Bill Text: CA AB2096 | 2013-2014 | Regular Session | Amended
NOTE: There are more recent revisions of this legislation. Read Latest Draft
Bill Title: Securities transactions: qualification: notification: small company.
Spectrum: Partisan Bill (Democrat 1-0)
Status: (Engrossed - Dead) 2014-08-14 - In committee: Held under submission. [AB2096 Detail]
Download: California-2013-AB2096-Amended.html
Bill Title: Securities transactions: qualification: notification: small company.
Spectrum: Partisan Bill (Democrat 1-0)
Status: (Engrossed - Dead) 2014-08-14 - In committee: Held under submission. [AB2096 Detail]
Download: California-2013-AB2096-Amended.html
BILL NUMBER: AB 2096 AMENDED
BILL TEXT
AMENDED IN ASSEMBLY APRIL 9, 2014
AMENDED IN ASSEMBLY MARCH 26, 2014
INTRODUCED BY Assembly Member Muratsuchi
FEBRUARY 20, 2014
An act to amend Section 25102 Sections
25112 and 25503 of the Corporations Code, relating to
securities transactions.
LEGISLATIVE COUNSEL'S DIGEST
AB 2096, as amended, Muratsuchi. Securities transactions:
qualification requirements: exemptions.
requirements: notification.
Existing law, the Corporate Securities Law of 1968, requires
certain securities offered or sold in this state to be qualified
through application filed with the Commissioner of Business
Oversight, or to be exempt from the qualification requirements.
Existing law exempts offers and sales of securities in
specified transactions including, but not limited to, offers made to
no more than 35 persons, excluding accredited investors, as defined
by reference to Regulation D promulgated under the federal Securities
Act of 1933, as amended, to include specified minimum net worth and
income requirements for prospective investors. Under
existing law, a security issued either by the issuer of a security
registered under a designated provision of the federal law
or issued by an investment company registered under other specified
federal law, and which is not eligible for qualification under
existing law, may be qualified by notification by making a specified
application, and providing certain documents and additional
information.
Existing law imposes liability for specified damages on a person
who offers or sells a security if the sale is not qualified, violates
a condition of qualification under the act, or violates an order
suspending trading issued by the commissioner.
This bill , in addition, would exempt from
qualification an offering or sale of securities using a general
solicitation or general advertising, provided the transaction meets
specified requirements, including a requirement that the aggregate
offering price of securities, as defined by reference to Regulation
D, does not exceed $1,000,000, less the aggregate offering price for
all securities sold within 12 months, as specified.
authorize qualification by notification for any offer or sale of a
security, if, among other requirements, the offering meets the
requirements for a federal exemption for limited offerings and sales
of securities not exceeding $1,000,000, and the aggregate amount of
securities sold to any investor by the issuer does not exceed certain
amounts within a 12-month time period, except as specified.
This bill would require a court to award attorney's fees and costs
to a prevailing purchaser in an action brought against a person who
makes a sale in violation of the qualification provisions prescribed
in the bill, and would authorize the court to award treble or
punitive damages.
Vote: majority. Appropriation: no. Fiscal committee: yes.
State-mandated local program: no.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1 . Section 25112 of the
Corporations Code is amended to read:
25112. (a) (1) Any security issued by a
person which is the issuer of any security registered under Section
12 of the Securities Exchange Act of 1934 or issued, by an investment
company registered under the Investment Company Act of 1940, and
which is not eligible for qualification under Section 25111, may be
qualified by notification under this section.
(2) Any offer or sale of any security that meets all of the
following criteria may be qualified by notification under this
section:
(A) The aggregate amount of securities sold to all investors by
the issuer within any 12-month period is not more than one million
dollars ($1,000,000).
(B) The aggregate amount of securities sold to any investor by the
issuer, including any amount sold during the 12-month period
preceding the date of the transaction, does not exceed five thousand
dollars ($5,000), or a greater amount as the commissioner may provide
by rule or order, unless the investor is an accredited investor as
defined in Section 230.501 of Title 17 of the Code of Federal
Regulations.
(C) The offering meets the requirements of the federal exemption
for limited offerings and sales of securities not exceeding one
million dollars ($1,000,000) in Section 230.504 of Title 17 of the
Code of Federal Regulations.
(D) The issuer files with the administrator, provides to
investors, and makes available to potential investors the following:
(i) A Small Company Offering Registration disclosure document on
Form U-7, as adopted by the North American Securities Administrators
Association, prior to the commencement of the offering of securities.
(ii) For offerings that, together with all other offerings of the
issuer within the preceding 12-month period, have, in the aggregate,
offering amounts of one hundred thousand dollars ($100,000) or less,
the following:
(I) The income tax returns filed by the issuer for the most
recently completed year, if any.
(II) The financial statements of the issuer certified by the
principal executive officer of the issuer to be true and complete in
all material respects.
(iii) For offerings that, together with all other offerings of the
issuer within the preceding 12-month period, have, in the aggregate,
offering amounts of more than one hundred thousand dollars
($100,000), but not more than five hundred thousand dollars
($500,000), all financial statements reviewed by a public accountant
who is independent of the issuer, using professional standards and
procedures for the review or standards and procedures established by
the commissioner by rule.
(iv) For offerings that, together with all other offerings of the
issuer within the preceding 12-month period, have, in the aggregate,
offering amounts of more than five hundred thousand dollars
($500,000), audited financial statements.
(E) The issuer sets aside in a separate bank account all funds
raised as part of the offering to be held until the time that the
minimum offering amount is reached. If the minimum offering amount is
not reached within one year of the effective date of the offering,
the issuer shall return all funds to investors.
(F) The issuer, a predecessor of the issuer, an affiliated issuer,
a director, executive officer, or other officer participating in the
offering, a general partner or managing member of the issuer, a
beneficial owner of 20 percent or more of the issuer's outstanding
voting equity securities, calculated on the basis of voting power, a
promoter connected with the issuer in any capacity at the time of the
sale, an investment manager of an issuer that is a pooled investment
fund, a person that has been or will be paid, directly or
indirectly, remuneration for solicitation of purchasers in connection
with the sale of securities, a general partner or managing member of
the investment manager or solicitor, or any director, executive
officer, or other officer participating in the offering of the
investment manager or solicitor or general partner or managing member
of the investment manager or solicitor would not be disqualified as
a "bad actor" under subdivision (d) of Section 230.506 of Title 17 of
the Code of Federal Regulations.
(G) Any other requirement set forth by rule adopted by the
commissioner.
