§ 44-1844 — Exempt transactions

Arizona § 44-1844

• Jurisdiction: Arizona
• Title 44: Arizona Revised Statutes
• Ch. 12: SALES OF SECURITIES
• Art. 4: Sale of Securities

Text

A. Except as provided in subsections B and C of this section, sections 44-1841 and 44-1842, section 44-1843.02, subsections B and C and sections 44-3321 and 44-3325 do not apply to any of the following classes of transactions:

1. Transactions by an issuer not involving any public offering.

2. The sale of securities by an executor, administrator, guardian or conservator or by a bank the business of which is supervised and regulated by an agency of this state or of the United States, as trustee under a will or trust agreement, or by a receiver or trustee in insolvency or bankruptcy approved by a court of competent jurisdiction of this state or the United States.

3. The sale in good faith and not for the purpose of avoiding the provisions of this chapter by a pledgee of securities pledged for a bona fide debt.

4. The sale in good faith and not for the purpose of avoiding the provisions of this chapter of securities, including securities that when originally issued were exempt pursuant to paragraph 22 of this subsection, by the bona fide owner of such securities, other than an issuer or underwriter, in an isolated transaction, in which the securities are sold either directly or through a dealer as agent for the owner but where the sales are not made in the course of repeated or successive transactions of similar character by the owner and are not made directly or indirectly for the benefit of the issuer or an underwriter of the securities. For the purposes of this paragraph, the sale is not considered to be made in the course of repeated or successive transactions of similar character by the owner if both of the following apply:

(a) The sale is of a security that when originally issued was exempt pursuant to paragraph 22 of this subsection.

(b) At least six months have passed after the date of the last sale of the security by the issuer to a resident of this state.

5. The distribution by a corporation of capital stock or other securities to its stockholders or other security holders as a stock dividend or other distribution out of retained earnings.

6. Any transaction or series of transactions incident to a statutory or judicially approved reorganization, merger, triangular merger, consolidation, or sale of assets, incident to a vote by securities holders pursuant to the articles of incorporation, the applicable corporate statute or other controlling statute, a partnership agreement or the controlling agreement among securities holders.

7. The exchange of securities by an issuer with its existing security holders exclusively, where no commission or remuneration is paid or given, directly or indirectly, for soliciting the exchange, if such exchange has been duly authorized and has been approved by the holders of not less than a majority of the outstanding securities of each class affected by the exchange.

8. An offer or sale of securities to a bank, a savings institution, a trust company, an insurance company, an investment company as defined in the investment company act of 1940, a pension or profit sharing trust or other financial institution or institutional buyer or a dealer whether the purchaser is acting for itself or in a fiduciary capacity.

9. The issuance and delivery of securities in exchange for other securities of the same issuer pursuant to a right of conversion entitling the holder of the securities surrendered in exchange to make such conversion.

10. The issuance and delivery of securities of a corporation, limited liability company or limited partnership to the original incorporators, organizers or general partners, not exceeding ten in number, where the securities are not acquired by the incorporators, organizers or general partners for the purpose of sale to others and are not directly or indirectly sold to a third party within twenty-four months unless an incorporator, organizer or general partner experiences a bona fide change of financial circumstances within such time period, providing original incorporators, organizers or general partners are notified of their right pursuant to title 10 or 29 to review the financial books and records of the corporation, limited liability company or limited partnership at reasonable times.

11. A nonissuer transaction in an outstanding security, including the sale by a dealer, including an underwriter no longer acting as an underwriter in respect to the securities involved, of securities sold and distributed to the public, but not including securities constituting an unsold allotment to or subscription by the dealer as a participant in the distribution of the securities by the issuer or by or through an underwriter, if the class of security has been outstanding in the hands of the public for not less than ninety days preceding the date of the transaction and a recognized manual of securities designated by the commission by rule or order at the time of sale contains the names of the issuer's officers and directors, a statement of financial condition of the issuer as of a date within eighteen months of the date of the sale and a statement of income or operations for each of the two fiscal years next before the date of the statement of financial condition or for the period from the commencement of the issuer's existence to the date of the statement of financial condition if the period is less than two years.

12. The sale by a dealer, including an underwriter no longer acting as an underwriter in respect to the securities involved, of securities of an issue sold and distributed to the public, but not including securities constituting an unsold allotment to or subscription by the dealer as a participant in the distribution of the securities by the issuer or by or through an underwriter, if securities of such issue have been registered by description under sections 44-1871 through 44-1875 or registered by qualification under sections 44-1891 through 44-1902.

13. The sale of commodity investment contracts traded on a commodities exchange recognized by the commission at the time of sale.

