Current through Reg. 49, No. 38; September 20, 2024
(a) The following
words and terms, when used in this section, shall have the following meanings,
unless the context clearly indicates otherwise.
(1) Private Offering Exemptions. The term
"Private Offering Exemptions" refers to §4005.012 and §4005.013 of
the Act.
(2) Limited Offering
Exemptions. The term "Limited Offering Exemptions" refers to the two limited
offering exemptions found in subsections (a)(1) and (a)(2) of
§§4005.012 of the Act. The term "Limited Offering Exemption (a)(1)"
refers to the exemption in subsection (a)(1) of §4005.012 of the Act, and
the term "Limited Offering Exemption (a)(2)" refers to the exemption in
subsection (a)(2) of §4005.012 of the Act.
(3) Registration Sections. The term
"Registration Sections" refers to Subchapters A, B, and C of Chapter 4003 of
the Act.
(4) Public solicitation.
The offer for sale or sale of the securities of the issuer would not involve
the use of public solicitation under the Private Offering Exemptions if the
issuer, after having made a reasonable factual inquiry has reasonable cause to
believe, and does believe, that the purchasers of the securities are
sophisticated, well-informed investors or well-informed investors who have a
relationship with the issuer or its principals, executive officers, or
directors evincing trust between the parties (namely close business
association, close friendship, or close family ties), and such purchasers
acquire the securities as ultimate purchasers and not as underwriters or
conduits to other beneficial owners or subsequent purchasers. The use of a
registered dealer in a sale otherwise meeting the requirements of either
§4005.0012 or §4005.013 does not necessarily mean that the
transaction involves the use of public solicitation. The offer without
advertising to a person who did not come within the class of persons described
in this subsection does not alone result in public solicitation if the issuer
had a reasonable cause to believe and did believe that such person fell within
the class of persons described, and that such offer was not made
indiscriminately.
(5) Well
informed. The term "well-informed" could be satisfied through the dissemination
of printed material to each purchaser prior to his or her purchase, which by a
fair and factual presentation discloses the plan of business, the history, and
the financial statements of the issuer, including material facts necessary in
order that the statements made, in the light of circumstances under which they
are made, not be misleading.
(6)
Sophisticated investor. In determining who is a sophisticated investor at least
the following factors should be considered.
(A) The financial capacity of the investor,
to be of such proportion that the total cost of that investor's commitment in
the proposed investment would not be material when compared with his total
financial capacity. It may be presumed that if the investment does not exceed
20% of the investor's net worth (or joint net worth with the investor's spouse)
at the time of sale that the amount invested is not material.
(B) Knowledge of finance, securities, and
investments, generally. This criteria may be met by the investor's purchaser
representative if such purchaser representative has such knowledge, so long as
such purchaser representative:
(i) has no
business relationship with the issuer;
(ii) represents only the investor and not the
issuer; and
(iii) is compensated
only by the investor.
(C) Experience and skill in investments based
on actual participation. This criteria may be met by the investor's purchaser
representative if such purchaser representative has such experience and skill,
so long as such purchaser representative:
(i)
has no business relationship with the issuer;
(ii) represents only the investor and not the
issuer; and
(iii) is compensated
only by the investor.
(b) Advertisements. The term "advertisements"
does not include the use of the type of printed material as set out in
subsection (a) of this section under the discussion of the term
"well-informed." Further, the main concept to be considered in a definitional
analysis of the term "advertisements," as it is used in the Private Offering
Exemptions is the method of use of the printed material. The following
circumstances, though not intended to be exclusive, will be considered in
determining whether the method of use of any printed material is within the
limits of the Private Offering Exemptions:
(1)
limited printing of the material;
(2) limited distribution of the material only
to persons who the issuer, after having made a reasonable factual inquiry has
reasonable cause to believe and does believe are sophisticated investors, or to
persons who have a relationship with the issuer as set forth in subsection (a)
of this section, or to their purchaser representatives;
(3) control of the printing and distribution
of the printed material;
(4)
recognition of the necessity of compliance with the requirements set forth in
this subsection on the part of the issuer and the investor. Such recognition
might consist of a printed prohibition on the front in large type that the
circular is for that individual's confidential use only, and may not be
reproduced; and, the use of a statement warning that any action contrary to
these restrictions may place such individual and the issuer in violation of the
Texas Securities Act.
