§ 73-207 — Exemptions

Delaware § 73-207

• Jurisdiction: Delaware
• Title: 6
• Ch. 73: SECURITIES ACT
• Subch.: Provisions Relating to the Offer, Sale, and Purchase of Securities

Text

(a) The following securities are exempted from §§ 73-202, 73-208 and 73-211 of this title:

(1) Any security (including a revenue obligation) issued or guaranteed by the United States, any state, any political subdivision of a state, or any agency or corporation or other instrumentality of one or more of the foregoing, or any certificate of deposit for any of the foregoing;

(2) Any security issued or guaranteed by Canada, any Canadian province, any political subdivision of any such province, any agency or corporate or other instrumentality of 1 or more of the foregoing, or any other foreign government with which the United States currently maintains diplomatic relations, if the security is recognized as a valid obligation by the issuer or guarantor;

(3) Any security issued by and representing an interest in or a debt of, or guaranteed by, any bank organized under the laws of the United States, or any bank, savings institution, or trust company organized and supervised under the laws of any state;

(4) Any security issued by and representing an interest in or a debt of, or guaranteed by, any federal savings and loan association, or any building and loan association organized and supervised under the laws of any state and authorized to do business in this State;

(5) Any security issued by and representing an interest in or a debt of, or guaranteed by, any insurance company organized under the laws of any state and authorized to do business in this State;

(6) Any security issued or guaranteed by any federal credit union or any credit union, industrial loan association, or similar association organized and supervised under the laws of this State;

(7) Any security issued or guaranteed by any railroad, other common carrier, public utility, or holding company which is subject to the jurisdiction of the United States Department of Transportation; a registered holding company under the Public Utility Holding Company Act of 2005 [42 U.S.C. § 16451 et seq.] or a subsidiary of such a company within the meaning of that Act; regulated in respect of its rates and charges by a governmental authority of the United States or any state; or regulated in respect of the issuance or guarantee of the security by a governmental authority of the United States, any state, Canada, or any Canadian province;

(8) Any security listed or approved for listing upon notice of issuance on the New York Stock Exchange, the NYSE Amex Equities, the Pacific Exchange, Inc., the Chicago Stock Exchange, or the NASDAQ OMX PHLX or any other exchange which the Director deems to have substantially the same standards for listing as required by the above mentioned exchanges; any other security of the same issuer which is of senior or substantially equal rank; any security called for by subscription rights or warrants so listed or approved; or any warrant or right to purchase or subscribe to any of the foregoing;

(9) Any security issued by any person organized and operated not for private profit but exclusively for religious, educational, benevolent, charitable, fraternal, social, athletic, or reformatory purposes, or as a chamber of commerce, local industrial development corporation, or trade or professional association;

(10) Any commercial paper which arises out of a current transaction or the proceeds of which have been or are to be used for current transactions, and which evidences an obligation to pay cash within 9 months of the date of issuance, exclusive of days of grace, or any renewal of such paper which is likewise limited, or any guarantee of such paper or of any such renewal;

(11) Any investment contract issued after the effective date of this act in connection with an employee’s stock purchase, savings, pension, profit-sharing or similar benefit plan;

(12) Any security issued by a bona fide agricultural cooperative operating in this State that is organized under Chapter 85 of Title 3 or as a foreign cooperative association organized under the law of another state that has been duly qualified to transact business in this State;

(13) Any security traded pursuant to the National Association of Securities Dealers Automated Quotations System for which the Director by rule has determined that registration is not necessary for the protection of investors.

