the Court found that a total ban on the employment of SURTASS LFA would interfere with the Navy's ability to ensure military readiness and to protect those serving in the military against the threat posed by hostile submarines. The Court directed the parties to meet and confer on the scope of a tailored permanent injunction, which would allow for continued operation of the system with additional mitigation measures. This mediation session occurred on September 25, 2003 in San Francisco. On October 14, 2003, the Court issued a Stipulation Regarding Permanent Injunction for the operations of SURTASS LFA sonar from both *R/V Cory Chouest* and USNS IMPECCABLE (T-AGOS 23) in stipulated portions of the Northwest Pacific/Philippine Sea, Sea of Japan, East China Sea, and South China Sea with certain year-round and seasonal restrictions. On July 7, 2005, the Court amended the injunction at Navy's request to expand the potential areas of operation based on real-world contingencies. The Navy's Final SEIS was prepared in response to the Court's ruling on the motion for preliminary injunction, addressing the concerns identified by the Court, to provide additional information regarding the environment that could potentially be affected by the SURTASS LFA sonar systems, and to provide additional information related to mitigation. A detailed description of the operations is contained in the Navy's application (DON, 2006) and the Final SEIS (DON, 2007) which are available upon request (see ADDRESSES). Description of the Activity The SURTASS LFA sonar system is a long-range, LF sonar (between 100 and 500 Hertz (Hz)) that has both active and passive components. It does not have to rely on detection of noise generated by the target. The active component of the system is a set of up to 18 LF acoustic transmitting source elements (called projectors) suspended from a cable underneath a ship. The projectors are devices that transform electrical energy to mechanical energy by setting up vibrations, or pressure disturbances, with the water to produce the pulse or ping. The SURTASS LFA sonar acoustic transmission is an omnidirectional (full 360 degrees) beam in the horizontal. A narrow vertical beamwidth can be steered above or below the horizontal. The source level
(SL)of an individual projector in the SURTASS LFA sonar array is approximately 215 decibels (dB), and because of the physics involved in beam forming and transmission loss processes, the array can never have a sound pressure level
(SPL)higher than the SPL of an individual projector. The expected water depth at the center of the array is 400 ft (122 m) and the expected minimum water depth at which the SURTASS LFA vessel will operate is 200 m (656.2 ft). The typical SURTASS LFA sonar signal is not a constant tone, but rather a transmission of various signal types that vary in frequency and duration (including continuous wave
(CW)and frequency-modulated
(FM)signals). A complete sequence of sound transmissions is referred to by the Navy as a “ping” and can last as short as 6 seconds
(sec)to as long as 100 sec, normally with no more than 10 sec at any single frequency. The time between pings is typically from 6 to 15 minutes. Average duty cycle (ratio of sound “on” time to total time) is less than 20 percent; however, the duty cycle, based on historical operating parameters, is normally 7.5 percent. The passive, or listening, component of the system is SURTASS, which detects returning echoes from submerged objects, such as submarines, through the use of hydrophones. The hydrophones are mounted on a horizontal array that is towed behind the ship. The SURTASS LFA sonar ship maintains a minimum speed of 3.0 knots (5.6 km/hr; 3.4 mi/hr) in order to keep the array deployed. Because of uncertainties in the world's political climate, a detailed account of future operating locations and conditions cannot be predicted. However, for analytical purposes, a nominal annual deployment schedule and operational concept have been developed, based on current LFA operations since January 2003 and projected Fleet requirements. The Navy anticipates that a normal SURTASS LFA sonar deployment schedule for a single vessel would involve about 294 days/year at sea. A normal at-sea mission would occur over a 49-day period, with 40 days of operations and 9 days transit. Based on a 7.5-percent duty cycle, the system would actually be transmitting for a maximum of 72 hours per 49-day mission and 432 hours per year for each SURTASS LFA sonar system in operation. (In actuality however, the combined number of transmission hours for LFA sonar did not exceed 174 hours between August 16, 2002, and August 15, 2006 (Table 4 in the Navy's Comprehensive Report)). Annually, each vessel will be expected to spend approximately 54 days in transit and 240 days performing active operations. Between missions, an estimated 71 days will be spent in port for upkeep and repair. The nominal SURTASS LFA Sonar annual and 49-day deployment schedule for a single ship can be seen in Table 2-1 of the Final SEIS. The two existing operational LFA systems are installed on two SURTASS vessels: *R/V Cory Chouest* and USNS IMPECCABLE (T-AGOS 23). To meet future undersea warfare requirements, the Navy is working to develop and introduce a compact active system deployable from existing, smaller SURTASS Swath-P ships. This smaller system is known as Compact LFA, or CLFA. CLFA consists of smaller, lighter-weight source elements than the current LFA system, and will be compact enough to be installed on the existing SURTASS platforms, VICTORIOUS Class (T-AGOS 19) vessels. The Navy indicates that the operational characteristics of the compact system are comparable to the existing LFA systems as presented in Subchapter 2.1 of the Final EIS and Final SEIS. Consequently, the potential impacts from CLFA will be similar to the effects from the existing SURTASS LFA systems. Three additional CLFA systems are planned for installation on T-AGOS 20, 21, and 22. With the *R/V Cory Chouest* retiring in FY 2008, the Navy estimates that there will be two systems in FY 2008 and FY 2009, 3 in FY 2010 and 4 systems in FY 2011 and FY 20012. At no point are there expected to be more than four systems in use, and thus this proposed rule analyzes the impacts on marine mammals due to the deployment of up to three LFA sonar systems through FY 2010 and four systems in FY 2011 and FY 2012. The SURTASS LFA sonar vessel will operate independently of, or in conjunction with, other naval air, surface or submarine assets. The vessel will generally travel in straight lines or racetrack patterns depending on the operational scenario. Description of Acoustic Propagation The following is a very basic and generic description of the propagation of LFA sonar signals in the ocean and is provided to facilitate understanding of this action. However, because the actual physics governing the propagation of SURTASS LFA sound signals is extremely complex and dependent on numerous in-situ environmental factors, the following is for illustrative purposes only. In actual SURTASS LFA sonar operations, the crew of the SURTASS LFA sonar platform will measure oceanic conditions (such as sea water temperature and salinity versus depth) prior to and during transmissions and at least every 12 hours, but more frequently when meteorological or oceanographic conditions change. These technicians will then use U.S. Navy sonar propagation models to predict and/or update sound propagation characteristics. The short time periods between actual environmental observations and the subsequent model runs further enhance the accuracy of these predictions. Fundamentally, these models are used to determine what path the LF signal will take as it travels through the ocean and how strong the sound signal will be at given ranges along a particular transmission path. Accurately determining the speed at which sound travels through the water is critical to predicting the path that sound will take. The speed of sound in seawater varies directly with depth, temperature, and salinity. Thus, an increase in depth or temperature or, to a lesser degree, salinity, will increase the speed of sound in seawater. However, the oceans are not homogeneous, and the contribution of each of these individual factors is extremely complex and interrelated. The physical characteristics that determine sound speed change with depth, and in the case of temperature and salinity, season, geographic location, and locally, with time of day. After accurately measuring these factors, mathematical formulas or models can be used to generate a plot of sound speed versus water depth. This type of plot is generally referred to as a sound speed profile (SSP). Near the surface (variable within the top 1000 ft (305 m)), ocean near-surface water mixing results in a fairly constant temperature and salinity. Below the mixed layer, sea temperature drops rapidly in an area referred to as the thermocline. In this region, temperature influences the SSP, and speed decreases with depth because of the large decrease in temperature (sound speed decreases with decreasing temperature). Finally, beneath the thermocline, the temperature becomes fairly uniform and increasing pressure causes the SSP to increase with depth. One way to envision sound traveling though the sea is to think of the sound as “rays.” As these rays travel though the sea, their direction of travel changes as a result of speed changes, bending, or refracting, toward areas of lower speed and away from areas of higher speed. Depending on environmental conditions, refraction can either be toward or away from the surface. Additionally, the rays can be reflected or absorbed when they encounter the surface or the bottom. For example, under certain environmental conditions, near-surface sound rays can repeatedly be refracted upward and reflected off the surface and thus become trapped in a duct. Some of the more prevalent acoustic propagation paths in the ocean include: acoustic ducting; convergence zone (CZ); bottom interaction; and shallow-water propagation. Acoustic Ducting There are two types of acoustic ducting: surface ducts and sound channels. Surface Ducts As previously discussed, the top layer of the ocean is normally well mixed and has relatively constant temperature and salinity. Because of the effect of depth (pressure), surface layers exhibit a slightly positive sound speed gradient (that is, sound speed increases with depth). Thus, sound transmitted within this layer is refracted upward toward the surface. If sufficient energy is subsequently reflected downward from the surface, the sound can become “trapped” by a series of repeated upward refractions and downward reflections. Under these conditions, a surface duct, or surface channel, is said to exist. Sound trapped in a surface duct can travel for relatively long distances with its maximum range of propagation dependent on the specifics of the SSP, the frequency of the sound, and the reflective characteristics of the surface. As a general rule, surface duct propagation will improve as the temperature uniformity and depth of the layer increase. For example, transmission is improved when cloudy, windy conditions create a well-mixed surface layer or in high-latitude midwinter conditions where the mixed layer extends to several hundred feet deep. Sound Channels Variation of sound speed, or velocity, with depth causes sound to travel in curved paths. A sound channel is a region in the water column where sound speed first decreases with depth to a minimum value, and then increases. Above the depth of minimum value, sound is refracted downward; below the depth of minimum value, sound is refracted upward. Thus, much of the sound starting in the channel is trapped, and any sound entering the channel from outside its boundaries is also trapped. This mode of propagation is called sound channel propagation. This propagation mode experiences the least transmission loss along the path, thus resulting in long-range transmission. At low and middle latitudes, the deep sound channel axis varies from 1,970 to 3,940 ft (600 to 1,200 m) below the surface. It is deepest in the subtropics and comes to the surface in the high latitudes, where sound propagates in the surface layer. Because propagating sound waves do not interact with either the sea surface or seafloor, sound propagation in sound channels does not attenuate as rapidly as bottom- or surface-interacting paths. The most common sound channels used by SURTASS LFA sonar are convergence zones (CZs). Convergence Zones CZs are special cases of the sound-channel effect. When the surface layer is narrow or when sound rays are refracted downward, regions are created at or near the ocean surface where sound rays are focused, resulting in concentrated levels of high sounds. The existence of CZs depends on the SSP and the depth of the water. Due to downward refraction at shorter ranges, sound rays leaving the near-surface region are refracted back to the surface because of the positive sound speed gradient produced by the greater pressure at deep ocean depths. These deep-refracted rays often become concentrated at or near the surface at some distance from the sound source through the combined effects of downward and upward refraction, thus causing a CZ. CZs may exist whenever the sound speed at the ocean bottom, or at a specific depth, exceeds the sound speed at the source depth. Depth excess, also called sound speed excess, is the difference between the bottom depth and the limiting, or critical depth. CZs vary in range from approximately 18 to 36 nautical miles
