SB 126: "An Act establishing an exemption for the offering and sale of certain securities."
00 SENATE BILL NO. 126 01 "An Act establishing an exemption for the offering and sale of certain securities." 02 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF ALASKA: 03 * Section 1. AS 45.55 is amended by adding a new section to article 4 to read: 04 Sec. 45.55.175. Exemption for certain security sales and offerings. (a) An 05 offer or sale of securities conducted solely in this state to a person who has established 06 residency in this state, by an issuer in a transaction that meets the requirements of this 07 section, is exempt from the requirements of AS 45.55.070 - 45.55.120 and 45.55.150 08 and is subject to the following limitations: 09 (1) the issuer of the security shall be a for-profit corporation, another 10 for-profit entity, or a business cooperative, have its principal place of business in this 11 state, and be licensed by the department; 12 (2) the transaction must meet the requirements of the federal 13 exemption for intrastate offerings in 15 U.S.C. 77c(a)(11) (Securities Act of 1933) and 14 17 C.F.R. 230.147; the securities must be offered to and sold only to persons who 15 have established residency in this state at the time of purchase; before any offer or sale
01 under this exemption, the seller shall obtain documentary evidence from each 02 prospective purchaser that provides the seller with a reasonable basis to believe the 03 investor has established residency in this state; 04 (3) the sum of all cash and other consideration to be received for all 05 sales of the security in reliance on this exemption may not exceed $1,000,000, less the 06 aggregate amount received for all sales of securities by the issuer within the 12 months 07 before the first offer or sale made in reliance on this exemption; 08 (4) the issuer may not accept more than $7,500 from a single purchaser 09 during a 12-month period unless the purchaser is an accredited investor as defined by 10 17 C.F.R. 230.501; 11 (5) the issuer reasonably believes that all purchasers of securities are 12 purchasing for investment and not for sale in connection with a distribution of the 13 security; 14 (6) a commission or remuneration may not be paid or given, directly or 15 indirectly, for any person's participation in the offer or sale of securities for the issuer 16 unless the person is registered as a broker-dealer, agent, investment adviser 17 representative, or state investment adviser under AS 45.55.030 or 45.55.035; 18 (7) the issuer of the security shall deposit in an escrow account in a 19 bank or other depository institution authorized to do business in this state all funds 20 received from investors until the minimum target dollar amount for the security 21 offering is met; the issuer shall file the escrow agreement with the administrator, and 22 the contents of the escrow agreement must include a statement that the proceeds of the 23 sale under this section will not be released from the escrow account until the minimum 24 target dollar amount for the security offering is met; all funds shall be used in 25 accordance with representations made to investors; 26 (8) not less than 10 days before the use of a general solicitation or 27 within 15 days after the first sale of a security under this exemption, if general 28 solicitation has not been used before the sale, whichever occurs first, the issuer shall 29 provide a notice to the administrator as prescribed in regulations for this section; the 30 notice must specify that the issuer is conducting an offering in reliance on this 31 exemption and must contain the names and addresses of
01 (A) the issuer; 02 (B) officers, directors, and any person who controls the issuer; 03 (C) all persons who will be involved in the offer or sale of 04 securities on behalf of the issuer; and 05 (D) the bank or other depository institution in which investor 06 funds will be deposited; 07 (9) the issuer may not be, either before or as a result of the offering, 08 (A) an investment company as defined by 15 U.S.C. 80a-1 - 09 80a-64 (Investment Company Act of 1940), or subject to the reporting 10 requirements of 15 U.S.C. 78m or 78o (Securities Exchange Act of 1934); or 11 (B) a broker-dealer, agent, investment adviser representative, or 12 state investment adviser subject to AS 45.55.030 or 45.55.035; 13 (10) the issuer shall inform all purchasers that the securities have not 14 been registered under AS 45.55.070 - 45.55.120, are exempt from AS 45.55.150, and 15 may not be resold unless the securities are registered or qualify for an exemption from 16 registration under AS 45.55.900; in addition, the issuer shall make the disclosures 17 required by 17 C.F.R. 230.147(f); 18 (11) the issuer shall require all purchasers to sign the following 19 statement at the time of sale: "I acknowledge that I am investing in a high-risk, 20 speculative business venture, that I may lose all of my investment, and that I can 21 afford the loss of my investment"; 22 (12) this exemption may not be used in conjunction with any other 23 exemption under this chapter, except the exemption related to institutional investors 24 under AS 45.55.030(c) and for offers and sales to persons who control the issuer; sales 25 to persons who control the issuer do not count toward the limitation in (3) of this 26 subsection; 27 (13) this exemption may not be construed to remove a person from the 28 anti-fraud and other provisions under AS 45.55.010 - 45.55.028, and the exemption 29 may not be construed to provide relief from another provision of this chapter other 30 than as expressly stated. 31 (b) The administrator may by order deny or revoke the exemption specified in