(b) The following transactions are exempted from §§ 73-202, 73-208 and 73-211 of this title:

(1) Any isolated nonissuer transaction, whether effected through a broker-dealer or not;

(2) Any nonissuer transaction by a registered agent of a registered broker-dealer, and any resale transaction by a sponsor of a unit investment trust registered under the Investment Company Act of 1940 [15 U.S.C. § 80a-1 et seq.], in a security of a class that has been outstanding in the hands of the public for at least 90 days, provided, at the time of the transaction:

a. The issuer of the security is actually engaged in business and not in the organization stage or in bankruptcy or receivership and is not a blank check, blind pool or shell company whose primary plan of business is to engage in a merger or combination of the business with, or an acquisition of, an unidentified person or persons;

b. The security is sold at a price reasonably related to the current market price of the security;

c. The security does not constitute the whole or part of an unsold allotment to, or a subscription or participation by, the broker-dealer as an underwriter of the security;

d. A nationally recognized securities manual designated by rule or order of the Director or a document filed with the Securities and Exchange Commission that is publicly available through the SEC’s Electronic Data Gathering and Retrieval System (EDGAR) and contains:

1. A description of the business and operations of the issuer;

2. The names of the issuer’s officers and directors, if any, or, in the case of an issuer not domiciled in the United States, the corporate equivalents of such persons in the issuer’s country of domicile;

3. An audited balance sheet of the issuer as of a date within 18 months or, in the case of a reorganization or merger where parties to the reorganization or merger had such audited balance sheet, a pro forma balance sheet; and

4. An audited income statement for each of the issuer’s immediately preceding 2 fiscal years, or for the period of existence of the issuer, if in existence for less than 2 years or, in the case of a reorganization or merger where the parties to the reorganization or merger had such audited income statement, a pro forma income statement; and

e. The issuer of the security has a class of equity securities listed on a national securities exchange registered under the Securities Exchange Act of 1934 [15 U.S.C. § 78a et seq.], or designated for trading on the National Association of Securities Dealers Automated Quotation System (NASDAQ), unless:

1. The issuer of the security is a unit investment trust registered under the Investment Company Act of 1940 [15 U.S.C. § 80a-1 et seq.];

2. The issuer of the security has been engaged in continuous business (including predecessors) for at least 3 years; or

3. The issuer of the security has total assets of at least $2,000,000 based on an audited balance sheet as of a date within 18 months or, in the case of a reorganization or merger where parties to the reorganization or merger had such audited balance sheet, a pro forma balance sheet.

(3) Any nonissuer transaction effected by or through a registered broker-dealer pursuant to an unsolicited order or offer to buy; but the Director may by rule require that the customer acknowledge upon a specified form that the sale was unsolicited, and that a signed copy of each such form be preserved by the broker-dealer for a specified period;

(4) Any transaction between the issuer or other person on whose behalf the offering is made and an underwriter, or among underwriters;

(5) Any transaction in a bond or other evidence of indebtedness secured by a real or chattel mortgage or deed of trust, or by an agreement for the sale of real estate or chattels, if the entire mortgage, deed of trust or agreement, together with all the bonds or other evidences of indebtedness secured thereby, is offered and sold as a unit;

(6) Any transaction by an executor, administrator, sheriff, marshal, receiver, trustee in bankruptcy, guardian, or conservator;

(7) Any transaction executed by a bona fide pledgee without any purpose of evading this chapter;

(8) Any offer or sale to a bank, savings institution, trust company, insurance company, investment company as defined in the Investment Company Act of 1940 [15 U.S.C. § 80a-1 et seq.], pension or profit-sharing trust, or other financial institution or institutional buyer, or to a broker-dealer, whether the purchaser is acting for itself or in some fiduciary capacity;

(9) Any transaction pursuant to an offer directed by the offerer to not more than 25 persons (other than those designated in paragraph (b)(8) of this section) in this State during any period of 12 consecutive months, whether or not the offerer or any of the offerees is then present in this State, if the seller reasonably believes that all the buyers in this State, other than those designated in paragraph (b)(8) of this section, are purchasing for investment; but the Director may by rule or order, as to any security or transaction or any type of security or transaction, withdraw or further condition this exemption, or increase or decrease the number of offerees permitted, or waive the condition relating to investment intent; provided, however, the Director may by rule or order exempt transactions that are exempt under federal securities laws or regulations;

(10) Any offer or sale of a preorganization certificate or subscription if no commission or other remuneration is paid or given directly or indirectly for soliciting any prospective subscriber, the number of subscribers does not exceed 10, and no payment is made by any subscriber;

