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(17) Question: Where the purchaser is a natural person, Rule 501(a)(5) provides that the total purchase price may be measured against the purchaser's net worth combined with that of a spouse. Would property held solely by one spouse be available for calculating the net worth of the other spouse who is making The $150.000 investment? Answer: Yes. (18) Question: An investment general partnership is purchasing securities in a Regulation D offering. The partnership was not formed for the specific purpose of acquiring the securities being offered. May the issuer consider the aggregate net worth of the general partners in calculating the net worth of the partnership? Answer: Yes. An investment general partnership is functionally a vehicle in which profits and losses are passed through to general partners and in which the nel worihs of the general partners are exposed to the risk of partnership investments." (19) Question: A totally held subsidiary'* makes a cash investment of $200,000 in a Regulation D offering. May that subsidiary use the consolidated net worth of its parent in determining whether or not its total purchase price exceeds 20 percent of its net worth? Answer: Yes.''

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Rules 501(a)(6) and (7) apply only to natural persons. Paragraph (6) accredits any natural person with a net worth at the time of purchase in excess of $1,000,000. If the investor is married, the rule permits the use of joint net worth of the couple. Paragraph (7) accredits any natural person whose income has exceeded $200,000 in each of the iwo most recent years and is reasonably expected to exceed $200,000 in the year of investment. (20) Question: A corporation with a net worth of $2,000,000 purchases securities in a Regulation D offering. Is the corporation an accredited investor under Rule sol(a)(6)? Answer: No. Rule 501(a)(6) is limited to "natural" persons. (21) Question: In calculating net worth for purposes of Rule 501(a)(6), may the investor include the estimated fair market value of his principal residence as an asset? Answer: Yes. Rule 501(a)(6) does not exclude any of the purchaser's assets from the net worth needed to qualify as an accredited investor. (22) Question: May a purchaser take into account income of a spouse in determining possible accreditation under Rule 501(a)(7)? Answer: No. Rule 501(a)(7) requires "individual income" over $200,000 in order to qualify as an accredited investor. (23) Question: May a purchaser include unrealized capital appreciation in calculating income for purposes of Rule 501(a)(7)? Answer: Generally, no.

6. Entities Owned By Accredited Investors Rule 501(a)(8)

Any entity in which each equity owner is an accredited investor under any of the qualifying categories, except that of the $150,000 purchaser, is accredited under Rule 501(a)(8). (24) Question: All but one of the shareholders of a corporation are accredited investors by virtue of net worth or income. The unaccredited shareholder is a director who bought one share of stock in order to comply with a requirement that all directors be shareholders of the corporation. Is the corporation an accredited investor under Rule 501(a)(8)? Answer: No. Rule 501(a)(8) requires “all of the equity owners" to be accredited investors. The director is an equily owner and is not accredited. Note that the director cannot be accredited under Rule 501(a)(4). That provision extends accreditation to a director of the issuer, not of the investor. (25) Question: Who are the equity owners of a limited partnership? Answer: The limited partners.

7. Trusts as Accredited Investors

(26) Question: May a trust qualify as an accredited investor under Rule 501(a)(1)? Answer: Only indirectly. Although a trust standing alone cannot be accredited under Rule 501(a)(1), if a bank is its trustee and makes the investment on behalf of the trust, the trust will in effect be accredited by virtue of the provision in Rule 501(a)(1) that accredits a bank acting in a fiduciary capacity. (27) Question: May a trust qualify as an accredited investor under Rule 501(a)(5)? Answer: Yes. The Division interprets “person" in Rule 501(a)(5) to include any trust.' (28) Question: In qualifying a trust as an accredited investor under Rule 501(a)(5), whose net worth should be considered in determining whether the total purchase price meets the 20 percent of net worth limitation test? Answer: The net worth of the trust.

