| (a) Public solicitation, well-informed, and sophisticated
investor. The offer for sale or sale of the securities of the issuer
would not involve the use of public solicitation under the Act, §5.I,
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 §5.I 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.
(1) 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.
(2) 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 §5.I, 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 §5.I:
(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 §5.I,
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 §5.I.
(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 §5.I.
(4) The exemptions contained in the Act, §5.I(a)
and (c), as interpreted in subsections (a) - (j) of this section may
not be combined with the exemptions promulgated pursuant to the Act, §5.T,
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 Act, §5.I(a) and 5.I(c), do not
include holders of any options granted pursuant to a plan that falls
within the exemption for compensatory or benefit plans provided by
the Act, §5.I(b).
(d) Total number of security holders. The phrase "the
total number of security holders of the issuer" in §5.I(a) 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 §5.I(c), 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 other
provisions of this §5" in §5.I(c) means exempt under any
provisions of the Act, other than §5.I(a), and subsections (k)
and (l) of this section.
(f) Compensatory or benefit plans.
(1) No public solicitation or advertisement under §5.I
occurs by the distribution to eligible persons of a prospectus filed
under the Securities Act of 1933 with the Securities and Exchange
Commission 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 §5.I(b).
(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 §5.I(b).
(g) Compensatory or benefit plan sales. 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 the
Act, §5.I(b), 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 §5.I(b). 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) Compensatory or benefit 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 §5.I(a).
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 §5.I(a) 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 Act, §5.I(a), (b), or (c).
(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 Texas
Securities Act, §5.I, the State Securities Board, pursuant to
the Act, §5.T, exempts from the registration requirements of
the Act, §7, 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 §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.
Cont'd... |
