September 18, 2013, Introduced by Reps. Jenkins, Graves, Zorn, Somerville, Kelly, Pscholka, Rendon, Schmidt, Johnson, Kurtz, Schor and Nesbitt and referred to the Committee on Commerce.
A bill to amend 2008 PA 551, entitled
"Uniform securities act (2002),"
by amending sections 202 and 504 (MCL 451.2202 and 451.2504), and
by adding section 202a.
THE PEOPLE OF THE STATE OF MICHIGAN ENACT:
Sec. 202. (1) The following transactions are exempt from the
requirements of sections 301 to 306 and 504:
(a) An isolated nonissuer transaction, whether effected by or
through a broker-dealer or not.
(b) A nonissuer transaction by or through a broker-dealer
registered or exempt from registration under this act, and a resale
transaction by a sponsor of a unit investment trust registered
under the investment company act of 1940, in a security of a class
that has been outstanding in the hands of the public for at least
90 days, if all of the following are met at the date of the
transaction:
(i) The issuer of the security is engaged in business, the
issuer is not in the organizational stage or in bankruptcy or
receivership, and the issuer is not a blank check, blind pool, or
shell company that has no specific business plan or purpose or has
indicated that its primary business plan is to engage in a merger
or combination of the business with, or an acquisition of, an
unidentified person.
(ii) The security is sold at a price reasonably related to its
current market price.
(iii) The security does not constitute the whole or part of an
unsold allotment to, or a subscription or participation by, the
broker-dealer as an underwriter of the security or a
redistribution.
(iv) A nationally recognized securities manual or its
electronic equivalent designated by rule or order under this act or
a record filed with the securities and exchange commission that is
publicly available contains all of the following:
(A) A description of the business and operations of the
issuer.
(B) The names of the issuer's executive officers and the names
of the issuer's directors, if any.
(C) An audited balance sheet of the issuer as of a date within
18 months before the date of the transaction or, in the case of a
reorganization or merger, and when the parties to the
reorganization or merger each had an audited balance sheet, a pro
forma balance sheet for the combined entity.
(D) An audited income statement for each of the issuer's 2
immediately previous fiscal years or for the period of existence of
the issuer, whichever is shorter, or, in the case of a
reorganization or merger when each party to the reorganization or
merger had audited income statements, a pro forma income statement.
(v) Any of the following requirements are met:
(A) The issuer of the security has a class of equity
securities listed on a national securities exchange registered
under section 6 of the securities exchange act of 1934, 15 USC 78f,
or designated for trading on the national association of securities
dealers automated quotation system.
(B) The issuer of the security is a unit investment trust
registered under the investment company act of 1940.
(C) The issuer of the security, including its predecessors,
has been engaged in continuous business for at least 3 years.
(D) The issuer of the security has total assets of at least
$2,000,000.00 based on an audited balance sheet as of a date within
18 months before the date of the transaction or, in the case of a
reorganization or merger when the parties to the reorganization or
merger each had an audited balance sheet as of a date within 18
months before the date of the transaction, a pro forma balance
sheet for the combined entity.
(c) A nonissuer transaction by or through a broker-dealer
registered or exempt from registration under this act in a security
of a foreign issuer that is a margin security defined in
regulations or rules adopted by the board of governors of the
federal reserve system.
(d) A nonissuer transaction by or through a broker-dealer
registered or exempt from registration under this act in an
outstanding security if the guarantor of the security files reports
with the securities and exchange commission under the reporting
requirements of section 13 or 15(d) of the securities exchange act
of 1934, 15 USC 78m or 78o.
(e) A nonissuer transaction by or through a broker-dealer
registered or exempt from registration under this act in a security
that meets 1 or more of the following:
(i) Is rated at the time of the transaction by a nationally
recognized statistical rating organization in 1 of its 4 highest
rating categories.
(ii) Has a fixed maturity or a fixed interest or dividend, if
both of the following are met:
(A) A default has not occurred during the current fiscal year
or within the 3 previous fiscal years or during the existence of
the issuer and any predecessor if less than 3 fiscal years, in the
payment of principal, interest, or dividends on the security.