(nm)(33 to 67 km), depending upon the SSP. The width of the CZ is a result of complex interrelationships and cannot be correlated with any specific factor. In practice, however, the width of the CZ is usually on the order of 5 to 10 percent of the range. For optimum tactical performance, CZ propagation of SURTASS LFA signals is desired and expected in deep open ocean conditions. Bottom Interaction Reflections from the ocean bottom and refraction within the bottom can extend propagation ranges. For mid- to high-level frequency sonars (greater than 1,000 Hz), only minimal energy enters into the bottom; thus reflection is the predominant mechanism for energy return. However, at low frequencies, such as those used by the SURTASS LFA sonar source, significant sound energy can penetrate the ocean floor, and refraction within the seafloor, not reflection, dominates the energy return. Regardless of the actual transmission mode (reflection from the bottom or refraction within the bottom), this interaction is generally referred to as “bottom-bounce” transmission. Major factors affecting bottom-bounce transmission include the sound frequency, water depth, angle of incidence, bottom composition, and bottom roughness. A flat ocean bottom produces the greatest accuracy in estimating range and bearing in the bottom-bounce mode. For SURTASS LFA sonar transmissions between 100 and 500 Hz, bottom interaction would generally occur in areas of the ocean where depths are between approximately 200 m (660 ft) (average minimum water depth for SURTASS LFA sonar deployment) and 2,000 m (6,600 ft). Shallow Water Propagation In shallow water, propagation is usually characterized by multiple reflection paths off the sea floor and sea surface. Thus, most of the water column tends to become ensonified by these overlapping reflection paths. As LFA signals approach the shoreline, they will be affected by shoaling, experiencing high transmission losses through bottom and surface interactions. Therefore, LFA sonar would be less effective in shallow, coastal waters. In summary, for the SURTASS LFA sonar signal in low- and mid-latitudes, the dominant propagation paths for LFA signals are CZ and bottom interaction (at depths <2000 m (6,600 ft)). In high-latitudes, surface ducting provides the best propagation. In most open ocean water, CZ propagation will be most prominent. The SURTASS LFA sonar signals will interact with the bottom, but due to high bottom and surface losses, SURTASS LFA sonar signals will not penetrate coastal waters with appreciable signal strengths. Affected Marine Mammal Species In its Final SEIS and Final EIS and application, the Navy excluded from incidental take consideration marine mammal species that do not inhabit the areas in which SURTASS LFA sonar would operate. Where data were not available or were insufficient for one species, comparable data for a related species were used. Because all species of baleen whales produce LF sounds, and anatomical evidence strongly suggests their inner ears are well adapted for LF hearing, all balaenopterid species are considered sensitive to LF sound and, therefore, at risk of harassment or injury from exposure to LF sounds. The twelve species of baleen whales that may be affected by SURTASS LFA sonar are blue, fin, minke, Bryde's, sei, humpback, North Atlantic right, North Pacific right, southern right, pygmy right, bowhead, and gray whales. The odontocetes (toothed whales) that may be affected because they inhabit the deeper, offshore waters where SURTASS LFA sonar might operate include both the pelagic (oceanic) whales and dolphins and those coastal species that also occur in deep water including harbor porpoise, spectacled porpoise, beluga, *Stenella* spp., Risso's dolphin, rough-toothed dolphin, Fraser's dolphin, northern right-whale dolphin, southern right whale dolphin, short-beaked common dolphin, long-beaked common dolphin, very long-beaked common dolphin, *Lagenorhynchus* spp., *Cephalorhynchus* spp., bottlenose dolphin, Dall's porpoise, melon-headed whale, beaked whales ( *Berardius* spp., *Hyperoodon* spp., *Mesoplodon* spp., Cuvier's beaked whale, Shepard's beaked whale, Longman's beaked whale), killer whale, false killer whale, pygmy killer whale , sperm whale, dwarf and pygmy sperm whales, and short-finned and long-finned pilot whales. Potentially affected pinnipeds include hooded seal, harbor seal, spotted seal, ribbon seal, gray seal, elephant seal, Hawaiian monk seal, Mediterranean monk seal, northern fur seal, southern fur seal ( *Arctocephalus* spp.), harp seal, Galapagos sea lion, Japanese sea lion, Steller sea lion, California sea lion, Australian sea lion, New Zealand sea lion, and South American sea lion. A description of affected marine mammal species, their biology, and the criteria used to determine those species that have the potential for being taken by incidental harassment are provided and explained in detail in the Navy application and Final SEIS and, although not repeated here, are considered part of the NMFS' administrative record for this action. Additional information is available at the following URL: *http://www.nmfs.noaa.gov/pr/sars/* . Please refer to these documents for specific information on marine mammal species. Effects on Marine Mammals To understand the effects of LF noise on marine mammals, one must understand the fundamentals of underwater sound and how the SURTASS LFA sonar operates in the marine environment. This description was provided earlier in this document and also by the Navy in Appendix B to the Final EIS. The effects of underwater noise on marine mammals are highly variable, and have been categorized by Richardson *et al.*
(1995)as follows:
(1)The noise may be too weak to be heard at the location of the animal (i.e. lower than the prevailing ambient noise level, the hearing threshold of the animal at relevant frequencies, or both);
(2)the noise may be audible but not strong enough to elicit any overt behavioral response;
(3)the noise may elicit behavioral reactions of variable conspicuousness and variable relevance to the well-being of the animal; these can range from subtle effects on respiration or other behaviors (detectable only by statistical analysis) to active avoidance reactions;
(4)upon repeated exposure, animals may exhibit diminishing responsiveness (called habituation), or disturbance effects may persist (most likely with sounds that are highly variable in characteristics, unpredictable in occurrence, and associated with situations that the animal perceives as a threat);
(5)any human-made noise that is strong enough to be heard has the potential to reduce
(mask)the ability of marine mammals to hear natural sounds at similar frequencies, including calls from conspecifics, echolocation sounds of odontocetes, and environmental sounds such as surf noise; and
(6)very strong sounds have the potential to cause temporary or permanent reduction in hearing sensitivity, also known as threshold shift. In terrestrial mammals, and presumably marine mammals, received sound levels must far exceed the animal's hearing threshold for there to be any temporary threshold shift
(TTS)in its hearing ability. For transient sounds, the sound level necessary to cause TTS is inversely related to the duration of the sound. As described later in this document, received sound levels must be even higher for there to be risk of permanent hearing impairment, or permanent threshold shift (PTS). Finally, intense acoustic or explosive events (not relevant for this activity) may cause trauma to tissues associated with organs vital for hearing, sound production, respiration and other functions. This trauma may include minor to severe hemorrhage. Severe hemorrhage could lead to death. The original analysis of potential impacts on marine mammals from SURTASS LFA sonar was developed by the Navy based on the results of a literature review; the Navy's Low Frequency Sound Scientific Research Program (LFS SRP) (described later in this document); and a complex, comprehensive program of underwater acoustical modeling. To assess the potential impacts on marine mammals by the SURTASS LFA sonar source operating at a given site, it was necessary for the Navy to predict the sound field that a given marine mammal species could be exposed to over time. This is a multi-part process involving
(1)the ability to measure or estimate an animal's location in space and time,
(2)the ability to measure or estimate the three-dimensional sound field at these times and locations,
(3)the integration of these two data sets into the Acoustic Integration Model
(AIM)to estimate the total acoustic exposure for each animal in the modeled population,
(4)beginning the post-AIM analysis, converting the resultant cumulative exposures for a modeled population into an estimate of the risk from a significant disturbance of a biologically important behavior, and
(5)using a risk continuum to convert these estimates of behavioral risk into an assessment of risk in terms of the level of potential biological removal. In the post-AIM analysis, as mentioned in numbers
(4)and
(5)above, a relationship was developed for converting the resultant cumulative exposures for a modeled population into an estimate of the risk to the entire population of a significant disruption of a biologically important behavior and of injury. This process assessed risk in relation to received level
(RL)and repeated exposure. The resultant risk continuum is based on the assumption that the threshold of risk is variable and occurs over a range of conditions rather than at a single threshold. Taken together, the LFS SRP results, the acoustic propagation modeling, and the risk assessment provide an estimate of potential environmental impacts to marine mammals. The results of 4 years of monitoring (2002-2006) onboard the two SURTASS LFA sonar vessels support the use of this methodology. The acoustic propagation modeling was accomplished using the Navy's standard acoustical performance prediction transmission loss model-Parabolic Equation
(PE)version 3.4. The results of this model are the primary input to the AIM. AIM was used to estimate marine mammal sound exposures. It integrates simulated movements (including dive patterns) of marine mammals, a schedule of SURTASS LFA sonar transmissions, and the predicted sound field for each transmission to estimate acoustic exposure during a hypothetical SURTASS LFA sonar operation. Description of the PE and AIM models, including AIM input parameters for animal movement, diving behavior, and marine mammal distribution, abundance, and density, are described in detail in the original Navy application and the Final EIS (see box, page 4.2-11) and are not discussed further in this document. The same analytical methodology utilized in the application for the first 5-year rule and LOAs was utilized to provide reasonable and realistic estimates of the potential effects to marine mammals specific to the potential mission areas as presented in the application. Information on how the density and stock/abundance estimates are derived for the selected mission sites is in the Navy's application. These data are derived from current, published source documentation, and provide general area information for each mission area with species-specific information on the animals that could occur in that area, including estimates for their stock abundance and density. Although this proposed rule uses the same analysis that was used for the 2002-2007 rule, AIM is continuously updated with new marine mammal biological data (behavior, distribution, abundance and density) whenever new information becomes available. It was recently independently reviewed by a panel of experts in mathematics, modeling, acoustics, and marine mammalogy convened by NMFS' Center for Independent Experts (CIE). The task of the Panel was to evaluate whether AIM correctly implements the models and data on which it is based; whether animal movements are correctly implemented; and whether AIM meets the Council for Regulatory Environmental Monitoring
