Md. Code Regs. 02.02.04.10

Current through Register Vol. 51, No. 24, December 2, 2024

Section 02.02.04.10 - MLOE: Generally Applicable Conditions

A. General Requirements.

(1) Transactions by an issuer involving the offer or sale of securities of the issuer that are part of an offering that satisfies the terms of MLOE are exempt under the Maryland Securities Act, Corporations and Associations Article, § 11-602(9), Annotated Code of Maryland.

(2) The burden of proving an exemption under MLOE is on the person claiming the exemption.

(3) Notwithstanding the failure of a transaction to satisfy one or more of the terms of MLOE, upon application, the Commissioner may order that the transaction is exempt under the Maryland Securities Act, Corporations and Associations Article, § 11-602(9), Annotated Code of Maryland, if the Commissioner finds that the:

(a) Transaction demonstrates substantial compliance in good faith with the conditions of MLOE; and

(b) Order would be consistent with the public interest.

B. Integration.

(1) Offers and sales of securities that are part of the same offering of securities under MLOE shall satisfy all of the applicable terms of MLOE.

(2) Offers and sales of securities that are made more than 6 months before the commencement or more than 6 months after the completion of an offering of securities under MLOE are not considered part of the offering of securities under MLOE if during those 6 month periods there are no offers or sales of securities by or for the issuer that are of the same or similar class as those offered or sold under MLOE, other than offers or sales of securities under an employee benefit plan of the type referred to in the Maryland Securities Act, Corporations and Associations Article, § 11-601(11), Annotated Code of Maryland.

(3) If securities of the same or similar class as those offered or sold under MLOE are offered or sold within 6 months before the commencement or 6 months after the completion of an offering of securities under MLOE, those offers to sell and sales, depending on the particular facts and circumstances, may be considered to be integrated with the offering, under §B(1) of this regulation.

(4) In determining whether offers and sales should be integrated for purposes of this regulation, the Commissioner may consider whether the offers or sales:

(a) Are part of a single plan of financing;

(b) Involve issuance of the same class of securities;

(c) Have been made at or about the same time;

(d) Involve the same type of consideration; and

(e) Are made for the same general purpose.

C. Manner of Offering.

(1) The issuer or a person acting on the issuer's behalf may not offer or sell securities under MLOE by any form of general solicitation or advertising in Maryland.

(2) The issuer or a person acting on the issuer's behalf may not offer or sell securities under MLOE by any form of general solicitation or advertising outside Maryland, if the:

(a) Issuer or person acting on the issuer's behalf reasonably believes that the general solicitation or advertising would be disseminated into Maryland; and

(b) General solicitation or advertising is disseminated into Maryland.

(3) For purposes of this section, "general solicitation" and "advertising" include, but are not limited to:

(a) An advertisement, article, notice, or other communication published in a newspaper, magazine, or similar media, or broadcast over, transmitted through, or otherwise disseminated by television, radio, information databases, or similar media; and

(b) A seminar or meeting whose attendees have been invited by an advertisement, article, notice, or other communication published in a newspaper, magazine, or similar media or broadcast over, transmitted through, or otherwise disseminated by television, radio, information databases, or similar media.

D. Remuneration for Solicitation or for Sales.

(1) Except as provided in §D(2) of this regulation, a commission or similar remuneration may not be paid or given, directly or indirectly, for the solicitation of a prospective purchaser or in connection with sales of securities under MLOE.

(2) A commission or similar remuneration for the solicitation of a prospective purchaser or in connection with sales of securities under MLOE may be paid or given to:

(a) A broker-dealer that the issuer reasonably believes is registered under the Maryland Securities Act, Corporations and Associations Article, § 11-405, Annotated Code of Maryland; or

(b) An individual who the issuer reasonably believes has not received a commission or similar remuneration for the solicitation of a prospective purchaser or in connection with sales of securities on behalf of more than one other issuer within a 12-month period immediately before the first sale by the individual in the offering of securities under MLOE.

E. Resales.

(1) Securities acquired in a transaction under MLOE may not be resold unless they are registered under the Maryland Securities Act, Corporations and Associations Article, § 11-501, Annotated Code of Maryland, or qualify for an exemption from registration under the Maryland Securities Act, Corporations and Associations Article, § 11-602, Annotated Code of Maryland.

(2) The issuer or a person acting on the issuer's behalf shall exercise reasonable care to assure that each purchaser of the securities in an offering under MLOE purchases for investment and not with a view to distribution of the securities.

(3) For purposes of §E(2) of this regulation, reasonable care may be demonstrated if the issuer or the person acting on the issuer's behalf:

(a) Made a reasonable inquiry to determine whether the purchaser is acquiring the securities for other persons;

(b) Delivered written disclosure to each purchaser before a sale that the securities have not been registered under the Maryland Securities Act, Corporations and Associations Article, § 11-501, Annotated Code of Maryland, and, therefore, may not be resold unless the securities are registered under that section or qualify for an exemption from registration under the Maryland Securities Act, Corporations and Associations Article, § 11-602, Annotated Code of Maryland;

(c) Obtained from the purchaser a signed agreement that the securities will not be resold unless they are registered or qualify for an exemption from registration under the Maryland Securities Act, Corporations and Associations Article, § 11-602, Annotated Code of Maryland;

(d) Placed a restrictive legend on the certificate or other document evidencing the securities, which legend may be in the following form:

THE SECURITIES REPRESENTED BY THIS CERTIFICATE [OR OTHER DOCUMENT] HAVE BEEN ISSUED PURSUANT TO A CLAIM OF EXEMPTION FROM THE REGISTRATION PROVISIONS OF FEDERAL AND STATE SECURITIES LAWS AND MAY NOT BE SOLD OR TRANSFERRED WITHOUT COMPLIANCE WITH THE REGISTRATION PROVISIONS OF APPLICABLE FEDERAL AND STATE SECURITIES LAWS OR APPLICABLE EXEMPTIONS THEREFROM; and

(e) Acted in another manner that demonstrated reasonable care.