(B) The issuer is engaged in business, is not in the
organizational stage or in bankruptcy or receivership, and is not
and has not been within the previous 12 months a blank check, blind
pool, or shell company that has no specific business plan or
purpose or has indicated that its primary business plan is to
engage in a merger or combination of the business with, or an
acquisition of, an unidentified person.
(f) A nonissuer transaction by or through a broker-dealer
registered or exempt from registration under this act effecting an
unsolicited order or offer to purchase.
(g) A nonissuer transaction executed by a bona fide pledgee
without any purpose of evading this act.
(h) A nonissuer transaction by a federal covered investment
adviser with investments under management in excess of
$100,000,000.00 acting in the exercise of discretionary authority
in a signed record for the account of others.
(i) A transaction in a security, whether or not the security
or transaction is otherwise exempt, in exchange for 1 or more bona
fide outstanding securities, claims, or property interests, or
partly in exchange and partly for cash, if the terms and conditions
of the issuance and exchange or the delivery and exchange and the
fairness of the terms and conditions have been approved by the
administrator at a hearing.
(j) A transaction between the issuer or other person on whose
behalf the offering is made and an underwriter, or among
underwriters.
(k) A transaction in a note, bond, debenture, or other
evidence of indebtedness secured by a mortgage or other security
agreement if all of the following are met:
(i) The note, bond, debenture, or other evidence of
indebtedness is offered and sold with the mortgage or other
security agreement as a unit.
(ii) A general solicitation or general advertisement of the
transaction is not made.
(iii) A commission or other remuneration is not paid or given,
directly or indirectly, to a person not registered under this act
as a broker-dealer or as an agent.
(l) A transaction by an executor, administrator of an estate,
sheriff, marshal, receiver, trustee in bankruptcy, guardian, or
conservator.
(m) A sale or offer to sell to any of the following:
(i) An institutional investor.
(ii) A federal covered investment adviser.
(iii) Any other person exempted by rule or order under this act.
(n) A sale or an offer to sell securities by or on behalf of
an issuer, if the transaction is part of a single issue in which
all of the following are met:
(i) There are not more than 25 purchasers in this state during
any 12 consecutive months, other than those designated in
subdivision (m).
(ii) There is no general solicitation or general advertising
used in connection with the offer to sell or sale of the
securities.
(iii) A commission or other remuneration is not paid or given,
directly or indirectly, to a person other than a broker-dealer
registered under this act or an agent registered under this act for
soliciting a prospective purchaser in this state.
(iv) The issuer reasonably believes that all the purchasers in
this state other than those designated in subdivision (m) are
purchasing for investment.
(o) A transaction under an offer to existing security holders
of the issuer, including persons that at the date of the
transaction are holders of convertible securities, options, or
warrants, if a commission or other remuneration, other than a
standby commission, is not paid or given, directly or indirectly,
for soliciting a security holder in this state.
(p) An offer to sell, but not a sale, of a security not exempt
from registration under the securities act of 1933 if both of the
following are met:
(i) A registration or offering statement or similar record as
required under the securities act of 1933 has been filed, but is
not effective, or the offer is made in compliance with rule 165
adopted under the securities act of 1933, 17 CFR 230.165.
(ii) A stop order of which the offeror is aware has not been
issued against the offeror by the administrator or the securities
and exchange commission, and an audit, inspection, or proceeding
that is public and may culminate in a stop order is not known by
the offeror to be pending.
(q) An offer to sell, but not a sale, of a security exempt
from registration under the securities act of 1933 if all of the
following are met:
(i) A registration statement has been filed under this act, but
is not effective.
(ii) A solicitation of interest is provided in a record to
offerees in compliance with a rule adopted by the administrator
under this act.
(iii) A stop order of which the offeror is aware has not been
issued by the administrator under this act, and an audit,
inspection, or proceeding that may culminate in a stop order is not
known by the offeror to be pending.