01 this section with respect to a specific security if the administrator finds that the sale of 02 the security would work or tend to work a fraud on the purchasers of the security. An 03 order under this subsection may not operate retroactively. A person may not be 04 considered to have violated the order because of an offer or sale effected after the 05 entry of an order under this subsection if the person sustains the burden of proof that 06 the person did not know and, in the exercise of reasonable care, could not have known 07 of the order. 08 (c) The issuer of a security under this section may make the sale or offering on 09 an Internet website. The administrator may inspect and review an Internet website that 10 is offering a security for sale under this section. Upon launching the Internet website, 11 the issuer shall provide the administrator with 12 (1) notice of the existence of the Internet website; and 13 (2) the address of the Internet website. 14 (d) The department shall assess a person who makes application to the 15 department for an exemption under this section a filing fee as prescribed in regulations 16 for this section. 17 (e) In this section, 18 (1) "control" means having the power, directly or indirectly, to direct 19 the management or policies of the issuer, whether through ownership of securities, by 20 contract, or otherwise; 21 (2) "department" means the Department of Commerce, Community, 22 and Economic Development; 23 (3) "residency" has the meaning given in AS 01.10.055. 24 * Sec. 2. AS 45.55.900(b) is amended to read: 25 (b) The following transactions are exempted from AS 45.55.070 and 26 45.55.075: 27 (1) a transaction between the issuer or other person on whose behalf 28 the offering is made and an underwriter, or among underwriters; 29 (2) a transaction in a bond or other evidence of indebtedness secured 30 by a real or chattel mortgage or deed of trust, or by an agreement for the sale of real 31 estate or chattels, if the entire mortgage, deed of trust, or agreement, together with all
01 the bonds or other evidence of indebtedness, secured under those documents, is 02 offered and sold as a unit; 03 (3) a transaction by an executor, administrator, sheriff, marshal, 04 receiver, trustee in bankruptcy, guardian, or conservator; 05 (4) an offer or sale to a bank, savings institution, trust company, 06 insurance company, investment company as defined in 15 U.S.C. 80a-1 - 80a-64 07 (Investment Company Act of 1940), pension or profit-sharing trust, or other financial 08 institution or institutional buyer, or to a broker-dealer, whether the purchaser is acting 09 for itself or in some fiduciary capacity; 10 (5) sales by an issuer 11 (A) to not more than 10 persons in this state other than those 12 designated in (4) of this subsection during a period of 12 consecutive months, 13 regardless of whether the seller or any of the buyers is then present in this 14 state, if 15 (i) a commission or other remuneration is not paid or 16 given directly or indirectly for soliciting a prospective buyer in this 17 state; 18 (ii) a legend is placed on the certificate or other 19 document evidencing ownership of the security, stating that the security 20 is not registered under this chapter and cannot be resold without 21 registration under this chapter or exemption from it; and 22 (iii) offers are made without public solicitation or 23 advertisement; 24 (B) to not more than 25 persons in this state other than those 25 designated in (4) of this subsection during a period of 12 consecutive months, 26 regardless of whether the seller or any of the buyers is then present in this 27 state, if 28 (i) the sales are made solely in this state; 29 (ii) before a sale, each prospective buyer is furnished 30 information that is sufficient to make an informed investment decision, 31 which information shall be furnished to the administrator upon request;