(b) An application for qualification under this section shall
contain such information and be accompanied by such documents as
shall be required by rule of the commissioner, in addition to the
information specified in Section 25160 and the consent to service of
process required by Section 25165. For this purpose, the commissioner
may classify issuers and types of securities.
(c) If no stop order or order under subdivision (a) of Section
25143 is in effect under this law, qualification of the sale of the
securities under this section automatically becomes effective (and
the securities may be offered and sold in accordance with the terms
of the application as amended) at 12 o'clock noon California time of
the 10th business day after the filing of the application or the last
amendment thereto or at such earlier time as the commissioner
determines.
SEC. 2. Section 25503 of the
Corporations Code is amended to read:
25503. (a) Any person who violates Section
25110, 25130 or 25133, or a condition of qualification under Chapter
2 (commencing with Section 25110) of this part, imposed pursuant to
Section 25141, or an order suspending trading issued pursuant to
Section 25219, shall be liable to any person acquiring from him the
security sold in violation of such that
section, who may sue to recover the consideration he paid for such
security with interest thereon at the legal rate, less the amount of
any income received therefrom, upon the tender of such
the security, or for damages, if he no longer
owns the security, or if the consideration given for the security is
not capable of being returned. Damages, if the plaintiff no longer
owns the security, shall be equal to the difference between
(a) his the plaintiff's purchase price plus
interest at the legal rate from the date of purchase and (b)
the value of the security at the time it was disposed of
by the plaintiff plus the amount of any income received therefrom by
the plaintiff.
Damages, if
(b) If the consideration given
for the security is not capable of being returned, damages
shall be equal to the value of that consideration plus interest at
the legal rate from the date of purchase, provided the security is
tendered; and if the plaintiff no longer owns the security, damages
in such case shall be equal to the difference between (a)
the value of the consideration given for the security plus
interest at the legal rate from the date of purchase and (b)
the value of the security at the time it was disposed of
by the plaintiff plus the amount of any income received therefrom by
the plaintiff. Any A person who
violates Section 25120 or a condition of qualification under Chapter
3 (commencing with Section 25120) of this part imposed pursuant to
Section 25141, shall be liable to any person acquiring from him the
security sold in violation of such that
section who may sue to recover the difference between (a)
the value of the consideration received by the seller and
(b) the value of the security at the time it was
received by the buyer, with interest thereon at the legal rate from
the date of purchase. Any A person on
whose behalf an offering is made and any underwriter of the offering,
whether on a best efforts or a firm commitment basis, shall be
jointly and severally liable under this section, but
section. However, in no event shall any
underwriter (unless such an underwriter be liable,
unless the underwriter shall have knowingly
received from the issuer for acting as an underwriter some benefit,
directly or indirectly, in which all other underwriters similarly
situated did not share in proportion to their respective interest in
the underwriting) be liable underwriting,
in any suit or suits authorized under this section ,
for damages in excess of the total price at which the securities
underwritten by him the underwriter and
distributed to the public were offered to the public. Any
A tender specified in this section may be made
at any time before entry of judgment. No A
person shall not be liable under this section for
violation of Section 25110, 25120 or 25130 if the sale of the
security is qualified prior to the payment or receipt of any part of
the consideration for the security sold, even though an offer to sell
or a contract of sale may have been made or entered into without
qualification.
(c) The court shall award attorney's fees and costs to a
prevailing purchaser in an action brought against any person who
violates Section 25110 for failure to comply with paragraph (2) of
subdivision (a) of Section 25112, and may award treble or punitive
damages.
SECTION 1. Section 25102 of the Corporations
Code is amended to read:
25102. The following transactions are exempted from the
provisions of Section 25110:
(a) Any offer (but not a sale) not involving any public offering
and the execution and delivery of any agreement for the sale of
securities pursuant to the offer if (1) the agreement contains
substantially the following provision: "The sale of the securities
that are the subject of this agreement has not been qualified with
the Commissioner of Corporations of the State of California and the
issuance of the securities or the payment or receipt of any part of
the consideration therefor prior to the qualification is unlawful,
unless the sale of securities is exempt from the qualification by
Section 25100, 25102, or 25105 of the California Corporations Code.
The rights of all parties to this agreement are expressly conditioned
upon the qualification being obtained, unless the sale is so exempt"
; and (2) no part of the purchase price is paid or received and none
of the securities are issued until the sale of the securities is
qualified under this law unless the sale of securities is exempt from
the qualification by this section, Section 25100, or 25105.
(b) Any offer (but not a sale) of a security for which a
registration statement has been filed under the Securities Act of
1933 but has not yet become effective, or for which an offering
statement under Regulation A has been filed but has not yet been
qualified, if no stop order or refusal order is in effect and no
public proceeding or examination looking toward an order is pending
under Section 8 of the act and no order under Section 25140 or
subdivision (a) of Section 25143 is in effect under this law.
(c) Any offer (but not a sale) and the execution and delivery of
any agreement for the sale of securities pursuant to the offer as may
be permitted by the commissioner upon application. Any negotiating
permit under this subdivision shall be conditioned to the effect that
none of the securities may be issued and none of the consideration
therefor may be received or accepted until the sale of the securities
is qualified under this law.
(d) Any transaction or agreement between the issuer and an
underwriter or among underwriters if the sale of the securities is
qualified, or exempt from qualification, at the time of distribution
thereof in this state, if any.
(e) Any offer or sale of any evidence of indebtedness, whether
secured or unsecured, and any guarantee thereof, in a transaction not
involving any public offering.
(f) Any offer or sale of any security in a transaction (other than
an offer or sale to a pension or profit-sharing trust of the issuer)
that meets each of the following criteria:
(1) Sales of the security are not made to more than 35 persons,
including persons not in this state.
(2) All purchasers either have a preexisting personal or business
relationship with the offeror or any of its partners, officers,
directors or controlling persons, or managers (as appointed or
elected by the members) if the offeror is a limited liability
company, or by reason of their business or financial experience or
the business or financial experience of their professional advisers
who are unaffiliated with and who are not compensated by the issuer
or any affiliate or selling agent of the issuer, directly or
indirectly, could be reasonably assumed to have the capacity to
protect their own interests in connection with the transaction.
(3) Each purchaser represents that the purchaser is purchasing for
the purchaser's own account (or a trust account if the purchaser is
a trustee) and not with a view to or for sale in connection with any
distribution of the security.
(4) The offer and sale of the security is not accomplished by the
publication of any advertisement. The number of purchasers referred
to above is exclusive of any described in subdivision (i), any
officer, director, or affiliate of the issuer, or manager (as
appointed or elected by the members) if the issuer is a limited
liability company, and any other purchaser who the commissioner
designates by rule. For purposes of this section, a husband and wife
(together with any custodian or trustee acting for the account of
their minor children) are counted as one person and a partnership,
corporation, or other organization that was not specifically formed
for the purpose of purchasing the security offered in reliance upon
this exemption, is counted as one person. The commissioner shall by
rule require the issuer to file a notice of transactions under this
subdivision.