(r) A transaction involving the distribution of the securities
of an issuer to the security holders of another person in
connection with a merger, consolidation, exchange of securities,
sale of assets, or other reorganization to which the issuer, or its
parent or subsidiary, and the other person, or its parent or
subsidiary, are parties.
(s) A rescission offer, sale, or purchase under section 510.
(t) An offer or sale of a security to a person not resident in
this state and not present in this state if the offer or sale does
not constitute a violation of the laws of the state or foreign
jurisdiction in which the offeree or purchaser is present and is
not part of an unlawful plan or scheme to evade this act.
(u) An offer or sale of a security pursuant to an employee's
stock purchase, savings, option, profit-sharing, pension, or
similar employees' benefit plan, including any securities, plan
interests, and guarantees issued under a compensatory benefit plan
or compensation contract, contained in a record, established by the
issuer, its parents, its majority-owned subsidiaries, or the
majority-owned subsidiaries of the issuer's parent for the
participation of their employees including any of the following:
(i) Offers or sales of those securities to directors; general
partners; trustees, if the issuer is a business trust; officers; or
consultants and advisors.
(ii) Family members who acquire those securities from those
persons through gifts or domestic relations orders.
(iii) Former employees, directors, general partners, trustees,
officers, consultants, and advisors if those individuals were
employed by or providing services to the issuer when the securities
were offered.
(iv) Insurance agents who are exclusive insurance agents of the
issuer, its subsidiaries or parents, or who derive more than 50% of
their annual income from those organizations.
(v) A transaction involving any of the following:
(i) A stock dividend or equivalent equity distribution, whether
the corporation or other business organization distributing the
dividend or equivalent equity distribution is the issuer or not, if
nothing of value is given by stockholders or other equity holders
for the dividend or equivalent equity distribution other than the
surrender of a right to a cash or property dividend if each
stockholder or other equity holder may elect to take the dividend
or equivalent equity distribution in cash, property, or stock.
(ii) An act incident to a judicially approved reorganization in
which a security is issued in exchange for 1 or more outstanding
securities, claims, or property interests, or partly in exchange
and partly for cash.
(iii) The solicitation of tenders of securities by an offeror in
a tender offer in compliance with rule 162 adopted under the
securities act of 1933, 17 CFR 230.162.
(w) Subject to subsection (2), a nonissuer transaction in an
outstanding security by or through a broker-dealer registered or
exempt from registration under this act, if both of the following
are met:
(i) The issuer is a reporting issuer in a foreign jurisdiction
designated in subsection (2)(a), or by rule or order of the
administrator, and has been subject to continuous reporting
requirements in the foreign jurisdiction for not less than 180 days
before the transaction.
(ii) The security is listed on the foreign jurisdiction's
securities exchange that has been designated in subsection (2)(a),
or by rule or order under this act, or is a security of the same
issuer that is of senior or substantially equal rank to the listed
security or is a warrant or right to purchase or subscribe to any
of the foregoing.
(x) Any offer or sale of a security by an issuer under section
202a.
(2) For purposes of subsection (1)(w), both of the following
apply:
(a) Canada, together with its provinces and territories, is a
designated foreign jurisdiction and the Toronto stock exchange,
inc., is a designated securities exchange.
(b) After an administrative hearing in compliance with
applicable state law, the administrator, by rule or order under
this act, may revoke the designation of a securities exchange under
subsection (1)(w) or this subsection if the administrator finds
that revocation is necessary or appropriate in the public interest
and for the protection of investors.
Sec. 202a. (1) Except as otherwise provided in this act, an
offer or sale of a security by an issuer is exempt from the
requirements of sections 301 to 306 and 504 if the offer or sale
meets all of the following requirements:
(a) The issuer of the security is an entity that is
incorporated or organized under the laws of this state and is
authorized to do business in this state.
