about the same time? 4. Is the same type of consideration to be received? 5. Are the offerings made of the same general purpose?
Regulation A Regulation A was adopted by the SEC pursuant to Securities Act section 3(b) and exempts from registration: (il offerings by issuers or affiliates of up to $1.500,000, provided that the aggregate offering price of securi ties offered or sold on behalf of anyone affiliate does not exceed $100,000; and (ii) offerings by persons other than the issuer or its affiliates, of up to $100,000, provided that the aggregate offering price of securities offered or sold on behalf of all such other persons does not exceed $300,000. This regulation would appear to provide the broadest and most easily available exemption to an affiliate seeking to resell restricted securities. As a practical matter, however, the requirements contained within Regulation A are substantially as formal and rigorous as a registration statement. making the exemption rarely utilized. Moreover, certain disqualifications attach to companies that have been in existence for less than one year and to companies or their affiliates or predecessors that have been the subject of administrative or judicial sanctions. State Blue-Sky Requirements In addition to compliance with federal securities law, the seller of restricted securities must also abide by state blue-sky requirements and restrictions. Most states have enacted transactional exemptions from the registration process for securities sales to a limited number of offerees or purchasers. Authority exists, however, for the proposition that sales of securities made in multiple states are integrated together for the purpose of determining the total number of offers or sales allowable under the chosen transactional exemption. Thus, the jurisdiction with the lowest offeree/purchaser ceiling should be chosen to govern
the extent of the "nonpublic" offering. In Arkansas, the transactional exemptions that appear most likely to govern the resale of restricted securities are the "isolated nonissuer transaction" (Ark. Code Ann. ยง23-42-504(a)(J), Rule l4(b)(J) of the Rules of the Arkansas Securities Commissioner), and the "limited offeree" exemption (Ark. Code Ann. ยง 23-42-504(a)(9), Rule 14(b)(9) of the Rules of the Arkansas Securities Commissioner). These transactional exemptions are commonly referred to as the l4(b)(J) and l4(b)(9) exemptions, respectively. Whether a control person can rely on the l4(b)(J) exemption to sell restricted securities depends on whether the sale is viewed as being directly or indirectly for the benefit of the issuer. If so, then this exemption would not apply and the seller would need to qualify for another transactional exemption. Even if it is determined that the contemplated transaction is of no benefit to the issuer the transaction must still be truly isolated, as repeated or successive transactions will be prima facie evidence that the exemption is unavailable. Additionally, although not codified in her regulations, the Arkansas securities commissioner will not consider this exemption to apply to any transaction whereby 10 percent or more of the stock of the issuer will be sold. The l4(b)(9) transactional exemption also appears readily applicable. Although by statute this exemption is applicable to any offeror, the regulations which describe the method of compliance with this exemption require that financial and other information regarding the issuer be submitted to the securities commissioner. Generally, this information could only easily be obtained by an issuer or its affiliate control persons. The advantage to an offer in reliance on the l4(b)(9) transactional exemption as opposed to the
l4(b)(J) exemption is the number of potential persons to whom an offer can be directed. Under the l4(b)(9) exemption, an offer can be made to up to 25 persons in the state. An offer under l4(b)(l) presumes a much more limited number of offerees. Persons seeking to rely on the l4(b)(9) exemption, however, are cautioned to consult legal counseL as this exemption is not "self-proving" as is l4(b)(J) and a "proof of exemption" must be filed with the Arkansas securities commissioner prior to the transaction in order to perfect compliance with l4(b)(9). Among other things, the "proof of exemption" filing must include a representation that no commission or other remuneration will be paid for soliciting prospective offerees, a representation that each purchaser will sign an "investment intent" letter, a description of the method by which full disclosure of material facts relative to the investment will be made to offerees, curren t financial statements of the issuer and a representation that the investment will not exceed 20 percent of the purchaser's net worth. CONCLUSION The resale of restricted securities by controlling shareholders is specifically governed by SEC Rule 144. However, as noted above, Rule 144 is not the exclusive method by which such sales may be effected. Primarily because of the two-year holding period, corporate insiders sometimes wish to explore alternatives. In addition, state law requirements must be addressed. Caution should always be exercised in structuring any securities sale, as the penalties for noncompliance are potentially very severe. 0 Editor's Note: James T. Pitts manages the Washington, D.C.โ ข associate office of the Wallace. Dover and Dixon law firm of Little Rock. Heartsill Ragon Ill, former corporate counsel for Fairfield Communities. Inc.. is a member of Wallace, Dover and Dixon. Aprill9891Arkansas Lawyer/8l