RULES AND REGULATIONS
Title 64--SECURITIES
SECURITIES COMMISSION
[64 PA. CODE CHS. 202--205, 207, 209, 211, 504, 513, 603, 606 AND 609]
National Securities Market Improvement Act of 1996 Amendments
[30 Pa.B. 18] Statutory Authority
The Securities Commission (Commission), under the authority contained in sections 202(g) and (i), 203(d), (i.1), (j) and (n)--(t), 204(a), 205(b), 207(g), (j.1) and (n), 209(b), 211(a) and (b), 504(d), 513, 603(a), 606(d) and 609(a) of the Pennsylvania Securities Act of 1972 (act) (70 P. S. §§ 1-202(g) and (i), 1-203(d), (i.1), (j) and (n)--(t), 1-204(a), 1-205(b), 1-207(g), (j.1) and (n), 1-209(b), 1-211(a) and (b), 1-504(d), 1-513, 1-603(a), 1-606(d) and 1-609(a)) amends and adopts regulations concerning the subject matter of the act.
Publication of Notice of Proposed Rulemaking
Publication of a notice of proposed rulemaking appeared at 29 Pa.B. 3898 (July 24, 1999).
Public Comments
One public comment was received from the Investment Company Institute which supported adoption of § 211.010 (relating to notice filings for Federally covered securities). No public comments were received with respect to any other proposed amendments.
Comments of the Independent Regulatory Review Commission (IRRC)
By letter dated September 23, 1999, IRRC advised that it had no objections, comments or suggestions with respect to the proposed amendments or regulations.
Changes Made by the Commission on Adoption
In deliberating final adoption, the Commission addressed two issues raised by Commission staff and made certain modifications to the proposed amendments. The first issue concerns § 203.189 (relating to isolated transactions). In 1997, the Commission waived the Pennsylvania domicile requirement and public media advertisement prohibition for offerings that were filed with the United States Securities and Exchange Commission (SEC) under section 5 of the Securities Act of 1933 (1933 Act) or under SEC Regulation A adopted under section 3(b) of the 1933 Act and did not sell to more than two persons in this Commonwealth within a consecutive 12-month period. Although implicit in the waiver of the public media advertisement, the Commission did not affirmatively waive the limitation of no more than 90 offers in this Commonwealth during a consecutive 12-month period. In final form rulemaking, the Commission revised this section to include in subsection (b) a waiver of the limitation on offers contained in subsection (a)(2).
The second issue arose in the context of proposed amendments to § 204.010 (relating to increasing the number of offerees and purchasers) in which the Commission proposed to delete subsection (c)(2). This is a former Uniform Limited Offering Exemption provision which states that a disqualification on use of this exemption is waived automatically if the state which imposed the disqualification determines upon showing of good cause that it is not necessary under the circumstances that the exemption be denied. Because the disqualification provision in subsection (b) includes orders issued by other states for violations of their securities statutes, this waiver provision should be retained. In final form rulemaking, the Commission determined to withdraw the proposed change to § 204.010(c)(2).
Summary and Purpose of Regulations
§ 202.070. Commission Form 202-G has been deleted. § 202.091. The legal citations in this regulation have been updated. § 202.093. Use of advertising in connection with the solicitation of charitable pooled income funds has been clarified. § 202.095. Certain charitable gift annuities are exempt from registration under the act. § 203.041. Commission Form E has been adopted and Commission Form 203-D and Commission Form D Supplement have been repealed. § 203.091. The prospectus filing requirement has been conformed with amendments made to the act by the act of November 24, 1998 (P. L. 829 No. 109) (Act 109). § 203.101. Availability of this exemption has been conformed to amendments made to the act by Act 109 prohibiting use of general solicitation and payment of sales compensation. § 203.141. Commission Form 203-N has been deleted. § 203.151. This regulation has been conformed to amendments made to section 203(o) of the act by Act 109. § 203.161. Commission Form 203-P has been revised. § 203.171. Commission Form 203-Q has been deleted. § 203.183. Typographical errors have been corrected and obsolete language removed. § 203.184. ''Son-in-law'' and ''daughter-in-law'' have been included in the definition of ''principal.'' § 203.185. Obsolete language has been removed. § 203.186. Commission Form 203R-6 has been deleted. § 203.187. Integration provisions adopted by Act 109 have been incorporated. § 203.189. Integration provisions adopted by Act 109 have been incorporated and waiver of 90 offer limitation extended to offerings filing under section 5 of the 1933 Act or SEC Regulation A. § 203.191. Commission Form E adopted to claim the exemption in section 203(s) of the act. § 203.201. Commission Form E adopted to claim the exemption in section 203(t) of the act. § 204.010. References to