F. Calculation of the Number of Purchasers.

(1) For the purpose of calculating the number of purchasers under MLOE, the following conditions apply:

(a) The following purchasers are excluded:

(i) A relative, spouse, or relative of the spouse of a purchaser, who has the same principal residence as the purchaser,

(ii) A trust or estate in which a purchaser and any of the persons related to the purchaser as specified in §F(1)(a)(i) or (iii) of this regulation collectively are beneficial owners of more than 50 percent of the interests, excluding contingent interests,

(iii) A corporation, limited liability company, partnership, or other entity of which a purchaser and any of the persons related to the purchaser as specified in §F(1)(a)(i) or (ii) of this regulation collectively are beneficial owners of more than 50 percent of the equity interests (excluding directors' qualifying shares), and

(iv) Accredited investors;

(b) A corporation, limited liability company, partnership, or other entity is considered one purchaser, unless the corporation, limited liability company, partnership, or other entity was organized for the purpose of acquiring the securities of the issuer;

(c) If a purchaser that is a corporation, limited liability company, partnership, or other entity was organized for the purpose of acquiring the securities of the issuer and is not an accredited investor under 17 CFR § 230.501(a)(8) (SEC Rule 501, Definitions and Terms Used in Regulation D), then each beneficial owner of an equity interest in the corporation, limited liability company, partnership, or other entity is considered a separate purchaser, except to the extent provided in §F(2) of this regulation;

(d) A noncontributory employee benefit plan within the meaning of Title I of the Employee Retirement Income Security Act of 1974 is considered one purchaser, if the plan's trustee makes all investment decisions for the plan;

(e) Regardless of the amount of discretion given to the investment adviser or broker-dealer to act on behalf of a client or customer, a client of an investment adviser or a customer of a broker-dealer is considered a "purchaser" under MLOE.

(2) The provisions of MLOE apply to each purchaser whether or not the purchaser is included in calculating the number of purchasers under §F(1) of this regulation.

G. Disqualification.

(1) An exemption under MLOE is not available if the issuer, any of its directors, officers, general partners, trustees, beneficial owners of 10 percent or more of a class of its equity interests, or promoters currently connected with it in any capacity, or any person, other than a broker-dealer currently registered under the Maryland Securities Act, Corporations and Associations Article, § 11-405, Annotated Code of Maryland, that has been or will be paid or given, directly or indirectly, a commission or similar remuneration for the solicitation of a prospective purchaser or in connection with sales of securities under MLOE:

(a) Within 5 years before the first sale of securities in an offering under MLOE, has filed a registration statement or application for exemption from registration that is currently subject to a stop order under a state's securities laws;

(b) Within 5 years before the first sale of securities in an offering under MLOE, has been convicted of or has pleaded nolo contendere to a felony or misdemeanor in connection with the offer, purchase, or sale of a security or in connection with the making of a false filing with the SEC or with a state securities administrator, or a felony involving fraud or deceit, including, but not limited to, forgery, embezzlement, obtaining money under false pretenses, larceny, conspiracy to defraud, or theft;

(c) Is subject to an order, judgment, or decree of a court of competent jurisdiction temporarily or preliminarily restraining or enjoining, or is subject to an order, judgment, or decree of a court of competent jurisdiction entered within 5 years before the first sale of securities in an offering under MLOE and permanently restraining or enjoining, that person from engaging in or continuing any conduct or practice in connection with the offer, purchase, or sale of a security or in connection with the making of a false filing with the SEC or a state securities administrator;

(d) Is subject to a United States Postal Service false representation or cease and desist order entered under 39 U.S.C. § 3005 within 5 years before the first sale of securities in an offering under MLOE or is subject to a temporary restraining order or preliminary injunction entered under 39 U.S.C. § 3007 or 18 U.S.C. § 1345 with respect to conduct alleged to have violated 39 U.S.C. § 3005; or

(e) Is subject to a state administrative order entered by a state securities administrator in which fraud or deceit was found, if the final order was entered within 5 years before the first sale of securities in an offering under MLOE.

(2) An exemption under MLOE is not available if the issuer or any of its predecessors or affiliates is subject to an order issued by the Commissioner or is subject to an order, judgment, or decree of a court of competent jurisdiction temporarily, preliminarily, or permanently restraining or enjoining the person for failure to comply with §D of Regulation .12 of this chapter.

(3) Waiver of Disqualification.

(a) The Commissioner may waive by order a disqualification under §G(1) or (2) of this regulation, if the Commissioner determines that the order would be consistent with the public interest.

(b) A waiver by the Commissioner of a disqualification under §G(1) or (2) of this regulation is without prejudice to the Commissioner in other proceedings or matters with respect to the issuer or any other person.

Md. Code Regs. 02.02.04.10

Regulations .10 adopted as an emergency provision effective October 1, 1992 (19:17 Md. R. 1602); adopted permanently effective November 23, 1992 (19:23 Md. R. 2039)