Ariz. Admin. Code § 14-4-139

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

Section R14-4-139 - Exempt Public Offerings for Qualified Purchasers; Definitions

A. As used in this Section, the following terms have the meaning indicated:

1. "Qualified purchaser" means:

a. An "accredited investor" as defined in R14-4-126(B).

b. A corporation, partnership, or other entity whose equity owners each individually meets the requirements of subsections (A)(1)(a), (c), or (d).

c. With respect to the offer and sale of one class of voting common stock of an issuer or of preferred stock of an issuer entitling the holder to at least the same voting rights as the issuer's one class of voting common stock, provided that the issuer has only one class of voting common stock outstanding upon consummation of the sale, a natural person who, either individually or jointly with the person's spouse, has a minimum net worth in excess of $250,000, excluding home, home furnishings, and automobiles, and had, during the immediately preceding tax year, gross income in excess of $100,000 and reasonably expects gross income in excess of $100,000 during the current tax year, or has a minimum net worth in excess of $500,000, excluding home, home furnishings, and automobiles. The amount of each natural person's investment shall not exceed 10% of the natural person's net worth, excluding home, home furnishings, and automobiles. Other assets included in the computation of net worth may be valued at fair market value.

d. Any other purchaser designated as qualified by rule of the Commission.

2. "Securities Act" shall mean the Securities Act of Arizona.

3. "SEC" shall mean the United States Securities and Exchange Commission.

B. Offers and sales of securities made by an issuer in compliance with this Section are exempt from the registration requirements of A.R.S. §§ 44-1841 and 44-1842. The exemption from A.R.S. § 44-1842 is available for offers or sales of an issuer made only by the issuer's employees, officers, and directors who were not retained for the primary purpose of making offers or sales on behalf of the issuer. The exemption from A.R.S. § 44-1842 is not available for third parties or dealers.

C. This exemption is not available to a "blind pool offering" within the meaning of A.R.S. § 44-1801(1), an issuer whose business plan is to engage in a merger or acquisition with an unidentified entity or person, or an issuer that is excluded from the exemption pursuant to subsection (R). The exemption is not available for any transaction or chain of transactions that, while in technical compliance with this Section, is part of a plan or scheme to circumvent the registration provisions of the Securities Act.

D. Offers and sales of securities shall be made only to qualified purchasers or to persons the issuer reasonably believes, after inquiry, to be qualified purchasers.

E. The issuer must reasonably believe, after inquiry, that each purchaser is purchasing the security for the purchaser's own account and not with the view to, or for sale in connection with, a distribution of the security.

F. Securities acquired in a transaction under this Section shall have the status of securities acquired in an exempt transaction under A.R.S. § 44-1844 of the Securities Act and cannot be resold without registration under the Securities Act or an exemption therefrom.

G. The consideration received for securities sold in the same offering, whether pursuant to this Section or another exemption, shall not exceed $5,000,000 in any 12-month period.

H. A general announcement of the proposed offering may be made by any means, but shall include only the following information, unless additional information is specifically permitted in writing by the Director:

1. The name, address, and telephone number of the issuer;

2. The name, a brief description, and price, if known, of any security to be issued;

3. A brief description of the issuer's business;

4. The type, number, and aggregate amount of securities being offered;

5. The name, address, and telephone number of the person to contact for additional information; and

6. A statement that discloses all of the following terms and conditions:

a. Sales will only be made to qualified purchasers.

b. No money or other consideration is being solicited or will be accepted in connection with the general announcement.

c. The securities are not registered with or approved by any state securities agency or the SEC and are offered and sold pursuant to an exemption from registration.

d. The general announcement does not constitute an offer to sell, nor a solicitation of an offer to buy, the securities described in the announcement. Such an offer can be made only by means of a prospectus, offering memorandum, subscription document, or other offering documents pursuant to R14-4-139.

I. Dissemination of the general announcement described in subsection (H) to persons who are not qualified purchasers shall not disqualify the issuer from claiming the exemption under this Section.