offerings made under SEC Rule 505 or 506 are deleted and provision relating to waiver of disqualification provision has been retained. § 204.011. Language relating to when waivers under this section are available has been clarified. § 204.012. This regulation establishes a waiver of the requirement to file a registration statement with the Commission prior to making offers (but not sales) in this Commonwealth when the issuer had filed a registration statement with the SEC. § 205.040. Obsolete language has been deleted. § 207.071. Escrow of promotional shares provisions have been modified in accordance with amendments adopted by Act 109. § 207.072. A new regulation concerning the escrow of use of proceeds has been adopted. § 207.101. The total period of effectiveness of a registration statement filed under section 205 of the act has been changed to conform to amendments in Act 109. § 207.130. Regulation has been changed to conform to Act 126 of 1994. § 207.140. Use of manual signatures has been waived and issuers making notice filings with the Commission through electronic means may type signatures on electronic forms. § 209.010. Language in Commission Form 209 has been clarified. § 211.010. A notice filing requirement for Federally covered securities has been adopted. § 504.060. The type of communication to purchasers and sellers in connection with a rescission offer made under section 504(d) or (e) of the act has been clarified. § 513.010. Section 504.060 for rescission offers apply to any rescission offer ordered under section 513 of the act unless otherwise specified by order of the Commission. § 603.011. Filing addresses have been updated. § 606.041. Various delegations of authority have been made to Commission staff. § 609.031. Legal citations have been updated. § 609.034. Legal citations have been updated. Persons Affected by these Amendments
These regulatory actions generally are required to effectuate statutory changes made to the act by Act 109 of 1998. The regulatory proposals primarily affect issuers seeking to raise capital through the offer and sale of securities in this Commonwealth.
Fiscal Impact
None of the amendments increase costs on the regulated community or the Commonwealth. The Commonwealth will not incur any revenue loss as a result of the regulatory actions. The amendments will decrease regulatory costs to issuers by eliminating certain filing requirements.
Paperwork
The Commission adopts new Commission Form E which will be used for making certain notice filings with the Commission in lieu of Form 203-D and Form D Supplement which have been deleted. Form E, therefore, is a multipurpose form which issuers may use to claim any of the three private placement exemptions under the act which require a notice filing.
Commission Form 202-G, Form 203-N, Form 203-Q and 203R-6 have been deleted and Commission Form 203-P is amended to reduce the amount of information required to be filed. Therefore, the amendments will reduce substantially the current paperwork requirements for issuers offering and selling securities in this Commonwealth.
Regulatory Review
Under section 5(a) of the Regulatory Review Act (71 P. S. § 745.5(a)), on July 1, 1999, the Commission submitted a copy of the proposed rulemaking published at 29 Pa.B. 3898 to IRRC and the Chairpersons of the House Committee on Commerce and Economic Development and the Senate Committee on Banking and Insurance for comment and review. In accord with section 5(b) of the Regulatory Review Act, the Commission has provided IRRC and the Committees with a copy of a detailed Regulatory Analysis Form prepared by the Commission in compliance with Executive Order 1996-1, ''Regulatory Review and Promulgation.'' A copy of this material is available upon request.
By letter dated September 23, 1999, IRRC stated that it did not have any objections, comments or suggestions to offer on the proposed rulemaking published at 29 Pa.B. 3898.
In preparing these final-form regulations, the Commission considered all comments received from the public. It adopted changes to § 203.189 based on internal staff comment and withdrew proposed changes to § 204.010(c)(2). The final-form regulations were submitted on November 4, 1999, to the House Committee on Commerce and Economic Development and the Senate Committee on Banking and Insurance and IRRC. Final-form regulations were deemed approved by the House Committee on Commerce and Economic Development and the Senate Committee on Banking and Insurance on November 24, 1999. IRRC met on December 2, 1999, and approved the final-form regulations.
Availability in Alternative Formats
The amendments may be made available in alternative formats upon request. TDD users should use the AT&T Relay Center (800) 854-5984. To make arrangements for alternative formats, contact Joseph Shepherd, ADA Coordinator, at (717) 787-6828.
Contact Person
The contact person for an explanation of the amendments is G. Philip Rutledge, Deputy Chief Counsel, Securities Commission, Eastgate Building, 1010 N. Seventh Street, 2nd Floor, Harrisburg, PA 17102-1410, (717) 783-5130.