01 in this sub-subparagraph, "information that is sufficient to make an 02 informed investment decision" includes a business plan, an income and 03 expense statement, a balance sheet, a statement of risks, and a 04 disclosure of any significant negative factors that may affect the 05 outcome of the investment; 06 (iii) commissions or other remuneration meet the 07 requirements of this chapter and are made only to persons registered 08 under AS 45.55.040; 09 (iv) a legend is placed on the certificate or other 10 document evidencing ownership of the security, stating that the security 11 is not registered under this chapter and cannot be resold without 12 registration under this chapter or exemption from it; 13 (v) the issuer obtains a signed agreement from the buyer 14 acknowledging that the buyer is buying for investment purposes and 15 that the securities will not be resold without registration under this 16 chapter; and 17 (vi) offers are made without public solicitation or 18 advertisement; 19 (C) to not more than 10 persons who are to receive the initial 20 issue of shares of a nonpublicly traded corporation, limited liability company, 21 limited partnership, or limited liability partnership if the requirements of (B)(ii) 22 - (iv) and (vi) of this paragraph are met; 23 (D) to the buyer of an enterprise or a business and the assets 24 and liabilities of the enterprise or business if 25 (i) the transfer of stock to the buyer is solely incidental 26 to the sale of the enterprise or business and its assets and liabilities; 27 (ii) the seller provides full access to the buyer of the 28 books and records of the enterprise or business; and 29 (iii) a legend is placed on the certificate or other 30 document evidencing ownership of the security, stating that the security 31 is not registered under this chapter and cannot be resold without
01 registration under this chapter or exemption from it; 02 (6) an offer or sale of a preorganization certificate or subscription if 03 (A) a commission or other remuneration is not paid or given 04 directly or indirectly for soliciting a prospective subscriber; 05 (B) the number of subscribers does not exceed 10; and 06 (C) a payment is not made by any subscriber; 07 (7) a transaction under an offer to existing security holders of the 08 issuer, including persons who, at the time of the transaction, are holders of convertible 09 securities, nontransferable warrants, or transferable warrants exercisable not later than 10 90 days after their issuance, if a commission or other remuneration, other than a 11 standby commission, is not paid or given directly or indirectly for soliciting a security 12 holder in this state; 13 (8) an offer, but not a sale, of a security for which registration 14 statements have been filed under both this chapter and 15 U.S.C. 77a - 77bbbb 15 (Securities Act of 1933) if a stop order or refusal order is not in effect and a public 16 proceeding or examination looking toward an order is not pending under either this 17 chapter or 15 U.S.C. 77a - 77bbbb (Securities Act of 1933); 18 (9) an isolated nonissuer transaction, regardless of whether effected 19 through a broker-dealer, if the seller is not a promoter or controlling person as the 20 administrator may define by regulation or order or if the administrator at the request of 21 the seller waives the requirement that the seller not be a promoter or controlling 22 person; 23 (10) a nonissuer transaction effected by or through a registered broker- 24 dealer under an unsolicited order or offer to buy; however, the administrator may by 25 regulation require that the customer acknowledge on a specified form that the sale was 26 unsolicited, and that a signed copy of each form be preserved by the broker-dealer for 27 a specified period; 28 (11) a transaction executed by a bona fide pledgee without intending to 29 evade this chapter; 30 (12) a transaction incident to a right of conversion or a statutory or 31 judicially approved reclassification, recapitalization, reorganization, quasi-
01 reorganization, stock split, reverse stock split, merger, consolidation, or sale of assets; 02 (13) a stock dividend, regardless of whether the corporation 03 distributing the dividend is the issuer of the stock, if nothing of value is given by 04 stockholders for the dividend other than the surrender of a right to a cash or property 05 dividend when each stockholder may elect to take the dividend in cash or property or 06 in stock; 07 (14) an act incident to a statutory vote by security holders on a merger, 08 consolidation, reclassification of securities, or sale of assets in consideration of the 09 issuance of securities of another issuer; 10 (15) the offer or sale by a registered broker-dealer, acting either as 11 principal or agent, of securities previously sold and distributed to the public if the 12 securities 13 (A) are sold at prices reasonably related to the current market 14 price at the time of sale, and, if the broker-dealer is acting as agent, the 15 commission collected by the broker-dealer on account of the sale is not in 16 excess of usual and customary commissions collected with respect to securities 17 and transactions having comparable characteristics; 18 (B) do not constitute the whole or a part of an unsold allotment 19 to or subscription or participation by the broker-dealer as an underwriter of the 20 securities or as a participant in the distribution of the securities by the issuer, 21 by an underwriter, or by a person or group of persons in substantial control of 22 the issuer or of the outstanding securities of the class being distributed; and 23 (C) have been lawfully sold and distributed in this state under 24 this chapter; 25 (16) offers or sales of certificates of interest or participation in oil, gas, 26 or mining rights, titles, or leases, or in payments out of production under those rights, 27 titles, or leases, if the purchasers 28 (A) are or have been during the preceding two years engaged 29 primarily in the business of exploring for, mining, producing, or refining oil, 30 gas, or minerals; or 31 (B) have been found by the administrator upon written