The failure to file the notice or the failure to file the notice
within the time specified by the rule of the commissioner shall not
affect the availability of this exemption. Any issuer that fails to
file the notice as provided by rule of the commissioner shall, within
15 business days after discovery of the failure to file the notice
or after demand by the commissioner, whichever occurs first, file the
notice and pay to the commissioner a fee equal to the fee payable
had the transaction been qualified under Section 25110. Neither the
filing of the notice nor the failure by the commissioner to comment
thereon precludes the commissioner from taking any action that the
commissioner deems necessary or appropriate under this division with
respect to the offer and sale of the securities.
(g) Any offer or sale of conditional sale agreements, equipment
trust certificates, or certificates of interest or participation
therein or partial assignments thereof, covering the purchase of
railroad rolling stock or equipment or the purchase of motor
vehicles, aircraft, or parts thereof, in a transaction not involving
any public offering.
(h) Any offer or sale of voting common stock by a corporation
incorporated in any state if, immediately after the proposed sale and
issuance, there will be only one class of stock of the corporation
outstanding that is owned beneficially by no more than 35 persons,
provided all of the following requirements have been met:
(1) The offer and sale of the stock is not accompanied by the
publication of any advertisement, and no selling expenses have been
given, paid, or incurred in connection therewith.
(2) The consideration to be received by the issuer for the stock
to be issued consists of any of the following:
(A) Only assets (which may include cash) of an existing business
enterprise transferred to the issuer upon its initial organization,
of which all of the persons who are to receive the stock to be issued
pursuant to this exemption were owners during, and the enterprise
was operated for, a period of not less than one year immediately
preceding the proposed issuance, and the ownership of the enterprise
immediately prior to the proposed issuance was in the same
proportions as the shares of stock are to be issued.
(B) Only cash or cancellation of indebtedness for money borrowed,
or both, upon the initial organization of the issuer, provided all of
the stock is issued for the same price per share.
(C) Only cash, provided the sale is approved in writing by each of
the existing shareholders and the purchaser or purchasers are
existing shareholders.
(D) In a case where after the proposed issuance there will be only
one owner of the stock of the issuer, only any legal consideration.
(3) No promotional consideration has been given, paid, or incurred
in connection with the issuance. Promotional consideration means any
consideration paid directly or indirectly to a person who, acting
alone or in conjunction with one or more other persons, takes the
initiative in founding and organizing the business or enterprise of
an issuer for services rendered in connection with the founding or
organizing.
(4) A notice in a form prescribed by rule of the commissioner,
signed by an active member of the State Bar of California, is filed
with or mailed for filing to the commissioner not later than 10
business days after receipt of consideration for the securities by
the issuer. That notice shall contain an opinion of the member of the
State Bar of California that the exemption provided by this
subdivision is available for the offer and sale of the securities.
The failure to file the notice as required by this subdivision and
the rules of the commissioner shall not affect the availability of
this exemption. An issuer who fails to file the notice within the
time specified by this subdivision shall, within 15 business days
after discovery of the failure to file the notice or after demand by
the commissioner, whichever occurs first, file the notice and pay to
the commissioner a fee equal to the fee payable had the transaction
been qualified under Section 25110. The notice, except when filed on
behalf of a California corporation, shall be accompanied by an
irrevocable consent, in the form that the commissioner by rule
prescribes, appointing the commissioner or his or her successor in
office to be the issuer's attorney to receive service of any lawful
process in any noncriminal suit, action, or proceeding against it or
its successor that arises under this law or any rule or order
hereunder after the consent has been filed, with the same force and
validity as if served personally on the issuer. An issuer on whose
behalf a consent has been filed in connection with a previous
qualification or exemption from qualification under this law (or
application for a permit under any prior law if the application or
notice under this law states that the consent is still effective)
need not file another. Service may be made by leaving a copy of the
process in the office of the commissioner, but it is not effective
unless (A) the plaintiff, who may be the commissioner in a suit,
action, or proceeding instituted by him or her, forthwith sends
notice of the service and a copy of the process by registered or
certified mail to the defendant or respondent at its last address on
file with the commissioner, and (B) the plaintiff's affidavit of
compliance with this section is filed in the case on or before the
return day of the process, if any, or within the further time as the
court allows.
(5) Each purchaser represents that the purchaser is purchasing for
the purchaser's own account, or a trust account if the purchaser is
a trustee, and not with a view to or for sale in connection with any
distribution of the stock.
For the purposes of this subdivision, all securities held by a
husband and wife, whether or not jointly, shall be considered to be
owned by one person, and all securities held by a corporation that
has issued stock pursuant to this exemption shall be considered to be
held by the shareholders to whom it has issued the stock.
All stock issued by a corporation pursuant to this subdivision as
it existed prior to the effective date of the amendments to this
section made during the 1996 portion of the 1995-96 Regular Session
that required the issuer to have stamped or printed prominently on
the face of the stock certificate a legend in a form prescribed by
rule of the commissioner restricting transfer of the stock in a
manner provided for by that rule shall not be subject to the transfer
restriction legend requirement and, by operation of law, the
corporation is authorized to remove that transfer restriction legend
from the certificates of those shares of stock issued by the
corporation pursuant to this subdivision as it existed prior to the
effective date of the amendments to this section made during the 1996
portion of the 1995-96 Regular Session.
(i) Any offer or sale (1) to a bank, savings and loan association,
trust company, insurance company, investment company registered
under the Investment Company Act of 1940, pension or profit-sharing
trust (other than a pension or profit-sharing trust of the issuer, a
self-employed individual retirement plan, or individual retirement
account), or other institutional investor or governmental agency or
instrumentality that the commissioner may designate by rule, whether
the purchaser is acting for itself or as trustee, or (2) to any
corporation with outstanding securities registered under Section 12
of the Securities Exchange Act of 1934 or any wholly owned subsidiary
of the corporation that after the offer and sale will own directly
or indirectly 100 percent of the outstanding capital stock of the
issuer, provided the purchaser represents that it is purchasing for
its own account (or for the trust account) for investment and not
with a view to or for sale in connection with any distribution of the
security.
(j) Any offer or sale of any certificate of interest or
participation in an oil or gas title or lease (including subsurface
gas storage and payments out of production) if either of the
following apply:
(1) All of the purchasers meet one of the following requirements:
(A) Are and have been during the preceding two years engaged
primarily in the business of drilling for, producing, or refining oil
or gas (or whose corporate predecessor, in the case of a
corporation, has been so engaged).
