(a) When a withdrawal of an application for registration
of securities is allowed and thereafter the applicant files for a
secondary trading exemption under the Act, §4005.019, the Commissioner
may, without a hearing, revoke or suspend the §4005.019 exemption.
The applicant may either accept such action of the Commissioner or
request a hearing under the Act, §4007.107.
(b) The language, ". . . at prices reasonably related
to the current market price of the securities at the time of the sale,"
means that the market price of the security in the existing secondary
market must have a basis supported by a substantial volume of bona
fide sales transactions within or without this state. In the absence
of a going market or where there have been only casual transactions,
it shall be incumbent on the person filing the §4005.019 exemption
notice to prove to the Commissioner that the securities will have
a market price which has been fairly determined and justified at inception
with reasonable assurance of continuity of the market into the future,
pursuant to which the following criteria will be considered:
(1) the nature and extent of the business operations
of the issuer and its predecessor, if any, and the period of time
during which the issuer and its predecessor, if any, has been continuously
engaged in business;
(2) the net asset value of the stock per share;
(3) if there is a record of earnings for the issuer,
the value per share of the stock based upon a reasonable times-earnings
factor (setting out the factor used) related to the industry represented
by the issuer;
(4) if the value per share of the stock on any other
basis has been fully justified;
(5) if the issuer undertakes to furnish to its shareholders
and dealers deemed likely to trade the securities of the issuer, financial
statements for the three most recent fiscal years ending as of the
balance sheet date (or for the period of existence if less than three
years) and annual financial statements thereafter for so long as the
exemption is maintained by filing statements with the Commissioner;
(6) whether a registered Texas securities dealer who
is financially able has made a written undertaking setting out:
(A) his willingness to make a market in the issue of
securities;
(B) the price at which he will begin the market; and
(C) the procedures which he intends to follow for the
purpose of assuring an orderly market; and
(7) supplementary data to assist in determining the
character of the share distribution and the number of publicly-held
shares shall be as follows:
(A) identification of 10 largest holders of record,
including beneficial owners (if known) of holdings of record by nominees;
(B) list of holdings of 1,000 shares or more in the
names of registered dealers and unregistered out-of-state dealers;
(C) number of transfers and shares transferred during
the last two years (or period of existence of the issuer, if shorter);
(D) summary, by principal groups, of stock owned or
controlled by:
(i) officers or directors and their immediate families;
or
(ii) other concentrated holdings of 10% or more;
(E) estimates of number of nonofficer employees owning
stock and the total shares held;
(F) company shares held in profit-sharing, savings,
pension, or other similar funds or trusts established for the benefit
of officers or employees; and
(G) number of round-lot and number of odd-lot holders
of record and aggregate numbers of shares so held.
(c) Sales of securities pursuant to the Securities
Act, §4005.019, may be made by or through securities dealers
acting either as principal or agent in the transaction for which the
exemption is claimed.
(d) Financial information required pursuant to the
Act, §4005.019(b)(9)(B)(ii) and (iii), must be prepared as certified
financial statements (consolidated, if applicable) and shall include
a balance sheet as of a date within 18 months of the date of such
sale and the related statements of income, changes in stockholders'
equity, and changes in financial position for the three most recent
fiscal years ending as of the balance sheet date, or for the period
of the issuer's existence, if less than three years. Such financial
statements should disclose dividends paid or declared by each class
of stock, for each period for which an income statement is presented.
(e) The term "recognized securities manual" as used
in the Texas Securities Act, §4005.019, is limited to Best Insurance
Reports Life-Health, any Mergent's Manual, and the OTC Markets Group
Inc. website (www.otcmarkets.com) for a company that is currently
or has recently been quoted on the OTCQX or OTCQB markets. This designation
encompasses both print and electronic data and includes periodic supplements
to these publications. The information provided in the recognized
securities manual must contain the information specified in subsection
(d) of this section. All information provided must be current. The
time for determining whether the entries are current is at the date
of the particular sale, not the date the manual listings are published.
If a listing is not continually updated, the exemption would not be
available once the published balance sheet becomes more than 18 months
old.
(f) The secondary trading exemption under the Act,
§4005.019, is not available for the securities of an issuer formed
in a manner that constitutes part of a scheme to violate or evade
the securities registration provisions of the Act. Depending upon
all the facts and circumstances, such a scheme may include the merger
of a private corporation with a corporation which has no substantive
operations or assets ("shell corporation") when as a result of the
merger trading in the secondary market of the shares of the post-merger
corporation may be at prices which bear no relationship to the underlying
financial condition or operations of the post-merger corporation,
and such trading may occur within two years of the date of such merger.
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Source Note: The provisions of this §109.7 adopted to be effective January 1, 1976; amended to be effective May 11, 1979, 4 TexReg 1543; amended to be effective September 6, 1979, 4 TexReg 3015; amended to be effective December 30, 1983, 8 TexReg 5276; amended to be effective February 15, 1989, 14 TexReg 693; amended to be effective November 29, 1989, 14 TexReg 6076; amended to be effective December 3, 2000, 25 TexReg 11645; amended to be effective June 19, 2013, 38 TexReg 3779; amended to be effective February 26, 2017, 42 TexReg 673; amended to be effective June 17, 2020, 45 TexReg 4001; amended to be effective July 18, 2024,49 TexReg 5141 |