(b) The transaction meets the requirements of the federal
exemption for intrastate offerings in section 3(a)(11) of the
securities act of 1933, 15 USC 77c(a)(11), and SEC rule 147, 17 CFR
230.147.
(c) The sum of all cash and other consideration to be received
for all sales of the security in reliance on this exemption does
not exceed the following amounts:
(i) One million dollars, less the aggregate amount received for
all sales of securities by the issuer within the 12 months before
the first offer or sale made in reliance on this exemption, if the
issuer has not undergone and made available to each prospective
investor and the administrator the documentation resulting from a
financial audit with respect to its most recently completed fiscal
year that meets generally accepted accounting principles.
(ii) Two million dollars, less the aggregate amount received
for all sales of securities by the issuer within the 12 months
before the first offer or sale made in reliance on this exemption,
if the issuer has undergone and made available to each prospective
investor and the administrator the documentation resulting from a
financial audit with respect to its most recently completed fiscal
year that meets generally accepted accounting principles.
(d) The issuer has not accepted more than $10,000.00 from any
single purchaser unless the purchaser is an accredited investor as
defined by rule 501 of SEC regulation D, 17 CFR 230.501.
(e) At least 10 days before the commencement of an offering of
securities in reliance on this exemption or the use of any publicly
available website in connection with an offering of securities in
reliance on this exemption, the issuer files a notice with the
administrator, in writing or in electronic form as specified by the
administrator, that contains all of the following:
(i) A notice of claim of exemption from registration,
specifying that the issuer will be conducting an offering in
reliance on this exemption, accompanied by the filing fee specified
in this section.
(ii) A copy of the disclosure statement to be provided to
prospective investors in connection with the offering. The
disclosure statement must contain all of the following:
(A) A description of the issuer, its type of entity, the
address and telephone number of its principal office, its history,
its business plan, and the intended use of the offering proceeds,
including any amounts to be paid, as compensation or otherwise, to
any owner, executive officer, director, managing member, or other
person occupying a similar status or performing similar functions
on behalf of the issuer.
(B) The identity of each person that owns more than 10% of the
ownership interests of any class of securities of the issuer.
(C) The identity of the executive officers, directors, and
managing members of the issuer, and any other individuals who
occupy similar status or perform similar functions in the name of
and on behalf of the issuer, including their titles and their prior
experience.
(D) The terms and conditions of the securities being offered
and of any outstanding securities of the issuer, the minimum and
maximum amount of securities being offered, if any, and either the
percentage ownership of the issuer represented by the offered
securities or the valuation of the issuer implied by the price of
the offered securities.
(E) The identity of any person that has been or will be
retained by the issuer to assist the issuer in conducting the
offering and sale of the securities, including the owner of any
websites, but excluding any person acting solely as an accountant
or attorney and any employees whose primary job responsibilities
involve the operating business of the issuer rather than assisting
the issuer in raising capital, and for each person identified in
response to this sub-subparagraph, a description of the
consideration being paid to that person for that assistance.
(F) A description of any litigation or legal proceedings
involving the issuer or its management.
(G) The name and address of any website that will be used in
connection with the offering, including its uniform resource
locator or URL.
(iii) An escrow agreement with a bank or other depository
institution located in this state, in which the investor funds will
be deposited, that provides that all offering proceeds will be
released to the issuer only when the aggregate capital raised from
all investors is equal to or greater than the minimum target
offering amount specified in the business plan as necessary to
implement the business plan and that all investors may cancel their
commitments to invest if that target offering amount is not raised
by the time stated in the disclosure document.
(f) The issuer is not, either before or as a result of the
offering, an investment company, as defined in section 3 of the
investment company act of 1940, 15 USC 8a-3, or an entity that
would be an investment company but for the exclusions provided in
subsection (c) of that section, or subject to the reporting
requirements of section 13 or 15(d) of the securities exchange act
of 1934, 15 USC 78m and 78o(d).