01 application to be substantially engaged in the business of exploring for, 02 mining, producing, or refining oil, gas, or minerals so as not to require the 03 protection provided by AS 45.55.070; 04 (17) a nonissuer transaction by a registered agent of a registered 05 broker-dealer, and a resale transaction by a sponsor of a unit investment trust 06 registered under 15 U.S.C. 80a-1 - 80a-64 (Investment Company Act of 1940), in a 07 security of a class that has been outstanding in the hands of the public for at least 90 08 days if, at the time of the transaction, 09 (A) the issuer of the security is actually engaged in business 10 and not in the organization stage or in bankruptcy or receivership and is not a 11 blank check, blind pool, or shell company whose primary plan of business is to 12 engage in a merger or combination of the business with, or an acquisition of, 13 an unidentified person or persons; 14 (B) the security is sold at a price reasonably related to the 15 current market price of the security; 16 (C) the security does not constitute the whole or part of an 17 unsold allotment to, or a subscription or participation by, the broker-dealer as 18 an underwriter of the security; 19 (D) a nationally recognized securities manual, which may be 20 designated by rule or order of the administrator, or a document filed with the 21 United States Securities and Exchange Commission that is publicly available 22 through the United States Securities and Exchange Commission's electronic 23 data gathering and retrieval system, contains 24 (i) a description of the business and operations of the 25 issuer; 26 (ii) the names of the issuer's officers and directors, if 27 any, or, in the case of an issuer not domiciled in the United States, the 28 corporate equivalents of the issuer's officers and directors in the issuer's 29 country of domicile; 30 (iii) an audited balance sheet of the issuer dated not 31 earlier than 18 months before the transaction or, in the case of a
01 reorganization or merger in which parties to the reorganization or 02 merger had that audited balance sheet, a pro forma balance sheet; and 03 (iv) an audited income statement for each of the issuer's 04 immediately preceding two fiscal years or for the period of existence of 05 the issuer if the issuer has been in existence for less than two years or, 06 in the case of a reorganization or merger where the parties to the 07 reorganization or merger had that audited income statement, a pro 08 forma income statement; and 09 (E) the issuer of the security has a class of equity securities 10 listed on a national securities exchange registered under 15 U.S.C. 78a - 78lll 11 (Securities Exchange Act of 1934) or designated for trading on the National 12 Association of Securities Dealers Automated Quotation System, unless the 13 issuer of the security 14 (i) is a unit investment trust registered under 15 U.S.C. 15 80a-1 - 80a-64 (Investment Company Act of 1940); 16 (ii) including predecessors, has been engaged in 17 continuous business for at least three years; or 18 (iii) has total assets of at least $2,000,000 based on an 19 audited balance sheet dated not earlier than 18 months before the 20 transaction or, in the case of a reorganization or merger in which the 21 parties to the reorganization or merger had that balance sheet, a pro 22 forma balance sheet; 23 (18) an offer or a sale of a security by an issuer that has a specific 24 business plan or purpose, is not in the development stage, and has not indicated that its 25 business plan is to engage in a merger or acquisition with an unidentified company or 26 other entity or person, under the following conditions: 27 (A) sales of securities are made only to persons who are or the 28 issuer reasonably believes are accredited investors as defined in 17 C.F.R. 29 230.501(a), as that regulation exists on or after October 1, 2013; 30 (B) the issuer reasonably believes that all purchasers are 31 purchasing for investment and not with the view to or for sale in connection