(B) Are persons described in paragraph (1) of subdivision (i).
(C) Have been found by the commissioner upon written application
to be substantially engaged in the business of drilling for,
producing, or refining oil or gas so as not to require the protection
provided by this law (which finding shall be effective until
rescinded).
(2) The security is concurrently hypothecated to a bank in the
ordinary course of business to secure a loan made by the bank,
provided that each purchaser represents that it is purchasing for its
own account for investment and not with a view to or for sale in
connection with any distribution of the security.
(k) Any offer or sale of any security under, or pursuant to, a
plan of reorganization under Chapter 11 of the federal bankruptcy law
that has been confirmed or is subject to confirmation by the decree
or order of a court of competent jurisdiction.
( l ) Any offer or sale of an option, warrant,
put, call, or straddle, and any guarantee of any of these
securities, by a person who is not the issuer of the security subject
to the right, if the transaction, had it involved an offer or sale
of the security subject to the right by the person, would not have
violated Section 25110 or 25130.
(m) Any offer or sale of a stock to a pension, profit-sharing,
stock bonus, or employee stock ownership plan, provided that (1) the
plan meets the requirements for qualification under Section 401 of
the Internal Revenue Code, and (2) the employees are not required or
permitted individually to make any contributions to the plan. The
exemption provided by this subdivision shall
not be affected by whether the stock is
contributed to the plan, purchased from the issuer with contributions
by the issuer or an affiliate of the issuer, or purchased from the
issuer with funds borrowed from the issuer, an affiliate of the
issuer, or any other lender.
(n) Any offer or sale of any security in a transaction, other than
an offer or sale of a security in a rollup transaction, that meets
all of the following criteria:
(1) The issuer is (A) a California corporation or foreign
corporation that, at the time of the filing of the notice required
under this subdivision, is subject to Section 2115, or (B) any other
form of business entity, including without limitation a partnership
or trust organized under the laws of this state. The exemption
provided by this subdivision is not available to a "blind pool"
issuer, as that term is defined by the commissioner, or to an
investment company subject to the Investment Company Act of 1940.
(2) Sales of securities are made only to qualified purchasers or
other persons the issuer reasonably believes, after reasonable
inquiry, to be qualified purchasers. A corporation, partnership, or
other organization specifically formed for the purpose of acquiring
the securities offered by the issuer in reliance upon this exemption
may be a qualified purchaser if each of the equity owners of the
corporation, partnership, or other organization is a qualified
purchaser. Qualified purchasers include the following:
(A) A person designated in Section 260.102.13 of Title 10 of the
California Code of Regulations.
(B) A person designated in subdivision (i) or any rule of the
commissioner adopted thereunder.
(C) A pension or profit-sharing trust of the issuer, a
self-employed individual retirement plan, or an individual retirement
account, if the investment decisions made on behalf of the trust,
plan, or account are made solely by persons who are qualified
purchasers.
(D) An organization described in Section 501(c)(3) of the Internal
Revenue Code, corporation, Massachusetts or similar business trust,
or partnership, each with total assets in excess of five million
dollars ($5,000,000) according to its most recent audited financial
statements.
(E) With respect to the offer and sale of one class of voting
common stock of an issuer or of preferred stock of an issuer
entitling the holder thereof to at least the same voting rights as
the issuer's one class of voting common stock, provided that the
issuer has only one-class voting common stock outstanding upon
consummation of the offer and sale, a natural person who, either
individually or jointly with the person's spouse, (i) has a minimum
net worth of two hundred fifty thousand dollars ($250,000), and had,
during the immediately preceding tax year, gross income in excess of
one hundred thousand dollars ($100,000) and reasonably expects gross
income in excess of one hundred thousand dollars ($100,000) during
the current tax year or (ii) has a minimum net worth of five hundred
thousand dollars ($500,000). "Net worth" shall be determined
exclusive of home, home furnishings, and automobiles. Other assets
included in the computation of net worth may be valued at fair market
value.
Each natural person specified above, by reason of his or her
business or financial experience, or the business or financial
experience of his or her professional adviser, who is unaffiliated
with and who is not compensated, directly or indirectly, by the
issuer or any affiliate or selling agent of the issuer, can be
reasonably assumed to have the capacity to protect his or her
interests in connection with the transaction. The amount of the
investment of each natural person shall not exceed 10 percent of the
net worth, as determined by this subparagraph, of that natural
person.
(F) Any other purchaser designated as qualified by rule of the
commissioner.
(3) Each purchaser represents that the purchaser is purchasing for
the purchaser's own account (or trust account, if the purchaser is a
trustee) and not with a view to or for sale in connection with a
distribution of the security.
(4) Each natural person purchaser, including a corporation,
partnership, or other organization specifically formed by natural
persons for the purpose of acquiring the securities offered by the
issuer, receives, at least five business days before securities are
sold to, or a commitment to purchase is accepted from, the purchaser,
a written offering disclosure statement that shall meet the
disclosure requirements of Regulation D (17 C.F.R. 230.501 et seq.),
and any other information as may be prescribed by rule of the
commissioner, provided that the issuer shall not be obligated
pursuant to this paragraph to provide this disclosure statement to a
natural person qualified under Section 260.102.13 of Title 10 of the
California Code of Regulations. The offer or sale of securities
pursuant to a disclosure statement required by this paragraph that is
in violation of Section 25401, or that fails to meet the disclosure
requirements of Regulation D (17 C.F.R. 230.501 et seq.), shall not
render unavailable to the issuer the claim of an exemption from
Section 25110 afforded by this subdivision. This paragraph does not
impose, directly or indirectly, any additional disclosure obligation
with respect to any other exemption from qualification available
under any other provision of this section.
(5) (A) A general announcement of proposed offering may be
published by written document only, provided that the general
announcement of proposed offering sets forth the following required
information:
(i) The name of the issuer of the securities.
(ii) The full title of the security to be issued.
(iii) The anticipated suitability standards for prospective
purchasers.
(iv) A statement that (I) no money or other consideration is being
solicited or will be accepted, (II) an indication of interest made
by a prospective purchaser involves no obligation or commitment of
any kind, and, if the issuer is required by paragraph (4) to deliver
a disclosure statement to prospective purchasers, (III) no sales will
be made or commitment to purchase accepted until five business days
after delivery of a disclosure statement and subscription information
to the prospective purchaser in accordance with the requirements of
this subdivision.
(v) Any other information required by rule of the commissioner.