(11) Any transaction pursuant to an offer to existing security holders of the issuer, including persons who at the time of the transaction are holders of the convertible securities, nontransferable warrants, or transferable warrants exercisable within not more than 90 days of their issuance, if no commission or other remuneration (other than a standby commission) is paid or given directly or indirectly for soliciting any security holder in this State, or the issuer first files a notice specifying the terms of the offer and the Director does not by order disallow the exemption within the next 5 full business days;

(12) Any offer (but not a sale) of a security for which a registration statement has been filed under this chapter if no stop order or refusal order is in effect and no public proceeding or examination looking toward such an order is pending, and if the offerer complies with § 73-204(d) of this title;

(13) Any offer or sale of a security by or through a registered broker-dealer if such offer or sale is not directly or indirectly for the benefit of the issuer or a person who is known or should reasonably be known to such broker-dealer to be the record or beneficial owner of 10 percent or more of the outstanding voting securities of the issuer; the security is not part of an unsold allotment or subscription taken by a participant in a distribution directly or indirectly for the benefit of the issuer or a person who is known or should reasonably be known by such broker-dealer to be the record or beneficial owner of 10 percent or more of the outstanding voting securities of the issuer; and no administrative stop order or similar order or permanent or temporary injunction of any court of competent jurisdiction is in effect under this subtitle or under any federal or state act against the offering or sale of the security or any security of the same class.

(14) Any offer or sale of a viatical settlement investment, if:

a. Such disclosure documents as the Director, by rule or order, requires are delivered to each offeree or purchaser; and

b. The Director is notified in writing of the offer at least 30 days before the offer is made.

(15) Any offer or sale of securities conducted solely in this State to residents of this State in which each of the following conditions is met:

a. The issuer of the security shall be a for-profit entity organized under the laws of the State of Delaware and registered with the Secretary of State with its principal place of business in the State of Delaware.

b. The transaction shall meet the requirements of the federal exemption for intrastate offerings in § 3(a)(11) of the Securities Act of 1933, 15 U.S.C. § 77c(a)(11), and SEC Rule 147, 17 C.F.R. § 230.147. Among other things, these laws and regulations require that such securities must be offered to and sold only to persons who are residents of the State of Delaware at the time of purchase. Prior to any offer or sale pursuant to this exemption, the seller shall obtain documentary evidence from each prospective purchaser that provides the seller with a reasonable basis to believe that such investor is a resident of the State of Delaware.

c. The sum of all cash and other consideration to be received for all sales of the security in reliance upon this exemption shall not exceed $1,000,000, less the aggregate amount received for all sales of securities by the issuer pursuant to this exemption within the 12 months before the first offer or sale made in reliance upon this exemption.

d. The issuer shall not accept more than $5,000 from any single purchaser unless the purchaser is an accredited investor as defined by SEC Rule 501, 17 C.F.R. § 230.501.

e. The issuer must reasonably believe that all purchasers of securities are purchasing for investment and not for sale in connection with a distribution of the security.

f. A commission or other form of remuneration shall not be paid or given, directly or indirectly, for any person’s participation in the offer or sale of securities for the issuer unless the person is registered as a broker-dealer or agent under this chapter.

g. All funds received from investors shall be deposited into a bank or depository institution authorized to do business in the State of Delaware, and all the funds shall be used in accordance with representations made to investors.

h. Not less than 10 days prior to the commencement of an offering pursuant to this exemption the issuer shall provide the Investor Protection Unit of the Delaware Department of Justice a notice in a form required by the Director by rule or order. The notice shall specify that the issuer is conducting an offering in reliance upon this exemption and shall contain, among any other requirements set forth by the Director, a copy of the disclosure document to be provided to prospective investors pursuant to paragraph (b)(15)j. of this section and the names and addresses of all of the following persons:

1. The issuer.

2. Officers, directors and any control person of the issuer.

3. All persons who will be involved in the offer or sale of securities on behalf of the issuer.

4. The bank or other depository institution in which investor funds will be deposited.

i. The issuer shall not be, either before or as a result of the offering:

