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In re Information Resources Corp.

Decided: November 27, 1973.

IN THE MATTER OF INFORMATION RESOURCES CORP., A NEW JERSEY CORPORATION


Goldmann, Fritz and Lynch. The opinion of the court was delivered by Goldmann, J.A.D., Temporarily Assigned.

Goldmann

[126 NJSuper Page 44] Information Resources Corp. (IRC) appeals from an order of the Chief of the Bureau of Securities prohibiting it, for a period of one year commencing May 15, 1972 and terminating May 15, 1973, from availing itself of (a) the registration of securities

provisions of N.J.S.A. 49:3-61 and 62 and Bureau Regulation 13:13-52, and (b) the exemption from registration provisions of N.J.S.A. 49:3-50(a) and (b) and Regulation 13:13-53. The order further directed that the company "cease and desist from directly or indirectly negotiating, offering for sale, or issuing any of its securities from or within the State of New Jersey." The order was based on a determination that IRC had engaged in the sale of securities in violation of the Uniform Securities Law, N.J.S.A. 49:3-47 et seq.

IRC was incorporated in New Jersey on March 17, 1970. From July 1970 to February 1971 it maintained offices in New Jersey, first in Union and then in Mountainside. Since then its offices have been located in New York City.

The company was formed to engage in the general manufacture and sale of computer peripheral equipment and related systems -- specifically, the development of a data acquisition and recorder terminal. In order to fund the project the board of directors authorized the issue and sale of a single class of common stock. Neal L. Hade, of Sea Cliff, N.Y., now the corporate president, was the moving force behind IRC and received 609 shares for the $25,000 and other assets, technical know-how and prior services he had contributed. Hade and Sal Mancino, of Seaford, N.Y., had before the incorporation been partners in developing the proposed product. Mancino received 100 shares for his contribution of some $5,000 in electronic components and for certain technical services. At the same time Mel Margolies, of Little Neck, N.Y., secretary-treasurer of IRC, received 50 shares for services he had rendered. Thereafter relatives, friends and former clients came forward to request that they be allowed to invest in the enterprise. Shares in varying amounts were sold to them, the price increasing as the terminal project progressed from wooden prototype to working model.

As of January 7, 1972 the company had issued 1,000 shares to 20 individuals. The first shares were issued on August 17,

1970 (to Hade), and the last on November 22, 1971. Of the 20 shareholders 4 transferred their 46 shares to an attorney, and a stock certificate was duly issued to him as their trustee in exchange. If one assumes (as appears to be the case) that the four beneficiaries were residents of this State at the time they acquired their stock, the total number of New Jersey purchasers was eight. Eleven were residents of and acquired their shares in New York State, and one in Maryland. Within the 12-month period from December 17, 1970 to December 17, 1971 -- the period chosen by the Bureau Chief -- there were sales of IRC stock to 17 persons, 8 of them residents of New Jersey.

The proceedings in the Bureau were initiated by an order requiring IRC to produce certain specified documents relating to the corporate structure and to securities sales. The company complied on January 10, 1972, at the same time seeking an exemption from the registration of securities under N.J.S.A. 49:3-50(b)(9). On February 14, 1972 the Bureau issued an order directing the company to show cause why it should not be declared to have offered or sold and issued its shares without complying with the registration requirements of our Uniform Securities Law or obtaining an exemption therefrom. In response to that order the company appeared for a hearing before the Chief of the Bureau, acting as hearing examiner. He filed his findings of fact and conclusions of law in regular course, and on May 5, 1972 issued the order of prohibition here on appeal.

IRC's principal contention is that the Bureau erred in holding that the company's sales of its shares were not exempt from registration under N.J.S.A. 49:3-50(b)(9). That section reads:

(b) The following transactions are exempted from the provisions of [ N.J.S.A. 49:3-60, "Registration of Securities," and N.J.S.A. 49:3-63, "Filing of Sales Literature"] of this act:

(9) any transaction pursuant to an offer directed by the offeror to not more than 10 persons * * * in this ...


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