Amended in Assembly April 9, 2014

Amended in Assembly March 26, 2014

California Legislature—2013–14 Regular Session

Assembly Bill No. 2096

Introduced by Assembly Member Muratsuchi

February 20, 2014

An act to amend begin delete Section 25102 end delete begin insert Sections 25112 and 25503 end insert of the Corporations Code, relating to securities transactions.

LEGISLATIVE COUNSEL’S DIGEST

AB 2096, as amended, Muratsuchi. Securities transactions: qualification begin delete requirements: exemptions. end delete begin insert requirements: notification. end insert

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. begin delete 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. end delete begin insert 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. end insert

begin insert

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.

end insert

This bill begin insert , in addition, end insert would begin delete 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. end delete begin insert 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. end insert

begin insert

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.

end insert

Vote: majority. Appropriation: no. Fiscal committee: yes. State-mandated local program: no.

The people of the State of California do enact as follows:

begin insert

begin insert SECTION 1. end insert   

end insert

begin insert Section 25112 of the end insert begin insert Corporations Code end insert begin insert is
amended to read: end insert

25112.  

(a)  begin insert (1) end insert begin insert   end insert 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.

begin insert

(2) Any offer or sale of any security that meets all of the
following criteria may be qualified by notification under this
section:

end insert begin insert

(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).

end insert begin insert

(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.

end insert begin insert

(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.

end insert begin insert

(D) The issuer files with the administrator, provides to investors,
and makes available to potential investors the following:

end insert begin insert

(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.

end insert begin insert

(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:

end insert begin insert

(I) The income tax returns filed by the issuer for the most
recently completed year, if any.

end insert begin insert

(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.

end insert begin insert

(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.

end insert begin insert

(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.

end insert begin insert

(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.

end insert begin insert

(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.

end insert begin insert

(G) Any other requirement set forth by rule adopted by the
commissioner.

end insert

(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.

begin insert

begin insert SEC. 2. end insert   

end insert

begin insert Section 25503 of the end insert begin insert Corporations Code end insert begin insert is amended
to read: end insert

25503.  

begin insert (a) end insert begin insert   end insert 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 begin delete such end delete begin insert that end insert 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 begin delete such end delete begin insert the end insert 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 begin delete (a) his end delete begin insert the plaintiff’s end insert purchase price plus interest
at the legal rate from the date of purchase and begin delete (b) end delete 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.

begin delete

Damages, if

end delete

begin insert (b) end insert begin insert   end insert begin insert If end insert the consideration given for the security is not capable of
being returned, begin insert damages end insert 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 begin delete (a) end delete the value of the consideration given for
the security plus interest at the legal rate from the date of purchase
and begin delete (b) end delete 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. begin delete Any end delete begin insert A end insert 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 begin delete such end delete begin insert that end insert section who may sue to recover the
difference between begin delete (a) end delete the value of the consideration received by
the seller and begin delete (b) end delete 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. begin delete Any end delete begin insert A end insert 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 begin delete section, but end delete begin insert section. However, end insert in no event shall
begin delete any underwriter (unless such end delete begin insert an underwriter be liable, unless the end insert
underwriter begin delete shall have end delete 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 begin delete underwriting) be liable end delete
begin insert underwriting, end insert in any suit or suits authorized under this section begin insert , end insert for
damages in excess of the total price at which the securities
underwritten by begin delete him end delete begin insert the underwriter end insert and distributed to the public
were offered to the public. begin delete Any end delete begin insert A end insert tender specified in this section
may be made at any time before entry of judgment. begin delete No end delete begin insert A end insert person
shall begin insert not end insert 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.

begin insert

(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.

end insert

begin delete

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.

end delete