Md. Code Regs. 02.02.04.12

Current through Register Vol. 51, No. 12, June 14, 2024

Section 02.02.04.12 - MLOE: General Transactional Exemption

A. Nature of Security.

(1) Exemption under MLOE and this regulation is available for the following securities issued by a corporation, limited liability company, partnership, or real estate investment trust:

(a) A note, stock, bond, debenture, evidence of indebtedness, voting trust certificate, partnership interest, limited liability company interest, share of beneficial interest of a real estate investment trust, or American Depositary Receipt;

(b) A warrant or right to purchase or subscribe for a security listed in §A(1)(a) of this regulation; or

(c) A security convertible into a security listed in §A(1)(a) or (b) of this regulation.

(2) The Commissioner may extend by order the exemption under this regulation to other types of securities or issuers, if the Commissioner determines that the order would be consistent with the public interest.

B. Number of Purchasers. In an offering under this regulation:

(1) There may be not more than, or the issuer shall have a reasonable belief that there are not more than, 35 purchasers in Maryland of securities from the issuer; and

(2) The number of purchasers shall be calculated in accordance with Regulation .10F of this chapter.

C. Disclosure.

(1) In an offering under this regulation, the issuer shall:

(a) Deliver a Form MLOE-2, or a disclosure document containing the information required by Form MLOE-2, to each prospective purchaser before a sale to the purchaser;

(b) Sell securities only to accredited investors;

(c) Sell securities only to purchasers that, immediately before the sale, possess the knowledge and experience in financial and business matters to be capable of evaluating the merits and risks of the prospective investment, or that the issuer believes after reasonable inquiry possess that knowledge and experience;

(d) Sell securities only to purchasers that, immediately before the sale, are able to bear, or that the issuer believes after reasonable inquiry are able to bear, the economic risk of the investment and that, together with a purchaser representative, possess the knowledge and experience in financial and business matters to be capable of evaluating the merits and risks of the prospective investment, or that the issuer believes after reasonable inquiry possess that knowledge and experience; or

(e) Sell securities only to a combination of purchasers that are described in §C(1)(b), (c), or (d) of this regulation.

(2) Notwithstanding the applicability of §C(1)(b)-----(e) of this regulation, an issuer shall deliver Part II of Form MLOE-2, or a disclosure document containing the information required by Part II of Form MLOE-2, to all purchasers, if:

(a) Within 18 months before the first sale of securities under this regulation, the issuer issued or committed to be issued securities of the same or similar class for consideration of a per share value 25 percent or more below the offering price of securities to be sold under this regulation, if the securities so issued or committed to be issued constitute 10 percent or more of the securities of the same or similar class outstanding at the commencement of the offering under this regulation, or if the securities were issued or committed to be issued to an officer, director, general partner, or any other person that performs similar functions, or promoter of the issuer; or

(b) Any part of the proceeds of an offering under this regulation are not to be escrowed in a bank or other depository institution, the deposits of which are insured by the Federal Deposit Insurance Corporation, or with another person approved as escrow agent by order of the Commissioner, until completion of the offering.

D. Notice Filing.

(1) If the anticipated aggregate offering price of an offering exempt from registration under MLOE and this regulation exceeds $150,000, the issuer shall file with the Commissioner not later than 15 days after the first sale of securities under MLOE and this regulation:

(a) A Form MLOE-1, or a document containing the information required by Form MLOE-1; and

(b) The fee required by the Maryland Securities Act, Corporations and Associations Article, § 11-506, Annotated Code of Maryland.

(2) Exclusions.

(a) The requirements of §D(1) of this regulation do not apply to an offer of securities made by an issuer to one person that, after completion of the offering, is the sole beneficial owner of the issuer.

(b) The requirements of §D(1) of this regulation do not apply to an offer of securities made in connection with the initial organization of an issuer to five or fewer individuals who will be principals of the issuer and will be substantially involved in the operations of the issuer.

(c) If a corporation, limited liability company, partnership, or other entity was organized for the purpose of acquiring the securities of the issuer, and equity interests in the corporation, limited liability company, partnership, or other entity are beneficially owned by more than one person, then the corporation, limited liability company, partnership, or other entity is considered to be more than one person for purposes of §D(2)(a) of this regulation.

(d) For purposes of calculating the number of beneficial owners in §D(2)(c) of this regulation, a relative, spouse, or relative of the spouse of a beneficial owner, who has the same principal residence as the beneficial owner, is considered together with the beneficial owner to be one person.

Md. Code Regs. 02.02.04.12

Regulation .12 adopted effective June 3, 1985 (12:11 Md. R. 1046)
Regulations .12 amended and recodified to Regulation .06 effective April 15, 1991 (18:7 Md. R. 770)