14. The sale or issuance of any investment contract or other security in connection with an employee's pension, profit sharing, stock purchase, stock bonus, savings, thrift, stock option or other similar employee benefit plan that meets the requirements for qualification under the United States internal revenue code.

15. Transactions within the exclusive jurisdiction of the commodity futures trading commission as granted under the commodity exchange act.

16. Transactions involving the purchase of one or more precious metals that require, and under which the purchaser receives, within seven calendar days after the payment in good funds of any portion of the purchase price, physical delivery of the quantity of the precious metals purchased by such payment. For the purposes of this paragraph, physical delivery is deemed to have occurred if, within such seven day period, the quantity of precious metals purchased by such payment is delivered, whether in specifically segregated or fungible bulk form, into the possession of a depository other than the seller which is a financial institution, a depository the warehouse receipts of which are recognized for delivery purposes for any commodity on a contract market designated by the commodity futures trading commission or a storage facility licensed or regulated by the United States or any agency of the United States and such depository or other person that qualifies as a depository issues and the purchaser receives a certificate, document of title, confirmation or other instrument evidencing that such quantity of precious metals has been delivered to the depository and is being and will continue to be held by the depository on the purchaser's behalf, free and clear of all liens and encumbrances, other than liens of the purchaser, tax liens, liens agreed to by the purchaser, or liens of the depository for fees and expenses, that have previously been disclosed to the purchaser. For the purposes of this paragraph, "financial institution" means a bank, savings institution or trust company organized under, or supervised pursuant to, the laws of the United States or of this state.

17. Transactions involving a commodity investment contract solely between persons engaged in producing, processing, using commercially or handling as merchants each commodity subject to the contract or any by-product.

18. A nonissuer transaction in an outstanding security, including the sale by a dealer, including an underwriter no longer acting as an underwriter in respect to the securities involved, of securities sold and distributed to the public, but not including securities constituting an unsold allotment to or subscription by the dealer as a participant in the distribution of the securities by the issuer or by or through an underwriter if both of the following apply:

(a) The class of security has been outstanding in the hands of the public for not less than ninety days preceding the date of the transaction.

(b) The securities are listed on an automated quotation system of a national securities association registered under the securities exchange act of 1934.

19. Transactions involving the sale of securities to persons who are not residents of this state and are not present in this state if all of the following conditions are met:

(a) The securities being offered are not blind pool offerings.

(b) At least ten days before the offering date:

(i) The issuer certifies that the securities being offered will be offered and sold in compliance with the securities act of 1933 and the laws and regulations of those states in which the offers and sales will be made.

(ii) The issuer files as a notice filing one copy of any offering materials that may be required by the SEC or the laws and rules of those states in which the offers and sales will be made.

(iii) The issuer submits a filing fee of $200.

(c) Within ten working days of completion of the offering the issuer files a description of the actions taken as to compliance with the securities act of 1933 and the laws and rules of those states in which the offers and sales were made.

(d) The transaction complies with any rule adopted by the commission further restricting the exemption created by this paragraph to prevent any fraudulent practices.

20. Transactions involving offers or sales of one or more promissory notes directly secured by a first lien on a single parcel of real estate on which is located a dwelling or other residential or commercial structure and participation interest in those notes that are exempt under section 4(5) of the securities act of 1933.

21. Offerings of securities of not more than $1,000,000 or the limit established under 17 Code of Federal Regulations section 230.504 as follows:

(a) An unlimited number of sophisticated purchasers may be involved.

(b) Written offering documents providing full and adequate disclosure of material facts must be provided to each purchaser.

(c) Advertising is not allowed without a waiver from the director.

(d) The sum of the following amounts may not exceed the greater of $1,000,000 or the limit established under 17 Code of Federal Regulations section 230.504:

(i) The dollar value for the amount of securities being offered.

(ii) The aggregate offering price of all securities of the issuer sold within the twelve months before the date of the offering.

(iii) The aggregate offering price of all securities of the issuer sold during the course of the offering if the securities were sold in reliance on 15 United States Code section 77c(b) or in violation of 15 United States Code section 77e(a).

(e) Provisions on offerings to sophisticated purchasers are as follows:

(i) An offering to sophisticated purchasers under this section allows sales to either an accredited investor as defined in 17 Code of Federal Regulations section 230.501 or a person, acting alone or with a purchaser representative, who the dealer reasonably believes has the knowledge and experience in financial and business matters to be capable of evaluating the merits and risks of the proposed investment. The dealer must reasonably believe that the person has knowledge and experience before a person becomes a purchaser.