(CREM)guidelines. As stated in their Report on AIM, the CIE Panel agreed that:
(1)AIM appears to be correctly implemented;
(2)the animal movement appears to be appropriately modeled; and
(3)the principles of credible science had been addressed during the development of AIM and that AIM is a useful and credible tool for developing application models. A copy of the CIE report is available (see ADDRESSES ). During the analytical process in the Final EIS, the Navy developed 31 acoustic modeling scenarios for the major ocean regions. Locations were selected by the Navy to represent the greatest potential effects for each of the three major ocean acoustic regimes where SURTASS LFA sonar could potentially be used. These acoustic regimes were:
(1)deep-water convergence zone propagation,
(2)near surface duct propagation, and
(3)shallow water bottom interaction propagation. These sites were selected to model the greatest potential for effects from the use of SURTASS LFA sonar incorporating the following factors:
(1)closest plausible proximity to land (from SURTASS LFA sonar operations standpoint), and/or offshore biologically important areas (OBIAs) where biological densities are higher, particularly for animals most likely to be affected;
(2)acoustic propagation conditions that allow minimum propagation loss, or transmission loss
(TL)(i.e., longest acoustic transmission ranges); and
(3)time of year selected for maximum animal abundance. These sites represent the upper bound of impacts (both in terms of possible acoustic propagation conditions, and in terms of marine mammal population and density) that can be expected from operation of the SURTASS LFA sonar system. Thus, if SURTASS LFA sonar operations are conducted in an area that was not acoustically modeled in the Final EIS, the potential effects would most likely be less than those analyzed for the most similar site in the analyses. The assumptions of the Final EIS are still valid and there are no new data to contradict the conclusions made in the Potential Impacts on Marine Mammals (Chapter 4) in the Final EIS. The chapter on impacts to marine mammals was incorporated by reference into the Navy's Final SEIS. LFS SRP The goal of the 1997-1998 LFS SRP was to demonstrate the avoidance reaction of sensitive marine mammal species during critical biologically important behavior to the low frequency underwater sound produced by the LFA system. Testing was conducted in three phases as summarized here from Clark *et al.* (1999). Phase I was conducted in September through October 1997. The objective of Phase I was to determine whether exposure to low frequency sounds elicited disturbance reactions from feeding blue and fin whales. The goal was to characterize how whale reactions to the sounds vary, depending on:
(1)the received level of the sound;
(2)changes in the received level; and
(3)whether the system was operating at a relatively constant distance or approaching the whale. Full and reduced LFA source power transmissions were used. The highest received levels at the animals were estimated to be 148 to 155 dB. In 19 focal animal observations (4 blue and 15 fin whales), no overt behavioral responses were observed. No changes in whale distribution could be related to LFA sonar operations, and whale the distributions correlated with the distribution of food. Phase II was conducted in January 1998. The objectives were to quantify responses of migrating gray whales to low frequency sound signals, compare whale responses to different RLs, determine whether whales respond more strongly to RL, sound gradient, or distance from the source, and to compare whale avoidance responses to an LF source in the center of the migration corridor versus in the offshore portion of the migration corridor. A single source was used to broadcast LFA sonar sounds up to 200 dB. Whales showed some avoidance responses when the source was moored 1 mi (1.8 km) offshore, in the migration path, but returned to their migration path when they were a few kilometers from the source. When the source was moored 2 mi (3.7 km) offshore, responses were much less, even when the source level was increased to 200 dB, to achieve the same RL for most whales in the middle of the migration corridor. Also, offshore whales did not seem to avoid the louder offshore source. Phase III was conducted from February to March 1998. The objectives were to assess the potential effects of LFA sonar signals on behavior, vocalization and movement of humpback whales off the Kona coast in Hawaii. The maximum exposure levels in this phase were as high as 152 dB. Approximately half of the whales observed visually ceased their song during the transmissions, but many of them did so while joining a group of whales, which is the time that singing whales usually stop their songs naturally. All singers who interrupted their songs were observed to resume singing within tens of minutes. The analysis of one data set showed that whales increased their song lengths during LFA sonar transmissions, but a second analysis indicated that song length changes were more complicated and depended on the portion of the song that was overlapped by LFA transmissions. Overall patterns of singer and cow-calf abundance were the same throughout the experiments as they had been during several years of prior study. Risk Analysis To determine the potential impacts that exposure to LF sound from SURTASS LFA sonar operations could have on marine mammals, biological risk standards were defined by the Navy with associated measurement parameters. Based on the MMPA, the potential for biological risk was defined as the probability for injury (Level A) or behavioral (Level B) harassment of marine mammals. In this analysis, behavioral (Level B) harassment is defined as a significant disturbance in a biologically important behavior (also referred to as a biologically significant response). NMFS believes that this is equivalent to the MMPA definition of Level B harassment for military readiness activities. The potential for biological risk is a function of an animal's exposure to a sound that would potentially cause hearing, behavioral, psychological or physiological effects. The measurement parameters for determining exposure were RLs in dB, the pulse repetition interval (time between pings), and the number of pings received. Before the biological risk standards could be applied to realistic SURTASS LFA sonar operational scenarios, two factors had to be considered by the Navy:
(1)how does risk vary with repeated sound exposure? and
(2)how does risk vary with RL? The Navy addressed these questions by developing a function that translates the history of repeated exposures (as calculated in the AIM) into an equivalent RL for a single exposure with a comparable risk. This dual-question method is similar to those adopted by previous studies of risk to human hearing (Richardson *et al.* , 1995; Crocker, 1997). It is intuitive to assume that effects on marine mammals would be greater with repeated exposures than for a single ping. However, no published data on repeated exposures of LF sound on marine mammals exist. Based on discussions in Richardson *et al.*
(1995)and consistent with Crocker (1997), the Navy determined that the best scientific information available is based on the potential for effects of repeated exposure on human models. The formula L + 5 log10(N) (where L = ping level in dB and N is the number of pings) defines the single ping equivalent (SPE). This formula is considered appropriate for assessing the risk to a marine mammal of a significant disturbance of a biologically important behavior from LF sound like SURTASS LFA sonar transmissions. Behavioral Harassment For reasons explained in detail in the Final EIS (Section 4.2.5), the Navy interpreted the results of the LFS SRP support use of unlimited exposure to 119 dB during an LFA sonar mission as the lowest value for risk. Below this level, the risk of a biologically significant behavioral response from marine mammals approaches zero. It is important to note that risk varies with both received level and number of exposures. Because the LFS SRP did not document a biologically significant response at maximum RLs up to 150 dB, the Navy determined there was a 2.5-percent risk of an animal incurring a disruption of biologically important behavior at a SPL of 150 dB, a 50-percent risk at 165 dB, and a 95-percent risk at 180 dB. For more detailed information, see Chapter 4.2.5 of the Final EIS and Navy's Technical Report #1 (Navy, 2001). The Navy used this risk continuum analysis as an alternative to an all-or-nothing use of standard thresholds for the onset of behavioral change or injury. NMFS has reviewed and agrees with this approach. The subsequent discussion of risk function emphasizes the advantages of using a smoothly varying model of biological risk in relation to sound exposure. These results are analogous to dose-response curves that are accepted as the best practice in disciplines such as epidemiology, toxicology, and pharmacology. Changes in Hearing Sensitivity In the previous (2002-2007) rule, NMFS and the Navy based their estimate of take by injury or the significant potential for such take (Level A harassment) based on the criterion of 180 dB. NMFS continues to believe this is a scientifically supportable value for preventing auditory injury or the significant potential for such injury (Level A harassment) as it represents a value less than where the potential onset of a minor TTS in hearing might occur based on Schlundt *et al.*
(2000)research (see Navy Final Comprehensive Report Tables 5 through 8). Also, an SPL of 180 dB is considered a scientifically supportable level for preventing auditory injury because there is general scientific agreement with NMFS' position that TTS is not an injury (i.e., does not result in tissue damage), but is temporary impairment to hearing (i.e., results in an increased elevation or decreased sensitivity in hearing) that may last for a few minutes to a few days, depending upon the level and duration of exposure. In addition, there is no evidence that TTS would occur in marine mammals at an SPL of 180 dB. In fact, Schlundt *et al.*
(2000)indicates that onset TTS for at least some species occurs at significantly higher SPLs. Schlundt *et al.* 's
(2000)measurement with bottlenose dolphins and belugas at 1-second signal duration implies that the TTS threshold for a 100-second signal would be approximately 184 dB (Table 1-4, Final EIS). For the 400-Hz signal, Schlundt *et al.* found no TTS at 193 dB, the highest level of exposure. Therefore, NMFS believes that establishing onset TTS as the upper bound of Level B harassment, but using 180 dB as the beginning of the zone for establishing mitigation measures to prevent auditory injury, is warranted by the science. With three levels of mitigation monitoring for detecting marine mammals (described later in this document), NMFS and the Navy believe it is unlikely that any marine mammal would be exposed to received levels of 180 dB before being detected and the SURTASS LFA sonar shut down. However, because the probability is not zero, the Navy has included Level A harassment in its authorization request. Unlike with behavioral responses, an “injury continuum” is not necessary because of the very low numbers of individual marine mammals that could potentially experience high received sound levels, and the high level of effectiveness of the monitoring and shutdown protocols. For this action, all marine mammals exposed to an SPL of 180 dB or above are considered to be injured even though, the best scientific data available indicate a marine mammal would need to receive an SPL significantly higher than 180 dB to be injured. When SURTASS LFA sonar transmits, there is a boundary that encloses a volume of water where received levels equal or exceed 180 dB, and a volume of water outside this boundary where received levels are below 180 dB. In this analysis, the 180-dB SPL boundary is emphasized because it represents a single-ping RL that is a scientifically supportable estimate for the potential onset of injury. Therefore, the level of risk for marine mammals depends on their location in relation to SURTASS LFA sonar and under this proposed rule, a marine mammal would have to receive one ping greater than or equal to 180 dB to be considered to have been injured or have the potential to incur an injury. Although TTS is not considered Level A harassment, PTS is considered Level A harassment. The onset of PTS for marine mammals may be 15-20 dB above TTS levels. However, mitigation measures, such as mitigation zones and shutdown protocols, are proposed where there is the potential for a marine mammal to incur TTS so as to prevent an animal from incurring a PTS. Potential for Non-Auditory Injury Since the release of the Final EIS, an investigation by Cudahy and Ellison