(29) Question: A trustee of a trust has a net worth of $1,500,000. Is the trustee's purchase of securities for the trust that of an accredited investor under Rule 501(a)(6)? Answer: No. Except where a bank is a trustee, the trust is deemed the purchaser, not the trustee. The trust is not a “natural” person. (30) Question: May a trust be accredited under Rule 501(a)(8) if ali of its beneficiaries are accredited investors? Answer: Generally, no. Rule 501(a)(8) accredits any entity if all of its “equity owners” are accredited investors. The staff does not interpret this provision to apply to the beneficiaries of a conventional trust. The result may be different, however, in the case of certain non-conventional trusts where, as a result of powers retained by the grantors, a trust as a legal entity would be deemed not to exist." Thus, where the grantors of a revocable trust are accredited

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Section 2(2) of the Securities Act includes “A trust" within the definition of “person” but limits that inclusion 10 "a trust where the interest or interests of the beneficiary or beneficiaries are evidenced by a security.” The Division does not view that limitation as being necessary in the context of a trust as a purchaser of securities under Rule 501(a)(5). The result would also be different in the case of a business trust, a real estate investment trust, or other similar entities.

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investors under Rule 501(a)(6) (i.e. net worth exceeds $1,000,000) and the trust may be amended or revoked at any time by the grantors, the trust may be amended or revoked at any time by the grantors, the trust is accredited because the grantors will be deemed the equity owners of the trust's assets. ?' Similarly, where the purchase of Regulation D securities is made by an Individual Retirement Account and the participant is an accredited investor, the account would be accredited under Rule 501(a)(8).

B. Aggregate Offering Price Rule 501(c)

The "aggregate offering price," defined in Rule 501(c), is the sum of all proceeds received by the issuer for issuance of its securities. The term is important to the operation of Rules 504 and 505, both of which impose a limitation on the aggregate offering price as a specific condition to the availability of the exemption.?' (31) Question: The sole general partner of a real estate limited partnership contributes property to the program. Must that property be valued and included in the overall proceeds of the offering as part of the aggregate offering price? Answer: No, assuming the property is contributed in exchange for a general partnership interest. (32) Question: An owner of a mining or oil and gas property is selling interests in the property to investors for cash. The owner will retain a royalty interest in the property. Must any subsequent royalty payments be included in the aggregate offering price of the property interests? Answer: No. Royalty payments to the seller of the property are treated as operating expenses, rather than capitalized costs for the property. As such, the royalty payments are not part of the consideration received by the issuer for issuance of the securities. (33) Question: Where the investors pay for their securities in installments and these payments include an interest component, must the issuer include interest payments in the "aggregate offering price?” Answer: No. The interest payments are not deemed to be consideration for the issuance of the securities. ?? (34) Question: An offering of interests in an oil and gas limited partnership provides for additional voluntary assessments. These assessments, undetermined at the time of the offering, may be called at the general partner's discretion for developmental drilling activities. Must the assessments be included in the aggregate offering price, and if so, in what amount? Answer: Because it is unclear that the assessments will ever be called, and because if they are called, it is unclear at what level, the issuer is not required to include the assessments in the aggregate offering price. In fact, the assessments will be consideration received for the issuance of additional securities in the limited partnership. The issuance will need to be considered along with the original issuance for possible integration, or, if not integrated, must find its own exemption from registration. (35) Question: In purchasing interests in an oil and gas partnership, investors agree to pay mandatory assessments. The assessments, essentially installment payments, are non-contingent and investors will be personally liable for their payment. Must the issuer include the assessments in the aggregate offering price? Answer: Yes.") (36) Question: As part of their purchase of securities, investors deliver irrevocable letters of credit. Must the letters of credit be included in the aggregate offering price? Answer: If these letters of credit were drawn against, the amounts involved would be considered part of the aggregate offering price. For this reason in planning the transaction, the issuer should consider the full amount of the letters of credit in calculating the aggregate offering price.

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The definition of executive officer in Rule 501(0) is the same as that in Rule 405 of Regulation C (17 CFR 230.405). (37) Question: The executive officer of the parent of the Regulation D issuer performs a policy making function for its subsidiary. May that individual be deemed an “executive officer" of the subsidiary? Answer: Yes.