(vi) The following legend: "For more complete information about
(Name of Issuer) and (Full Title of Security), send for additional
information from (Name and Address) by sending this coupon or calling
(Telephone Number)."
(B) The general announcement of proposed offering referred to in
subparagraph (A) may also set forth the following information:
(i) A brief description of the business of the issuer.
(ii) The geographic location of the issuer and its business.
(iii) The price of the security to be issued, or, if the price is
not known, the method of its determination or the probable price
range as specified by the issuer, and the aggregate offering price.
(C) The general announcement of proposed offering shall contain
only the information that is set forth in this paragraph.
(D) Dissemination of the general announcement of proposed offering
to persons who are not qualified purchasers, without more, shall not
disqualify the issuer from claiming the exemption under this
subdivision.
(6) No telephone solicitation shall be permitted until the issuer
has determined that the prospective purchaser to be solicited is a
qualified purchaser.
(7) The issuer files a notice of transaction under this
subdivision both (A) concurrent with the publication of a general
announcement of proposed offering or at the time of the initial offer
of the securities, whichever occurs first, accompanied by a filing
fee, and (B) within 10 business days following the close or
abandonment of the offering, but in no case more than 210 days from
the date of filing the first notice. The first notice of transaction
under subparagraph (A) shall contain an undertaking, in a form
acceptable to the commissioner, to deliver any disclosure statement
required by paragraph (4) to be delivered to prospective purchasers,
and any supplement thereto, to the commissioner within 10 days of the
commissioner's request for the information. The exemption from
qualification afforded by this subdivision is unavailable if an
issuer fails to file the first notice required under subparagraph (A)
or to pay the filing fee. The commissioner has the authority to
assess an administrative penalty of up to one thousand dollars
($1,000) against an issuer that fails to deliver the disclosure
statement required to be delivered to the commissioner upon the
commissioner's request within the time period set forth above.
Neither the filing of the disclosure statement nor the failure by the
commissioner to comment thereon precludes the commissioner from
taking any action deemed necessary or appropriate under this division
with respect to the offer and sale of the securities.
(o) An offer or sale of any security issued by a corporation or
limited liability company pursuant to a purchase plan or agreement,
or issued pursuant to an option plan or agreement, where the security
at the time of issuance or grant is exempt from registration under
the Securities Act of 1933, as amended, pursuant to Rule 701 adopted
pursuant to that act (17 C.F.R. 230.701), the provisions of which are
hereby incorporated by reference into this section, provided that
(1) the terms of any purchase plan or agreement shall comply with
Sections 260.140.42, 260.140.45, and 260.140.46 of Title 10 of the
California Code of Regulations, (2) the terms of any option plan or
agreement shall comply with Sections 260.140.41, 260.140.45, and
260.140.46 of Title 10 of the California Code of Regulations, and (3)
the issuer files a notice of transaction in accordance with rules
adopted by the commissioner no later than 30 days after the initial
issuance of any security under that plan, accompanied by a filing fee
as prescribed by subdivision (y) of Section 25608. The failure to
file the notice of transaction within the time specified in this
subdivision shall not affect the availability of this exemption. An
issuer that fails to file the notice shall, within 15 business days
after discovery of the failure to file the notice or after demand by
the commissioner, whichever occurs first, file the notice and pay the
commissioner a fee equal to the maximum aggregate fee payable had
the transaction been qualified under Section 25110.
Offers and sales exempt pursuant to this subdivision shall be
deemed to be part of a single, discrete offering and are not subject
to integration with any other offering or sale, whether qualified
under Chapter 2 (commencing with Section 25110), or otherwise exempt,
or not subject to qualification.
(p) An offer or sale of nonredeemable securities to accredited
investors (Section 28031) by a person licensed under the Capital
Access Company Law (Division 3 (commencing with Section 28000) of
Title 4), provided that all purchasers either (1) have a preexisting
personal or business relationship with the offeror or any of its
partners, officers, directors, controlling persons, or managers (as
appointed or elected by the members), or (2) by reason of their
business or financial experience or the business or financial
experience of their professional advisers who are unaffiliated with
and who are not compensated by the issuer or any affiliate or selling
agent of the issuer, directly or indirectly, could be reasonably
assumed to have the capacity to protect their own interests in
connection with the transaction. All nonredeemable securities shall
be evidenced by certificates that shall have stamped or printed
prominently on their face a legend in a form to be prescribed by rule
or order of the commissioner restricting transfer of the securities
in the manner as the rule or order provides. The exemption under this
subdivision shall not be available for any offering that is exempt
or asserted to be exempt pursuant to Section 3(a)(11) of the
Securities Act of 1933 (15 U.S.C. Sec. 77c(a)(11)) or Rule 147 (17
C.F.R. 230.147) thereunder or otherwise is conducted by means of any
form of general solicitation or general advertising.
(q) Any offer or sale of any viatical or life settlement contract
or fractionalized or pooled interest therein in a transaction that
meets all of the following criteria:
(1) Sales of securities described in this subdivision are made
only to qualified purchasers or other persons the issuer reasonably
believes, after reasonable inquiry, to be qualified purchasers. A
corporation, partnership, or other organization specifically formed
for the purpose of acquiring the securities offered by the issuer in
reliance upon this exemption may be a qualified purchaser only if
each of the equity owners of the corporation, partnership, or other
organization is a qualified purchaser. Qualified purchasers include
the following:
(A) A person designated in Section 260.102.13 of Title 10 of the
California Code of Regulations.
(B) A person designated in subdivision (i) or any rule of the
commissioner adopted thereunder.
(C) A pension or profit-sharing trust of the issuer, a
self-employed individual retirement plan, or an individual retirement
account, if the investment decisions made on behalf of the trust,
plan, or account are made solely by persons who are qualified
purchasers.
(D) An organization described in Section 501(c)(3) of the Internal
Revenue Code, corporation, Massachusetts or similar business trust,
or partnership, each with total assets in excess of five million
dollars ($5,000,000) according to its most recent audited financial
statements.
(E) A natural person who, either individually or jointly with the
person's spouse, (i) has a minimum net worth of one hundred fifty
thousand dollars ($150,000) and had, during the immediately preceding
tax year, gross income in excess of one hundred thousand dollars
($100,000) and reasonably expects gross income in excess of one
hundred thousand dollars ($100,000) during the current tax year or
(ii) has a minimum net worth of two hundred fifty thousand dollars
($250,000). "Net worth" shall be determined exclusive of home, home
furnishings, and automobiles. Other assets included in the
computation of net worth may be valued at fair market value.