(c) Number of security holders or purchasers
of securities. In computing the number of purchasers or security holders for
the Private Offering Exemptions, the following criteria shall be used.
(1) There shall be counted as one purchaser
or security holder any purchaser or security holder together with:
(A) any relative or spouse of such purchaser
or security holder who has the same home as such purchaser or security holder;
any relative of such spouse who has the same home as such purchaser or security
holder; any relative or spouse or relative of such spouse who is a dependent of
such security holder;
(B) any trust
or estate in which such purchaser or security holder or any of the persons
related to him as specified in subparagraph (A) or (C) of this paragraph
collectively have more than 50% of the beneficial interest (excluding
contingent interests); and
(C) any
corporation or other organization of which such purchaser or security holder or
any of the persons related to him as specified in subparagraph (A) or
subparagraph (B) of this paragraph collectively are the beneficial owners of
more than 50% of the equity securities (excluding directors' qualified shares)
or equity interest.
(2)
There shall be counted as one purchaser or security holder any corporation,
partnership, association, joint stock company, trust, or unincorporated
association, organized and existing other than for the purpose of acquiring
securities of the issuer for which the exemption is claimed under the Private
Offering Exemptions.
(3) Any
general partner of a limited partnership who is subject to general liability
for the obligations of the limited partnership and actively engages in the
control and management of the business and affairs of the limited partnership
or of the managing general partner of the partnership shall not be counted as a
purchaser or security holder for purposes of the Private Offering
Exemptions.
(4) The Limited
Offering Exemptions, as interpreted in subsections (a) - (j) of this section
may not be combined with the exemptions promulgated pursuant to the Act,
§4005.024, contained in subsections (k) and (l) of this section to exceed
sales to 35 unaccredited investors in a 12-month period.
(5) "Security holders" or "purchasers of
securities," as those terms are used in the Limited Offering Exemptions do not
include holders of any options granted pursuant to a plan that falls within the
exemption for compensatory or benefit plans provided by §4005.013 of the
Act.
(d) Total number of
security holders. The phrase "the total number of security holders of the
issuer" in the Limited Offering Exemption (a)(1) includes all security holders
of the issuer without regard to their places of residence (within or without
the State of Texas) and without regard to where they acquired the securities.
In determining the number of persons for purposes of the Limited Offering
Exemption (a)(2), prior sales to persons residing outside the State of Texas
and prior sales to Texas residents consummated outside the State of Texas shall
be included unless such sales were made in compliance with §
139.7 of this title (relating to
Sale of Securities to Nonresidents).
(e) Other exemptions. The phrase "exempt
under another provision of this subchapter " in §4005.012(b)(1) means
exempt under any provisions of the Act, other than the Limited Offering
Exemption subsection (a)(1) of this section, and subsections (k) and (l) of
this section.
(f) Compensation
plans and contracts exemption found in §4005.013 of the Act.
(1) No public solicitation or advertisement
under §4005.013 of the Act occurs by the distribution to eligible persons
of a prospectus filed under the Securities Act of 1933 with the SEC for the
plan or any other material required or permitted to be distributed by the
Securities Act of 1933 in connection with such plan when the securities under
the plan are sold or distributed in a transaction otherwise meeting the
requirements of §4005.013.
(2)
Insurance agents who are exclusive agents of the issuer or its subsidiary or
derive more than 50% of their annual income from the issuer or its subsidiary
are deemed "employees" as that term is used in §4005.013.