01 with a distribution of the security; a resale of a security sold in reliance on this 02 exemption is presumed to be with a view to distribution and not for investment 03 if the resale occurs not later than 12 months after sale, except a resale under a 04 registration statement under AS 45.55.070 - 45.55.120 or to an accredited 05 investor under an exemption available under this chapter; 06 (C) the exemption in this paragraph is not available to an issuer 07 if the issuer, a predecessor of the issuer, an affiliated issuer, a director, an 08 officer, or a general partner of the issuer, a beneficial owner of 10 percent or 09 more of a class of the issuer's equity securities, a promoter of the issuer 10 presently connected with the issuer in any capacity, an underwriter of the 11 securities to be offered, or a partner, a director, or an officer of the underwriter 12 (i) within the last five years has filed a registration 13 statement that is the subject of a currently effective registration stop 14 order entered by a state securities administrator or the United States 15 Securities and Exchange Commission; 16 (ii) within the last five years has been convicted of a 17 criminal offense in connection with the offer, purchase, or sale of a 18 security, of a criminal offense involving fraud or deceit, or of a felony; 19 (iii) is currently subject to a state or federal 20 administrative enforcement order or judgment entered in the past five 21 years finding fraud or deceit in connection with the purchase or sale of 22 a security; or 23 (iv) is currently subject to an order, judgment, or decree 24 of a court of competent jurisdiction entered in the past five years, 25 temporarily, preliminarily, or permanently restraining or enjoining the 26 person from engaging in or continuing to engage in conduct or a 27 practice involving fraud or deceit in connection with the purchase or 28 sale of a security; 29 (D) the nonavailability of the exemption under (C) of this 30 paragraph does not apply if 31 (i) the person subject to the disqualification is licensed
01 or registered to conduct securities related business in the state in which 02 the order, judgment, or decree creating the disqualification was entered 03 against the person; 04 (ii) before the first offer under this exemption, the state 05 securities administrator or the court or regulatory authority that entered 06 the order, judgment, or decree waives the disqualification; or 07 (iii) the issuer establishes that it did not know and, in 08 the exercise of reasonable care, based on a factual inquiry, could not 09 have known that a disqualification existed under this paragraph; 10 (E) a general announcement of the proposed offering may be 11 made by any means and may include only the following information unless the 12 administrator specifically permits additional information: 13 (i) the name, address, and telephone number of the 14 issuer of the security; 15 (ii) the name, a brief description, and the price, if 16 known, of the security to be issued; 17 (iii) a brief description in 25 words or less of the 18 business of the issuer; 19 (iv) the type, number, and aggregate amount of 20 securities being offered; 21 (v) the name, address, and telephone number of the 22 person to contact for additional information; 23 (vi) a statement that sales will be made only to 24 accredited investors; 25 (vii) a statement that money or other consideration is 26 not being solicited or will not be accepted by way of this general 27 announcement; and 28 (viii) a statement that the securities have not been 29 registered with or approved by a state securities agency or the United 30 States Securities and Exchange Commission and are being offered and 31 sold under an exemption from registration;
01 (F) the issuer in connection with any offer may provide 02 information in addition to the general announcement under (E) of this 03 paragraph if the information is delivered 04 (i) through an electronic database that is restricted to 05 persons who have been prequalified as accredited investors; or 06 (ii) to a prospective purchaser that the issuer reasonably 07 believes is an accredited investor; 08 (G) a telephone solicitation is not permitted unless, before 09 placing the call, the issuer reasonably believes that the prospective purchaser 10 being solicited is an accredited investor; 11 (H) dissemination of the general announcement of the proposed 12 offering to persons who are not accredited investors does not disqualify the 13 issuer from claiming this exemption; 14 (I) the issuer shall file a notice of the transaction with the 15 administrator, a copy of the general announcement, and the fee for exemption 16 filings established by regulation within 15 days after the first sale in this state; 17 (19) an offer to repay, under AS 45.55.930, the buyer of a security if 18 the offeror first files with the administrator a notice specifying the terms of the offer at 19 least 10 days before the offer is made; 20 (20) a transaction involving only family members who are related, 21 including related by adoption, within the fourth degree of affinity or consanguinity, or 22 involving only those family members and the corporations, partnerships, limited 23 liability companies, limited partnerships, limited liability partnerships, associations, 24 joint-stock companies, or trusts that are organized, formed, or created by those family 25 members or at the direction of those family members; 26 (21) a security that is not part of an initial issue of stock covered by 27 AS 45.55.138, but that is issued by a corporation organized under state law in 28 accordance with 43 U.S.C. 1601 et seq. (Alaska Native Claims Settlement Act), if the 29 corporation qualifies for exempt status under 43 U.S.C. 1625(a); 30 (22) a transaction exempt under AS 45.55.175.