D. Purchaser Representative Rule 501(h)

A purchaser representative is any person who satisfies, or who the issuer reasonably believes satisfies, four conditions enumerated in Rule 501(h). Beyond the obligations imposed by that rule, any person acting as a purchaser representative must consider whether or not he is required to register as a broker-dealer under section 15 of the Securities Exchange Act of 1934 (the “Exchange Act") (15 U.S.C. 78a-78kk (1976 & Supp. IV 1980)) or as an investment adviser under section 203 of the Investment Advisers Act of 1940 (15 U.S.C. 806-1-800-21 (1976 & Supp. IV 1980)).** (38) Question: May the officer of a corporate general partner of the issuer qualify as a purchaser representative under Rule 501(h)? Answer: Rule 501(h) provides that “an affiliate, director, officer or other employee of the issuer” may not be a purchaser representative unless the purchaser has one of three enumerated relationships with the representative. The staff is of the view that an officer or director of a corporate general partner comes within the scope of “affiliate, director, officer or other employee of the issuer.” (39) Question: May the issuer in a Regulation D offering pay the fees of the purchaser representative? Answer: Yes. Nothing in Regulation D prohibits the payment by the issuer of the purchaser representative's fees. Rule 501(h)(4), however, requires disclosure of this fact."

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The basis for a limitation on the aggregate offering price derives from section 3(b) of the Securities Act. Section 3(b) accords authority to the Commission to adopt rules exempting any class of securities as long as no issue of securities is exempted "where the aggregate amount at which such issue is offered to the public exceeds $5,000,000." See also section 446) which exempts a transaction involving offers and sales solely to one or more accredited investors “if the aggregate offering price of an issue" does not exceed the amount allowed under section 3(b). This

presumes that the payments are in fact for interest. See Preliminary Note 6 to Regulation D.

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See letter to Kim R. Clark, Esq. dated November 8, 1982.

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See letters to Winstead, McGuire, Sechrest & Trimble dated February 21 and 25, 1975 and re Kenisa Oil Company dated April 6, 1982. Questions regarding registration as a broker-dealer should be directed to the Office of Chief Counsel, Division of Market Regulation, (202) 272-2844. Questions regarding registration as an investment adviser should be directed to the Office of Chief Counsel, Division of Investment Management, (202) 272-2030.

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Note 3 to Rule 501(h) points out that disclosure of a material relationship between the purchaser representative and the issuer will not relieve the purchaser representative of the obligation to act in the interest of the purchaser.

II. Disclosure Requirements

Rule 502(b)

A. When Required

Rule 502(b)(1) sets forth the circumstances when disclosure of the kind specified in the regulation must be delivered to investors. The regulation requires the delivery of certain information during the course of the offering and prior to sale” if the offering is conducted in reliance on Rule sos or 506 and if there are unaccredited investors. If the offering is conducted in compliance with Rule 504 or if securities are sold only to accredited investors, Regulation D does not specify the information that must be disclosed to investors. 26 (40) Question: An issuer furnishes potential investors a short form offering memorandum in anticipation of actual selling activities and the delivery of an expanded disclosure document. Does Regulation D permit the delivery of disclosure in two installments? Answer: So long as all the information is delivered prior to sale, the use of a fair and adequate summary followed by a complete disclosure document is noi prohibited under Regulation D. Disclosure in such a manner, however, should not obscure material information. (41) Question: An issuer commences an offering in reliance on Rule 50s in which the issuer intends to make sales only to accredited investors. The issuer delivers those investors an abbreviated disclosure document. Before the completion of the offering, the issuer changes its intentions and proposes to make sales to non-accredited investors. Would the requirement that the issuer deliver the specified information to all purchasers prior to sale if any sales are made 10 non-accredited investors preclude application of Rule sos to the earlier sales to the accredited investors? Answer: No. If the issuer delivers a complete disclosure document to the accredited investors and agrees to return their funds promptly unless they should eleci to remain in the program, the issuer would not be precluded from relying on Rule 505.

B. What Required

Regulation D divides disclosure into two categories: that to be furnished by non-reporting companies and that required for reporting companies. In either case, the specified disclosure is required to the extent material to an understanding of the issuer, its business and the securities being offered. 1. Non-reporting Issuers – Rule 501(b)(i)