(ii) The issuer shall display the following notice on the cover page of the disclosure document in a conspicuous manner in at least twelve-point boldface type:

In making an investment decision, investors shall rely on their own examination of the issuer and the terms of the offering, including the merits and risks involved. These securities have not been recommended by any federal or state securities commission or division or regulatory authority. Furthermore, the foregoing authorities have not confirmed the accuracy or determined the adequacy of this document. Any representation to the contrary is a criminal offense. These securities are subject to restrictions on transferability and resale and may not be transferred or resold, except as allowed by 17 Code of Federal Regulations and applicable state securities laws, pursuant to registration or exemption from registration. Investors must be aware that they are required to bear the financial risks of this investment for an indefinite period of time.

(f) One copy of the notice on form D filed with the SEC is filed with the commission not later than fifteen calendar days after the first sale of securities in or from this state.

(g) An offering to purchasers under this section allows all of the following:

(i) Sales to be made only by a dealer who is not the issuer and who is registered in this state.

(ii) The dealer to conduct the sales if the dealer reasonably believes that adequate diligence and review have been applied in connection with the offering and the dealer adequately determines the suitability of the offering to a purchaser.

(iii) Sales if the dealer reasonably believes that the security is suitable for the purchaser after reasonable inquiry concerning the purchaser's investment objectives, financial situation and needs and after consideration of any other information known by the dealer.

(h) The exemption may not be used if an issuer or person affiliated with the issuer or offering is subject to disqualification pursuant to any of the following:

(i) This chapter.

(ii) A rule or order of the commission.

(iii) The securities act of 1933 (15 United States Code section 77c(a)(11)).

(iv) The securities act of 1933, 17 Code of Federal Regulations section 230.262.

(i) The commission may set aside disqualification if:

(i) On a showing of good cause and without prejudice to any other action by the commission, the commission determines that it is not necessary that an exemption be denied under the circumstances.

(ii) The issuer establishes that it made a factual inquiry into whether any disqualification existed under subdivision (h) of this paragraph but did not know and could not have known with the exercise of reasonable care that a disqualification existed. The nature and scope of the requisite inquiry will vary based on the circumstances of the subject issuer and the other offering participants.

22. Transactions involving an intrastate offering, including crowdfunding or virtual coin offerings, if all of the following conditions are met:

(a) The issuer is authorized to do business in this state.

(b) The transaction meets the requirements of the federal exemption for intrastate offerings under 15 United States Code section 77c(a)(11) or 17 Code of Federal Regulations section 230.147 or 230.147A, or any subsequently amended or expanded versions of those sections. For the purposes of this chapter, a corporation, partnership, trust or other form of business organization is not deemed to be organized for the specific purpose of acquiring securities offered under 17 Code of Federal Regulations section 230.147 or 230.147A if the corporation, partnership, trust or other form of business organization either:

(i) Was created before January 1, 2018.

(ii) Invests ninety-five percent or less of its investable assets in offerings authorized by this chapter.

(c) The issuer obtains from each prospective purchaser evidence that the prospective purchaser is a resident of this state and, if applicable, is an accredited investor. A prospective purchaser's residence shall be determined in accordance with 17 Code of Federal Regulations section 230.147(d) or 230.147A(d). If the purchaser is an entity, an affirmative representation made by the entity that the entity is a resident of this state is sufficient evidence that the entity is a resident of this state if the entity also submits proof that the entity is incorporated or organized in this state, is qualified as a resident pursuant to any of the categories identified in 17 Code of Federal Regulations section 230.147(c)(1) or 230.147A(c)(1) or uses an internet protocol address originating from this state to purchase the offering. If the purchaser is an individual, an affirmative representation made by the individual that the individual is a resident of this state is sufficient evidence that the individual is a resident of this state if the individual also submits proof of any of the following:

(i) The individual has a valid driver license or nonoperating identification license issued pursuant to title 28.

(ii) The individual is registered to vote in this state.

(iii) General property tax records show the individual owns and occupies property in this state as the individual's principal residence.

(iv) The individual uses an internet protocol address originating from this state to purchase the offering.

(d) The issuer informs all purchasers that the securities have not been registered and that the securities are subject to the limitation on resales contained in either:

(i) 17 Code of Federal Regulations section 230.147(e), in the manner described in 17 Code of Federal Regulations section 230.147(f).

(ii) 17 Code of Federal Regulations section 230.147A(e), in the manner described in 17 Code of Federal Regulations section 230.147A(f).

(e) Before an offer is made in reliance on this exemption, the issuer pays a filing fee to be prescribed by the director and files a notice with the director, in writing or in electronic form, that contains all of the following:

(i) The name of the issuer, including the issuer's type of entity and the address and telephone number of the issuer's principal office.

