Brochures

"Testing the Waters"

SOLICITATIONS OF INTEREST

To assist small business in raising capital, on January 1, 1996, the State of Wisconsin Division of Securities adopted an administrative rule which establishes a registration exemption permitting the solicitation of indications of interest in a proposed securities offering.

The rule allows an interested person to express interest in a potential securities offering by requesting a prospectus or offering circular of the issuer. This in no way commits the interested person to purchase any securities or to invest any money.

The purpose of the rule is two-fold:

One is to allow small business issuers to determine whether there is a reasonable probability of success prior to incurring the often considerable expense of selling the securities.
The second is to permit the issuer to solicit input publicly on how to structure the offering to make it attractive to a sufficient number of investors.

To use this exemption, the issuer must intend either to register in this state or to use an exemption from the registration process. This procedure allows for offers only. Sales are permitted only after the securities are registered in this state, or an exemption from registration becomes available for the sales. During the solicitation-of-interest period, the issuer cannot solicit or accept money or a commitment to purchase securities.

Note: If the small business intends to rely on the federal private placement exemptions in Rule 505 or 506 of Regulation D under the Securities Act of 1933 to raise capital, the solicitation-of-interest process may invalidate the federal exemption which precludes general solicitation or general advertising (such as newspaper or magazine ads or articles; television, radio, electronic or other broadcast media; or public seminars).

The solicitation-of-interest form ("Form SOI") sets forth the minimum information required for soliciting indications of interest. Additional information may be included. For your use, a copy of Form SOI, as published in section DFI-Sec 9.01(1)(c), Wis. Adm. Code, is available through this website (PDF: 5 KB / 1 page).

Note: All information given to the potential investor must be accurate. Any investor who receives materially incomplete or incorrect information, whether written or oral, during the solicitation-of-interest process may later have a cause of action under the Wisconsin Securities Law, and administrative and criminal liability could also arise.

There are certain very specific, detailed steps that the issuer must follow. Any offer that fails to conform to the conditions of the procedure may constitute an unregistered, unlawful offer for which civil, administrative, and criminal liabilities may attach under the Wisconsin Securities Law. Following are the required steps:

Not later than the date of the initial solicitation of interest, the potential issuer must file with the Division a completed Form SOI, together with any other materials to be used to conduct the solicitations of interest, including, but not limited to, the script of any broadcast to be made and a copy of any notice to be published. No fee is required.
Not later than the date of use, the potential issuer must file with the Division amendments to materials already filed or additional materials to be used to conduct the solicitations of interest.
The text of any published notice or script for broadcast, and any printed material delivered in any solicitation of interest, must begin with the disclosures and information required by Form SOI and follow the format of that form.
The solicitations of interest must stop once the potential issuer files a registration application or files a claim of exemption or commences use of any self-executing exemption.
Sales are not permitted until 20 days after the last delivery of a solicitation-of-interest document or a radio or television broadcast or other media publication, and an exemption from registration for the sales becomes available or the securities become registered.

Note: The materials filed with the Division, although not subject to review before use, may be reviewed by Division staff. Use of terms or phrases such as "guarantee," "low-risk," or "outstanding return" may result in the staff raising questions regarding potentially misleading or untrue statements. If the Division deems that the materials are in any way false or misleading, the Division can, under sec. 551.53, Wis. Stats., prohibit any further use of the materials.

Issuers are ineligible to use this exemption if the "bad boy" provisions of sec. 551.23(19), Wis. Stats., apply to them. According to the relevant portion of that statute, the issuer is ineligible if it or any of its officers, directors, general partners, controlling persons, or affiliates:

Has filed a registration statement which is the subject of an effective order entered against the issuer, its officers, directors, general partners, controlling persons or affiliates thereof, pursuant to any state's law within five years prior to the filing, denying effectiveness to, or suspending or revoking the effectiveness of, the registration statement;
Has been convicted of any felony or misdemeanor in connection with the offer, sale or purchase of any security or franchise, or any felony involving fraud or deceit, including but limited to forgery, embezzlement, obtaining money under false pretenses, larceny or conspiracy to defraud;
Is subject to an effective administrative order or judgment entered by a state securities administrator within five years prior to the filing, which prohibits, denies or revokes the use of any exemption from securities registration, which prohibits the transaction of business by the person as a broker-dealer or agent, or which is based on fraud, deceit, an untrue statement of a material fact or an omission to state a material fact; or
Is subject to any order, judgment, or decree of any court entered within five years prior to the filing, temporarily, preliminarily, or permanently restraining or enjoining the person from engaging in or continuing any conduct or practice in connection with the offer, sale or purchase of any security or the making of any false filing with any state.

