Ala. Admin. Code r. 830-X-6-.11

Current through Register Vol. 43, No. 1, October 31, 2024

Section 830-X-6-.11 - Limited Offering Exemption

(1) Pursuant to the Authority delegated to the Alabama Securities Commission by Code of Ala. 1975, § 8-6-11(a)(9), any offer or sale of securities which is made in compliance with the following requirements of this rule will be deemed to be an exempt transaction and Code of Ala. 1975, §§ 8-6-3 through 8-6-9 shall not apply except as hereinafter in this rule expressly provided:

INTERPRETIVE COMMENT: In response to some questions, it should be understood that this transactional exemption is an expansion of, and an alternative to, the statutory exemption found in Code of Ala. 1975, § 8-6-11(a)(9).

(a) The offer or sale of securities offered or sold must be in compliance with Rules 501-503, and 505 and 506 of Regulation D, 17 C.F.R. §§ 230.501 - 230.503, 230.505 and 230.506 adopted under the Securities Act of 1933 and made effective April 15, 1982, and which also satisfies the following further conditions and limitations:

1. No commission, finders fee or other remuneration shall be paid or given, directly or indirectly, to any person for soliciting any prospective purchaser in this state, unless such person is registered in this state pursuant to Code of Ala. 1975, § 8-6-3.

2. No exemption under this rule shall be available for the securities of any issuer if any of the parties described in Rule 252(c), (d), (e) or (f) of Regulation A, 17 C.F.R. § 230.252(c), (d), (e), and (f), adopted under the Securities Act of 1933 (generally described as: the issuer, any of its predecessors or any affiliated issuer; any of the directors, officers, general partners or beneficial owners of 10% or more of any equity securities of the issuer; any underwriter of the securities or any partner, director or officer of any such underwriter; or any issuer subject to the reporting requirements of the Securities Exchange Act of 1934 who has failed to file required reports):

(i) Has filed a registration statement which is the subject of a currently effective registration stop order entered pursuant to any state's securities law within five years prior to the filing of the notice required under this exemption.

(ii) Has been convicted within five years prior to the filing of the notice required under this exemption of any felony or misdemeanor in connection with the offer, purchase or sale of any security or any felony involving fraud or deceit, including but not limited to forgery, embezzlement, obtaining money under false pretenses, larceny or conspiracy to defraud.

(iii) Is currently subject to any state administrative enforcement order or judgment entered by that state's securities administrator within five years prior to the filing of the notice required under this exemption or is subject to any state's administrative enforcement order or judgment in which fraud or deceit, including but not limited to making untrue statements of material facts and omitting to state material facts, was found and the order or judgment was entered within five years prior to the filing of the notice required under this exemption.

(iv) Is subject to any state's administrative enforcement order or judgment which prohibits, denies or revokes the use of any exemption from registration in connection with the offer, purchase or sale of securities.

(v) Is currently subject to any order, judgment, or decree of any court of competent jurisdiction temporarily or preliminary restraining or enjoining, or is subject to any order, judgment or decree of any court of competent jurisdiction, permanently restraining or enjoining, such party from engaging in or continuing any conduct or practice in connection with the purchase or sale of any security or involving the making of any false filing with the state entered within five years prior to the filing of the notice required under this exemption.

(vi) The prohibitions of subparagraphs (i), (ii), (iii), and (v) above shall not apply if the person subject to the disqualification is duly licensed or registered to conduct securities-related business in the state in which the administrative order or judgment was entered against such person or if the dealer employing such party is licensed or registered in this state and the Form BD filed with this state discloses the order, conviction, judgment or decree relating to such person. No person disqualified under this subsection may act in a capacity other than that for which the person is licensed or registered.

(vii) Any disqualification caused by this section may be waived if the state securities administrator or agency of the state which created the basis for disqualification determines upon a showing of good cause that it is not necessary under the circumstances that the exemption be denied.

(viii) The disqualifications found in Rule 505(b)(2)(iii) of Regulation D shall apply also to offerings made pursuant to Rule 506.

INTERPRETIVE COMMENT: The wording of these "bad boy" disqualifiers is adopted verbatim from the NASAA ULOE promulgated 9/83 with the exception of a word change in (vii).

Subparagraph 2.(viii) is added to make clear that both the federal and the Alabama "bad boy" provisions apply to any offering made pursuant to this rule. The intent is to merge Rules 505 and 506 for purposes of the exemption in Alabama. Alabama recognizes that Regulation A is interpreted by the SEC to apply only to executive officers of an underwriter and will follow such interpretation.