J. In connection with an offer made under this Section, the issuer may provide information in addition to the general announcement under subsection (H), if such information:

1. Is delivered through an electronic database that is restricted to persons who have been identified as qualified purchasers; or

2. Is delivered after the issuer reasonably believes that the prospective purchaser is a qualified purchaser.

K. No telephone solicitation shall be permitted unless prior to placing the call the issuer reasonably believes, after inquiry, that the prospective purchaser to be solicited is a qualified purchaser.

L. At least five business days before a sale of securities to, or a commitment to purchase securities is accepted from, a qualified purchaser, the issuer shall meet the disclosure requirements of R14-4-126(C)(2).

M. The issuer shall place a conspicuous legend on the cover page of any offering document, which states that the securities have not been registered under the Securities Act, are offered only to qualified purchasers as defined in R14-4-139, and have not been approved by the SEC or the Commission. The issuer shall place a conspicuous legend on the cover page of any offering document and on any certificate representing the securities, which sets forth the restrictions on the transferability and sale of the securities.

N. No later than 10 business days prior to the publication of a general announcement of the proposed offering or the initial offer of the securities, whichever occurs first, the issuer shall file with the Commission a notice briefly describing the business of the issuer and the terms of the transaction, a consent to service of process, a copy of the general announcement, and the fee required by A.R.S. § 44-1861(G). Upon request of the Commission, the issuer may be required to submit a prospectus, offering memorandum, subscription document, or other offering documents or materials used in connection with the offer or sale of securities.

O. Failure to timely file the notice required in subsection (N) shall not, in and of itself, preclude reliance on the exemption afforded by this Section. If the Commission finds that such notice has not been timely filed with respect to more than one offering, the Commission may issue an order restricting the right to use exemptions under this Section.

P. The Director may deny or revoke the availability of this exemption if the Director determines that there is a reasonable likelihood that the sale of the securities would work or tend to work a fraud or deceit upon the purchasers. In the event the Director makes such a determination, the issuer may request a hearing in accordance with the provisions of Article 11 of the Securities Act by notifying the Commission within 10 days after notice of the Director's determination described in this subsection.

Q. No action or inaction on the part of the Commission or Director with respect to any offer or sale of securities undertaken pursuant to this Section shall be deemed to be a waiver of any provision of this Section nor shall it be deemed to be a confirmation of the availability of this Section or the approval of any offering.

R. Disqualification

1. The exemption is not available to an issuer if it or any of its predecessors, affiliates, directors, officers, general partners, beneficial owners of 10% or more of any class of its equity securities, or the underwriter:

a. Has been convicted within the 10 years preceding the filing of the notice required by this Section, or at any time thereafter prior to the termination of the offering, of a felony or misdemeanor involving racketeering or a transaction in securities, or of which fraud is an essential element;

b. Is subject to an order, judgment, or decree of any court of competent jurisdiction entered within five years of the date of filing of the notice required by this Section, temporarily, preliminarily, or permanently enjoining or restraining any conduct or practice in connection with the sale or purchase of securities, or involving fraud, deceit, or racketeering;

c. Has been subject to any state or federal administrative order or judgment in connection with the purchase or sale of securities entered within five years preceding the filing of the notice required by this Section, or at any time thereafter prior to the termination of the offering;

d. Is subject to the reporting requirements of the Securities Exchange Act of 1934 and has not filed all required reports during the 12 calendar months preceding the filing of the notice required by this Section; or

e. Is subject to an order of any state or federal agency denying or revoking registration or licensure as a broker or dealer in securities or as an investment adviser or investment adviser representative, or is subject to an order denying or revoking membership in a national securities association registered under the Securities Exchange Act of 1934, or has been suspended for a period exceeding six months or expelled from membership in a national securities exchange registered under the Securities Exchange Act of 1934.

2. The Commission, in the Commission's discretion, may waive any disqualification prescribed by this subsection.

3. A disqualification prescribed by this subsection ceases to exist if:

a. The basis for the disqualification has been removed by the jurisdiction creating it;

b. The jurisdiction in which the disqualifying event occurred issues a written waiver of the disqualification; or

c. The jurisdiction in which the disqualifying event occurred declines in writing to enforce the disqualification.

Ariz. Admin. Code § R14-4-139

Section adopted by exempt rulemaking at 6 A.A.R. 338, effective December 21, 1999 (Supp. 99-4).