21 Va. Admin. Code § 5-40-100

Current through Register Vol. 41, No. 6, November 4, 2024

Section 21VAC5-40-100 - Domestic issuer limited transactional exemption

A. In accordance with § 13.1-514B 7 b of the Act, an offer or sale by the issuer of any of the following securities issued by a corporation, partnership, limited liability company, or real estate investment trust, as the case may be: note, stock, bond, debenture, evidence of indebtedness, partnership interest, share of beneficial interest in a real estate investment trust, a warrant or right to purchase or subscribe to any of the foregoing or a security convertible into any of the foregoing, shall be exempt from the securities, broker-dealer and agent registration requirements of the Act, provided the following conditions are met:

1. In connection with an offering pursuant to this section, there shall be no more than 35 purchasers in this Commonwealth during any period of 12 consecutive months;

2. In connection with an offering pursuant to this section, the issuer shall:

a. Deliver Form VA-1 and in certain prescribed circumstances, Part 2 of Form VA-1 or a disclosure document containing the information required by Form VA-1 and Part 2, if required, to each prospective purchaser prior to a sale to a purchaser; and

b. Sell securities only to purchasers, each of which the issuer shall, after reasonable inquiry, believe either:

(1) Has sufficient knowledge and experience in financial and business matters to be capable of evaluating the merits and risks of the prospective investment, and is able to bear the economic risks of the prospective investment; or

(2) Together with a purchaser representative or representatives, has sufficient knowledge and experience in financial and business matters to be capable of evaluating the merits and risks of the prospective investment, and that the purchaser is able to bear the economic risks of the prospective investment; and

3. No commission or similar remuneration is paid or given, directly or indirectly, for soliciting a prospective purchaser, or in connection with sales of securities in reliance on this section, unless paid to a broker-dealer and its agent who are registered under the Act and the securities are offered only to persons whose investing history demonstrates an ability to evaluate the merits and risks of the investment and who are capable of bearing the economic risks of the investment.

B. This exemption is not available with respect to an offering:

1. Pursuant to a registration statement or Regulation A ( 17 CFR 230.251 - 230.263) notification which has been filed under the Securities Act of 1933;

2. Pursuant to an exemption under Regulation D (17 CFR 230.505) , which offering may be exempted in Virginia only by 21VAC5-40-30, Uniform Limited Offering Exemption;

3. If the amount of money to be raised from the offering exceeds $2,000,000;

4. If the issuer has offered for sale or sold its securities which are of the same or a similar class as that to be offered for sale or sold under this section within 180 days prior to this offering or if the issuer offers for sale or sells its securities that are of the same or a similar class as those offered and sold under this section within 180 days after this offering; or

5. If the issuer does not have its principal place of business in this Commonwealth.

C. An exemption under this section is not available if the issuer, its directors, officers, partners, members, trustees or beneficial owners of 10% or more of a class of its voting securities, or its promoters or agents connected with it or a person offering or selling the securities for or on behalf of the issuer:

1. Has been convicted (or has pleaded nolo contendere) within five years prior to reliance on this section of a felony or a misdemeanor in connection with the purchase or sale of a security, or in connection with making a false filing with the SEC or a state securities administrator or of a felony involving fraud or deceit, including but not limited to, forgery, embezzlement, obtaining money under false pretenses, larceny, conspiracy to defraud, or theft;

2. Is subject to an order, judgment or decree of a court of competent jurisdiction that temporarily or preliminarily restrains or enjoins, or is subject to an order, judgment or decree of a court of competent jurisdiction, entered within five years prior to reliance on this section, which permanently restrains or enjoins a person from engaging in or continuing a practice or conduct in connection with the purchase or sale of a security, or involving the making of a false filling with the SEC or a state securities administrator;

3. Is subject to a United States Postal Service false representation order entered within five years prior to reliance on this section; or

4. Is subject to a state administrative order entered within five years prior to reliance on this section by a state securities administrator in which fraud or deceit was found.

D. The issuer shall file with the commission 15 days prior to the first sale in this Commonwealth in reliance on this section:

1. A copy of Form VA-1, including Part 2, if applicable or a disclosure document containing the information required by the Form;

2. An executed Consent to Service of Process (Form U2) appointing the Clerk of the commission as its agent for service of process;

3. An undertaking to promptly provide to the commission, upon request, additional information as the commission may require; and

4. A nonrefundable filing fee of $250 payable to the Treasurer of Virginia.

E. The issuer shall, within 30 days after the completion of the offering, file with the commission a report of sales indicating the number of purchasers in this Commonwealth, a description of the securities sold to such purchasers, and the total dollar amount raised.

F. This section does not exempt persons or transactions from the anti-fraud provisions of the Act.

G. The commission may deny the exemption if it determines that a particular transaction or offering is not in the public interest.

H. For purposes of this section and § 13.1-514B 7 b of the Act, the following shall apply:

1. Neither the issuer nor persons acting on its behalf shall offer or sell the securities by form of general solicitation or advertising, including but not limited to, the following:

a. "Cold calls" by telephone or other means, advertising, article, notice, or other communication published in a newspaper, newsletter, magazine, mass mailing, electronic media, or similar media or broadcast over television or radio; or

b. Seminars or meetings whose attendees have been invited by general solicitation or general advertising.

2. Securities acquired in a transaction under this section shall not be resold without registration under or exemption from the Act. The issuer or a person acting on its behalf shall exercise reasonable care to assure that the purchasers of the securities in an offering under this section are purchasing for investment and not with a view to distribution of the securities. Reasonable care shall include, but not be limited to, the following:

a. Reasonable inquiry to determine whether the purchaser is acquiring the securities for himself or for other persons;

b. Placement of a restrictive legend on the certificate or other document evidencing the securities. The legend shall 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 OR QUALIFICATION PROVISIONS OF FEDERAL AND STATE SECURITIES LAWS AND SHALL NOT BE SOLD OR TRANSFERRED WITHOUT COMPLIANCE WITH THE REGISTRATION OR QUALIFICATION PROVISIONS OF APPLICABLE FEDERAL AND STATE SECURITIES LAWS OR APPLICABLE EXEMPTIONS THEREFROM;

c. Issuance of stop-transfer instructions to the issuer's transfer agent with respect to the securities, or, if the issuer transfers its own securities, notation in the appropriate records of the issuer; and

d. Obtaining from the purchaser a signed agreement that the securities will not be sold unless they are registered under the Act or exempted from registration.

3. All sales that are part of the same offering under this section shall meet all the conditions of this section. Offers and sales that are made more than six months before the commencement of an offering under this section or are made more than six months after completion of an offering under this section will not be considered part of that offering, so long as during those six-month periods there are no offers or sales of securities by or on behalf of the issuer that are of the same or a similar class as those offered or sold under this section. If securities of the same or a similar class as those offered pursuant to this section are offered or sold less than six months before or after an offer or sale pursuant to this section, those offers to sell or sales, will be deemed to be "integrated" with the offering.

I. In proceedings involving this section, the burden of proving the exemption or an exception from a definition or condition is upon the person claiming it.

J. The exemption authorized by this section shall be known and may be cited as the "Domestic Issuer Limited Transactional Exemption."

21 Va. Admin. Code § 5-40-100

Derived from Case No. SEC950021 § 11, eff. July 1, 1995; amended, Virginia Register Volume 12, Issue 3, eff. October 2, 1995; Volume 14, Issue 22, eff. July 1, 1998; Volume 15, Issue 22, eff. July 1, 1999; Volume 19, Issue 23, eff. July 1, 2003.

Statutory Authority

§§ 12.1-13 and 13.1-523.1 of the Code of Virginia.