(2002)hypothesized that the threshold for in vivo tissue damage (including lung damage and hemorrhaging) from LF sound can be on the order of 180 to 190 dB. Balance and equilibrium could be affected, but may not result in injury. These effects are based on studies of humans. Vestibular (balance and equilibrium) function was investigated by the Navy during the Diver's Study and the results reported in LFS SRP Technical Report 3. Measurable performance decrements in vestibular function were observed for guinea pigs using 160 dB SPL signals at lung resonance and 190 dB SPL signals at 500 Hz. Because guinea pigs are not aquatic species, like humans, they are not as robust to pressure changes as marine mammals and, therefore, are likely more susceptible to injury at lower SPLs than marine mammals. Presently, there is controversy among researchers over whether marine mammals can suffer from decompression sickness. It is theorized that this may be caused by diving and then surfacing too quickly, forcing nitrogen bubbles to form in the bloodstream and tissues. Cox *et al.*
(2006)stated that gas-bubble disease, induced in supersaturated tissues by a behavioral response to acoustic exposure, is a plausible pathologic mechanism for the morbidity and mortality seen in cetaceans associated with sonar exposure. The authors also stated that it is premature to judge acoustically mediated bubble growth as a potential mechanism and recommended further studies to investigate the possibility. As stated in Crum and Mao
(1996)and as discussed in the Final EIS (page 10-137) and the Final SEIS (page 4-31), researchers hypothesized that RLs would have to exceed 190 dB for there to be the possibility of non-auditory trauma due to supersaturation of gases in the blood. Such non-auditory traumas are not expected to occur from sound exposure below SPLs of 180 dB. In light of the high detection rate of the proposed high-frequency marine mammal monitoring (HF/M3) sonar, ensuring required SURTASS LFA sonar shutdown when any marine mammal approaches or enters the 180-dB isopleth from LFA sonar, the risks of these traumas to a marine mammal approach zero. Additional research published in a peer-reviewed journal (Ultrasound in Medicine and Biology), supports the 180-dB criterion for injury as being a scientifically supportable level for assessing potential non-auditory injury to marine mammals. Laurer *et al.*
(2002)from the Department of Neurosurgery, University of Pennsylvania School of Medicine, exposed rats to 5 minutes of continuous high intensity, low frequency (underwater) sound (HI-LFS) either at 180 dB SPL re 1 μPa at 150 Hz or 194 dB SPL re 1 μPa at 250 Hz, and found no overt histological damage in brains of any group. Also, blood gases, heart rate, and main arterial blood pressure were not significantly influenced by HI-LFS, suggesting that there was no pulmonary dysfunction due to exposure. This published paper was based on work performed in support of Technical Report #3 of the SURTASS LFA Sonar Final EIS. Strandings Marine mammal strandings are not a rare occurrence in nature. The Cetacean Stranding Database ( *http://www.strandings.net* ) registered over one hundred strandings worldwide in 2004. However, mass strandings, particularly multi-species mass strandings, are relatively rare. Acoustic systems are becoming increasingly implicated in marine mammal strandings. In particular, a number of mass strandings have been linked to mid-frequency sonars (see, e.g. Joint Interim Report on the Bahamas Marine Mammal Stranding Event of 15-16 March 2000, DOC and DON, 2001). Many theories exist as to why noise may be a factor in marine mammal strandings. It is theorized that marine mammals become disoriented, or that the sound forces them to surface too quickly, which may cause symptoms similar to decompression sickness, or that they are physically injured by the sound pressure. The biological mechanisms for effects that lead to strandings must be determined through scientific research. There is no record of SURTASS LFA sonar ever being implicated in any stranding event since LFA sonar prototype systems were first operated in the late 1980s. Moreover, the system acoustic characteristics differ between LF and mid-frequency
(MF)sonars: LFA sonars use frequencies generally below 1,000 Hz, with relatively long signals (pulses) on the order of 60 sec; while MF sonars use frequencies greater than 1,000 Hz, with relatively short signals on the order of 1 sec. Cox *et al.*
(2006)provided a summary of common features shared by the strandings events in Greece (1996), Bahamas (2000), and Canary Islands (2002). These included deep water close to land (such as offshore canyons), presence of an acoustic waveguide (surface duct conditions), and periodic sequences of transient pulses (i.e., rapid onset and decay times) generated at depths less than 10 m (32.8 ft) by sound sources moving at speeds of 2.6 m/s (5.1 knots) or more during sonar operations (D'Spain *et al.* , 2006). These features do not relate to LFA operations. First, the SURTASS LFA vessel operates with a horizontal line array of 1,500 m (4,921 ft) length at depths below 150 m (492 ft) and a vertical line array (LFA sonar source) at depths greater than 100 m (328 ft). Second, operations are limited by mitigation protocols to at least 22 km (12 nm) offshore. For these reasons, SURTASS LFA sonar cannot be operated in deep water that is close to land. Also, the LFA sonar signal is transmitted at depths well below 10 m (32.8 ft), and the vessel has a slow speed of advance of 1.5 m/s (3 knots). While there was a LF component in the Greek stranding in 1996, only mid-frequency components were present in the strandings in the Bahamas in 2000, Madeira 2000, and Canaries in 2002. This supports the conclusion that the LF component in the Greek stranding was not causative (ICES, 2005; Cox *et al.* , 2006). In its discussion of the Bahamas stranding, Cox *et al.*
(2006)stated: “The event raised the question of whether the mid-frequency component of the sonar in Greece in 1996 was implicated in the stranding, rather than the low-frequency component proposed by Frantzis (1998).” The ICES in its “Report of the Ad-Hoc Group on the Impacts of Sonar on Cetaceans and Fish” raised the same issues as Cox *et al.* , stating that the consistent association of MF sonar in the Bahamas, Madeira, and Canary Islands strandings suggest that it was the MF component, not the LF component, in the NATO sonar that triggered the Greek stranding of 1996 (ICES, 2005). The ICES
(2005)report concluded that no strandings, injury, or major behavioral change have been associated with the exclusive use of LF sonar. Beaked whales have been the subject of particular concern in connection with strandings. Like most odontocetes, they have relatively sharply deceasing hearing sensitivity below 2 kHz (Cook *et al.* (2006), Richardson *et al.*
(1995)and Finneran *et al.* (2002)). The SURTASS LFA sonar source frequency is below 500 Hz. If a cetacean cannot hear a sound or hears it poorly, the sound is unlikely to have a significant behavioral impact (Ketten, 2001). Therefore, it is unlikely that LF transmissions from LFA sonar would induce behavioral reactions from animals that have poor LF hearing. Though highly unlikely, the sounds could damage tissues even if the animal does not hear the sound, but this would have to be within 1,000 m (3.280 ft) of the array, where detection would be very likely, triggering shutdown. Estimates of Potential Effects on Marine Mammals The effects on marine mammals from operation of SURTASS LFA sonar will not be the lethal removal of animals. In addition, while possible, Level A harassment, if it occurs at all, is expected to be so minimal as to have no effect on rates of reproduction and survival of affected marine mammal species. Based on AIM modeling results, the primary effects would be the potential for Level B harassment. The Final SEIS Subchapter 4.4 provides the risk assessment methodology applied to SURTASS LFA sonar operations for the annual LOA applications for proposed operational areas. Tables 4.4-2 through 4.4-10 in the Final SEIS provide, through a case study based on the results of the Navy's 4th LOA, estimates of the percentage of stocks potentially affected for SURTASS LFA sonar operations and are based on reasonable and realistic estimates of the potential effects to marine mammals stocks specific to the potential mission areas. Also, Tables 5 through 8 in the Navy's Final Comprehensive Report for the 2002-2007 rule provides annual total estimates of percentages of marine mammal stocks potentially affected annually during the four years of LFA sonar operations, based on actual operations during the period of the LOAs. The scenarios chosen by the Navy are not the only possible combinations of areas where the SURTASS LFA sonar will operate. The potential effects from other scenarios can be estimated by making a best prediction of the areas in which the Navy would conduct SURTASS LFA sonar operations annually in each oceanic basin area, determining from Tables 4.4-2 through 4.4-10 in the Final SEIS the percentage of each stock that may potentially be affected, and adding those percentages together for each affected stock. Tables 5-8 in the Navy's Comprehensive Report indicate that annually Level B harassment may affect 0-6 percent for most marine mammal stocks, rising to just over 11 percent annually for other species (e.g., common dolphins (6.4 percent), Risso's dolphins (6-8 percent), short-finned pilot whales (6-9 percent), false killer whales (5-10 percent), Pacific white-sided dolphins (6-11 percent) and melon-headed whales (11.2 percent)). Also, using updated modeling where appropriate, the Navy will rerun AIM when planning missions and, if necessary, modify annual LOA requests with an analysis of take estimates prior to any mission in a new/different area. For this proposed rule, NMFS is preliminarily adopting the Navy estimates shown in Final SEIS (Tables 4.4-2 through 4.4-10) as the best scientific information currently available. Proposed Mitigation for Marine Mammals NMFS proposes to require the same visual, passive acoustic, and active acoustic monitoring of the area surrounding the SURTASS LFA sonar array, as required for the current 2002-2007 rule and LOAs, to prevent the incidental injury of marine mammals that might enter the 180-dB isopleth from the SURTASS LFA sonar. These three monitoring systems are described in the next section of this document. NMFS also proposes the same protocols as in the 2002-2007 rule. Prior to each active sonar exercise, the distance from the SURTASS LFA sonar source to the 180-dB isopleth will be determined. If, through monitoring, a marine mammal is detected within the 180-dB isopleth, the Navy proposes to shut down or immediately suspend SURTASS LFA sonar transmissions. Transmissions may commence/resume 15 minutes after the marine mammal has left the area of the 180-dB isopleth or there is no further detection of the animal within the 180-dB isopleth. The protocol established by the Navy for implementing this temporary shut-down is described in the application. As an added safety measure, NMFS again proposes to require a “buffer zone” extending an additional 1 km (0.54 nm) beyond the 180-dB isopleth. This coincides with the detection range of the HF/M3 sonar. This 180- dB plus 1 km (0.54 nm) distance will be the established mitigation zone for that exercise. Therefore, if a marine mammal is detected by the HF/M3 sonar, the SURTASS LFA sonar will be either turned off or not turned on. This is a effective mitigation measure since testing of the HF/M3 sonar indicates effective levels of detection up to 2 km (1.1 nm). At 2 km (1.1 nm), the SPL from the SURTASS LFA sonar will be approximately 173 dB, significantly below the 180 dB threshold for estimating onset of injury. SURTASS LFA sonar operators would be required to estimate SPLs before and during each operation to provide the information necessary to modify the operation, including delay or suspension of transmissions, so as not to exceed the mitigation sound field criteria. In addition to establishing a mitigation zone at 180 dB plus 1 km (0.54 nm) to protect marine mammals, the Navy has established a mitigation zone for human divers at 145 dB re 1 microPa(rms) around all known human commercial and recreational diving sites. Although this geographic restriction is intended to protect human divers, it will also reduce the LF sound levels received by marine mammals located in the vicinity of known dive sites. The Navy also recommended establishing OBIAs for marine mammal protection in its Final EIS and SEIS. The Navy evaluated nine sites in its Final EIS and SEIS and concluded that marine animals of concern (marine animals listed under the ESA and other marine mammals) congregate in these areas to carry out biologically important activities. Based on the Navy's evaluation, NMFS proposes to designate these nine sites as OBIAs for LFA sonar. The nine areas are:
(1)the North American East Coast between 28° N. and 50° N. from west of 40° W. to the 200-m (656-ft) isobath year-round;
(2)the Antarctic Convergence Zone, from 30° E. to 80° E. to 45° S., from 80° E. to 150° E. to 55° S., from 150° E. to 50° W. to 60° S., from 50° W to 30° E. to 55° S. from October through March;
(3)the Costa Rica Dome, centered at 9° N. and 88° W., year-round;
(4)Hawaiian Islands Humpback Whale National Marine Sanctuary- Penguin Bank, centered at 21° N. and 157° 30′ W. from November 1 through May 1;
(5)Cordell Bank National Marine Sanctuary, boundaries in accordance 15 CFR 922.110 year-round;
(6)Gulf of the Farallones National Marine Sanctuary, boundaries in accordance 15 CFR 922.80 year-round;
(7)Monterey Bay National Marine Sanctuary, boundaries in accordance with 15 CFR 922.30 year-round;
(8)Olympic Coast National Marine Sanctuary, boundaries within 23 nm of the coast from 47°07′ N. to 48°30′ N. latitude in December, January, March, and May; and
(9)Flower Garden Banks National Marine Sanctuary, boundaries in accordance with 15 CFR 922.120 year-round. NMFS also proposes to designate an additional OBIA that was recommended by several commenters on the Draft SEIS: The Gully with boundaries at 44° 13′ N., 59° 06′ W. to 43° 47′ N., 58° 35′ W. to 43° 35′ N., 58° 35′ W. to 43° 35′ N., 59° 08′ W. to 44° 06′ N., 59° 20′ W., year round. NMFS believes this area is biologically important for marine mammals, based on its importance as habitat for several species of marine mammals, particularly the northern bottlenose whale, and its designation as a Canadian marine protected area. NMFS is also evaluating whether to designate certain areas in the Northwestern Hawaiian Islands as OBIAs and solicits public comments and information on marine mammal distribution, densities, and the specific biologically important activities that take place in these areas. Any additional OBIA designations would be made through a separate rulemaking process. NMFS proposes to continue the system established in the 2002-2007 rule for expanding the number of OBIAs, as described later in this document. While retaining the requirement to provide notice and an opportunity to comment, the current proposal would eliminate the specific length of time for public comment on proposed OBIAs. OBIAs are not intended to apply to other Navy activities and sonar operations, but rather as a mitigation measure to reduce incidental takings by SURTASS LFA sonar. The regulations propose, as in the 2002-2007 rule, that the holder of a LOA would not operate the SURTASS LFA sonar within any OBIA such that the SURTASS LFA sonar field exceeds 180 dB (re 1 microPa(rms)). Proposed Marine Mammal Monitoring In order to minimize risks to marine mammals that may be present in waters surrounding SURTASS LFA sonar, the Navy will:
(1)conduct visual monitoring from the ship's bridge during daylight hours,
(2)use passive SURTASS sonar to listen for vocalizing marine mammals; and
(3)use high frequency active sonar (i.e., similar to a commercial fish finder) to monitor/locate/track marine mammals in relation to the SURTASS LFA sonar vessel and the sound field produced by the SURTASS LFA sonar source array. Through observation, acoustic tracking and implementation of shut-down criteria, the Navy will ensure, to the greatest extent practicable, that no marine mammals approach the SURTASS LFA sonar source close enough to be subjected to potentially injurious sound levels (inside the 180-dB sound field; approximately 1 km (0.54 nm) from the source). In the Navy's Final EIS, as reanalyzed in the Final Comprehensive Report for SURTASS LFA sonar, the Navy assessed mitigation effectiveness. The overall effectiveness of detecting a marine mammal approaching the 180-dB sound field of the source array by at least one of these monitoring methods is above 95 percent. This value is supported by analyses of field data in a sampling of 6 missions between June 2004 and February 2006 (see the Navy's Comprehensive Report for LFA sonar). The results of the visual, passive, and active monitoring for each LOA are discussed in the Annual Reports (most recently, Annual Report 5, 2007, Chapter 4). Mitigation effectiveness is described in Chapter 4 for the Final Comprehensive Report
(2007)and in the Annual Reports. Visual monitoring consists of daylight observations for marine mammals from the vessel. Daylight is defined as 30 minutes before sunrise until 30 minutes after sunset. Visual monitoring would begin 30 minutes before sunrise or 30 minutes before the SURTASS LFA sonar is deployed. Monitoring would continue until 30 minutes after sunset or until the SURTASS LFA sonar is recovered. Observations will be made by personnel trained in detecting and identifying marine mammals. Marine mammal biologists qualified in conducting at-sea marine mammal visual monitoring from surface vessels train and qualify designated ship personnel to conduct at-sea visual monitoring. The objective of these observations is to maintain a track of marine mammals observed and to ensure that none approach the source close enough to enter the LFA sonar mitigation zone (including the buffer zone). These personnel would maintain a topside watch and marine mammal observation log during operations that employ SURTASS LFA sonar in the active mode. The numbers and identification of marine mammals sighted, as well as any unusual behavior, will be entered into the log. A designated ship's officer will monitor the conduct of the visual watches and periodically review the log entries. There are two potential visual monitoring scenarios. First, if a marine mammal is sighted outside of the LFA sonar mitigation zone, the observer will notify the Officer-in-Charge (OIC). The OIC then notifies the HF/M3 sonar operator to determine the range and projected track of the animal. If it is determined the animal will enter the LFA sonar mitigation zone, the OIC will order the delay or suspension of SURTASS LFA sonar transmissions when the animal enters the LFA sonar mitigation zone. If the animal is visually observed within the mitigation zone, the OIC will order the immediate delay or suspension of SURTASS LFA sonar transmissions. The observer will continue visual monitoring/recording until the animal is no longer seen. Second, if the animal is sighted anywhere within the LFA mitigation zone, the observer will notify the OIC who will promptly order the immediate delay or suspension of SURTASS LFA sonar transmissions. Passive acoustic monitoring is conducted when SURTASS is deployed, using the SURTASS towed horizontal line array to listen for vocalizing marine mammals as an indicator of their presence. If the sound is estimated to be from a marine mammal that may be in the SURTASS LFA sonar mitigation zone, the technician will notify the OIC who will alert the HF/M3 sonar operator and visual observers. If a marine mammal is detected within or approaching the mitigation zone prior to or during transmissions, the OIC will order the delay or suspension of SURTASS LFA sonar transmissions. HF-active acoustic monitoring uses the HF/M3 sonar to detect, locate, and track marine mammals that could pass close enough to the SURTASS LFA sonar array to enter the LFA mitigation zone. HF acoustic monitoring will begin 30 minutes before the first SURTASS LFA sonar transmission of a given mission is scheduled to commence and continue until transmissions are terminated. Prior to full-power operations, the HF/M3 sonar power level is ramped up over a period of 5 min from 180 dB SL in 10-dB increments until full power (if required) is attained to ensure that there are no inadvertent exposures of local animals to RLs > 180 dB from the HF/M3 sonar. There are two potential scenarios for mitigation via active acoustic monitoring. First, if a “contact” is detected outside the LFA mitigation zone, the HF/M3 sonar operator determines the range and projected track of the animal. If it is determined that the animal will enter the LFA mitigation zone, the sonar operator notifies the OIC. The OIC then orders the delay or suspension of transmissions when the animal is predicted to enter the LFA mitigation zone. If a contact is detected by the HF/M3 sonar within the LFA mitigation zone, the observer notifies the OIC who promptly orders the immediate delay or suspension of transmissions. All contacts will be recorded in the log and provided as part of the Long-Term Monitoring
(LTM)Program to monitor for potential long-term environmental effects. Research The Navy spends approximately $10-14 million annually on marine mammal research programs. These research programs provide a means of learning about potential effects of anthropogenic underwater sound on marine mammals (including long-term) and ways to mitigate potential effects. As a result, the Navy is well positioned to have the most current scientific data on how marine mammals are affected by Navy sonar. During the first 4 years of LFA sonar operations, the Navy conducted research on several of these research areas. Table 9 in the Navy's Comprehensive Report for SURTASS LFA sonar provides the status of the research that is planned or underway. NMFS proposes to require that the Navy continue researching the impacts of LF sounds on marine mammals to supplement its monitoring and increase knowledge of the species, and coordinate with others on additional research opportunities and activities. This would include cumulative impact analyses of the annual takes of marine mammals over the next 5 years and the continuation of scientific data collection during SURTASS LFA sonar operations. NMFS recommends that the Navy conduct, or continue to conduct, the following research regarding SURTASS LFA sonar over the second 5-year authorization period: 1. Systematically observe SURTASS LFA sonar training exercises for injured or disabled marine mammals. Past correlations between military operations and the stranding of beaked whales call for closer observation of all sonar operations. 2. Compare the effectiveness of the three forms of mitigation (visual, passive acoustic, HF/M3 sonar). 3. Conduct research on the responses of deep-diving odontocete whales to LF-sonar signals. These species are believed to be less sensitive to LF-sonar sounds than the species studied prior to the LFS SRP. However, enough questions exist that these species should be studied further. The Navy has applied for a Scientific Research Permit under section 104 of the MMPA to conduct a behavioral response study on deep-diving cetacean species exposed to natural and artificial underwater sounds and quantify exposure conditions associated with various effects (72 FR 19181, April 17, 2007). 4. Conduct research on the habitat preferences of beaked whales. 5. Conduct passive acoustic monitoring using bottom-mounted hydrophones before, during, and after LF sonar operations for the possible silencing of calls of large whales. 6. Continue to evaluate the HF/M3 mitigation sonar. This is the primary means of mitigation, and its efficacy must continue to be demonstrated. 