W. Va. Code R. § 111-1-14

Current through Register Vol. XLI, No. 36, September 6, 2024

Section 111-1-14 - Registration of securities

Each of the rules in this section (14 through 14.14) is a legislative rule, and is promulgated pursuant to the provisions of section four hundred twelve, article four, chapter thirty-two of the Code, and sections three hundred one, three hundred two, three hundred three, three hundred four, three hundred five and three hundred six, article three, chapter thirty-two of the Code, and each relates to sections three hundred one, three hundred two, three hundred three, three hundred four, three hundred five and three hundred six, article three, chapter thirty-two of the Code.

14.1. Registration by notification - copies of statement. -- The Commissioner may require by order, as a condition to registration by notification in case of public offering of a substantial amount of securities where inadequate, or no prospectus or offering circular is proposed to be used, that a copy of the registration statement under subsection (b), section two hundred three, article three, chapter thirty-two of the Code be given or sent to each person to whom an offer is made before or concurrently with such offer.

14.2. Registration by coordination.

(1) A person who seeks to register by coordination a security for which a registration statement has been filed under the Securities Act of 1933 in connection with the same offering shall file Form U-1, the consent to service of process on Form U-2, as required by subsection (g), section four hundred fourteen, article four, chapter thirty-two of the Code, and shall file the following information specified in subsection (b), section three hundred three, and subsection (c), section three hundred five, article three, chapter thirty-two of the Code:

(a) A copy of the articles of incorporation and a copy of the bylaws or their substantial equivalents, currently in effect.

(b) A copy of an agreement with or among underwriters.

(c) A copy of an indenture or other instrument governing the issuance of the security to be registered.

(d) A specimen or copy of the security.

(e) A copy of the latest form of prospectus filed under the Securities Act of 1933; the second and third copies of said prospectus need not be filed.

(f) The name of a broker-dealer registered in West Virginia through which the issue will be sold, or an application to register an issuer-agent as provided in Section 11.2(3) of these rules.

(2) The Commissioner may request other information or copies of other documents filed under the Securities Act of 1933.

14.3. Registration by qualification.

(1) A registration statement submitted by a person who seeks to register a security by qualification shall be submitted on Form U-1, shall contain the following information and shall be accompanied by the following documents in addition to the information specified in subsection (b), section three hundred four, and subsection (c), section three hundred five, article three, chapter thirty-two of the Code, and the consent to service of process on Form U-2 required by subsection (g), section four hundred fourteen, article four, chapter thirty-two of the Code:

(a) The written consent of an independent accountant, engineer, appraiser or other person whose profession gives authority to a statement made by him or her, if any such person is named as having prepared or certified a report or valuation (other than a public and official document or statement) which is used in connection with the registration statement;

(b) Unless waived by the Commissioner, a balance sheet and a comparative statement of income and changes in financial position and analysis of surplus of the issuer covering the last fiscal year of the issuer, certified by independent or certified public accountants (or the same statements for the same period of any predecessor, if applicable); waiver from this requirement will normally not be granted unless the person who seeks to register the issue informs the Commissioner, in writing, of the reason(s) that this requirement cannot be met; the financial information required by this subsection shall be included in the prospectus or private offering memorandum, and shall be available to each prospective investor;

(c) A description of any pending litigation or proceeding to which the issuer, or any director or officer of the issuer, or any person occupying a similar status or performing similar functions, or any promoter if the issuer was organized within the past three (3) years, or any person owning of record or beneficially ten percent (10%) or more of the outstanding shares of any class of equity security of the issuer, is a party and which materially affects its business or assets (including any such litigation or proceeding known to be contemplated by governmental authorities).

(d) The name of a broker-dealer registered in West Virginia through which the issue will be sold, or an application to register an issuer-agent as provided in Section 11.2(3) of these rules.

(2) In the case of registration under this subsection, and unless the Commissioner in a specific instance permits otherwise, a prospectus or offering memorandum previously filed with the Commissioner shall be sent or given to each prospective purchaser within a reasonable time before a commitment to purchase is made. If the prospectus or offering memorandum or any part thereof becomes misleading as to any material fact, or facts, or omits to state a material fact necessary in order to make the statements made, in the light of circumstances under which they are made, not misleading, it shall be revised or supplemented, and the revision or supplementation shall be submitted to the Commissioner prior to its use. A prospectus or offering memorandum shall not be used if the Commissioner has informed the registrant of an objection thereto. A prospectus or offering memorandum shall not be used without supplementation or revision for more than thirteen (13) months from its date.

(3) Unless good cause is shown or unless the issuer has been in business for two (2) years, an issuer may not use more than ten percent (10%) of the estimated net proceeds it receives from an offering to repay loans which promoters, finders, controlling stockholders, officers or directors of the issuer made.