(g) The issuer informs each prospective purchaser that the
securities are not registered under federal or state securities law
and that the securities are subject to limitations on resale and
displays the following legend conspicuously on the cover page of
the disclosure document:
"IN MAKING AN INVESTMENT DECISION, INVESTORS MUST RELY ON
THEIR OWN EXAMINATION OF THE ISSUER AND THE TERMS OF THE OFFERING,
INCLUDING THE MERITS AND RISKS INVOLVED. THESE SECURITIES HAVE NOT
BEEN RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR
REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING AUTHORITIES HAVE
NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THIS
DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND
RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED BY
SUBSECTION (E) OF SEC RULE 147, 17 CFR 230.147(E), AS PROMULGATED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND THE APPLICABLE
STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION
THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY WILL BE REQUIRED TO
BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE
PERIOD OF TIME.".
(h) The issuer requires each purchaser to certify in writing
"I understand and acknowledge that:
(i) I am investing in a high-risk, speculative business
venture. I may lose all of my investment, and I can afford the loss
of my investment.
(ii) This offering has not been reviewed or approved by any
state or federal securities commission or other regulatory
authority and that no regulatory authority has confirmed the
accuracy or determined the adequacy of any disclosure made to me
relating to this offering.
(iii) The securities I am acquiring in this offering are
illiquid, that there is no ready market for the sale of those
securities, that it may be difficult or impossible for me to sell
or otherwise dispose of this investment, and that, accordingly, I
may be required to hold this investment indefinitely.
(iv) I may be subject to tax on my share of the taxable income
and losses of the issuer, whether or not I have sold or otherwise
disposed of my investment or received any dividends or other
distributions from the issuer.".
(i) If the offer and sale of securities is made through an
internet website, all of the following requirements are met:
(i) Before the offer of an investment opportunity to residents
of this state through a website, the issuer provides to the website
and to the administrator evidence that the issuer is organized
under the laws of this state and that it is authorized to do
business in this state.
(ii) The issuer obtains from each purchaser of a security under
this section evidence that the purchaser is a resident of this
state and, if applicable, an accredited investor.
(iii) The website operator registers with the administrator by
filing a statement that it is an entity that is incorporated or
organized under the laws of this state, that it is authorized to do
business within this state, and that it is being utilized to offer
and sell securities under this exemption. As part of the
registration, the website shall notify the administrator of its and
the issuer's identity, location, and contact information.
(iv) The issuer and the website keep and maintain records of
the offers and sales of securities made through the website and
provide ready access to the records to the administrator on
request. The administrator may access, inspect, and review any
website described in this subdivision and its records.
(j) All payments for the purchase of securities are directed
to and held by the bank or depository institution subject to the
provisions of subdivision (e)(iii). The bank or depository
institution shall notify the administrator of the receipt of
payments for securities and the identity and residence of the
investors. Investor information provided to the administrator under
this subdivision is not a public record and is not available for
public inspection under section 607(1).
(k) Offers or sales of a security are not made through an
internet website unless the website is registered with the
administrator under subdivision (i)(iii). The website is not subject
to the broker-dealer, investment adviser, or investment adviser
representative registration requirements under chapter 4 if the
website meets all of the following:
(i) It does not offer investment advice or recommendations.
(ii) It does not solicit purchases, sales, or offers to buy the
securities offered or displayed on the website.
(iii) It does not compensate employees, agents, or other persons
for the solicitation or based on the sale of securities displayed
or referenced on the website.
(iv) It is not compensated based on the amount of securities
sold and it does not hold, manage, possess, or otherwise handle
investor funds or securities.
(v) It does not engage in any other activities that the
administrator by rule determines are inappropriate for an exemption
from the registration requirements under chapter 4.
(l) The issuer does not pay, directly or indirectly, any
commission or remuneration to an executive officer, director,
managing member, or other individual who has a similar status or
performs similar functions in the name of and on behalf of the
issuer for offering or selling the securities unless he or she is
registered as a broker-dealer, investment adviser, or investment
adviser representative under chapter 4. An executive officer,
director, managing member, or other individual who has a similar
status or performs similar functions in the name of and on behalf
of the issuer is exempt from the registration requirements under
chapter 4 if he or she does not receive, directly or indirectly,
any commission or remuneration for offering or selling securities
of the issuer that are exempt from registration under this section.