7. Continue to evaluate improvements in passive sonar capabilities. Proposed Reporting During routine operations of SURTASS LFA sonar, technical and environmental data would be collected and recorded, which, along with research, are part of the Navy's LTM Program. These would include data from visual and acoustic monitoring, ocean environmental measurements, and technical operational inputs. First, a mission report would be provided to NMFS on a quarterly basis with the report including all active-mode missions completed 30 days or more prior to the date of the deadline for the report. Second, the Navy would submit an annual report no later than 45 days after expiration of an LOA. Third, the Navy would submit a Comprehensive Report at least 240 days prior to expiration of these regulations. These reports are summarized here. *Quarterly Report* - On a quarterly basis, the Navy would provide NMFS with a classified report that includes all active-mode missions completed 30 days or more prior to the date of the deadline for the report. Specifically, these reports will include dates/times of exercises, location of vessel, LOA province (as set forth in Longhurst (1998)), location of the mitigation zone in relation to the LFA sonar array, marine mammal observations, and records of any delays or suspensions of operations. Marine mammal observations would include animal type and/or species, number of animals sighted by species, date and time of observations, type of detection (visual, passive acoustic, HF/M3 sonar), the animal's bearing and range from vessel, behavior, and remarks/narrative (as necessary). The report would include the Navy's analysis of whether any Level A and/or Level B taking occurred within the SURTASS LFA sonar mitigation zone and, if so, estimates of the percentage of marine mammal stocks affected (both for the quarter and cumulatively (to date) for the year covered by the LOA) by SURTASS LFA sonar operations. This analysis would include estimates for both within and outside the mitigation zone, using predictive modeling based on operating locations, dates/times of operations, system characteristics, oceanographic environmental conditions, and animal demographics. In the event that no SURTASS LFA missions are completed during a quarter, a report of negative activity would be provided. *Annual Report* - The annual report would provide NMFS with an unclassified summary of the year's quarterly reports and will include the Navy's analysis of whether any Level A and/or Level B taking occurred within the SURTASS LFA mitigation zones and, if so, estimates of the percentage of marine mammal stocks affected by SURTASS LFA sonar operations. This analysis would include estimates for both within and outside the mitigation zone, using predictive modeling based on operating locations, dates/times of operations, system characteristics, oceanographic environmental conditions, and animal demographics. The annual report would also include:
(1)analysis of the effectiveness of the mitigation measures with recommendations for improvements where applicable;
(2)assessment of any long-term effects from SURTASS LFA sonar operations; and
(3)any discernible or estimated cumulative impacts from SURTASS LFA sonar operations. *Comprehensive Report* - NMFS proposes to require the Navy to provide NMFS and the public with a final comprehensive report analyzing the impacts of SURTASS LFA sonar on marine mammal species and stocks. This report, which is due at least 240 days prior to expiration of these regulations, would include an in-depth analysis of all monitoring and Navy-funded research pertinent to SURTASS LFA sonar conducted during the 5-year period of these regulations, a scientific assessment of cumulative impacts on marine mammal stocks, and an analysis on the advancement of alternative (passive) technologies as a replacement for LFA sonar. This report would be a key document for NMFS' review and assessment of impacts for any future rulemaking. Annual reports and the Comprehensive Report would be posted on the NMFS homepage (see ADDRESSES ). Modification to Mitigation Measures Any substantial modifications to NMFS' mitigation, monitoring, and reporting requirements will be proposed in the **Federal Register** with an opportunity for public comment prior to implementation (unless an emergency exists and modifications are necessary for the protection of marine mammals). Designation of Offshore Biologically Important Areas for Marine Mammals In addition to NMFS designating OBIAs independently, this proposed rule would continue a system for members of the public to petition NMFS to consider adding an area to the list of OBIAs for marine mammals. To qualify for designation, an area must be of particular importance for marine mammals as an area for feeding, breeding, calving, or migration, and not simply an area occupied by marine mammals. The proposed area should also not be within a previously designated OBIA or other 180-dB exclusion area. In order for NMFS to begin a rulemaking process for designating areas of biological importance for marine mammals, proponents must petition NMFS and submit the information described in 50 CFR 216.191(a). If NMFS makes a preliminary determination that the area is biologically important for marine mammals, NMFS will publish a **Federal Register** document proposing to add the recommended area as an OBIA. After review of public comments and information, NMFS will make a final decision on whether to designate the area as an OBIA and publish a **Federal Register** document of its decision. Proposals for designation of areas will not affect the status of LOAs while the rulemaking is in process. Preliminary Determinations Based on the scientific analyses detailed in the Navy application and further supported by information and data contained in the Navy's Final SEIS and Final EIS for SURTASS LFA sonar operations and summarized in this proposed rule, NMFS has preliminarily determined that the incidental taking of marine mammals resulting from SURTASS LFA sonar operations would have a negligible impact on the affected marine mammal species or stocks over the 5-year period of LFA sonar operations covered by these proposed regulations. That assessment is based on a number of factors:
(1)the best information available indicates that effects from SPLs less than 180 dB will be limited to short-term Level B behavioral harassment averaging less than 10 percent annually for most affected species;
(2)the proposed mitigation and monitoring is highly effective in preventing exposures of 180 dB or greater;
(3)the results of monitoring as described in the Navy's Comprehensive Report supports the conclusion that takings will be limited to Level B harassment and not have more than a negligible impact on affected species or stocks of marine mammals;
(4)the small number of SURTASS LFA sonar systems (two systems in FY 2008 and FY 2009 (totaling 864 hours of operation annually), 3 in FY 2010 (totaling 1296 hours of operation annually), and 4 systems in FY 2011 and FY 20012 (totaling 1728 hours of operation annually)) that would be operating world-wide;
(5)that the LFA sonar vessel must be underway while transmitting (in order to keep the receiver array deployed), limiting the duration of exposure for marine mammals to those few minutes when the SURTASS LFA sound energy is moving through that part of the water column inhabited by marine mammals;
(6)for convergence zone
(CZ)propagation, the characteristics of the acoustic sound path, which deflect the sound below the water depth inhabited by marine mammals for much of the sound propagation (see illustration 67 FR page 46715 (July 16, 2002);
(7)the findings of the SRP on LF sounds on marine mammals indicated no significant change in biologically important behavior from exposure to sound levels up to 155 dB; and
(8)during the 40 LFA sonar missions between 2002 and 2006, there were only three visual observations of marine mammals and only 71 detections by the HF/M3 sonar, which all resulted in mitigation protocol suspensions in operations. These measures all indicate that while marine mammals will potentially be affected by the SURTASS LFA sonar sounds, these impacts will be short-term behavioral effects and are not likely to adversely affect marine mammal species or stocks through effects on annual rates of reproduction or survival. Finally, because SURTASS LFA sonar operations will not take place in Arctic waters, it would not have an unmitigable adverse impact on the availability of marine mammals for subsistence uses identified in MMPA section 101(a)(5)(A)(i), 16 USC 1371(a) (5)(A)(i). NEPA On November 10, 2005 (70 FR 68443), the Environmental Protection Agency
(EPA)announced receipt of a Draft SEIS from the U.S. Navy on the deployment of SURTASS LFA sonar. This Final SEIS incorporated by reference the Navy's Final EIS on SURTASS LFA sonar deployment. The public comment period on the Draft SEIS ended on February 10, 2006. On May 4, 2007 (72 FR 25302), EPA announced receipt of a Final SEIS from the U.S. Navy on the deployment of SURTASS LFA sonar. NMFS is a cooperating agency, as defined by the Council on Environmental Quality (40 CFR 1501.6), in the preparation of these documents. NMFS is currently reviewing the Navy's Final SEIS and will either adopt it or prepare its own NEPA document before making a determination on the issuance of a final rule and LOAs thereunder. The Navy's Final SEIS is available at: *http://www.surtass-lfa-eis.com* ESA On October 4, 1999, the Navy submitted a Biological Assessment to NMFS to initiate consultation under section 7 of the ESA for its SURTASS LFA sonar activities. NMFS concluded consultation with the Navy on this action on May 30, 2002. The conclusion of that consultation was that operation of the SURTASS LFA sonar system for testing, training and military operations and the issuance by NMFS of incidental take authorizations for this activity are not likely to jeopardize the continued existence of any endangered or threatened species under the jurisdiction of NMFS. Additional consultations were conducted prior to issuance of annual LOAs. On June 9, 2006, the Navy submitted a Biological Assessment to NMFS to initiate consultation under section 7 of the ESA for the 2007-2012 SURTASS LFA sonar activities. The consultation, which will also include this proposed rule, will be concluded prior to issuance of a final rule. Classification This action has been determined to be significant for purposes of Executive Order 12866. The Chief Counsel for Regulation of the Department of Commerce has certified to the Chief Counsel for Advocacy of the Small Business Administration that this action would not have a significant economic impact on a substantial number of small entities within the meaning of the Regulatory Flexibility Act. If implemented, this proposed rule would affect only the U.S. Navy which, by definition, is not a small business. Because of this certification, a regulatory flexibility analysis is not required. List of Subjects in 50 CFR Part 216 Exports, Fish, Imports, Indians, Labeling, Marine mammals, Penalties, Reporting and recordkeeping requirements, Seafood, Transportation. Dated: July 5, 2007. John Oliver, Deputy Assistant Administrator for Operations, National Marine Fisheries Service. For reasons set forth in the preamble, 50 CFR part 216 is proposed to be amended as follows: PART 216—REGULATIONS GOVERNING THE TAKING AND IMPORTING OF MARINE MAMMALS 1. The authority citation for part 216 continues to read as follows: Authority: 16 U.S.C. 1361 *et seq.* , unless otherwise noted. 2. Subpart Q is added to part 216 to read as follows: Subpart Q—Taking of Marine Mammals Incidental to Navy Operations of Surveillance Towed Array Sensor System Low Frequency Active (SURTASS LFA) Sonar Sec. 216.180 Specified activity. 216.181 Effective dates. 216.182 Permissible methods of taking. 216.183 Prohibitions. 216.184 Mitigation. 216.185 Requirements for monitoring. 216.186 Requirements for reporting. 216.187 Applications for Letters of Authorization. 216.188 Letters of Authorization. 216.189 Renewal of Letters of Authorization. 216.190 Modifications to Letters of Authorization. 216.191 Designation of Biologically Important Marine Mammal Areas. Subpart Q—Taking of Marine Mammals Incidental to Navy Operations of Surveillance Towed Array Sensor System Low Frequency Active (SURTASS LFA) Sonar § 216.180 Specified activity. Regulations in this subpart apply only to the incidental taking of those marine mammal species specified in paragraph
(b)of this section by the U.S. Navy, Department of Defense, while engaged in the operation of no more than four SURTASS LFA sonar systems conducting active sonar operations, in areas specified in paragraph
(a)of this section. The authorized activities, as specified in a Letter of Authorization issued under §§ 216.106 and 216.188, include the transmission of low frequency sounds from the SURTASS LFA sonar and the transmission of high frequency sounds from the mitigation sonar described in § 216.185 during training, testing, and routine military operations of SURTASS LFA sonar.