Each natural person specified above, by reason of his or her
business or financial experience, or the business or financial
experience of his or her professional adviser, who is unaffiliated
with and who is not compensated, directly or indirectly, by the
issuer or any affiliate or selling agent of the issuer, can be
reasonably assumed to have the capacity to protect his or her
interests in connection with the transaction.
The amount of the investment of each natural person shall not
exceed 10 percent of the net worth, as determined by this
subdivision, of that natural person.
(F) Any other purchaser designated as qualified by rule of the
commissioner.
(2) Each purchaser represents that the purchaser is purchasing for
the purchaser's own account (or trust account, if the purchaser is a
trustee) and not with a view to or for sale in connection with a
distribution of the security.
(3) Each natural person purchaser, including a corporation,
partnership, or other organization specifically formed by natural
persons for the purpose of acquiring the securities offered by the
issuer, receives, at least five business days before securities
described in this subdivision are sold to, or a commitment to
purchase is accepted from, the purchaser, the following information
in writing:
(A) The name, principal business and mailing address, and
telephone number of the issuer.
(B) The suitability standards for prospective purchasers as set
forth in paragraph (1) of this subdivision.
(C) A description of the issuer's type of business organization
and the state in which the issuer is organized or incorporated.
(D) A brief description of the business of the issuer.
(E) If the issuer retains ownership or becomes the beneficiary of
the insurance policy, an audit report of an independent certified
public accountant together with a balance sheet and related
statements of income, retained earnings, and cashflows that reflect
the issuer's financial position, the results of the issuer's
operations, and the issuer's cashflows as of a date within 15 months
before the date of the initial issuance of the securities described
in this subdivision. The financial statements listed in this
subparagraph shall be prepared in conformity with generally accepted
accounting principles. If the date of the audit report is more than
120 days before the date of the initial issuance of the securities
described in this subdivision, the issuer shall provide unaudited
interim financial statements.
(F) The names of all directors, officers, partners, members, or
trustees of the issuer.
(G) A description of any order, judgment, or decree that is final
as to the issuing entity of any state, federal, or foreign country
governmental agency or administrator, or of any state, federal, or
foreign country court of competent jurisdiction (i) revoking,
suspending, denying, or censuring for cause any license, permit, or
other authority of the issuer or of any director, officer, partner,
member, trustee, or person owning or controlling, directly or
indirectly, 10 percent or more of the outstanding interest or equity
securities of the issuer, to engage in the securities, commodities,
franchise, insurance, real estate, or lending business or in the
offer or sale of securities, commodities, franchises, insurance, real
estate, or loans; (ii) permanently restraining, enjoining, barring,
suspending, or censuring any such person from engaging in or
continuing any conduct, practice, or employment in connection with
the offer or sale of securities, commodities, franchises, insurance,
real estate, or loans; (iii) convicting any such person of, or
pleading nolo contendere by any such person to, any felony or
misdemeanor involving a security, commodity, franchise, insurance,
real estate, or loan, or any aspect of the securities, commodities,
franchise, insurance, real estate, or lending business, or involving
dishonesty, fraud, deceit, embezzlement, fraudulent conversion, or
misappropriation of property; or (iv) holding any such person liable
in a civil action involving breach of a fiduciary duty, fraud,
deceit, embezzlement, fraudulent conversion, or misappropriation of
property. This subparagraph does not apply to any order, judgment, or
decree that has been vacated, overturned, or is more than 10 years
old.
(H) Notice of the purchaser's right to rescind or cancel the
investment and receive a refund pursuant to Section 25508.5.
(I) The name, address, and telephone number of the issuing
insurance company, and the name, address, and telephone number of the
state or foreign country regulator of the insurance company.
(J) The total face value of the insurance policy and the
percentage of the insurance policy the purchaser will own.
(K) The insurance policy number, issue date, and type.
(L) If a group insurance policy, the name, address, and telephone
number of the group, and, if applicable, the material terms and
conditions of converting the policy to an individual policy,
including the amount of increased premiums.
(M) If a term insurance policy, the term and the name, address,
and telephone number of the person who will be responsible for
renewing the policy if necessary.
(N) That the insurance policy is beyond the state statute for
contestability and the reason therefor.
(O) The insurance policy premiums and terms of premium payments.
(P) The amount of the purchaser's moneys that will be set aside to
pay premiums.
(Q) The name, address, and telephone number of the person who will
be the insurance policy owner and the person who will be responsible
for paying premiums.
(R) The date on which the purchaser will be required to pay
premiums and the amount of the premium, if known.
(S) A statement to the effect that any projected rate of return to
the purchaser from the purchase of a viatical or life settlement
contract or a fractionalized or pooled interest therein is based on
an estimated life expectancy for the person insured under the life
insurance policy; that the return on the purchase may vary
substantially from the expected rate of return based upon the actual
life expectancy of the insured that may be less than, equal to, or
may greatly exceed the estimated life expectancy; and that the rate
of return would be higher if the actual life expectancy were less
than, and lower if the actual life expectancy were greater than, the
estimated life expectancy of the insured at the time the viatical or
life settlement contract was closed.
(T) A statement that the purchaser should consult with his or her
tax adviser regarding the tax consequences of the purchase of the
viatical or life settlement contract or fractionalized or pooled
interest therein and, if the purchaser is using retirement funds or
accounts for that purchase, whether or not any adverse tax
consequences might result from the use of those funds for the
purchase of that investment.
(U) Any other information as may be prescribed by rule of the
commissioner.
(r) (1) (A) Any offer or sale of a security by an issuer using any
form of general solicitation or general advertising, as specified in
Rule 502(c) of Regulation D under the Securities Act of 1933 (17
C.F.R. 230.502(c)), except as provided in subparagraph (B).
(B) Any offer or sale of a security made by means of an
unsolicited telephone call to a person's residence or cellular
telephone, provided that the issuer and the caller take reasonable
steps, prior to the unsolicited telephone call, to verify that the
person is an accredited investor, as defined in Rule 501 of
Regulation D under the Securities Act of 1933 (17 C.F.R. 230.501),
and the transaction meets all the requirements of this subdivision.
(2) In order for the exemption under this subdivision to apply,
all of the following shall be satisfied:
(A) The aggregate offering price for an offering of securities
under this subdivision, as defined in Rule 501(c) of Regulation D
under the Securities Act of 1933 (17 C.F.R. 230.501(c)), shall not
exceed one million dollars ($1,000,000), less the aggregate offering
price for all securities sold within 12 months before the start of
and during the offering of securities pursuant to the exemption under
this subdivision.
(B) Prior to selling any security to a person solicited pursuant
to this subdivision, an issuer shall obtain from that person a
completed offeree questionnaire in a form adopted by the
commissioner.
