TITLE 7
Corporations, Associations, and Partnerships

CHAPTER 7-11
Rhode Island Uniform Securities Act

PART 7-11-401
Exemptions from Registration

SECTION 7-11-402


§ 7-11-402 Exempt transactions.

The following transactions are exempt from §§ 7-11-301 and 7-11-404:

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

(2) A nonissuer transaction in an outstanding security if the issuer of the security has a class of securities subject to registration under § 12 of the Securities Exchange Act of 1934, 15 U.S.C. § 78l, and has been 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), for not less than ninety (90) days before the transaction; or has filed and maintained with the director for not less than ninety (90) days before the transaction information, in any form that the director, by rule, specifies, substantially comparable to the information which the issuer would be required to file under § 12(b) or § 12(g) of the Securities Exchange Act of 1934, 15 U.S.C. §§ 78l(b) or 78l(g), were the issuer to have a class of its securities registered under § 12 of the Securities Exchange Act of 1934 and paid a fee with the filing of three hundred dollars ($300);

(3) A nonissuer transaction if a security

(i) of a class outstanding in the hands of the public for not less than ninety (90) days before the transaction is a nationally recognized securities manual designated by the director, by rule or order, contains the names of the issuer's officers and directors, a statement of financial condition of the issuer as of a date within the last eighteen (18) months, and a statement of income or operations for either the last fiscal year before that date or the most recent year of operation or

(ii) if the security has a fixed maturity or a fixed interest or dividend provision and there has been no default during the current fiscal year or within the three (3) preceding years, or during the existence of the issuer and any predecessors if less than three (3) years, in the payment of principal, interest, or dividends on the security;

(4) A nonissuer transaction effected by or through a registered broker dealer pursuant to an unsolicited order or offer to purchase; 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 form be preserved by the broker dealer for a specified period;

(5) A transaction between the issuer or other person on whose behalf the offering of a security is made and an underwriter, or a transaction among underwriters;

(6) A transaction in a bond or other evidence of indebtedness secured by a real estate mortgage, deed of trust, personal property security agreement, or by an agreement for the sale of real estate or personal property, if the entire mortgage, deed of trust, or agreement, together with all the bonds or other evidences of indebtedness secured by them, is offered and sold as a unit;

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

(8) A transaction executed by a bona fide secured party without a purpose of evading this chapter;

(9) An offer to sell or sale of a security to a financial or institutional investor or to a broker dealer;

(10) A transaction pursuant to an offer directed by the offeror to no more than twenty-five (25) purchasers in this state, other than those designated in subdivision (9), during any twelve (12) consecutive months; no general solicitation or general advertising is used in connection with the offer to sell or sale of the securities; and no commission or other similar compensation is paid or given, directly or indirectly, to a person, other than a broker dealer licensed or not required to be licensed under this chapter, for soliciting a prospective purchaser in this state; and either:

(i) the seller reasonably believes that all the purchasers in this state, other than those designated in subdivision (9) are purchasing for investment; or

(ii) immediately before and immediately after the transaction, the issuer reasonably believes that the securities of the issuer are held by fifty (50) or fewer beneficial owners, other than those designated in paragraph (9) and the transaction is part of an aggregate offering that does not exceed one million dollars ($1,000,000) during any twelve (12) consecutive months.

(11) An offer to sell or sale of a preorganization certificate or subscription if no commission or other similar compensation is paid or given, directly or indirectly, for soliciting a prospective subscriber; no public advertising or general solicitation is used in connection with the offer to sell or sale; the number of subscribers does not exceed ten (10); and no payment is made by a subscriber;

(12) An offer to sell or sale of a preorganization certificate or subscription agreement issued in connection with the organization of a depository institution if that organization is under the supervision of an official or agency of any state or of the United States which has and exercises the authority to regulate and supervise the organization of the depository institution. For the purposes of this paragraph, supervision of the organization by an official or agency means that the official or agency by law has authority to require disclosures to prospective investors similar to that required under § 7-11-304, impound proceeds from the sale of preorganization certificates or subscription agreements until organization of the depository institution is completed, and require refund to investors if the depository institution does not obtain a grant of authority from the appropriate official or agency;

(13) A transaction pursuant to an offer to sell to existing security holders of the issuer, including persons who at the time of the transaction are holders of transferable warrants exercisable within not more than ninety (90) days after their issuance, convertible securities, or nontransferable warrants, if:

(i) No commission or other similar compensation, other than a standby commission, is directly or indirectly paid or given, for soliciting a security holder in this state; or