(a)With the exception of those areas specified in § 216.183(d), the incidental taking by harassment may be authorized in the areas (biomes, provinces, and subprovinces) described in Longhurst (1998), as specified in a Letter of Authorization.
(b)The incidental take, by Level A and Level B harassment, of marine mammals from the activity identified in this section is limited to the following species and species groups:
(1)Mysticete whales—blue ( *Balaenoptera musculus* ), fin ( *Balaenoptera physalus* ), minke ( *Balaenoptera acutorostrata* ), Bryde's ( *Balaenoptera edeni* ), sei ( *Balaenoptera borealis* ), humpback ( *Megaptera novaeangliae* ), North Atlantic right ( *Eubalaena glacialis* ), North Pacific right ( *Eubalena japonica* ) southern right ( *Eubalaena australis* ), pygmy right ( *Capera marginata* ), bowhead ( *Balaena mysticetus* ), and gray ( *Eschrichtius robustus* ) whales.
(2)Odontocete whales—harbor porpoise ( *Phocoena phocoena* ), spectacled porpoise ( *Phocoena dioptrica* ), beluga ( *Dephinapterus leucas* ), *Stenella* spp., Risso's dolphin ( *Grampus griseus* ), rough-toothed dolphin ( *Steno bredanensis* ), Fraser's dolphin ( *Lagenodelphis hosei* ), northern right-whale dolphin ( *Lissodelphis borealis* ), southern right whale dolphin ( *Lissodelphis peronii* ), short-beaked common dolphin ( *Delphius delphis* ), long-beaked common dolphin ( *Delphinus capensis* ), very long-beaked common dolphin ( *Delphinus tropicalis* ), *Lagenorhynchus* spp., *Cephalorhynchus* spp., bottlenose dolphin ( *Tursiops truncatus* ), Dall's porpoise ( *Phocoenoides dalli* ), melon-headed whale ( *Peponocephala* spp.), beaked whales ( *Berardius* spp., *Hyperoodon* spp., *Mesoplodon* spp., Cuvier's beaked whale ( *Ziphius cavirostris* ), Shepard's beaked whale ( *Tasmacetus shepherdi* ), Longman's beaked whale ( *Indopacetus pacificus* ), killer whale ( *Orcinus orca* ), false killer whale ( *Pseudorca crassidens* ), pygmy killer whale ( *Feresa attenuata* ), sperm whale ( *Physeter macrocephalus* ), dwarf and pygmy sperm whales ( *Kogia simus* and *K. breviceps* ), and short-finned and long-finned pilot whales ( *Globicephala macrorhynchus* and *G. melas* ).
(3)Pinnipeds—hooded seal ( *Cystophora cristata* ), harbor seal ( *Phoca vitulina* ), spotted seal ( *P. largha* ), ribbon seal ( *P. fasciata* ), gray seal ( *Halichoerus grypus* ), elephant seal ( *Mirounga angustirostris* and *M. leonina* ), Hawaiian monk seal ( *Monachus schauinslandi* ), Mediterranean monk seal ( *Monachus monachus* ), northern fur seal ( *Callorhinus ursinus* ), southern fur seal ( *Arctocephalus* spp.), harp seal ( *Phoca groenlandica* ), Galapagos sea lion ( *Zalophus californianus wollebaeki* ), Japanese sea lion ( *Zalophus californianus japonicus* ), Steller sea lion ( *Eumetopias jubatus* ), California sea lion ( *Zalophus californianus* ), Australian sea lion ( *Neophoca cinerea* ), New Zealand sea lion ( *Phocarctos hookeri* ), and South American sea lion ( *Otaria flavescens* ). § 216.181 Effective dates. Regulations in this subpart are effective from August 16, 2007 through August 15, 2012. § 216.182 Permissible methods of taking.
(a)Under Letters of Authorization issued pursuant to §§ 216.106 and 216.188, the Holder of the Letter of Authorization may incidentally, but not intentionally, take marine mammals by Level A and Level B harassment within the areas described in § 216.180(a), provided the activity is in compliance with all terms, conditions, and requirements of these regulations and the appropriate Letter of Authorization.
(b)The activities identified in § 216.180 must be conducted in a manner that minimizes, to the greatest extent practicable, any adverse impacts on marine mammals and their habitat. § 216.183 Prohibitions. No person in connection with the activities described in § 216.180 shall:
(a)Take any marine mammal not specified in § 216.180(b);
(b)Take any marine mammal specified in § 216.180(b) other than by incidental, unintentional Level A and Level B harassment;
(c)Take a marine mammal specified in § 216.180(b) if such taking results in more than a negligible impact on the species or stocks of such marine mammal; or
(d)Violate, or fail to comply with, the terms, conditions, and requirements of the regulations in this subpart or any Letter of Authorization issued under §§ 216.106 and 216.188. § 216.184 Mitigation. The activity identified in § 216.180(a) must be conducted in a manner that minimizes, to the greatest extent practicable, adverse impacts on marine mammals and their habitats. When conducting operations identified in § 216.180, the mitigation measures described in this section and in any Letter of Authorization issued under §§ 216.106 and 216.188 must be implemented.
(a)Through monitoring described under § 216.185, the Holder of a Letter of Authorization must act to ensure, to the greatest extent practicable, that no marine mammal is subjected to a sound pressure level of 180 dB or greater.
(b)If a marine mammal is detected within or about to enter the mitigation zone (the area subjected to sound pressure levels of 180 dB or greater plus the 1 km (0.5 nm) buffer zone extending beyond the 180-dB zone), SURTASS LFA sonar transmissions will be immediately delayed or suspended. Transmissions will not resume earlier than 15 minutes after:
(1)All marine mammals have left the area of the mitigation and buffer zones; and
(2)There is no further detection of any marine mammal within the mitigation and buffer zones as determined by the visual and/or passive or active acoustic monitoring described in § 216.185.
(c)The high-frequency marine mammal monitoring sonar (HF/M3) described in § 216.185 will be ramped-up slowly to operating levels over a period of no less than 5 minutes:
(1)At least 30 minutes prior to any SURTASS LFA sonar transmissions;
(2)Prior to any SURTASS LFA sonar calibrations or testings that are not part of regular SURTASS LFA sonar transmissions described in paragraph (c)(1) of this section; and
(3)Anytime after the HF/M3 source has been powered down for more than 2 minutes.
(d)The HF/M3 sound pressure level will not be increased once a marine mammal is detected; ramp-up may resume once marine mammals are no longer detected.
(e)The Holder of a Letter of Authorization will not operate the SURTASS LFA sonar, such that the SURTASS LFA sonar sound field exceeds 180 dB (re 1 microPa(rms)):
(1)At a distance less than 12 nautical miles
(nm)(22 kilometers (km)) from any coastline, including offshore islands;
(2)Within any offshore area that has been designated as biologically important for marine mammals under § 216.185(f), during the biologically important season for that particular area.
(f)The following areas have been designated by NMFS as Offshore Biologically Important Areas (OBIAs) for marine mammals (by season if appropriate): Name of Area Location of Area Months of Importance
(1)200-m isobath North American East Coast From 28° N. to 50° N., west of 40° W. Year round
(2)Antarctic Convergence Zone 30° E. to 80° E. to 45°; 80° E. to 150° E. to 55°; S.150° E. to 50° W. to 60° S.; 50° W. to 30° E. to 50° S. October 1-March 31
(3)Costa Rica Dome Centered at 9° N. and 88° W. Year round
(4)Hawaiian Islands Humpback Whale National Marine Sanctuary Penguin Bank Centered at 21° N. and 157° 30' W. November 1 through May 1
(5)Cordell Bank National Marine Sanctuary Boundaries in accordance with 15 CFR 922.110 Year-round
(6)Gulf of the Farallones National Marine Sanctuary Boundaries in accordance with 15 CFR 922.80 Year-round
(7)Monterey Bay National Marine Sanctuary Boundaries in accordance with 15 CFR 922.30 Year-round
(8)Olympic Coast National Marine Sanctuary Boundaries within 23 nm of the coast from 47°07' N. to 48°30' N. latitude December, January, March and May
(9)Flower Garden Banks National Marine Sanctuary Boundaries in accordance with 15 CFR 922.120 Year-round
(10)The Gully 44° 13' N., 59° 06' W. to 43° 47' N.; 58° 35' W. to 43° 35' N.; 58° 35' W. to 43° 35' N.; 59° 08' W. to 44° 06' N.; 59° 20' W Year-round § 216.185 Requirements for monitoring.
(a)In order to mitigate the taking of marine mammals by SURTASS LFA sonar to the greatest extent practicable, the Holder of a Letter of Authorization issued pursuant to §§ 216.106 and 216.188 must:
(1)Conduct visual monitoring from the ship's bridge during all daylight hours (30 minutes before sunrise until 30 minutes after sunset);
(2)Use low frequency passive SURTASS sonar to listen for vocalizing marine mammals; and
(3)Use the HF/M3 (high frequency) sonar developed to locate and track marine mammals in relation to the SURTASS LFA sonar vessel and the sound field produced by the SURTASS LFA sonar source array.
(b)Monitoring under paragraph
(a)of this section must:
(1)Commence at least 30 minutes before the first SURTASS LFA sonar transmission;
(2)Continue between transmission pings; and
(3)Continue either for at least 15 minutes after completion of the SURTASS LFA sonar transmission exercise, or, if marine mammals are exhibiting unusual changes in behavioral patterns, for a period of time until behavior patterns return to normal or conditions prevent continued observations;
(c)Holders of Letters of Authorization for activities described in § 216.180 are required to cooperate with the National Marine Fisheries Service and any other federal agency for monitoring the impacts of the activity on marine mammals.
(d)Holders of Letters of Authorization must designate qualified on-site individuals to conduct the mitigation, monitoring and reporting activities specified in the Letter of Authorization.
(e)Holders of Letters of Authorization must conduct all monitoring required under the Letter of Authorization. § 216.186 Requirements for reporting.
(a)The Holder of the Letter of Authorization must submit quarterly mission reports to the Director, Office of Protected Resources, NMFS, no later than 30 days after the end of each quarter beginning on the date of effectiveness of a Letter of Authorization or as specified in the appropriate Letter of Authorization. Each quarterly mission report will include all active-mode missions completed during that quarter. At a minimum, each classified mission report must contain the following information:
(1)Dates, times, and location of each vessel during each mission;
(2)Information on sonar transmissions during each mission;
(3)Results of the marine mammal monitoring program specified in the Letter of Authorization; and
(4)Estimates of the percentages of marine mammal species and stocks affected (both for the quarter and cumulatively for the year) covered by the Letter of Authorization.