(C) The issuer shall maintain the confidentiality of any and all
information in the questionnaire and not otherwise sell, distribute,
or use the information in that questionnaire for any purpose other
than to assist in establishing the suitability of that investor for
that particular offering. A violation of this subparagraph shall
result in disqualification of the offering and from the future use of
this exemption under this subdivision by the issuer.
(D) The issuer shall take reasonable steps to verify that,
immediately prior to the sale, the offering is suitable for the
person, based on the person's financial status, objectives,
investment experience, time horizon, risk tolerance, and any other
information the issuer deems relevant to determine whether the
offering is suitable to the person. The issuer shall maintain, for a
period of four years, documentation sufficient to establish the basis
for its determination of suitability.
(E) For purposes of this paragraph, an issuer may reasonably
assume that the person has the capacity to protect his or her
interests in connection with the offering due to his or her business
or financial experience, or the business or financial experience of
his or her professional adviser, who is unaffiliated with and not
compensated, directly or indirectly, by the issuer or any affiliate
or selling agent of the issuer.
(F) (i) The issuer shall make available to potential investors a
Small Corporate Offering Registration disclosure document based on
the Form U-7 as adopted by the North American Securities
Administrators Association prior to the commencement of the offering
of securities.
(ii) The Form U-7 shall include financial statements of the
issuer prepared in accordance with generally accepted accounting
principles. If the issuer has not conducted significant operations,
statements of receipts, and disbursements shall be included in place
of statements of income. Interim financial statements may be
unaudited. All other financial statements shall be audited by
independent certified public accountants. However, if each of the
following four conditions are met, the financial statements in place
of being audited may be reviewed by independent certified public
accountants in accordance with the Accounting and Review Service
Standards promulgated by the American Institute of Certified Public
Accountants:
(I) The issuer shall not have previously sold securities in an
offering involving the general solicitation of prospective investors
using advertising, mass mailings, public meetings, "cold call"
telephone solicitation or any other method directed toward the
public.
(II) The issuer has not been previously required under federal or
state securities laws to provide audited financial statements in
connection with any sale of its securities.
(III) The aggregate amount of all previous sales of securities by
the issuer, exclusive of any debt financing with banks and similar
commercial lenders, shall not exceed one million dollars
($1,000,000).
(IV) The amount of the present offering does not exceed one
million dollars ($1,000,000).
(G) (i) The aggregate amount of securities sold to all investors
by the issuer in reliance on this subdivision during the 12-month
period preceding the date of the offer or sale, including the
securities offered in the transaction, shall not exceed one million
dollars ($1,000,000).
(ii) The aggregate amount of securities sold to any investor by
any issuer in reliance on this subdivision during the 12-month period
preceding the date of the transaction, including the securities sold
to the investor in that transaction, shall not exceed the greater of
the following:
(I) Two thousand dollars ($2,000) or 5 percent of annual income or
net worth of the investor, whichever is greater, if both the annual
income and net worth
are less than one hundred thousand dollars ($100,000).
(II) Ten percent of annual income or of net worth of the investor,
whichever is greater, not to exceed an amount sold of one hundred
thousand dollars ($100,000), if either the annual income or net worth
of the investor is equal to or more than one hundred thousand
dollars ($100,000). To determine the investment limit for a natural
person, the person's annual income and net worth shall be calculated
as those values are calculated for purposes of determining accredited
investor status in accordance with Rule 501 of Regulation D under
the Securities Act of 1933 (17 C.F.R. 501). The person's annual
income and net worth may be calculated jointly with the annual income
and net worth of the person's spouse. "Net worth" shall be
determined as specified in Rule 501(a) of Regulation D under the
Securities Act of 1933, (17 C.F.R. 230.501(a)).
(H) The issuer believes in good faith that the offer and sale are
exempt from registration under Section 5 of the Securities Act of
1933 (15 U.S.C. Sec. 77e) pursuant to Section 3(a)(11) of that act
(15 U.S.C. Sec. 77c(a)(11)), or the rules and regulations adopted by
the Securities and Exchange Commission under Section 3(b) or Section
4(2) of that act (15 U.S.C. Sec. 77d(2)).
(I) The issuer specifies in all advertisements, communications,
sales literature, or other information that is publicly disseminated
in connection with the offering, including by means of electronic
transmission or broadcast media, that the offering is exempt from the
qualification requirements of Section 25110 under the exemption
provided for in this subdivision.
(J) An issuer shall maintain a copy of any advertisement or
solicitation, and any other offering material, for four years.
(3) The commissioner may by rule require the issuer to file a
notice of transactions under this subdivision. The failure to file
the notice or the failure to file the notice within the time
specified by the rule of the commissioner shall not affect the
availability of the exemption. An issuer who has failed to file the
notice as provided by rule of the commissioner, within 15 business
days after discovery of the failure to file the notice, or after
demand by the commissioner, whichever occurs first, shall file the
notice and pay to the commissioner a fee equal to the fee payable had
the transaction been qualified under Section 25110.
(4) (A) A person who purchases securities in an offering that
fails to meet all of the terms and conditions of this subdivision may
bring an action under Sections 25503, 25504, and 25504.1 for
rescission of the purchase and any other remedy provided in those
sections.
(B) The court shall award attorney's fees and costs to a
prevailing purchaser in an action brought pursuant to this paragraph,
and may award treble or punitive damages.
(5) The exemption under this subdivision shall not be available
for an offering by an issuer that is either an investment company, as
defined in Section 3(a)(1) of the Investment Company Act of 1940 (15
U.S.C. Sec. 80a et seq.), or a development stage company, as
referred to in Rule 504(a)(3) of Regulation D under the Securities
Act of 1933 (17 C.F.R. 504(a)(3)).
(6) The exemption under this subdivision shall not be available to
an issuer if the issuer; a predecessor of the issuer; an affiliated
issuer; a director, officer, general partner, or managing member of
the issuer; a beneficial owner of 20 percent or more of the issuer's
outstanding voting equity securities, calculated on the basis of
voting power; a promoter connected with the issuer in any capacity at
the time of the sale; a person that has been or will be paid,
directly or indirectly, remuneration for solicitation of purchasers
in connection with the sale of securities, or a general partner,
director, officer, or managing member of that solicitor, meets any of
the following criteria:
(A) Has been convicted, within 10 years before the filing of the
information required by Section 4A(b) of the Securities Act (15
U.S.C. Sec. 77d-1(b)), or five years, in the case of issuers, their
predecessors and affiliated issuers, of a felony or misdemeanor that
satisfies any of the following conditions:
(i) The felony or misdemeanor is in connection with the purchase
or sale of any security.
