Section 4(a)(7) Resale Exemption – FAST ACT

Reselling Restricted Securities – SEC Exemption Section 4(a)(7) – FAST ACT

The Fixing America’s Surface Transportation Act (FAST Act), which was enacted on December 4, 2015, includes a resale exemption for private placements of securities. Under Section 76001 of the FAST Act, Congress codified an exemption for certain resales of restricted securities as Section 4(a)(7) of the Securities Act. The FAST Act provides that any sale made in compliance with Section 4(a)(7) will not be a distribution under Section 2(a)(11) of the Securities Act. The Section 4(a)(7) exemption is available for private resales of restricted securities to “accredited investors” where no general solicitation is used and certain information concerning the issuer and the transaction is provided to the Purchaser.

One significant benefit of Section (a)(7) is that unlike the Section 4(a)(1½) exemption, state blue sky laws are preempted.

Section 4(a)(7) Exemption Eligibility

Section 4(a)(7) exempts from the SEC’s registration statement requirements private resales of securities by persons other than the issuer or a subsidiary if the following requirements are met:

• The issuer of the securities must not be a blank check, blind pool, shell company, special purpose acquisition company, or in bankruptcy or receivership;
• If the seller or any person being compensated in connection with the resale must not be subject to the bad actor disqualification provisions included in Rule 506 or Section 3(a)(39) of the Securities Exchange Act of 1934, (the “Exchange Act”);
• The transaction must not relate to an unsold allotment by a broker-dealer or underwriter;
• The security that is the subject of the transaction must have been authorized and outstanding for at least 90 days prior to the time of sale; and
• The securities subject to the Section 4(a)(7) resale are restricted securities.

Section 4(a)(7) Requirements

Resales under the Section 4(a)(7) exemption, the transaction must meet the following requirements:

• each Purchaser must be an “accredited investor,” as such term is defined in Rule 501(a) of Regulation D under the Securities Act;
• neither the Selling Stockholder nor any person acting on the Selling Stockholder’s behalf may engage in any form of general solicitation or general advertising; and
• if the issuer is not a SEC reporting company (issuers that are neither subject to the reporting requirements of Sections 13 or 15(d) of the Securities Exchange Act, nor foreign private issuers exempt from reporting pursuant to Rule 12g3-(b) thereunder, nor foreign governments eligible to register securities under Schedule B of the Securities Act), the Selling Stockholder and purchaser must obtain reasonably current information from the issuer that includes:
  • the issuer’s and if applicable, any predecessor’s legal name;
  • the address of the issuer’s principal place of business;
  • the exact title and class of the security offered, its par or stated value;
  • the current capitalization of the issuer;
  • the name and address of the issuer’s  transfer agent or other person responsible for stock transfers; ;a statement of the nature of the issuer’s business as of 12 months before the proposed resell date;
  • identity of the issuer’s officers and directors;
  • disclosure of fees and/or commissions to any broker, dealer, or other person being paid in connection with the sale of the securities;
  • the issuer’s most recent balance sheet and profit and loss statement for the two preceding fiscal years or such shorter period as it has been in operation, prepared in accordance with U.S. generally accepted accounting principles (GAAP) or, in the case of a foreign private issuer prepared in accordance with International Financial Reporting Standards (IFRS); and
  • if the Selling Stockholder is a Control Holder, a statement regarding the nature of the affiliation between the Control Person and the issuer accompanied by a certification from the Control Holder that it has no reasonable grounds to believe that the issuer is in violation of the securities laws or regulations.

With respect to the Section 4(a)(7) Securities sold by a Selling Stockholder in a Section 4(a)(7) transaction are restricted securities and persons purchasing securities from a Selling Stockholder in a Section 4(a)(7) resale must register the shares with the SEC or locate an available exemption for its resale.

Hamilton & Associates Law Group, P.A provides ongoing corporate and securities counsel to private companies and public companies listed and publicly traded on the NASDAQ Stock Market, the NYSE MKT and OTC Markets. For two decades the Firm has served private and public companies and other market participants in corporate law matters, securities law and going public matters.

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