(ii) The intended use of the offering proceeds, including any amounts to be paid, as compensation or otherwise, to any owner, executive officer, director, managing member or other person occupying a similar status or performing similar functions on behalf of the issuer.

(iii) The identity of all persons who will be involved in the offer or sale of securities on behalf of the issuer.

(iv) The identity of each person that owns more than ten percent of the ownership interests of any class of securities of the issuer.

(v) The identity of the executive officers, directors and managing members of the issuer and any other individuals who occupy similar status or perform similar functions in the name of and on behalf of the issuer.

(vi) Notice that the issuer is claiming this exemption for the transaction.

(vii) The name and location, whether physical or virtual, of the bank, institution or other repository in which investor monies or proceeds, or both, from the offering will be deposited.

(f) If the information contained on the notice required in subdivision (e) of this paragraph becomes inaccurate for any reason, the issuer files an amendment in writing with the director within thirty days.

(g) All dollar-denominated monies received from investors are deposited into a bank or depository institution authorized to do business in this state, and all such monies are used in accordance with representations made to investors.

(h) The sum of all cash and other consideration to be received as a result of an offering under this exemption does not exceed $5,000,000 in a twelve-month period.

(i) The issuer and any persons affiliated with the issuer or offering are not subject to disqualification pursuant to this chapter, a rule or order of the director, 15 United States Code section 77c(a)(11) or 17 Code of Federal Regulations section 230.262. The director may set aside disqualification if both of the following apply:

(i) On a showing of good cause and without prejudice to any other action by the director, the director determines that it is not necessary that an exemption be denied under the circumstances.

(ii) The issuer establishes that the issuer made a factual inquiry into whether any disqualification existed and did not know and could not have known in the exercise of reasonable care that a disqualification existed. The nature and scope of the requisite inquiry will vary based on the circumstances of the subject issuer and the other offering participants.

(j) The issuer does not accept more than $10,000 from any single purchaser unless the purchaser is an accredited investor under 17 Code of Federal Regulations section 230.501.

23. Transactions by an issuer, its parent or subsidiary companies, and their respective directors, managers, general partners, officers and employees acting as such to offer or sell securities of the issuer pursuant to Regulation A, 17 Code of Federal Regulations section 230.251(a)(2), in which the sum of the aggregate offering price and aggregate sales does not exceed $75,000,000, including not more than $22,500,000 offered by all selling security holders that are affiliates of the issuer.

B. Subsection A, paragraph 11 of this section does not apply to either of the following:

1. Sales by a dealer or salesman who is not registered in this state.

2. Solicited sales to or purchases from a resident of this state by a dealer who does not have, before the initial solicitation, a written new account form signed by the resident or a customer agreement signed by the resident and a previous sale or purchase of a security with the resident.

C. The commission may by order revoke or suspend the exemption under subsection A, paragraph 11 or 18 of this section with respect to any securities or the use of the exemption under subsection A, paragraph 11 of this section by any dealer if it finds that the further sale in this state of the securities or by the dealer would work, or tend to work, a fraud or deceit on the purchaser.

D. A purchaser engaging in an offering that complies with subsection A, paragraph 22 of this section shall not be considered an underwriter, unless the purchaser purchases more than fifty percent of the securities or virtual coins offered for sale in the offering.

E. The issuer and all other parties involved in an offering that complies with subsection A, paragraph 22 of this section may agree that any controversy or claim arising out of or relating to the offering shall be resolved by private arbitration between the parties and the agreement shall be enforceable by the laws of this state.

F. Notwithstanding any other provision of this chapter, the director may enter into agreements with federal, state or foreign regulators to allow securities issued or sold in this state to be sold in another jurisdiction and securities issued or sold in another jurisdiction to be issued or sold in this state.

G. Except as provided in subsection H of this section, a person who facilitates the exchange of a virtual coin shall not be deemed to be a dealer or a person who otherwise deals in securities under this chapter and is not subject to this chapter or chapter 13 of this title due to the exchanged virtual coin if both of the following are met:

1. The person has a reasonable and good faith belief that the virtual coin subject to exchange does not meet the definition of a virtual coin offering.

2. The person takes reasonably prompt action to terminate the person's facilitation of the exchange of the virtual coin after obtaining knowledge that the virtual coin meets the definition of a virtual coin offering.

H. Sections 44-1991 and 44-3241 apply to a person described in subsection G of this section.

I. The director may adopt rules based on 17 Code of Federal Regulations section 230.504 and revise the rules as necessary to keep them current with the federal law.