The solicitation-of-interest exemption is contained in section DFI-Sec 2.027 of the Wisconsin Administrative Code and is reproduced in its entirety below.

NOTE: Users of this brochure should remember that the laws and rules discussed here are subject to revision. Also, the information provided in this brochure is summarized from those laws and rules and should not be relied upon without consulting them.

CAN WE HELP?

If you have any questions, or would like to arrange a conference, contact the Division at:

Department of Financial Institutions
Division of Securities
PO Box 1768
Madison, WI 53701-1768
(608) 266-8557
(608) 264-7979 (Fax)

The Division of Securities is located on the fourth floor of 345 West Washington Avenue in Madison just three blocks from the Capitol.

Talk to someone in the Small Business Information Center, at (608) 266-8557, if you need additional forms, brochures, or other information.

You may obtain from the Division separate booklet copies of the Wisconsin Securities Laws and Administrative Rules.

THE RULE

DFI-Sec 2.027.
EXEMPTION FOR SOLICITATIONS OF INTEREST PRIOR TO REGISTRATION OR EXEMPTION .

(1) A transaction exemption is available under s. 551.23(18), Stats., for an offer, but not a sale, of a security made by or on behalf of an issuer pursuant to delivery of a written document or use of a newspaper publication or scripted media broadcast containing the information prescribed in the form in s. DFI-Sec 9.01(1)(c), for the sole purpose of soliciting an indication of interest from prospective purchasers in receiving a prospectus, private placement memorandum or equivalent disclosure document for the security, provided the following conditions are satisfied, except to the extent sub. (2) is applicable.

(a) The issuer intends that sales of the security be either:

Registered under ch. 551, Stats.; or
Exempt from registration under an available exemption in any subsection of s. 551.23, Stats.

(b) Not later than the date of the initial solicitation of interest made under this section, the offeror shall file with the division a completed solicitation of interest form as prescribed in s. DFI-Sec 9.01(1)(c), together with any other materials to be used to conduct solicitations of interest, including, but not limited to, the script of any broadcast to be made and a copy of any notice to be published. Material amendments to the solicitation of interest form or to any related materials used to conduct solicitations shall be filed with the division not later than the date of their first use. Any written document under this subsection may include a coupon, returnable to the issuer indicating interest in a potential offering, revealing the name, address and telephone number of the prospective purchaser.

(c) The text of any published notice or script for broadcast, and any printed material delivered in any solicitation of interest under this section, shall begin with the disclosures and information required in, and in the format of, the solicitation of interest form specified in s. DFI-Sec 9.01(1)(c).

(d) The offeror does not know, and in the exercise of reasonable care could not know, that any of the issuer's officers, directors, general partners, controlling persons or affiliates thereof are or would be disqualified from use of the registration exemption in s. 551.23(19), Stats., as a result of any of the causes specified in s. 551.23(19)(c)1.a. to d., Stats., except for any person or persons subject to a disqualification who meets the conditions for waiver in s 551.23(19)(c)2.a., Stats.

(e) Solicitations of interest pursuant to this section shall not be made after the filing of either a registration statement under ch. 551, Stats., the filing of materials required for a claim of registration exemption under s. 551.23, Stats., or use of any available self-executing exemption under s. 551.23, Stats.

(f) Sales of the securities that are the subject of solicitations of interest under this section shall not be made until 20 calendar days after the last delivery of a solicitation of interest document or a radio or television broadcast or other media publication.

(2)(a) A failure to comply with any of the conditions in sub. (1) will not result in the loss of the securities registration exemption under this section for any offer to a particular individual or entity if the offeror demonstrates each of the following are met:

The failure to comply did not pertain to a condition directly intended to protect that particular individual or entity; and
The failure to comply was insignificant with respect to the offering as a whole; and
A good faith and reasonable attempt was made to comply with the conditions in sub. (1)(a) to (f).

(b) Where an exemption is established only through reliance upon this subsection, the failure to comply with the conditions in sub. (1)(a) to (f) shall constitute a basis for action that may be taken by the division under s. 551.57, Stats., and shall constitute a basis for action that may be taken by the division under s. 551.24, Stats., to deny or revoke the exemption as to a specific security or transaction.