(ii) The felony or misdemeanor involves the making of any false
filing with the commission.
(iii) The felony or misdemeanor arises out of the conduct of the
business of an underwriter, broker, dealer, municipal securities
dealer, investment adviser, or paid solicitor of purchasers of
securities.
(B) Is subject to any order, judgment, or decree of any court of
competent jurisdiction, entered within five years before the filing
of the information required by Section 4A(b) of the Securities Act
(15 U.S.C. Sec. 77d-1(b)) that, at the time of the filing, restrains
or enjoins the person from engaging or continuing to engage in a
conduct or practice that satisfies any of the following conditions:
(i) The conduct is in connection with the purchase or sale of any
security.
(ii) The conduct involves the making of any false filing with the
Securities and Exchange Commission.
(iii) The conduct arises out of the conduct of the business of an
underwriter, broker, dealer, municipal securities dealer, investment
adviser, or paid solicitor of purchasers of securities.
(C) Is subject to a final order of a state securities commission,
or an agency or officer of a state performing like functions; a state
authority that supervises or examines banks, savings associations,
or credit unions; a state insurance commission, or an agency or
officer of a state performing like functions; an appropriate federal
banking agency, the United States Commodity Futures Trading
Commission, or the National Credit Union Administration that does
either of the following:
(i) At the time of the filing of the information required by
Section 4A(b) of the Securities Act (15 U.S.C. Sec. 77d-1(b)), bars
the person from any of the following activities:
(I) Associating with an entity regulated by the commission,
authority, agency, or officer.
(II) Engaging in the business of securities, insurance, or
banking.
(III) Engaging in savings association or credit union activities.
(ii) (I) Constitutes a final order based on a violation of a law
or regulation that prohibits fraudulent, manipulative, or deceptive
conduct and for which the order was entered within the 10-year period
ending on the date of the filing of the information required by
Section 4A(b) of the Securities Act (15 U.S.C. Sec. 77d-1(b)).
(II) For purposes of this clause, "final order" means a written
directive or declaratory statement issued by a federal or state
agency, described in proposed Section 227.503(a)(3) of Title 17 of
the Code of Federal Regulations, under applicable statutory authority
that provides for notice and an opportunity for hearing, which
constitutes a final disposition or action by that federal or state
agency.
(D) Is subject to an order of the Securities and Exchange
Commission entered pursuant to Section 15(b) or 15B(c) of the
Exchange Act (15 U.S.C. Sec. 78o(b) or 78o-4(c)) or Section 203(e) or
(f) of the Investment Advisers Act of 1940 (15 U.S.C. Sec. 80b-3(e)
or (f)) that, at the time of the filing of the information required
by Section 4A(b) of the Securities Act (15 U.S.C. Sec. 77d-1(b)),
satisfies any of the following conditions:
(i) The order suspends or revokes the person's registration as a
broker, dealer, municipal securities dealer, or investment adviser.
(ii) The order places limitations on the activities, functions, or
operations of the person.
(iii) The order bars the person from being associated with any
entity or from participating in the offering of any penny stock.
(E) Is subject to any order of the Securities Exchange Commission
entered within five years before the filing of the information
required by Section 4A(b) of the Securities Act (15 U.S.C. Sec. 77d-1
(b)) that, at the time of the filing, orders the person to cease and
desist from committing or causing a violation or future violation of
either of the following:
(i) Any scienter-based antifraud provision of the federal
securities laws, including without limitation Section 17(a)(1) of the
Securities Act (15 U.S.C. Sec. 77q(a)(1)), Section 10(b) of the
Exchange Act (15 U.S.C. Sec. 78j(b)) and 17 C.F.R. 240.10b-5, Section
15(c)(1) of the Exchange Act (15 U.S.C. Sec. 78o(c)(1)) and Section
206(1) of the Investment Advisers Act of 1940 (15 U.S.C. Sec. 80b-6
(1)) or any other rule or regulation thereunder.
(ii) Section 5 of the federal Securities Act (15 U.S.C. Sec. 77e).
(F) Is suspended or expelled from membership in, or suspended or
barred from association with a member of, a registered national
securities exchange or a registered national or affiliated securities
association for any act or omission constituting conduct
inconsistent with just and equitable principles of trade.
(G) Has filed, as a registrant or issuer, or was named as an
underwriter in, any registration statement or Regulation A (17 C.F.R.
230.251 et seq.) offering statement filed with the commission that,
within five years before the filing of the information required by
Section 4A(b) of the Securities Act (15 U.S.C. Sec. 77d-1(b)), was
the subject of a refusal order, stop order, or order suspending the
Regulation A exemption, or is, at the time of that filing, the
subject of an investigation or proceeding to determine whether a stop
order or suspension order should be issued.
(H) Is subject to a United States Postal Service false
representation order entered within five years before the filing of
the information required by Section 4A(b) of the Securities Act (15
U.S.C. Sec. 77d-1(b)), or, at the time of the filing, is subject to a
temporary restraining order or preliminary injunction with respect
to conduct alleged by the United States Postal Service to constitute
a scheme or device for obtaining money or property through the mail
by means of false representations.
(7) Subparagraph (A) of paragraph (6) shall not apply in any of
the following circumstances:
(A) With respect to any conviction, order, judgment, decree,
suspension, expulsion, or bar that occurred or was issued before the
effective date of the final rule.
(B) Upon a showing of good cause and without prejudice to any
other action by the Securities and Exchange commission, if the
Securities and Exchange commission determines that it is not
necessary under the circumstances that an exemption be denied.
(C) If, before the filing of the information required by Section
4A(b) of the Securities Act (15 U.S.C. Sec. 77d-1(b)), the court or
regulatory authority that entered the relevant order, judgment, or
decree advises in writing, whether contained in the relevant
judgment, order, or decree or separately to the Securities and
Exchange Commission or its staff, that disqualification under
subparagraph (A) of paragraph (6) should not arise as a consequence
of the order, judgment, or decree.
(D) If the issuer establishes that it did not know and, in the
exercise of reasonable care, could not have known that a
disqualification existed under subparagraph (A) of paragraph (6). An
issuer shall not be able to establish that it has exercised
reasonable care unless it has made factual inquiry into whether any
disqualification exists. The nature and scope of the factual inquiry
will vary based on the facts and circumstances concerning, among
other things, the issuer and the other offering participants.
(8) For purposes of subparagraph (A) of paragraph (6), events
relating to any affiliated issuer that occurred before the
affiliation arose will not be considered disqualifying if the
affiliated entity is neither in control of the issuer, nor under
common control with the issuer by a third party that was in control
of the affiliated entity at the time of those events.