1. An investment company as defined in § 3 of the Investment Company Act of 1940, 15 U.S.C. § 80a-3, or subject to the reporting requirements of §§ 13 or 15(d) of the Securities Exchange Act of 1934, 15 U.S.C. §§ 78m and 78o(d); or

2. An investment advisor as defined at § 73-103 of this title, nor a person who otherwise provides investment advice as a service or as a fee.

j. The issuer shall provide the following information to each prospective investor at the time the offer of securities is made:

1. A disclosure document that, at a minimum, contains the following information:

A. Evidence that the issuer is a business organization organized under the laws of this State and is authorized to do business in this State;

B. A description of the company, its form and date of business organization, the address and telephone number of its principal office, its history, its business plan, a description of material agreements and the intended use of the offering proceeds, at least 65 percent of which shall be specifically disclosed in dollar amount and percentage terms in a use of proceeds section and which shall also include 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;

C. The identity of all persons owning more than 10 percent of the ownership interests of any class of securities of the company, with a description of options or other contingent securities outstanding and a description of the amount of those options or other contingent securities that those persons own;

D. The identity of the executive officers, directors, managing members, and other persons occupying a similar status or performing similar functions in the name of and on behalf of the issuer, including their titles and their prior experience, with a description of options or other contingent securities outstanding and a description of the amount of those options or other contingent securities that those persons own;

E. The terms and conditions of the securities being offered and of any outstanding securities of the company, the minimum and maximum amount of securities being offered, if any, and the percentage ownership of the company represented by the offered securities and the valuation of the company implied by the price of the offered securities;

F. The minimum offering amount that is necessary to implement the business plan, and a notice that the funds will only be released to the issuer if the minimum offering amount is reached;

G. The time and date, which may be no more than 12 months from the date of the offering, by which the minimum offering amount must be reached before the funds will be returned to investors;

H. A description of any litigation or legal proceedings involving the company or its management;

I. A discussion of significant factors that make the offering speculative or risky;

J. A description of any conflicts of interest;

K. Financial statements, including a balance sheet, income statement, cash flow statement, and capitalization of issuer;

L. Any additional information material to the offering.

2. A notice informing all purchasers that the securities have not been registered under this chapter and, therefore, cannot be resold unless the purchaser registers the securities or they qualify for an exemption from registration under this section at the time of the subsequent sale by the purchaser. In addition, the notice shall make the disclosures required by SEC Rule 147(f), 17 C.F.R. § 230.147(f).

3. The issuer shall be responsible for timely updating this disclosure document in the event that there is a material change to any of the information required by paragraph (b)(15)j.1. of this section before the offering closes. The issuer shall distribute any such update to investors in the offering and provide an opportunity for those investors to review the updated disclosure and consent to maintaining their investment or request a refund of their investment. The issuer shall provide the Investor Protection Unit with a copy of all updated disclosure documents at or before the time they are distributed to investors.

k. An offer or sale pursuant to this exemption may be made through 1 or more internet sites subject to the following requirements:

1. Each internet site operator shall register with the Investor Protection Unit by filing an application for registration in a form required by the Director by rule or order. In addition to any other information required by the Director, such registration shall include the following:

A. That the internet site operator is a business entity organized under the laws of this State and authorized to do business in this State;

B. That the internet site is being utilized to offer and sell securities pursuant to this exemption; and

C. The identity and location of, and contact information for, the internet site operator;

2. Each internet site operator will be required to register with the Investor Protection Unit as a broker dealer unless:

A. The internet site operator is registered as a broker-dealer under the Securities Exchange Act of 1934 [15 U.S.C. § 78a et seq.];

B. Is a funding portal registered under the Securities Act of 1933 [15 U.S.C. § 77a et seq.]and provides copies of all documents submitted to the SEC in connection with such registration to the Director; or

C. All of the following apply:

I. It does not offer investment advice or recommendations;

II. It does not solicit purchases, sales, or offers to buy the securities offered or displayed on the internet site;

III. It does not compensate employees, agents, or other persons for the solicitation or based on the sale of securities displayed or referenced on the internet site;

