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Changes to Transactional Exemptions from Registration Under the Securities Act of Nebraska

on Wednesday, 11 October 2017 in The Closer - M&A, Securities & Corporate Counsel: Kevin P. Tracy, Editor

LB 148 amended various sections of the Securities Act of Nebraska (the “Act”).  Some of the most substantive changes were to §8-1111.  Generally, offers and sales of securities in the State of Nebraska must be registered unless an exemption is available, and §8-1111 provides transactional exemptions from registration under the Act. This article highlights recent changes to the most commonly utilized transactional exemptions.  

New Types of Entities under the Accredited Investor Definition.  Historically, the self-executing exemption for accredited investors was limited to institutional investors (i.e. banks, trust companies, other financial institutions) and individual accredited investors. See, §8-1111(8). Although the SEC’s definition of accredited investors has included other entity investors, Nebraska’s definition differed and was more limited until LB 148 was passed.  LB 148 expanded the definition of accredited investors and harmonized it with the SEC definition to include offers and sales to corporations, trusts, and partnerships with assets over $5 million, as long as the entity was not formed specifically to acquire the offered securities, and any entity in which all of the equity owners are individual accredited investors. The definition of “individual accredited investor” was not changed in the Act.  

Changes to Employee Stock Plans.  LB 148 also amended the exemption for employee stock plans to clarify the scope of exemptions for securities related to employee benefit plans in Section §8-1111(17), further aligning this exemption with SEC Rule 701.  Rule 701 is the federal exemption from registration for compensatory equity awards granted pursuant to written compensatory benefits plan.  The Act now exempts offers and sales to directors, general partners, trustees of a business trust, officers, consultants, or advisors as well as persons who formerly served in such positions as long as they were employed by or providing services to the issuer when the securities were offered.  Other categories of persons now exempt include family members who acquire such securities through gifts or a domestic relation order and insurance agents of the issuer who act exclusively for the issuer. 

Increase to Intrastate Offering Exemption.  The maximum offering amount in Subsection (23) of §8-1111 was increased from $250,000 to $750,000.  In the past, this offering was not frequently used because of the $250,000 limitation and various other restrictions.  To rely on this exemption, the issuer is limited to Nebraska Department residents, written notice must be provided to the Nebraska of Banking and Finance 15 days before the first sale, and the issuer must deliver a written disclosure document to each potential investor.  

Crowdfunding Changes. LB 148 amended §8-1111(24) to facilitate intrastate crowdfunding by allowing issuers the choice to comply with either SEC Rule 147 or 147A.  Rule 147A was approved by the SEC in October 2016, permits offerings to non-residents, and does not require the issuer be formed in the applicable state.  Intrastate crowdfunding is not often used in the State of Nebraska for various reasons, including: limited offering amount, involvement of portal operator, and large number of potential investors.  

The expanded definition of accredited investor and improvements to the employee stock plan exemption both provide certainty and clarity to long-standing exemptions.  The changes to the intrastate offering exemption and the state crowdfunding exemption may encourage issuers to consider relying thereon, despite past reluctance.  

Amber N. Preston 


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