(b)The Holder of a Letter of Authorization must submit an annual report to the Director, Office of Protected Resources, NMFS, no later than 45 days after the expiration of a Letter of Authorization. This report must contain all the information required by the Letter of Authorization.
(c)A final comprehensive report must be submitted to the Director, Office of Protected Resources, NMFS at least 240 days prior to expiration of these regulations. In addition to containing all the information required by any final year Letter of Authorization, this report must contain an unclassified analysis of new passive sonar technologies and an assessment of whether such a system is feasible as an alternative to SURTASS LFA sonar. § 216.187 Applications for Letters of Authorization.
(a)To incidentally take marine mammals pursuant to these regulations, the U.S. Navy authority conducting the activity identified in § 216.180 must apply for and obtain a Letter of Authorization in accordance with § 216.106.
(b)The application for a Letter of Authorization must be submitted to the Director, Office of Protected Resources, NMFS, at least 60 days before the date that either the vessel is scheduled to begin conducting SURTASS LFA sonar operations or the previous Letter of Authorization is scheduled to expire.
(c)All applications for a Letter of Authorization must include the following information:
(1)The date(s), duration, and the area(s) where the vessel's activity will occur;
(2)The species and/or stock(s) of marine mammals likely to be found within each area;
(3)The type of incidental taking authorization requested (i.e., take by Level A and/or Level B harassment);
(4)The estimated percentage of marine mammal species/stocks potentially affected in each area for the 12-month period of effectiveness of the Letter of Authorization; and
(5)The means of accomplishing the necessary monitoring and reporting that will result in increased knowledge of the species and the level of taking or impacts on marine mammal populations.
(d)The National Marine Fisheries Service will review an application for a Letter of Authorization in accordance with § 216.104(b) and, if adequate and complete, issue a Letter of Authorization. § 216.188 Letters of Authorization.
(a)A Letter of Authorization, unless suspended or revoked will be valid for a period of time not to exceed one year, but may be renewed annually subject to annual renewal conditions in § 216.189.
(b)Each Letter of Authorization will set forth:
(1)Permissible methods of incidental taking;
(2)Authorized geographic areas for incidental takings;
(3)Means of effecting the least practicable adverse impact on the species of marine mammals authorized for taking, their habitat, and the availability of the species for subsistence uses; and
(4)Requirements for monitoring and reporting incidental takes.
(c)Issuance of each Letter of Authorization will be based on a determination that the total number of marine mammals taken by the activity specified in § 216.180 as a whole will have no more than a negligible impact on the species or stocks of affected marine mammal(s), and that the total taking will not have an unmitigable adverse impact on the availability of species or stocks of marine mammals for taking for subsistence uses.
(d)Notice of issuance or denial of an application for a Letter of Authorization will be published in the **Federal Register** within 30 days of a determination. § 216.189 Renewal of Letters of Authorization.
(a)A Letter of Authorization issued for the activity identified in § 216.180 may be renewed annually upon:
(1)Notification to NMFS that the activity described in the application submitted under § 216.187 will be undertaken and that there will not be a substantial modification to the described activity, mitigation or monitoring undertaken during the upcoming season;
(2)Notification to NMFS of the information identified in § 216.187(c), including the planned geographic area(s), and anticipated duration of each SURTASS LFA sonar operation;
(3)Timely receipt of the monitoring reports required under § 216.185, which have been reviewed by NMFS and determined to be acceptable;
(4)A determination by NMFS that the mitigation, monitoring and reporting measures required under §§ 216.184 and 216.185 and the previous Letter of Authorization were undertaken and will be undertaken during the upcoming annual period of validity of a renewed Letter of Authorization; and
(5)A determination by NMFS that the number of marine mammals taken by the activity as a whole will have no more than a negligible impact on the species or stock of affected marine mammal(s), and that the total taking will not have an unmitigable adverse impact on the availability of species or stocks of marine mammals for taking for subsistence uses.
(b)If a request for a renewal of a Letter of Authorization indicates that a substantial modification to the described work, mitigation or monitoring will occur, or if NMFS proposes a substantial modification to the Letter of Authorization, NMFS will provide a period of 30 days for public review and comment on the proposed modification. Amending the areas for upcoming SURTASS LFA sonar operations is not considered a substantial modification to the Letter of Authorization.
(c)A notice of issuance or denial of a renewal of a Letter of Authorization will be published in the **Federal Register** within 30 days of a determination. § 216.190 Modifications to Letters of Authorization.
(a)Except as provided in paragraph
(b)of this section, no substantial modification (including withdrawal or suspension) to a Letter of Authorization subject to the provisions of this subpart shall be made by NMFS until after notification and an opportunity for public comment has been provided. For purposes of this paragraph, a renewal of a Letter of Authorization, without modification, except for the period of validity and a listing of planned operating areas, or for moving the authorized SURTASS LFA sonar system from one ship to another, is not considered a substantial modification.
(b)If the National Marine Fisheries Service determines that an emergency exists that poses a significant risk to the well-being of the species or stocks of marine mammals specified in § 216.180(b), a Letter of Authorization may be substantially modified without prior notice and opportunity for public comment. Notification will be published in the **Federal Register** within 30 days of the action. § 216.191 Designation of Offshore Biologically Important Marine Mammal Areas.
(a)Offshore biologically important areas for marine mammals may be nominated under this paragraph by the National Marine Fisheries Service or by members of the public.
(b)Proponents must petition NMFS by requesting an area be added to the list of offshore biologically important areas in § 216.184(f) and submitting the following information:
(1)Geographic region proposed for consideration (including geographic boundaries);
(2)A list of marine mammal species or stocks within the proposed geographic region;
(3)Whether the proposal is for year-round designation or seasonal, and if seasonal, months of years for proposed designation;
(4)Detailed information on the biology of marine mammals within the area, including estimated population size, distribution, density, status, and the principal biological activity during the proposed period of designation sufficient for NMFS to make a preliminary determination that the area is biologically important for marine mammals; and
(5)Detailed information on the area with regard to its importance for feeding, breeding, or migration for those species of marine mammals that have the potential to be affected by low frequency sounds;
(c)Areas within 12 nm (22 km) of any coastline, including offshore islands, or within non-operating areas for SURTASS LFA sonar are not eligible for consideration.
(d)If a petition does not contain sufficient information for the National Marine Fisheries Service to proceed, NMFS will determine whether the nominated area warrants further study. If so, NMFS will begin a scientific review of the area. (e)(1) If through a petition or independently, NMFS makes a preliminary determination that an offshore area is biologically important for marine mammals and is not located within a previously designated area, NMFS will publish a **Federal Register** notice proposing to add the area to § 216.184(f) and solicit public comment.
(2)The National Marine Fisheries Service will publish its final determination in the **Federal Register** . [FR Doc. 07-3329 Filed 7-5-07; 12:44 pm]
Connectionstraces to 58
Traces to 58 documents
CFR
- Persons and entities subject to mandated electronic filing.§ 232.100
- Mandated electronic submissions and exceptions.§ 232.101
- Unofficial PDF copies included in an electronic submission.§ 232.104
- Temporary hardship exemption.§ 232.201
- Continuing hardship exemption.§ 232.202
- Application of part 232.§ 232.10
- General conditions to be met.§ 230.502
- Filing of notice of sales.§ 230.503
- Form D, notice of sales of securities under Regulation D and section 4(a)(5) of the Securities Act of 1933.§ 239.500
- Definitions of terms.§ 230.405
- Exemption for limited offers and sales without regard to dollar amount of offering.§ 230.506
- Confidential treatment of information filed with the Commission.§ 230.406
- Exemption for limited offerings and sales of securities not exceeding \$10,000,000.§ 230.504
- Disqualification provisions.§ 230.262
- Form ADV, for application for registration of investment adviser and for amendments to such registration statement.§ 279.1
- Signatures.§ 232.302
- Date of filing; adjustment of filing date.§ 232.13
- Insignificant deviations from a term, condition or requirement of Regulation D.§ 230.508
- Form ID, application for EDGAR access.§ 239.63
- Form 3, initial statement of beneficial ownership of securities.§ 249.103
- Form 4, statement of changes in beneficial ownership of securities.§ 249.104
- Form 5, annual statement of beneficial ownership of securities.§ 249.105
- Form 8-K, for current reports.§ 249.308
- Securities and Exchange Commission records and information.§ 200.80
- Small entities under the Securities Exchange Act for purposes of the Regulatory Flexibility Act.§ 240.0-10
- Small entities under the Securities Act for purposes of the Regulatory Flexibility Act.§ 230.157
- Small entities under the Investment Company Act for purposes of the Regulatory Flexibility Act.§ 270.0-10
- Boundary.§ 922.110
- Boundary.§ 922.80
- National Marine Sanctuary general permits.§ 922.30
- Boundary.§ 922.120
U.S. Code
- Short title§ 77a
- Exempted transactions§ 77d
- Findings and declaration of policy§ 80a–1
- Definition of investment company§ 80a–3
- Exemption from State regulation of securities offerings§ 77r
- Findings§ 80b–1
- Short title§ 78a
- Initial regulatory flexibility analysis§ 603
- Registration and regulation of brokers and dealers§ 78o
- Periodical and other reports§ 78m
- Public information; agency rules, opinions, orders, records, and proceedings§ 552
- Directors, officers, and principal stockholders§ 78p
- Comprehensive energy plan§ 781
- Public information collection activities; submission to Director; approval and delegation§ 3507
- Purposes§ 3501
- Rules, regulations, and orders; annual reports§ 78w
- Definitions; promotion of efficiency, competition, and capital formation§ 77b
- Definitions and application§ 78c
- Definitions; applicability; rulemaking considerations§ 80a–2
- Rules, regulations, and orders§ 77sss
- Rules, regulations, and orders§ 80a–37
- Registration of securities§ 77f
- Failure of corporate officers to certify financial reports§ 1350
- Congressional findings and declaration of policy§ 1361
- Taking, killing, or possessing migratory birds unlawful§ 703
- Moratorium on taking and importing marine mammals and marine mammal products§ 1371
register
17 references not yet in our index
- 17 CFR 230.501-508
- 17 CFR 230.505
- Pub. L. 99-514
- 100 Stat. 2085
- Pub. L. 104-290
- 110 Stat. 3416
- 17 CFR 270.3
- 5 CFR 1320.11
- Pub. L. 104-121
- 110 Stat. 857
- 17 CFR 232
- 50 CFR 216
- 50 CFR 216.106
- 50 CFR 216.103
- Pub. L. 107-314
- 50 CFR 216.191(a)
- 40 CFR 1501.6
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