Existing Security Holders
Subscription Offer to Existing Security Holders

Statute: § 551.23(12), Wis. Stats.

Used for:  Offers and sales to persons already holding any of an issuer's securities, when the securities are not "covered securities" (see § DFI-Sec 2.04(4), Wis. Adm. Code).

Note:  No commission or other remuneration, other than a standby commission to a licensed broker­dealer, may be paid for soliciting. For the purposes of this exemption, a person who holds only transferable warrants exercisable for more than 90 days is not a "security holder."

Filing requirement: Notice Filing, as set forth at § DFI-Sec 2.03, Wis. Adm. Code.

• Filing fee: $200, as set forth at § DFI-Sec 7.01(2)(b), Wis. Adm. Code made payable to Wisconsin DFI-Division of Securities.
• Form required: There is no required form. File a cover letter (including the fee) at least ten days prior to the offering in this state, referencing the statute or rule section under which the notice is filed.
• Exhibits required: A copy of the prospectus, offering document, all other material to be delivered to offerees in connection with the transaction, and all other information the Division may require after the filing. If advertising is published or circulated in connection with the transactions or the securities underlying the transactions for which this exemption is claimed, it must be filed with the Division and may not be used unless and until the Division has allowed its use, unless exempt from this requirement under § DFI-Sec 7.02(1), Wis. Adm. Code.
• Review time: Ten calendar days, unless extended pursuant to § DFI-Sec 2.03(2), Wis. Adm. Code.

Administrative Code references: §§ DFI­Sec 2.02(9)(c) and 7.02(1), Wis. Adm. Code.

Frequently asked questions:

Q: Is this exemption self­executing?

    A:   No. A notice must be filed with the Division in order to claim this exemption.

Q: Must a Consent to Service of Process be filed in order to use this exemption?   

    A: No. The Division does not require a Consent to Service of Process in order to use this exemption.

Q:  May this exemption be used for securities issued in connection with a reorganization by a corporation into a holding company form of organization?

    A:  Yes, in most cases.   Specific language in the exemption allows its use in transactions pursuant to an offer to existing security holders of a corporation which, prior to the offer, owned substantially all of the voting stock of the issuer or whose controlling persons organized the issuer for the purpose of the offer.

Q: May this exemption be used where a substantially owned subsidiary makes an offer to shareholders of its parent corporation?

    A. Yes.

Q: What is a "standby commission"?

     A. A standby commission is remuneration paid to a licensed broker­dealer in return for the broker­dealer's commitment to purchase an issuer's securities in the event that not all of the securities are purchased by the issuer's security holders.

Important interpretive letters:

2/21/94 letter re:  Fidelity Bancorp.  The definition of "security holder" for purposes of § 551.23(12), Wis. Stats., does not include a person who at the time of the transaction holds only transferable warrants that are exercisable for more than 90 days after their issuance.

12/30/82 letter re:  First Mutual Savings Association of Florida. The use of a registration exemption for the part of a proposed conversion transaction involving the subscription offering by the Association to its savings account holders in Wisconsin was conditioned upon the issuer making a prior filing with the Division consisting of all information regarding the terms and conditions of the offering.   Also, the registration exemption provision was not available for the offer and sale incident to the subscription offering by the Association of its common stock to   borrowers, who are not considered "security holders."

History:  Adopted January 1, 1970.  Differs from § 402(b)(11) of the Uniform Securities Act in that the Wisconsin statute includes the following underlined language, "Any transaction pursuant to an offer to existing security holders of the issuer, or of a corporation which, prior to the offer, owned substantially all of the voting stock of the issuer or whose controlling persons organized the issuer for the purpose of the offer .  .  .  ." Whereas a notice filing is mandatory under the Wisconsin statute, the Uniform Act provision offers it as one way to claim the exemption even if commission is given for soliciting. Amended effective 4/17/92 to clarify that with respect to transferable warrants, the exemption does not apply to persons who hold only transferable warrants that are exercisable for more than 90 days after their issuance.