(4) A registration statement under Section 14.3 of these rules becomes effective when the Commissioner so orders.

14.4. Provisions applicable to registration generally.

(1) A registration statement may be filed by the issuer, any other person on whose behalf the offering is to be made, or a registered broker-dealer. A registration statement shall have one or more registrants and may ordinarily have no more than one (1) issuer.

(2)

(a) A registration statement which a registrant fails to complete or withdraw within seven (7) months from the date of filing shall be deemed materially incomplete under subsection (a), section three hundred six, article three, chapter thirty-two of the Code, and the Commissioner may issue a stop order denying effectiveness to such registration statement. An order of withdrawal of an application (prior to effectiveness) may be issued by the Commissioner upon request of the applicant. Abandonment or discontinuance of a proposed offering which is the subject of an application, without request for withdrawal, or dormancy of an application without amendment for a period of six (6) months or more after filing may be considered to signify a request for withdrawal.

(b) In the event of an omission or noncompliance as to any requirement for registration, the applicant shall be notified thereof, usually in the form of a data request. Failure to comply with such requirement may be deemed ground for issuance of a stop order under section three hundred six, article three, chapter thirty-two of the Code.

(3) A registration statement filed under section three hundred three, article three, chapter thirty-two of the Code and Section 14.2 of these rules is deemed to cover the number of shares or units the federal registration statement covers. No offering or sale of an issue of common stock may result in a share's book value being less than twenty percent (20%) of its public offering price.

(4)

(a) A person filing a registration statement under sections three hundred two or three hundred three, article three, chapter thirty-two of the Code or a notification and offering circular under Section 14 of these rules shall file promptly with the Commissioner all amendments to the prospectus (other than amendments which merely delay the effective date of the registration statement) or to the notification and offering circular previously filed, clearly marked so as to indicate the specific amendments.

(b) A person who seeks to register securities under the Act shall promptly notify the Commissioner of the following information or event: (If the registration statement is filed under Section 14.2 of these rules, notice shall be given prior to the effective date of the federal registration statement.)

(A) A change in any of the information or documents filed with the Commissioner;

(B) Any adverse order, judgment, decree, permanent or temporary injunction which a state or federal agency or court entered concerning either the offering or other securities of the issuer or the person seeking the registration;

(C) A request by the issuer or person seeking the registration to withdraw an application pending before a statement or federal agency to register the same security he seeks to register pursuant to the Code;

(D) Final notice from any state or federal administrative agency that the security or any information or document relating thereto fails to meet the agency's requirements; and

(E) Such additional information as the Commissioner may request.

(5) The person filing a registration statement under sections three hundred two or three hundred three, article three, chapter thirty-two of the Act or a notification and/or circular under Section 14 of these rules shall promptly notify the Commissioner in writing of the completion date of the initial distribution of a security registered under the Code and these rules and the number of shares sold in this State: Provided, That notice need not be given for a distribution of investment company shares if the registration thereof is for a continuous offering.

(6) So long as a registration statement is effective under chapter thirty-two of the Code and these rules, the person who filed the registration statement shall file written sales reports with the Commissioner at least once a year, and at such other times as the Commissioner so requires, in a form acceptable to the Commissioner.

(7) (Reserved)

(8) Upon the written request of the Commissioner, the issuer of a security registered under the Code shall furnish a balance sheet as of the close of the issuer's most recent fiscal year and an income statement for such fiscal year.

14.5. Promotional securities or "Cheap Stock."

(1) Securities to be sold or issued, or sold or issued by an issuer which is in the promotional or development state, to underwriters, promoters or insiders for a consideration less than the proposed offering price are presumed to be "Cheap Stock." Registration of securities where cheap stock has been or will be issued may be looked upon with disfavor and as tending to work an imposition, as being an offering upon unfair terms, and as involving an unreasonable amount of underwriters' and sellers' discounts, commissions or other compensation, unless the following minimum conditions are met:

(a) The number of shares shall be justifiable in amount and the consideration therefor shall have a reasonable relationship to the public offering price.

(b) If the shares were or are to be acquired by an underwriter, the difference between the consideration for the shares and the proposed public offering price, when added to the other discounts, commissions and expenses of the sale shall not exceed the maximum customarily allowable therefor.

(c) (Reserved)

(d) The Commissioner, unless satisfactory earnings history meeting standards comparable to those stated in Section 14.12(3) of these rules is shown may require all cheap stock to be deposited in escrow under such terms and conditions as the Commissioner shall prescribe.