Order
The Commission, acting under the authorizing statute, orders that:
(a) The regulations of the Commission, 64 Pa. Code Chapters 202--205, 207, 209, 211, 504, 513, 603, 606 and 609 are amended by amending §§ 202.070, 202.091, 202.093, 203.041, 203.091, 203.101, 203.141, 203.151, 203.161, 203.171, 203.183, 203.184, 203.185, 203.186, 203.187, 204.011, 204.012, 205.040, 207.071, 207.101, 207.130, 207.140, 209.010, 504.060, 603.011, 606.041, 609.031 and 609.034 to read as set forth at 29 Pa.B. 3898; by adding §§ 202.095, 203.191, 203.201, 207.072, 211.010 and 513.010 as set forth at 29 Pa.B. 3898; and by amending §§ 203.189 and 204.010 to read as set forth in Annex A.
(b) The Secretary of the Commission shall submit this order, 29 Pa.B. 3898 and Annex A to the Office of Attorney General for approval as to form and legality as required by law.
(c) The Secretary of the Commission shall certify this order, 29 Pa.B. 3898 and Annex A and deposit them with the Legislative Reference Bureau as required by law.
(d) This order shall take effect upon publication in the Pennsylvania Bulletin.
M. JOANNA CUMMINGS,
SecretaryFiscal Note: Fiscal Note 50-113 remains valid for the final adoption of the subject regulations.
Annex A
TITLE 64. SECURITIES
Subpart B. REGISTRATION OF SECURITIES
CHAPTER 203. EXEMPT TRANSACTIONS § 203.189. Isolated transaction exemption.
(a) General. Under section 203(r) of the act (70 P. S. § 1-203(r)), the Commission finds it neither necessary nor appropriate for the protection of investors to require registration under section 201 of the act (70 P. S. § 1-201) for the offer and sale of securities by an issuer if:
(1) Sales made under this section do not result in the issuer having made sales of its securities to more than two persons in this Commonwealth during a period of 12- consecutive months. Only sales described in subsection (c) will be counted as sales for purposes of the numerical limitations contained in this paragraph.
(2) Offers made under this section do not result in the issuer having made offers to sell its securities to more than 90 persons in this Commonwealth during a period of 12-consecutive months. Only offers described in subsection (c) will be counted as offers for purposes of the numerical limitations contained in this paragraph.
(3) The issuer either is organized under the laws of the Commonwealth or has its principal place of business in this Commonwealth.
(4) Neither the issuer nor a promoter, officer or director of the issuer is subject to the disqualifications in § 204.010(b) (relating to increasing the number of purchasers and offerees).
(5) No public media advertisement is used or mass mailing is made in connection with offers and sales made under this section.
(6) Cash or securities are not given or paid, directly or indirectly, to a person as compensation in connection with a sale under this section unless the compensation is given or paid in connection with a sale made by a broker-dealer who either is registered under section 301 of the act (70 P. S. § 1-301) or exempt from registration under section 302(a) of the act (70 P. S. § 1-302(a)) and a person receiving compensation is either the broker-dealer or an agent of the broker-dealer who either is registered under section 301 of the act or exempt from registration under section 302(b) of the act.
(b) Waivers.
(1) Subsection (a)(2), (3) and (5) do not apply if the following criteria are met:
(i) The securities to be sold in reliance on this section are registered with the United States Securities and Exchange Commission under section 5 of the Securities Act of 1933 (1933 Act) (15 U.S.C.A. § 77e) or exempt from registration under Regulation A adopted under section 3(b) of the 1933 Act (15 U.S.C.A. § 77(c)(b).
(ii) The issuer has complied with section 203(h) of the act.
(2) Subsection (a)(3) does not apply if the following criteria are met:
(i) The offers and sales of securities made in reliance on this section would qualify for an exemption from registration under section 5 of the 1933 Act under Rule 505 or Rule 506 of Regulation D (17 CFR 230.505 and 230.506 (relating to exemption for limited offers and sales of securities not exceeding $5 million; and exemption for limited offers and sales without regard to dollar amount of offering)) promulgated under sections 3(b) and 4(2) of the 1933 Act.
(ii) The offers made in this Commonwealth in reliance on this section are made only to accredited investors as that term is defined in § 204.010.
(iii) The sales made in this Commonwealth in reliance on this section are made only to accredited investors as that term is defined in § 204.010.
(c) Inclusion of prior offers and sales. Offers and sales which occurred within the preceding 12 months from the date of an offer or sale to be made under this section that were made in reliance upon section 203(d), (f) or (s) of the act, §§ 203.187 and 204.010(a)(1) and (2) (relating to small issuer exemption; and increasing number of purchasers and offerees), SEC Rule 506 (17 CFR 230.506) or this section shall be counted against the numerical limitations in subsection (a)(1) and (2).
(d) Integration.