If the issuer is not subject to the reporting requirements of section 13 or 15(d) of the Exchange Act,” it must furnish the specified information “to the extent material to an understanding of the issuer, its business and the securities being offered.” For offerings up to $5,000,000, the issuer should furnish the “same kind of information” as would be contained in Part I of Form S-18," except that only the most recent year's financial statements need be certified. For offerings over $5,000,000, the issuer should furnish “the same kind of information" as would be required in Part I of an available registration statement." (42) Question: When an issuer is required to deliver specific disclosure, must that disclosure be in written form? Answer: Yes. (43) Question: Form S-18 requires the issuer's audited balance sheet as of the end of its most recently completed fiscal year or within 135 days if the issuer has been in existence for a shorter time. With a limited partnership that has been formed with minimal capitalization immediately prior to a Regulation D offering, must the Regulation D disclosure document contain an audited balance sheet for the issuer? Answer: In analyzing this or any other disclosure question under Regulation D, the issuer starts with the general rule that it is obligated to furnish the specified information "to the extent material to an understanding of the issuer, its business, and the securities being offered.” Thus, in this particular case, if an audited balance sheet is not material to the investor's understanding, then the issuer may elect to present an alternative to its audited balance sheet. (44) Question: Is Securities Act Industry Guide 5'° applicable in a $4,000,000 Regulation D offering of interests in a real estate limited partnership? Answer: Rule 502(b)(2)(i)(A) requires the issuer to provide the same kind of information as that required in Part 1 of Form S-18." Form S-18 directs the issuer's attention to the Industry Guides, noting that such guides “represent Division practices with respect to the disclosure to be provided by the affected industries in registration statements." In preparing its Regulation D offering material, therefore, an issuer of interests in a real estate limited partnership should consider Guide 5 in determining the disclosure that will be material to the investor's understanding of the issuer, its business and the securities being offered. (45) Question: In a $4,000,000 Regulation D offering of interests in an oil and gas limited partnership, what are the issuer's disclosure obligations with respect to financial statements of the general partner? Answer: Item 21(h) of Form S-18 provides that the issuer should furnish the audited balance sheet as of the end of the most recent fiscal year of any corporation or partnership that is a general partner of the issuer. For any general partner that is a natural person, in lieu of an audited balance sheet, the issuer may furnish a statement of that individual's net worth in the text of the disclosure document, where assets and liabilities are estimated at fair market value with provisions for estimated income taxes on unrealized gains."

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As noted in Preliminary Note I, Regulation D transactions are exempt from the registration requirements of the Securities Act, not the antifraud provisions. Thus, nothing in Regulation D states that an issuer need not give disclosure to an investor. Rather, the regulation provides that in certain instances the exemptions from registration will not be conditioned on a particular content, format or method of disclosure.

27 An issuer is subject to section 13 reporting obligations if it has a class of securities registered under section 12 of the Exchange Act. An issuer is subject to section 15(d) reporting

obligations if it has had a Securities Act registration statement go effective, or if in any year after the year of effectiveness, it has at least 300 holders of the class of securities to which the registration statement applied. In the latter instance, however, even if the issuer has 300 or more shareholders, it may not be subject to section 15(d) reporting obligations if it has had less than 500 shareholders and less than $3,000,000 in assets during the last three years. See Rule 15d-6 (17 CFR 240.150-6) under the Exchange Act. See 17 CFR 239.28. Form S-18 is an abbreviated registration form for certain offerings not exceeding $5,000,000. The form is not available to issuers that report under the Exchange Act.

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Rules S02(b)(2X(i)(C) and 502(b)(2)(1)(D) contain special provisions for foreign issuers recently adopted by the Commission. See Release No. 33-6437 (November 19, 1982) (47 FR 54764).

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The Commission adopted $3 Securities Act Guides in 1968 (Release No. 33-4936 (December 9, 1968) (33 FR 18617)) and 10 additional ones subsequently. The Guides served as an expression of the policies and practices of the Division of Corporation Finance. Most of those Guides have been incorporated into Regulation C(17 CFR 230.400-.494) and Regulation S-K (17 CFR 229.10-.802) (see Release No. 33-6383 (March 3, 1982) (47 FR 11380)) and thus were rescinded (see Release No. 33-6384 (March 3, 1982) (47 FR 11476)). Five of the Guides applicable to specific industries were not rescinded, however, and were redesignaled. Guide S, which was Guide 60, applies to the preparation of registration statements relating to interests in real estate limited partnerships. Guide S was revised in Release No. 33-6405 (June 3, 1982) (47 FR 25140).

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Form S-18 has been amended recently to permit its use by limited partnerships. Release No. 33-6406 (June 4, 1982) (47 FR 25126).