3. The issuer shall file with the Securities Commission:

(i) An application for exemption on Form D, 17 C.F.R. § 239.500 no later than five (5) full business days prior to the commencement of the offering in this state. The application for exemption shall include two copies of all information furnished by the issuer to any of the offerees. The exemption shall be deemed available unless the Commission issues a denial of said exemption prior to the expiration of the 5 full-day business period;

(ii) A notice on Part C of Form D, 17 C.F.R. § 239.500, no later than thirty (30) days after the completion date of the offering;

(iii) The notice on Form D, 17 C.F.R. § 239.500 required by paragraphs (i) and (ii) above shall be manually signed by a person duly authorized by the issuer;

(iv) Every application for exemption provided for in paragraph (i) above shall be accompanied by a nonrefundable filing fee as enumerated at § 8-6-11(C), Code of Ala. 1975. All applications or exemption and notices on Form D, 17 C.F.R. § 239.500, shall be considered filed with the Securities Commission as of the date on which received at the office of the Securities Commission;

(v) Unless otherwise available, included with or in the initial notice shall be a consent to service of process as provided for in Code of Ala. 1975, § 8-6-12.

4. In all sales to nonaccredited investors the issuer and any persons acting on its behalf shall have reasonable grounds to believe, and after making reasonable inquiry shall believe, that both of the following conditions are satisfied:

(i) The investment is suitable for the purchaser upon the basis of the facts, if any, disclosed by the purchaser as to his other security holdings and as to his financial situation and needs. For the limited purpose of this condition only, it may be presumed that if the investment does not exceed 20% of the investors net worth (excluding principle residence, furnishings therein and personal automobiles) it is suitable;

(ii) The purchaser either alone or with his purchaser representative(s) has such knowledge and experience in financial and business matters that he is or they are capable of evaluating the merits and risks of the prospective investment.

5. In all sales to those accredited investors defined in §230.501(l)(5)-(7) the issuer and any person acting on its behalf shall have reasonable grounds to believe and, after making reasonable inquiry, shall believe that the purchaser either alone or with his purchaser representative(s) has such knowledge and experience in financial and business matters that he is or they are capable of evaluating the merits and risks of the prospective investment.

(2) Nothing in this exemption is intended to relieve, or should be construed as in any way relieving, issuers or persons acting on behalf of issuers from providing disclosure to prospective investors adequate to satisfy Section 8-6-17 of the Act.

Further, the Private Placement Memorandum providing such disclosure must carry substantially the following information shown boldly on the outside cover:

"THESE SECURITIES ARE OFFERED PURSUANT TO A CLAIM OF EXEMPTION UNDER THE ALABAMA SECURITIES ACT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS NOT BEEN FILED WITH THE ALABAMA SECURITIES COMMISSION. THE COMMISSION DOES NOT RECOMMEND OR ENDORSE THE PURCHASE OF ANY SECURITIES, NOR DOES IT PASS UPON THE ACCURACY OR COMPLETENESS OF THIS PRIVATE PLACEMENT MEMORANDUM. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE."

Alternatively, any consolidated legend in substantially the following form will be acceptable:

"THE UNITS OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF CERTAIN STATES AND ARE BEING OFFERED AND SOLD IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE ACT AND SUCH LAWS. THE UNITS HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION OR OTHER REGULATORY AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE MERITS OF THIS OFFERING OR THE ACCURACY OR ADEQUACY OF THIS MEMORANDUM. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL."

(3) Offers and sales which are exempt under this rule may not be combined with offers and sales by issuers in transactions which are exempt under any other rule or section of this Act; however, nothing herein shall be deemed an election. If the offer and sale should for any reason fail to comply with all of the conditions for this exemption, the issuer may claim the availability of any other applicable exemption.

(4) In view of the objective of this rule and the purposes and policies underlying the Act, this exemption is not available to any issuer with respect to any transaction which, although in technical compliance with the rule, is part of a plan or scheme to evade registration or the conditions or limitations explicitly stated in this rule.

(5) No exemption under this rule shall be granted if compliance with the terms and conditions of this rule has not been effected by the issuer at all times prior to, during or subsequent to any offering of securities hereunder. The Securities Commission may stop order, deny, revoke or suspend the availability of any exemption pursuant to this rule pending a further investigation and determination as to whether the issuer has effected compliance with the terms and conditions of this rule. Neither compliance nor attempted compliance with this rule nor the absence of any objection or order by the securities commission with respect to any offering of securities undertaken pursuant to this rule shall be deemed approval of any securities offered pursuant to this rule.

Ala. Admin. Code r. 830-X-6-.11

Filed September 30, 1982. Amended: Filed September 30, 1983. Readopted: Filed November 9, 1983. Amended: Filed September 28, 1990. Emergency rule filed September 9, 1991. Amended: Filed October 23, 2009; effective November 27, 2009.

Author: Joseph P. Borg

Statutory Authority:Code ofAla. 1975, §§ 8-6-11(a)(9), 8-6-23.