Pub. 4 2016 Issue 1

Issue 1. 2016 13 Thomas R. Taylor is a corporate, corporate finance and M&A lawyer and a shareholder in the Salt Lake City office of Durham, Jones & Pinegar, P.C. Tom is listed as one of the leading corporate and M&A lawyers in the United States by both Chambers & Partners and Super Lawyers, as one of the Best Lawyers in American in Corporate Law and M&A Law by Best Lawyers, as a Top Attorney in Utah, Nevada, Montana, Idaho and Wyoming in Mergers & Acquisitions by American Registry, LLC, and as one of the leading M&A, corporate and transactional lawyers in the State of Utah by Utah Business magazine. He maintains an “AV” rating with Martindale Hubbell, which is the highest rating awarded to attorneys for professional competence and ethics. Tom can be reached at (801) 297 1370 (o) or (801) 891 6145 (c) or at ttaylor@djplaw.com . Therefore, the “Section 4(a)(1½)”exemption can still be relied upon if wanted. Under U.S. securities law, securities may be offered and sold only pursuant to a registration statement filed with the SEC under the Securities Act or pursuant to an exemption from registration. The Securities Act and various Regulations thereunder provide for several registration exemptions, most notably Section 4(a)(1) (which applies to transactions by a person other than an issuer, underwriter or dealer) and Section 4(a)(2) (which applies to trans- actions by an issuer not involving a public offering). However, neither of those statutory provisions, nor the related safe harbors provided under Rule 144 and Regulation D, provide a specific exemption for the private resale of previously issued securities. Instead, sellers have historically relied on the “Section 4(a)(1½)” exemption. NEW SECTION 4(a)(7) EXEMPTION New Section 4(a)(7) of the Securities Act exempts from registra- tion a private resale of securities by persons other than the issuer who meet the following requirements: • Accredited Investors — Each purchaser must be an “accred- ited investor” within the meaning of Regulation D; • No General Solicitation or Advertising — Neither the seller, nor anyone acting on the seller’s behalf, can use any general solicitation or advertising in offering or selling the securities; • Non Reporting Company Information Requirement — Issuers who are not subject to SEC reporting requirements or not exempt from reporting under Rule 12g3 2(b) of the Securities Exchange Act of 1934 (the “Securities Exchange Act”) must provide the seller and prospective purchaser with certain information, including the following: (a) the name and address of the issuer and the nature of its business; (b) the title and class of the securities and the total number of shares outstanding; (c) the identity of the issuer’s officers and directors; (d) the issuer’s most recent balance sheet and profit and loss statement and “similar financial statements” for the two preceding fiscal years (each of which must be prepared in accordance with generally accepted accounting principles); and, (e) if the seller is a control person of the issuer, a brief statement of the nature of the affiliation and a certified state- ment by the seller that such seller has no reasonable grounds to believe the issuer is in violation of any applicable securi- ties laws or Regulations; Under U.S. securities law, securities may be offered and sold only pursuant to a registration statement filed with the SEC under the Securities Act or pursuant to an exemption from registration. • Bad Actor Prohibition — Neither the seller, nor any person receiving a commission for participating in the transaction, is disqualified as a “bad actor” under Rule 506(d)(1) of Regu- lation D or subject to disqualification under Section 3(a)(39) of the Securities Exchange Act; • Business Requirement — The issuer must be engaged in a business that is not in the organizational stage or in bank- ruptcy, and cannot be a blank check, blind pool or shell company; • Underwriter Prohibition — The transaction cannot involve securities that are part of an unsold allotment to an under- writer; and • Outstanding 90 days — The securities to be resold must have been authorized and outstanding for at least 90 days prior to their resale. The adoption of new Section 4(a)(7) is significant because it pro- vides a statutory basis for private resales of restricted and control securities. Accordingly, Section 4(a)(7) provides a higher degree of certainty that securities sold in private resale transactions will be exempt from the registration requirements of the Securities Act than has been provided historically under the “Section 4(a) (1½)” exemption. KEY TAKEAWAYS • The FAST Act adds a new exemption from SEC registration that is intended to facilitate resales of securities issued in the private market • New Section 4(a)(7) exempts from registration private resales of securities by persons other than the issuer or a subsidiary, provided that the resale process meets certain requirements • Section 4(a)(7) does not replace the “Section 4(a)(1½)” exemption; therefore, the “Section 4(a)(1½)” exemption procedures continue to be available for sellers who either are unwilling or unable to comply with the requirements of new Section 4(a)(7) • Securities acquired in reliance on Section 4(a)(7) will be deemed to be acquired in a transaction not involving a public offering and not to be part of a distribution • Such securities will be deemed to be “restricted securities” within the meaning of Rule 144 • Such securities will be “covered securities” within the meaning of Section 18(b) of the Securities Act and, there- fore, exempt from state securities or “blue sky” registration requirements This article is intended for educational and informational purpos- es only and is not intended to, and should not be construed as, legal advice. Readers should consult their own lawyer regarding the applicability of the information discussed in this article to their particular situation and facts. n