(ii) The issuer first files a notice specifying the terms of the offer to sell and the director does not by order disallow the exemption within the next five (5) full business days;

(14) A transaction involving an offer to sell, but not a sale, of a security not exempt from registration under the Securities Act of 1933, 15 U.S.C. § 77a et seq. if:

(i) A registration or offering statement or similar document as required under the Securities Act of 1933, 15 U.S.C. § 77a et seq. has been filed, but is not effective;

(ii) A registration statement, if required, has been filed under this chapter, but is not effective; and

(iii) No stop order of which the offeror is aware has been entered by the director or the securities and exchange commission, and no examination or public proceeding that may culminate in that kind of order is known by the offeror to be pending;

(15) A transaction involving an offer to sell, but not a sale, of a security exempt from registration under the Securities Act of 1933, 15 U.S.C. § 77a et seq. if:

(i) A registration statement has been filed under this chapter, but is not effective; and

(ii) No stop order of which the offeror is aware has been entered by the director and no examination or public proceeding that may culminate in that kind of order is known by the offeror to be pending;

(16) A transaction involving the distribution of the securities of an issuer to the security holders of another person in connection with a merger, consolidation, exchange of securities, sale of assets, or other reorganization to which the issuer, or its parent or subsidiary, and the other person, or its parent or subsidiary, are parties, if:

(i) The securities to be distributed are registered under the Securities Act of 1933, 15 U.S.C. § 77a et seq. before the consummation of the transaction; or

(ii) The securities to be distributed are not required to be registered under the Securities Act of 1933, 15 U.S.C. § 77a et seq., written notice of the transaction and a copy of the materials, if any, by which approval of the transaction will be solicited is given to the director at least ten (10) days before the consummation of the transaction and the director does not disallow by order the exemption within the next ten (10) days; and

(17)(i) A transaction involving the offer to sell or sale of one or more promissory notes each of which is directly secured by a first lien on a single parcel of real estate, or a transaction involving the offer to sell or sale of participation interests in the notes if the notes and participation interests are originated by a depository institution and are offered and sold subject to the following conditions:

(A) The minimum aggregate sales price paid by each purchaser may not be less than two hundred and fifty thousand dollars ($250,000);

(B) Each purchaser must pay cash either at the time of the sale or within sixty (60) days after the sale; and

(C) Each purchaser may buy for that person's own account only;

(ii) A transaction involving the offer to sell or sale of one or more promissory notes directly secured by a first lien on a single parcel of real estate or participation interests in the notes, if the notes and participation interests are originated by a mortgagee approved by the secretary of housing and urban development under §§ 203 and 211 of the National Housing Act, 12 U.S.C. §§ 1709 and 1715b, and are offered or sold, subject to the conditions specified in subsection (17)(i), to a depository institution or insurance company, the federal home loan mortgage corporation, the federal national mortgage association, or the government national mortgage association; and

(iii) A transaction between any of the persons described in subparagraph (ii) involving a nonassignable contract to buy or sell the securities described in subparagraph (i) which contract is to be completed within two (2) years if:

(A) The seller of the securities pursuant to the contract is one of the parties described in paragraph (i) or (ii) who may originate securities;

(B) The purchaser of securities pursuant to a contract is any other person described in paragraph (ii); and

(C) The conditions described in paragraph (i) are fulfilled.

(18) Any offer or sale of securities made in reliance on the exemptions provided by Rule 505 or 506 of regulation D as may be amended from time to time, under the Securities Act of 1933, 15 U.S.C. § 77a et seq., and the provisions of the rules under that Act as amended from time to time; provided:

(i) No commission or other remuneration may be paid or given directly or indirectly, to any person for soliciting or selling to any person in this state in reliance on this exemption, except to persons registered under §§ 7-11-201 – 7-11-204;

(ii) Not later than ten (10) days, or a shorter period that may be permitted by order of the director, prior to the first sale of securities in reliance on this exemption, there is filed with the director:

(A) A Uniform Consent to Service of Process (Form U2);

(B) A notice of original filing on Form D; and

(C) A fee of three hundred dollars ($300).

No exemption is available for the securities of any issuer if any of the parties described in securities and exchange commission regulation A. Rule 230.252, Section (c), (d), (e) or (f) under the Securities Act of 1933 are disqualified pursuant to a rule adopted by the director.

History of Section.
(P.L. 1990, ch. 460, § 2; P.L. 1991, ch. 69, § 1.)