(g) Sales made under
§4005.013 of the Act. Only the employer and its participating
subsidiaries, parents, or subsidiaries of such parents, if any, may offer or
sell securities in connection with the employee plan without registration as
dealers. For purposes of §4005.013 of the Act., the term "issuer" includes
a general partner of a limited partnership with respect to a security sold or
distributed by such limited partnership in a transaction otherwise meeting the
requirements of §4005.013 of the Act. An employee of the issuer or its
participating subsidiary who aids in offering or selling such securities in
connection with the plan is not required to be registered as an agent provided
the employee meets all of the following conditions:
(1) the employee was not hired for the
purpose of offering or selling such securities;
(2) the employee's activity involving the
offer and sale of such securities is strictly incidental to his or her bona
fide primary nonsecurities-related work duties; and
(3) the employee's compensation is based
solely on the performance of such other duties, i.e., the employee does not
receive any compensation for offering for sale, selling, or otherwise aiding
the sale of securities.
(h) Section 4005.013 plans for counting
purposes. A noncontributory stock ownership plan or stock ownership trust that
holds securities of the issuer for the benefit of the participants in that
issuer's plan shall be counted as one security holder under the Limited
Offering Exemption in (a)(1) of this section. Plan participants in such a stock
ownership plan or trust will not be deemed security holders of the issuer for
purposes of counting security holders under the Limited Offering Exemption in
(a)(1) of this section solely because of their participation in the plan or
trust. However, participants receiving distributions of securities from the
plan or trust will be deemed security holders of the issuer on receipt of
securities of the issuer from the plan or trust.
(i) Notices. There is no notice filing
requirement for sales made under the Private Offering Exemptions.
(j) Limitations on disposition. The issuer
and any person acting on its behalf shall exercise reasonable care to assure
that the purchasers are acquiring the securities as an investment. Such
reasonable care should include, but not be limited to, the following:
(1) making reasonable inquiry to determine if
the purchaser is acquiring the securities for his or her own account or on
behalf of other persons;
(2)
placing a legend on the certificate or other document evidencing the securities
to the effect that the securities have not been registered under any securities
law and setting forth or referring to the restrictions on transferability and
sale of the securities;
(3) issuing
stop transfer instructions to the issuer's transfer agent, if any, with respect
to the securities, or, if the issuer transfers its own securities, making a
notation in the appropriate records of the issuer;
(4) obtaining from the purchaser a signed
written agreement to the effect that the securities will not be sold without
registration under applicable securities laws or exemptions therefrom;
and
(5) prior to sale, written
disclosure to each purchaser, to the effect that a purchaser of the securities
must bear the economic risk of the investment for an indefinite period of time
because the securities have not been registered under applicable securities
laws and therefore cannot be sold unless they are subsequently registered under
such securities laws or an exemption from such registration is available; and
that the securities are subject to the limitations set forth in paragraphs (2)
- (4) of this subsection.
(k) Limited offering exemption coordinating
with SEC Regulation D, Rule 506. In addition to sales made under the Private
Offering Exemptions, the State Securities Board, pursuant to the Act,
§4005.024, exempts from the registration requirements of the Registration
Sections, any offer or sale of securities offered or sold in compliance with
the Securities Act of 1933, Regulation D (17 C.F.R. §§
230.500-230.508, as amended),
Rule 506, including any offer or sale made exempt by application of Rule
508(a), and which satisfies the following further conditions and limitations.
(1) In addition to the other requirements of
this subsection, to claim this exemption, the issuer must comply with notice
filing provisions set out in §
RSA
114.4(b)(1) of this title
(relating to Filings and Fees).
(2)
Transactions which are exempt under this subsection may not be combined with
offers and sales exempt under any other rule or section of the Act; however,
nothing in this limitation shall act as an election. Should for any reason, the
offer and sale fail to comply with all of the conditions for this exemption,
the issuer may claim the availability of any other applicable
exemption.
(3) In view of the
objective of this subsection and the purposes and policies underlying the Texas
Securities Act, the exemption is not available to any issuer with respect to
any transaction which, although in technical compliance with this subsection,
is part of a plan or scheme to evade registration or the conditions or
limitations explicitly stated in this subsection.
