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.)