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The same general rule would be applicable to an offering in excess of $5,000,000. See Release No. SAB-40, Topic 6.D.3.d. (January 23, 1981).

(46) Question: The issuer in a $3,000,000 Regulation D offering is a limited partnership that will acquire certain real estate operations with the offering proceeds. What is the appropriate consideration for disclosure of the operating history of these operations? Answer: Item 21(g) of Form S-18, which provides special guidance for such disclosure, calls for the audited income statements of the operations, with certain exclusions, for the two most recent fiscal years. If the issuer can meet certain conditions, however, the instruction reduces that requirement to only one year of audited income statements."

Under Regulation D, Rule 502(b)(i)(A) provides that only the financial statements for the issuer's most recent fiscal year must be certified in an offering noi in excess of $5,000,000. The staff is of the view that this provision applies to all financial statements in the disclosure document. Thus, in the Regulation D offering described, the following considerations apply. If the issuer can meet the conditions in Item 21(g) of Form S-18, it may present one year of audited income statements on the operations to be acquired. If the issuer cannot meet the conditions in Form S-18, then it should present two years of income statements, only one of which must be audited. (47) Question: If the issuer in Question 46 cannot obtain the financial statements on the operations to be acquired without unreasonable effort or expense, what further considerations are applicable under Regulation D? Answer: Rule 502(b)(2)(1)(A) provides that “[i]f the issuer is a limited partnership and cannot obtain the required financial statements without unreasonable effort or expense, it may furnish financial statements that have been prepared on the basis of federal income tax requirements and examined and reported on in accordance with generally accepted auditing standards by an independent public or certified accountant.” The staff interprets this provision to apply 10 all financial statements that the issuer presents in the offering document. Thus, the issuer described above may present tax basis operating statements on the operations to be acquired." (48) Question: Has the Commission defined or will the staff issue interpretations on the term "unreasonable effort or expense?" Answer: No. The meaning of “unreasonable effort or expense” depends on the particular facts and circumstances attending each case. Only the issuer will know the facts and circumstances and be able to evaluate them with respect to the requirements of the rule. (49) Question: The issuer in a Regulation D offering of $7,000,000 is a corporation. That corporation is acquiring a business. The issuer is unable to obtain the financial statements for that business without unreasonable effort or expense." What are the relevant considerations under Regulation D? Answer: Rule 502(b)(2)(1)(B) provides that if the issuer is not a limited partnership and “cannot obtain audited financial statements without unreasonable effort or expense, then only the issuer's balance sheet, which shall be dated within 120 days of the start of the offering, must be audited." The staff has interpreted this provision in the context of Rule 3-05 of Regulation S-X to apply to the financial statements of the business being acquired. Thus, if the business being acquired is other than a limited partnership, and if the issuer cannot obtain audited financial statements of that business without unreasonable effort or expense, then the issuer may provide the relevant financial statements for the business being acquired on an unaudited basis so long as it also provides an audited balance sheet for that business dated within 120 days of the start of the offering, or, if appropriate, as of the date of acquisition of the business.''

2. Reporting Issuers Rule 502(b)(2)(ii)

If the issuer is subject to the reporting requirements of section 13 or 15(d) of the Exchange Act, Regulation D sets forth two alternatives for disclosure: the issuer may deliver certain recent Exchange Act reports (the annual report, the definitive proxy statement, and, if requested, the Form 10-K (17 CFR 249.310)) or it may provide a document containing the same information as in the Form 10-K or Form 10 (17 CFR 249.210) under the Exchange Aci or in a registration statement under the Securities Act. In either case the rule also calls for the delivery of certain supplemental information. (50) Question: Rule 502(b)(2)(ii)(B) refers to the information contained "in a registration statement on Form S-1.” Does this requirement envision delivery of Parts I and II of the Form S-1? Answer: No. Rule 502(b)(2)(ii)(B) should be construed to mean Part I of Form S-1. (51) Question: A reporting company with a fiscal year ending on December 31 is making a Regulation D offering in February. It does not have an annual report to shareholders, an associated definitive proxy statement, or a Form 10-K for its most recently completed fiscal year. The issuer's last registration statement was filed more than two years ago. What is the appropriate disclosure under Regulation D? Answer: The issuer may base its disclosure on the most recently completed fiscal year for which an annual report to shareholders or Form 10-K was timely distributed or filed. The issuer should supplement the information in the report used with the information contained in any reports or documents required to be filed under sections 13(a), 14(a), 14(c) and 15(d) of the Exchange Act since the distribution or filing of that report and with a brief description of the securities being offered, the use of the proceeds from the offering, and any material changes in the issuer's affairs that are not disclosed in the documents furnished. See Rule 502(b)(2)(ii)(C).

