Ariz. Admin. Code § 14-4-138

Current through Register Vol. 30, No. 25, June 21, 2024

Section R14-4-138 - Foreign Security Exemption

A. The following transactions are added to the class of transactions exempt under A.R.S. § 44-1844. Pursuant to A.R.S. § 44-1848, no dealer or salesman as defined in A.R.S. § 44-1801 shall engage in the following transactions unless such dealer or salesman is registered under A.R.S. Title 44, Chapter 12, Article 9 or unless such transactions are exempt pursuant to A.R.S. § 44-1844(A)(4) and dealer registration is not required by R14-4-104:

1. A non-issuer transaction in an outstanding security (including an American Depository Receipt representing such a security), of an issuer domiciled in a foreign country with which the United States is at the time of the transaction maintaining diplomatic relations (including the sale by a dealer, including an underwriter no longer acting as an underwriter in respect to the securities involved, but not including securities constituting an unsold allotment to or subscription by the dealer as a participant in the distribution of the securities by the issuer or by or through an underwriter), if the class of security has been outstanding in the hands of the public for not less than 90 days preceding the date of the transaction and if, at the time of the transaction, the conditions of subsections (a) and (b) hereof are met:

a. The exemption of subsection (A)(1) is not available unless one of the following requirements is met:

i. The most recent edition of Moody's International Manual or Standard & Poor's Corporation Records, or the periodic supplements to such publications (hereinafter referred to as the "Manual"), contains a description of the issuer's business or operations, the names of the issuer's officers and directors (or their corporate equivalents in the issuer's country of domicile), an audited balance sheet of the issuer as of a date within 18 months of the date of the transaction and audited profit and loss statements for each of the issuer's two fiscal years immediately preceding the date of such balance sheet (such statements to be prepared in accordance with U.S. or Foreign GAAP); or

ii. The issuer of the security has a class of securities subject to the reporting requirements of Section 13 of the Securities Exchange Act, 15 U.S.C.A. 78m (West 1981 & Supp. 1992) ("Section 13") or Section 15(d) of the Securities Exchange Act, 15 U.S.C.A. 78o(d) (West 1981) ("Section 15(d)") and is not delinquent in such reporting. Section 13 and Section 15(d) are incorporated herein by reference and on file with the Secretary of State; or

iii. The security is exempted from the provisions of Section 12(g) of the Securities Exchange Act of 1934, 15 U.S.C.A. 78l(g) (West 1981) by Section 12(g)(3) of that Act, 15 U.S.C.A. 78l(g)(3) (West 1981) and the issuer is in compliance with all of the conditions of Section 12g3-2(b)(1), 17 CFR 240.12g3 - 2(b)(1) (1992) which sections and rule are incorporated herein by reference and on file with the Secretary of State.

b. The exemption of subsection (A)(1) is not available unless all of the following requirements are met:

i. The issuer, including any predecessors, has been in continuous operation for at least the preceding five years, is a going concern actually engaged in business and is not in an organizational or developmental stage, and is not in bankruptcy or receivership; and

ii. The issuer has net tangible assets of at least U.S. $25,000,000 as of the date of its most recent audited financial statement prepared in accordance with U.S. or Foreign GAAP. Such statement shall be dated as of a date within 18 months of the date of the transaction; and

iii. The issuer had an average net income after taxes of at least U.S. $1,000,000 over its most recent two consecutive years of operation according to audited profit and loss statements of the issuer prepared in accordance with U.S. or Foreign GAAP for the issuer's two fiscal years immediately preceding the date of the financial statement referred to in subsection (A)(1)(b)(ii) hereof; and

iv. The issuer has a class of securities listed or traded on a stock exchange or automated quotation system organized under the laws of its country of domicile; and

v. For the issuer's securities in the United States, there are at least two market makers, who are registered broker-dealers under the Securities Exchange Act of 1934, or at least one market maker who is a registered broker-dealer under the Securities Exchange Act of 1934 and who has a net capital of at least $25,000,000.

2. A non-issuer transaction in an outstanding security, other than a revenue obligation, which is issued or guaranteed by any foreign government with which the United States is at the time of sale maintaining diplomatic relations, or by a political subdivision of Canada or Mexico having the power of taxation, if the securities when offered for sale in this state are acknowledged by the foreign government or political subdivision as valid obligations, and none of the securities of the foreign government or political subdivision are in default either as to principal or interest.

B. The Commission may by order revoke or suspend this exemption with respect to any securities or the use of the exemption by any dealer if it finds that the further sale in this state of the securities or by the dealer would work, or tend to work, a fraud or deceit on the purchaser. The Director may temporarily suspend this exemption with respect to any security or the use of the exemption by any dealer pursuant to the procedures for a temporary cease and desist order under R14-4-307.

C. For purposes of this rule, the following definitions shall apply:

1. "American Depository Receipt" is a negotiable certificate issued by a U.S. depository pursuant to an effective registration statement filed on Form F-6 with the Securities and Exchange Commission, representing the securities of a non-U.S. company, which securities are held in custody by a custodian in the company's country of domicile; or a similar type of receipt or instrument issued in respect of a security which receipt or instrument has been approved for sale by order of the Commission.

2. "Issuer" of an American Depository Receipt shall be deemed to be the non-U.S. company that issued the securities represented by the American Depository Receipt.

3. "U.S. or Foreign GAAP" shall mean generally accepted accounting principles of the United States or of the foreign country in which the issuer is domiciled.

Ariz. Admin. Code § R14-4-138

Adopted effective March 4, 1993 (Supp. 93-1).