(e) The same test shall be applied to cheap stock acquired from selling shareholders unless such shareholders are so lacking in control of the corporate as to require different treatment.

(2) In this section, "Promotional or Cheap Stock" shall include any entity or convertible securities issued or sold at any time prior to the public offering date by an issuer in the promotional or developmental stage on that date, or within two (2) years prior to the public offering date by any other issuer, to any persons who were at the time of the sale or issuance or at the time of the public offering underwriters, promoters, finders, officers, directors or controlling stockholders of the issuer, at a price lower than or at a conversion rate or for a consideration not reasonably related to the public offering price of the securities, in the absence of any public market for the equity securities or any substantial change in the earnings of financial position of the issuer.

14.6. Real estate programs. -- The offer or sale of interests in a limited partnership which will engage in real estate syndication may be deemed unfair and inequitable to purchasers unless the offering complies with the provisions of the North American Securities Administrators Association Statement of Policy regarding Real Estate Programs, adopted April 15, 1980, as amended March 30, 1982. Copies of the Statement of Policy are available from the Commissioner's office for a prepaid fee of five dollars ($5.00). The Statement of Policy is published in Volume One of the Commerce Clearing House Blue Sky Law Reporter and is on file at the offices of the Commissioner.

14.7. Oil and Gas Programs. -- The offer or sale of interests in a limited partnership which will engage in oil or gas well drilling and exploration activities or the purchase of production from oil and gas wells may be deemed unfair and inequitable to purchasers unless the offering complies with the provisions of the North American Securities Administrators Association Guidelines for the Registration of Oil and Gas Programs, as adopted September 22, 1976. Copies of the Statement of Policy are available from the Commissioner's office for a prepaid fee of five dollars ($5.00). The Statement of Policy is published in Volume One of the Commerce Clearing House Blue Sky Law Reporter, which is on file at the Commissioner's office.

14.8. Cattle feeding programs. -- The offer or sale of interest in a limited partnership which will engage in cattle feeding operations may be deemed unfair and inequitable unless the offering complies with the provisions of the North American Securities Administrators Association Guidelines for the Registration of Publicly Offered Cattle Feeding Programs, adopted September 17, 1980. Copies of the Guidelines are available from the Commissioner's office for a prepaid fee of five dollars ($5.00). The Guidelines are published in Volume One of the Commerce Clearing House Blue Sky Law Reporter and are on file at the offices of the Commissioner.

14.9. Debt securities issued by a church or congregation. -- The offer or sale of debt securities issued by a church or congregation, the proceeds of which are to be utilized to finance or refinance the purchase, construction or improvement of buildings or related facilities (including the underlying property) of the issuer may be deemed unfair and inequitable to purchasers unless the offering complies with the provisions of the North American Securities Administrators Association Guidelines for Offerings of Church Bonds, adopted October, 1979. Copies of the Guidelines are available from the Commissioner's office for a prepaid fee of five dollars ($5.00). The Guidelines are published in Volume One of the Commerce Clearing House Blue Sky Law Reporter and are on file at the offices of the Commissioner.

14.10. (Reserved)

14.11. Promoters' participation. -- Promoters' participation may be deemed unreasonable under paragraph (F), subdivision (2), subsection (a), section three hundred six, article three, chapter thirty-two of the Code, unless, in the case of an issuing company in a promotional or developmental state seeking equity public financing, the promoters shall have first made an investment in cash or tangible property of a fair value equal to fifteen percent (15%) or more of the minimum or impounded amount of the proposed public financing. Tangible assets turned in by promoters after being held by them less than one (1) year will be presumed to have a fair value not greater than the cost to them; however, this presumption may be rebutted.

14.12. Escrow of securities.

(1) As a condition of registration by qualification or coordination, the Commissioner may require that any security issued or to be issued to a promoter for a consideration substantially different from the public offering price, or to any person for a consideration other than cash, be deposited in escrow. The Commissioner, or a governmental agency or bank or trust company acceptable to the Commissioner may be the depositary.

(2) The conditions of escrow may be any or all of the following:

(a) To prohibit assignment, sale or transfer of the securities for a stated period of time.

(b) To ensure that such securities will not share in assets in dissolution or liquidation until and unless the remaining security holders have been paid a liquidating dividend equal to the public offering price.

(c) To permit the Commissioner, where necessary for the protection of security holders, and after prior notice and opportunity for hearing, to order the cancellation in whole or in part of any such security.