(4) Nothing in this subsection is intended to
relieve registered dealers, or agents from the due diligence, suitability, or
know your customer standards or any other requirements of law otherwise
applicable to such registered persons.
(5) The staff of the State Securities Board
will review all notice filings made under this subsection to determine if the
correct filing fee was submitted. If the staff determines that the fee paid was
deficient, the staff will notify the filer through the EFD system or by email
if the filing was not made through EFD. A filer who receives such a notice may
correct the deficiency within 30 days of the date that the notice is sent by
the staff. If a timely correction is made, the filing shall be deemed to be
complete and in compliance with the filing requirements as of the date the
original filing was received.
(6)
When an offering is made in compliance with Regulation D of the SEC and the
offering will be made by or through a registered securities dealer, the issuer
and its directors, officers, agents, and employees may make themselves
available to answer questions from offerees, as required by Rule 502(b)(2)(v)
of Regulation D, without being required to register as securities dealers or
agents under Chapter 4004 of the Act.
(l) Intrastate limited offering exemption. In
addition to sales made under the Private Offering Exemptions, the State
Securities Board, pursuant to the Act, §4005.024, exempts from the
registration requirements of the Registration Sections, any offer or sale of
any securities by the issuer itself, or by a registered dealer acting as agent
for the issuer provided all offers and sales are made pursuant to an offering
made and completed solely within this state and all the conditions in
paragraphs (1) - (11) of this subsection are satisfied.
(1) The sale is made, without the use of any
public solicitation or advertisements, as set forth in subsections (a) and (b)
of this section to:
(A) not more than 35 new
security holders of the issuer who meet the criteria stated in subsection (a)
of this section and who became security holders during the period of 12 months
ending with the date of the sale in question (subject to paragraph (7) of this
subsection); and
(B) other
well-informed investors who are "accredited investors" as defined in §
107.2 of this title (relating to
Definitions). (For purposes of this subsection, the term "well informed" shall
have the same meaning as set out in subsection (a)(5) of this section, and the
term "Private Offering Exemptions" in such subsection shall include sales made
pursuant to this subsection.)
(2) Neither the issuer nor the registered
dealer (as such terms are defined in paragraph (4) of this subsection):
(A) is currently subject to any
administrative order issued by state or federal authorities within five years
of the expected offer and sale of securities in reliance upon this exemption,
which order:
(i) is based upon a finding that
such person has engaged in fraudulent conduct; or
(ii) has the effect of enjoining such person
from activities subject to federal or state statutes designed to protect
investors or consumers against unlawful or deceptive practices involving
securities, insurance, commodities or commodity futures, real estate,
franchises, business opportunities, consumer goods, or other goods and
services;
(B) has been
convicted within five years prior to commencement of the offering of any felony
or misdemeanor of which fraud is an essential element, or which is a violation
of the securities laws or regulations of this state, or of any other state of
the United States, or of the United States, or any foreign jurisdiction; or
which is a crime involving moral turpitude; or which is a criminal violation of
statutes designed to protect consumers against unlawful practices involving
insurance, securities, commodities or commodity futures, real estate,
franchises, business opportunities, consumer goods, or other goods and
services;
(C) is subject to any
order, judgment, or decree entered within five years prior to commencement of
the offering by any court of competent jurisdiction which temporarily or
permanently restrains or enjoins such person from engaging in or continuing any
conduct or practice in connection with the purchase or sale of any security or
involving any false filing with any state; or which restrains or enjoins such
person from activities subject to federal or state statutes designed to protect
consumers against unlawful or deceptive practices involving insurance,
commodities or commodity futures, real estate, franchises, business
opportunities, consumer goods, or other goods and services.