(m) The issuer provides a copy of the disclosure document
provided to the administrator under subdivision (e)(ii) to each
prospective investor at the time the offer of securities is made to
the prospective investor. In addition to the information described
in subdivision (e)(ii), the disclosure document provided to the
administrator and to prospective investors shall include additional
information material to the offering, including, where appropriate,
a discussion of significant factors that make the offering
speculative or risky. This discussion must be concise and organized
logically and should not present risks that could apply to any
issuer or any offering.
(2) Every fifth year, the administrator shall cumulatively
adjust the dollar limitations provided in subsection (1)(c) to
reflect the change in the consumer price index for all urban
consumers published by the federal bureau of labor statistics,
rounding each dollar limitation to the nearest $50,000.00.
(3) If the offer and sale of a security of an issuer is exempt
under this section, the issuer shall provide a quarterly report to
the issuer's investors until none of the securities issued under
this section are outstanding. All of the following apply to the
quarterly report described in this subsection:
(a) The issuer shall provide the report free of charge to the
investors.
(b) An issuer may satisfy the report requirement under this
subsection by making the information available on an internet
website if the information is made available within 45 days after
the end of each fiscal quarter and remains available until the next
quarterly report is issued.
(c) The issuer shall file each report with the administrator
and must provide a written copy of the report to any investor on
request.
(d) The report must include all of the following:
(i) The compensation received by each director and executive
officer of the issuer, including cash compensation earned since the
previous report and on an annual basis and any bonuses, stock
options, other rights to receive securities of the issuer or any
affiliate of the issuer, or other compensation received.
(ii) An analysis by management of the issuer of the business
operations and financial condition of the issuer.
(4) The exemption provided in this section shall not be used
in conjunction with any other exemption under this chapter, except
offers and sales to controlling persons shall not count toward the
limitation in subsection (1)(c).
(5) The exemption described in this section does not apply if
an issuer or person affiliated with the issuer or offering is
subject to any disqualification established by the administrator by
rule or contained in rule 262 as promulgated under the securities
act of 1933, 17 CFR 230.262. However, this subsection does not
apply if both of the following are met:
(a) On a showing of good cause and without prejudice to any
other action by the administrator, the administrator determines
that it is not necessary under the circumstances that an exemption
be denied.
(b) The issuer establishes that it made factual inquiry into
whether any disqualification existed under this subsection but did
not know, and in the exercise of reasonable care could not have
known, that a disqualification existed under this subsection. The
nature and scope of the requisite inquiry will vary based on the
circumstances of the issuer and the other offering participants.
(6) The administrator may adopt rules to implement the
provisions of this section and to protect investors that purchase
securities that are exempt from registration under this section.
(7) The administrator shall charge a nonrefundable filing fee
of $150.00 for filing an exemption notice required under subsection
(1). The fees paid to the administrator under this subsection shall
be used to pay the costs incurred in administering and enforcing
this act.
(8) As used in this section, "Controlling person" means an
officer, director, partner, or trustee, or another individual who
has similar status or performs similar functions, of or for the
issuer or to a person that owns 10% or more of the outstanding
shares of any class or classes of securities of the issuer.
Sec. 504. (1) Subject to subsection (2), a rule or order under
this act may require the filing of a prospectus, pamphlet,
circular, form letter, advertisement, sales literature, or other
advertising record relating to a security or investment advice
addressed or intended for distribution to prospective investors,
including clients or prospective clients of a person registered or
required to be registered as an investment adviser under this act.
(2) This section does not apply to sales and advertising
literature specified in subsection (1) relating to a federal
covered security, a federal covered investment adviser, or a
security or transaction exempted by section 201, 202, or 203 except
as required under section 201(g) or 202(1)(x).