Current through Bulletin 2024-18, September 15, 2024
A.
Preliminary Notes
(1) This R164-11-1 applies
to public offerings registered by coordination or qualification pursuant to
Sections 9 or 10 of the Utah Uniform Securities Act (the "Act"), except this
rule shall not apply to offerings which are registered in twenty or more
states, including the state of Utah.
(2) The purpose of the rule is to ensure full
disclosure of material information, prohibit offerings which tend to work a
fraud on purchasers and prohibit unreasonable amounts of promoters'
profits.
(3) Failure to comply with
the provisions of this rule shall be grounds for denial, suspension or
revocation of the effectiveness of a registration statement.
(4) For purposes of this rule "development
stage companies" shall mean those companies that devote substantially all of
their efforts to acquiring or establishing a new business and in which either:
1) planned principal operations have not
commenced or
2) there have been no
significant revenues therefrom.
(5) Selected requirements of this rule may be
waived by the Utah Securities Division ("Division") where an applicant makes a
specific request for a waiver and the Division finds that such requirement(s)
is/are not necessary or appropriate for the protection of investors.
(6) This rule applies to all registration
statements filed on or after February 15, 1986.
B. NASAA Statements of Policy
All registration statements for oil and gas programs, church
bonds, real estate investment trusts, publicly-offered cattle-feeding programs,
real estate programs and equipment programs must satisfy the provisions of the
appropriate statements of policy adopted by the North American Securities
Administrators Association ("NASAA").
Offerings which are required under this paragraph B to
satisfy, and do satisfy, the provisions of a NASAA statement of policy shall
not be required to satisfy the provisions of paragraphs C and D of this
R164-11-1.
C. Promoters'
Investment in Development Stage Companies
An investment by promoters and shareholders in a development
stage company shall be required as follows:
(1) Corporate Equity and Debt Offerings.
Prior to and during the effectiveness of a registration
statement, where the registrant is the issuer, pertaining to an offering of
securities which are corporate equity securities, which are securities
convertible into corporate equity securities or which are corporate debt
securities, the corporation shall have equity equal to at least the lesser of:
1) ten percent (10%) of the aggregate
offering price of the securities which are registered or to be registered or
2) fifty thousand dollars
($50,000). Equity shall be equal to the sum of stated capital, capital surplus
which was contributed in cash and retained earnings. Retained deficits will not
reduce the equity of the company for purposes of this subparagraph. In no event
shall capital contributed in the form of services or any evidence of
indebtedness qualify as any portion of equity in order to meet the requirements
of this subparagraph.
NOTE: Tangible property may be considered to satisfy this
requirement, in the discretion of the Division, only where the value of such
property is ascertained and supported by the registrant, where the value
substantially exceeds the necessary equity requirement and where clear title to
the property is held by the issuer.
(2) Partnership and Trust Certificate
Offerings.
Prior to the effectiveness of a registration statement
relating to partnership units, the registrant shall meet one of the following
requirements:
(a) The general
partner(s), promoter(s), and/or manager(s) have paid, in cash, at least an
amount equal to five percent (5%) of the aggregate offering price of the
securities to be registered to the issuer for equity interests in the issuer;
or
(b) The general partner(s),
promoter(s), and/or manager(s) have the ability to pay and commit themselves to
pay, in cash, the lesser of:
1) five percent
(5%) of the aggregate offering price of the securities to be registered or
2) fifty thousand dollars
($50,000); or
(c) The
general partner(s), promoter(s), and/or manager(s) have an aggregate net
tangible asset value exclusive of home, automobile, and home furnishings equal
to ten percent (10%) of the aggregate offering price of the securities to be
registered. Where a general partner, promoter or manager is also a general
partner, promoter or manager of another partnership or trust for which this
subparagraph was used to satisfy the equity requirements for a registered
offering of that partnership or trust, the aggregate net tangible asset value
will be reduced by the amount required to satisfy the equity requirements of
the previous offering.
D. Business Plan and Use of Proceeds for
Development State Companies
In a development stage company the business plan and the use
of offering proceeds must be disclosed with specificity in the offering
prospectus.
Where eighty percent (80%) or more of the net offering
proceeds (total offering proceeds less offering expenses and commissions) is
not specifically allocated for the purchase, construction or development of
identified properties or products, discharge of indebtedness, payment of
overhead, etc., the registrant shall comply with the following
provisions:
(1) Eighty percent (80%)
of the net offering proceeds shall be escrowed in a manner approved by the
Division. The escrow shall continue until the registrant can specifically
allocate the use of the proceeds, at which time the registrant shall amend or
supplement the registration statement to disclose all material information
concerning the proposed use of proceeds. Such disclosure shall be in the same
form and quality as required in a registration statement.
(2) At the time of the amendment or
supplement to the registration statement, the investors in the offering must be
given no less than twenty (20) days to ratify or rescind his/her investments.
Investors who choose to rescind his/her investments shall receive a pro rata
refund of all offering proceeds. However, should enough investors request a
refund such that the net tangible asset value of the company after the refund
would be less than seventy-five thousand dollars ($75,000) the registrant shall
make a pro rata refund of all unused offering proceeds to investors.
(3) The registrant shall not issue stock,
deliver stock certificates or allow secondary trading of the stock until the
offering proceeds have been released to the registrant.
E. Employment of Agents by Issuers
An issuer shall not employ agents to sell securities which
are the subject of the registration statement until:
1) such agent is registered with the Division
as an agent of the issuer; and
2)
the issuer has filed with the Division a surety bond in the amount of
twenty-five thousand dollars ($25,000) conditioned on the agents compliance
with the Utah Uniform Securities Act and the rules of the Securities Division
of the Utah Department of Commerce and covering the effective period of the
issuer's registration statement.