C. General

Rule 501(b)(2) also contains four general provisions applicable to all classes of issuer in all offerings where specified disclosure is required. These provisions govern exhibits, disclosure of additional information to non-accredited investors, the opportunity for further investor inquiries, and disclosure of certain additional information in business combinations. (52) Question: Is a Rule 505 or 506 offering of interests in a limited partnership where certain purchasers are not accredited investors, must the issuer obtain an opinion of counsel regarding the legality of the securities being issued or an opinion regarding the tax consequences of an investment in the offering? Answer: Rule 502(b)(2)(iii) provides that the issuer is not required to furnish the exhibits that would accompany the form of registration or report governing the issuer's disclosure document if the issuer identifies the contents of those exhibits and makes them available to purchasers upon written request prior to purchase." Any form of registration to which the issuer refers in preparing its disclosure document under Regulation D requires that the issuer furnish the exhibits required by Item 601 of Regulation S-K. Item 601 requires that the issuer furnish, among other exhibits, an opinion of counsel as to the legality of the securities being issued. Thus, under Rule 502(b)(2)(iii), the issuer should identify the contents of this opinion of counsel and make it available to pur

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The parallel to this instruction under other forms of registration is Rule 3-14 of Regulation S-X (17 CFR 210.3-14). Rule 3-14 requires income statements for the three most recent fiscal years, unless the issuer meets certain conditions, in which case the issuer need present only one year of audited income statements.

See letter re Winthrop Financial Co., Inc. dated May 25, 1982. In response to inquiries regarding the appropriateness of tax basis financial statements, issuers should refer 10 Statement on Auditing Standards No. 14, Special Reports, American Institute of Certified Public Accouniants, December 1976.

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The issuer should refer to Rule 3-05 of Regulation S-X (17 CFR 210.3-05) for the disclosure guidelines on businesses to be acquired. If the offering were for less than $5,000,000 and the issuer were thus referring to Form S-18, Item 21(d) of that form provides a parallel rule on businesses to be acquired.

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chasers upon written request. Item 601 also sets forth certain requirements for an opinion as to tax matters. Such an opinion is required to support any representations in a prospectus as to material tax consequences. Thus, assuming the Regulation D issuer will make representations in the disclosure document as to material tax consequences of investing in a limited partnership, the issuer should identify the contents of and make available upon request an opinion supporting that discussion."

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III. Operational Conditions

A. Integration Rule 502(a)

Rule 502(a) achieves two purposes. First, it explicitly incorporates the doctrine of integration into Regulation D. Second, it establishes an exception to the operation of that doctrine.

Integration operates to identify the scope of a particular offering by considering the relationship between multiple transactions. It is premised on the concept that the Securities Act addresses discrete offerings and on the recognition that not every offering is in fact a discrete transaction. The integration doctrine prevents an issuer from circumventing the registration requirements of the Securities Act by claiming a separate exemption for each part of a series of transactions that comprises a single offering. Because the determination of whether transactions should be integrated into one offering is so dependent on particular facts and circumstances, the staff does not issue interpretations in this area." The Note to Rule 502(a), however, does set forth a number of factors that should be considered in making an integration determination.