(3) The prohibitions of
subparagraphs (A) - (C) of paragraph (2) of this subsection shall not apply if
the party subject to the disqualifying order is duly licensed to conduct
securities-related business in the state in which the administrative order or
judgment was entered against such party or, if the order or judgment was
entered by federal authorities, the prohibitions of subparagraphs (A) - (C) of
paragraph (2) of this subsection shall not apply if the party subject to the
disqualifying order is duly licensed to conduct securities-related business by
the SEC. Any disqualification caused by paragraph (2) of this subsection is
automatically waived if the state or federal authorities which created the
basis for disqualification determine upon a showing of good cause that it is
not necessary under the circumstances that the exemption be denied.
(4) For purposes of paragraphs (2) and (3) of
this subsection only, "issuer" includes any directors, executive officers,
general partners, or beneficial owners of 10% or more of any class of its
equity securities (beneficial ownership meaning the power to vote or direct the
vote and/or the power to dispose or direct the disposition of such securities),
and "registered dealer" shall include any partners, directors, executive
officers, or beneficial owner of 10% or more of any class of the equity
securities of the registered dealer (beneficial ownership meaning the power to
vote or direct the vote and/or the power to dispose or direct the disposition
of such securities).
(5) Upon
application, and for good cause shown, the Commissioner may waive a
disqualification contained in paragraph (2) of this subsection.
(6) The offering complies with subsections
(a) - (d) and (j) of this section. However, persons who are "accredited
investors" as defined in §
107.2 of this title are deemed to
be "sophisticated" as defined in subsection (a)(6) of this section.
(7) This subsection may not be combined with
either of the Limited Offering Exemptions, or subsection (k) of this section to
make sales to more than 35 unaccredited security holders during a 12-month
period. Except for accredited investors who became security holders pursuant to
this subsection, security holders who purchase in sales made in compliance with
this subsection are included in the count of security holders under the Limited
Offering Exemption subsection (a)(1) of this section or purchasers under the
Limited Offering Exemption subsection(a)(2) of this section, but this
subsection may be used to exceed the numbers of security holders or purchasers
allowed by such sections over an extended period of time.
(8) Issuers who offer and sell securities
under this subsection only through a securities dealer registered in Texas may
do so without filing any notice with the State Securities Board.
(9) Notice filing requirements.
(A) An issuer who is not a registered
securities dealer and who does not sell securities by or through a registered
securities dealer shall file a notice on Form 133.29 not less than 10 business
days before any sale claimed to be exempt under this subsection may be
consummated for sales under paragraph (1)(B) of this subsection, in whole or in
part to individual accredited investors, as defined in §107.2 of this
title.
(B) For the purpose of
filing Form 133.29, "business days" means ordinary business days and does not
include Saturdays, Sundays, or state holidays.
(C) No notice is required for sales made
under paragraph (1)(A) of this subsection or under paragraph (1)(B) of this
subsection where the sales are made exclusively to institutional accredited
investors as defined in §
RSA 107.2 of this
title.
(D) The issuer may be
required by the Securities Commissioner to give details concerning any
information requested in Form 133.29 and may be required to furnish any
additional information deemed necessary by the Securities Commissioner to
determine the issuer's business repute and qualifications.
(E) Every issuer filing a notice on Form
133.29 shall pay a filing fee of 1/10 of 1.0% of the aggregate amount of
securities described as being offered for sale, but in no case more than
$500.
(10) Accredited
investor security holders who purchase in sales made under this exemption are
not counted as security holders under the Limited Offering Exemption subsection
(a)(1) of this section or purchasers under the Limited Offering Exemption
(a)(2) in determining whether any other sales to other security holders or
purchasers are exempt under the Private Offering Exemptions. That is to say,
this exemption for sales to accredited investors is cumulative with and in
addition to the Private Offering Exemptions, and sales made under paragraph
(1)(B) of this subsection are not considered in determining whether sales made
in reliance on the exemptions contained in the Private Offering Exemptions
would be within the numerical limits on the number of security holders or
purchasers contained in the Private Offering Exemptions.
(11) "Accredited investor" is defined in
§
RSA 107.2 of this
title and for purposes of this subsection, includes any person who the issuer
reasonably believes comes within that definition at the time of the sale of the
securities to that person.