(3) Securities in escrow may be subject to release after lapse of the terms of escrow or on a petition including a showing based on an audit by independent certified public accountants that an average net income of five percent (5%) a year, for a two (2) year period subsequent to the date of escrow has been earned on the class of securities in escrow, based on the offering price, and that the issuer is in sound financial condition. Notwithstanding the foregoing, securities may be released if the public offering is terminated and no securities were sold, or if all the purchasers join in petitioning for release of the securities from escrow, or other equitable reasons justify the release, or on such other conditions as the Commissioner may provide, and which may be provided for in the escrow agreement. Said release shall not be effective under any circumstances unless said release is provided by the Commissioner in writing.

(4) Securities in escrow may not be transferred except by will or pursuant to the laws of descent and distribution, without the consent of the Commissioner. A request to permit transfer shall be in writing, shall state the reason and consideration for the transfer and the transferee shall agree to redeposit the shares in escrow under the same terms.

14.13. Impoundment of proceeds of sale of securities.

(1) As a condition to registration by qualification or coordination, the Commissioner may require that the proceeds from the sale of the registered security in this State be impounded until the issuer receives a specified amount from the sale of the security in this State or elsewhere, sufficient to accomplish the purposes of the offering, or until certain stipulated requirements are met.

(2) In a new promotional enterprise, the Commissioner may require that one hundred percent (100%) of the sales price be impounded and that the one hundred percent (100%) be returned to investors entitled thereto upon order of the Commissioner in case of failure to raise the specified amount within one (1) year or during the effectiveness of the registration, or if certain stipulated requirements are not met. In such case, the promoters will be required, by equity investment or otherwise in a manner satisfactory to the Commissioner, to defray the discount, commission and expenses of the public offering including the expense of the impoundment and possible refunds. Consideration will be given to reduction of this percentage to defray some or all of the public offering costs in any instance of an enterprise with reduced promotional remuneration and advantages. No funds may be released except upon written order of the Commissioner and all funds may be subject to audit before release.

(3) A bank or trust company may act as depositary or escrow agent for the impoundment of proceeds. Checks, drafts and money orders shall be made payable to the depositary. If a broker-dealer is acting as the underwriter or selling agent for the issuer, payments may be made directly to the broker-dealer who shall promptly, after payment or settlement, make remittance to the depositary.

(4) A request for the release of impounded funds when requirements are met shall be by petition, in writing, affirming compliance with the registration and shall be accompanied by a statement from the depositary setting forth the total amount of deposit.

14.14. Denial, suspension and revocation of registration.

(1) Through (6) (Reserved)

(7) An offering may be deemed to be made with unreasonable amount of underwriters' and sellers' discounts, commissions or other compensation within the meaning of paragraph (f), subdivision (2), subsection (b), section three hundred six, article three, chapter thirty-two of the Code if the aggregate of such discounts, commissions, profits, participation or other consideration exceed eighteen percent (18%) of the aggregate amount of the public offering. Warrants to purchase the security which is the subject of the offering are consideration only to the extent the offering price exceeds the exercise price. An offering may be deemed to be made with unreasonable amounts of promoters' profits or participation according to the provisions of Section 14.11 of these rules.

(8) The Commissioner may issue a stop order denying effectiveness of, or suspending or revoking the effectiveness of, any registration statement filed pursuant to section three hundred four, article three, chapter thirty-two of the Code, if the sale of securities pursuant to the registration is or would be in violation of the Securities Act of 1933 or the Investment Company Act of 1940.

14.15. Inapplicability of certain restrictions on book value per share, amounts of cheap stock and promotional shares and promoter's participation.

(1) The restrictions imposed with respect to minimum book value of a share of common stock by Section 14.4(3) of these rules, the restrictions on the amounts of cheap stock and promotional securities imposed by Section 14.5 of these rules and the restrictions on promoter's participation imposed by Section 14.11 of these rules shall not apply with respect to offerings as to which all of the following conditions are met:

(a) The offering shall be firmly under written by a syndicate of not less than fifteen (15) investment banking firms, each of which firmly agrees to purchase for resale in the offering at least one hundred thousand dollars ($100,000) of securities;

(b) The amount in the offering firmly underwritten by such syndicate of investment banking firms shall aggregate not less than four million dollars ($4,000,000); and

(c) The offering price per share in said offering shall not be less than five dollars ($5.00) per share.

(2) In order to utilize the provisions of this rule, counsel for the underwriter or issuer, whichever is applicable, shall certify the information included in Paragraphs (a) through (c), above, in writing, to the Commissioner; certification in letter form will be acceptable: Provided, That such letter is in a form which is separate and distinct from the other information submitted with the usual application for registration of securities; such letter must be submitted at least seven (7) days prior to the proposed effective date for registration of the securities.

(3) The certification imposed by Paragraph (2), above, shall under no circumstances be acceptable if it is not in written form.

W. Va. Code R. § 111-1-14