Rule 502(a) also sets forth an exception to the integration doctrine. It provides that a Regulation D offering will not be integrated with offers or sales that occur more than six months before or after the Regulation D offering. This six month safe harbor rule only applies, however, where there have been no offers or sales (except under an employee benefit plan) or securities similar to those in the Regulation D offering within the applicable six months." (53) Question: An issuer conducts offering (A) under Rule 504 of Regulation D that concludes in January. Seven months later the issuer commences offering (B) under Rule 506. During that seven month period the issuer's only offers or sales of securities are under an employee benefit plan (C). Must the issuer integrale (A) and (B)? Answer: No. Rule 502(a) specifically provides that (A) and (B) will not be integrated." B. Calculation of the Number of Purchasers Rule 501(e)

Rule 501(e) governs the calculation of the number of purchasers in offerings that rely either on Rule 505 or 506. Both of these rules limit the number of non-accredited investors to 35. Rule 501(e) has two parts. The first excludes certain purchasers from the calculation. The second establishes basic principles for counting of corporations, partnerships, or other entities. (54) Question: One purchaser in a Rule 506 offering is an accredited investor. Another is a first cousin of that investor sharing the same principal residence. Each purchaser is making his own investment decision. How must the issuer count these purchasers for purposes of meeting the 35 purchaser limitation? Answer: The issuer is not required to count either investor. The accredited investor may be excluded under Rule 501(e)(1)(iv), and the first cousin may then be excluded under Rule 501(e)(1)(i).“? (55) Question: An accredited investor in a Rule 506 offering will have the securities she acquires placed in her name and that of her spouse. The spouse will not make an investment decision with respect to the acquisition. How many purchasers will be involved? Answer: The accredited investor may be excluded from the count under Rule 501(e)(1)(iv) and the spouse may be excluded under Rule 501(e)(1)(i). The issuer may also take the position, however, that the spouse should not be deemed a purchaser at all because he did not make any investment decision, and because the placement of the securities in joint name may simply be a tax or estate planning technique. (56) Question: An offering is conducted in the United States under Rule 505. At the same time certain sales are made overseas. Must the foreign investors be included in calculating the number of purchasers? Answer: Offers and sales of securities to foreign persons made outside the United States in such a way that the securities come to rest abroad generally do not need to be registered under the Act. This basis for non-registration is separate from Regulation D and offers and sales relying on this interpretation are not required to be integrated with a coincident domestic offering.“! Thus, assuming the sales in this question rely on this interpretation, foreign investors would not be counted. (57)Question: An investor in a Rule 506 offering is a general partnership that was not organized for the specific purpose of acquiring the securities offered. The partnership has ten partners, five of whom do not qualify as accredited investors. The partnership will make an investment of $100,000. How is the partnership counted and must the issuer make any findings as to the sophistication of the individual partners? Answer: Rule 501(e)(2) provides that the partnership shall be counted as one purchaser. The issuer is not obligated to consider the sophistication of each individual partner. (58) Question: If the partnership in Question 57 purchases $200,000 of the securities being offered and if that amount does not exceed 20 percent of the partnership’s net worth, how should the partnership be counted? Answer: Rule 501(e)(2), which provides that the partnership shall be counted as one purchaser, operates in tandem with Rule 501(e)(1). Thus, because the partnership is an accredited investor (in this case under Rule 501(a)(5)), the partnership may be excluded from the count under Rule 501(e)(2)(iv). (59) Question: An investor in a Rule 506 offering is an investment partnership that is not accredited under Rule S0J(a)(8). Although the partnership was organized two years earlier and has made investments in a number of offerings, not all the partners have participated in each investment. With each proposed avestment by the partnership, individual partners have received a copy of the disclosure document and have made a decision whether or not to participate. How do the provisions of Regulation D apply to the partnership as an investor?

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See letters to Hecker & Phillips dated December 22, 1982 and Hopper, Kanouff, Smith and Peryam dated September 10, 1982.

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See Release No. 33-6253 (October 28, 1980) (45 FR 72644); letters re Security Bancorp, Inc. dated January 21, 1980 and Kearney Plaza Company dated March 8, 1979,

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The Note to Rule 502(a) also points out that certain foreign offerings are not integrated with domestic exempt offerings.

Rule 502(a), however, does not provide a safe harbor to the possible integration of offering (C) with either offering (A) or (B). In resolving that question, the issuer should consider the factors listed in the Note to Rule 502(a).

The N to Rule 501(e) provides that the issuer must satisfy all other conditions of Regulation D with respect 10 purchasers that have been excluded from the count. Thus, for instance, the issuer would have to ensure the sophistication of the first cousin under Rule S06(b)(2)(ii).

See Release No. 33-4708 (July 9, 1964) (29 FR 828), Preliminary Note 7 to Regulation D and Note to Rule 502(a).

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