IV. It is not compensated based on the amount of securities sold, and it does not hold, manage, possess, or otherwise handle investor funds or securities;

V. The fee it charges an issuer for an offering of securities on the internet site is a fixed amount for each offering, a variable amount based on the length of time that the securities are offered on the internet site, or a combination of such fixed and variable amounts;

VI. It does not identify, promote, or otherwise refer to any individual security offered on the internet site in any advertising for the internet site; and

VII. It does not engage in other activities the Director determines to be prohibited.

3. The issuer and the internet site operator shall maintain records of all offers and sales of securities effected through the internet site and shall provide ready access to the records to representatives of the Director, upon request. Representatives of the Director may access, inspect, and review any internet site registered under this section as well as its records.

l. This exemption shall not be used in conjunction with any other exemption under this chapter except the exemption to institutional investors at paragraph (b)(8) of this section and for offers and sales to controlling persons of the issuer. Sales to controlling persons shall not count toward the limitation in paragraph (b)(15)c. of this section.

m. This exemption shall not be available if the issuer, or any director, executive officer, general partner, managing member, or other person with management authority over the issuer, or any internet site operator, or any director, executive officer, general partner, managing member, or other person with management authority over the internet site operator, has been subject to any conviction, order, judgment, decree, or other action specified in SEC Rule 506(d)(1) adopted under the Securities Act of 1933 (17 C.F.R. § 230.506(d)(1)) that would disqualify an issuer under SEC Rule 506(d) adopted under the Securities Act of 1933 (17 C.F.R. § 230.506(d)) from claiming an exemption specified in SEC Rule 506(a) to (c) adopted under the Securities Act of 1933 (17 C.F.R. § 230.506(a) to (c)).

n. Nothing in this exemption shall be construed to alleviate any person from the anti-fraud provisions at § 73-201 of this title, nor shall such exemption be construed to provide relief from any other provision of this chapter or any rule or order hereunder, other than as expressly stated.

o. Every notice of exemption provided for in paragraph (b)(15)h. of this section shall be accompanied by a nonrefundable filing fee as required by rule or order of the Director.

(c) The Director may by rule or order deny or revoke any exemption in paragraph (a)(9) or (a)(11) or in subsection (b) of this section, either generally or with respect to a specific security or transaction. No such order may be entered without appropriate prior notice to all interested parties, opportunity for hearing, and written findings of fact and conclusions of law, except that the Director may by order summarily deny or revoke any of the specified exemptions pending final determination of any proceeding under this subsection. Upon the entry of a summary order the Director shall promptly notify all interested parties that it has been entered and of the reasons therefor and that within 15 days of the receipt of a written request the matter will be set down for a hearing. If no hearing is requested and none is ordered by the Director, the order will remain in effect until it is modified or vacated by the Director. If a hearing is requested or ordered, the Director, after notice of and opportunity for hearing to all interested persons, may modify or vacate the order or extend it until final determination. No order under this subsection may operate retroactively. No person may be considered to have violated § 73-202 or § 73-211 of this title by reason of any offer or sale effected after the entry of an order under this subsection if that person sustains the burden of proof that the person did not know, and in the exercise of reasonable care could not have known, of the order.

(d) In any proceeding under this chapter, the burden of proving an exemption from registration is upon the person claiming it.

Legislative History

6 Del. C. 1953, § 7309; 59 Del. Laws, c. 208, § 1 ; 63 Del. Laws, c. 160, §§ 1, 2 ; 64 Del. Laws, c. 112, § 1 ; 68 Del. Laws, c. 181, §§ 12, 13 ; 70 Del. Laws, c. 186, § 1 ; 70 Del. Laws, c. 560, § 1 ; 71 Del. Laws, c. 162, §§ 8-10 ; 78 Del. Laws, c. 175, §§ 28-39, 93, 118 ; 79 Del. Laws, c. 182, §§ 3, 10, 11 ; 80 Del. Laws, c. 301, § 1 ; 84 Del. Laws, c. 42, § 1 ; 84 Del. Laws, c. 230, §§ 5, 6