(1) Offers and sales made by the issuer under this section shall be counted as offers and sales under the applicable numerical limitations in § 204.010(a)(1) and (2) if offers and sales under § 204.010 occur within 12-consecutive months of an offer or sale made under this section.
(2) Offers and sales made by the issuer under this section shall be counted as offers and sales under the applicable numerical limitations in section 203(s) of the act (70 P. S. § 1-203(s)) if offers and sales under section 203(s) occur within 6-consecutive months of an offer or sale made under this section.
(e) Counting of offerees and purchasers. Section 609.012 (relating to computing the number of offerees, purchasers and clients) applies to offers and sales of securities made under this section.
CHAPTER 204. EXEMPTION PROCEEDINGS § 204.010. Increasing the number of purchasers and offerees.
(a) Increases in purchasers and offerees. Under section 204(a) of the act (70 P. S. § 1-204(a)), the number of purchasers and offerees permitted under section 203(d) and (e) of the act, respectively (70 P. S. §§ 1-203(d) and (e)) shall be increased as follows, if the issuer complies with all the conditions described in subsection (b):
(1) The total number of persons to whom securities may be offered in this Commonwealth during 12-consecutive months under section 203(e) shall be 90 persons, except that offers made to experienced private placement investors, as that term is defined in subsection (d), who actually purchase the securities being offered are not included in the limitation established by this paragraph.
(2) The total number of persons to whom securities may be sold in this Commonwealth during 12-consecutive months under section 203(d) shall be 35 persons, except that sales made to experienced private placement investors, as that term is defined in subsection (d) are not included in the numerical limitation established by this paragraph.
(b) Conditions.
(1) Disqualification. The issuer or a person who is an officer, director, principal, partner (other than a limited partner), promoter or controlling person of the issuer or a person occupying a similar status or performing a similar function on behalf of the issuer, has not been convicted of a crime, made the subject of a sanction or otherwise found to have met any of the criteria described in section 305 (a)(ii)--(xiii) of the act (70 P. S. § 1-305(a)(ii)--(xiii)) unless the person subject to this disqualification is registered under section 301 of the act (70 P. S. § 1-301).
(2) Notice filing. With respect to reliance on subsection (a)(2), the issuer files with the Commission the notice required by section 203(d) of the act and § 203.041 (relating to limited offerings) and pays the filing fee required by section 602(b.1)(viii) of the act (70 P. S. § 1-602(b.1)(viii)).
(3) Broker-dealer requirement. All offers and sales made to persons in reliance on section 203(d) and (e) of the act, including the increased number of offerees and purchasers permitted by subsection (a), are effected by a broker-dealer registered under section 301 of the act, except that this condition does not apply if the issuer either is organized under the laws of the Commonwealth or has its principal place of business in this Commonwealth.
(4) Statutory requirement. With respect to all offers and sales made to persons permitted under this section, the issuer shall comply with all conditions imposed by section 203(d) and (e) of the act, respectively.
(c) Exceptions.
(1) Subsection (b)(1) does not apply if the person subject to the disqualification enumerated therein is licensed or registered to conduct securities related business in the state in which the administrative order or judgment was entered against the person or if the broker-dealer employing the person is licensed or registered in this Commonwealth and in the Form BD filed with the Commission has disclosed the order, conviction, judgment or decree relating to this person. Nothing in this paragraph shall be construed to allow a person disqualified under subsection (b)(1), to act in a capacity other than that for which the person is registered.
(2) A disqualification created under this section is automatically waived if the state securities administrator or agency of the state which created the basis for disqualification determines upon a showing of good cause that it is not necessary under the circumstances that the exemption be denied.
(d) Definitions. For purposes of this section, the following terms have the following meanings:
(1) Experienced private placement investor. An individual--and spouse when purchasing as joint tenants or as tenants by the entireties--who previously has purchased a minimum of $450,000 of securities within the past 3 years in private placement offerings exclusive of the purchase of securities of an issuer of which the individual, or spouse, was an affiliate at the time of purchase.
(2) Private placement offering of securities. An offering of securities made in reliance on an exemption from the registration provisions of section 5(e) of the Securities Act of 1933 (15 U.S.C.A. § 77(e)) under section 3(b) or 4(2) of that act (15 U.S.C.A. §§ 77c(b) and 77d(2)).
(3) Purchase of securities by an experienced private placement investor. The sale of securities for cash or for an unconditional obligation to pay cash which obligation is to be discharged within 5 years from the date of the sale of the securities to the experienced private placement investor.
(4) Accredited investor. A person who meets the definition of accredited investor in SEC Rule 501(a) (17 CFR 230.501(a)).
(e) Due diligence obligation.
(1) A broker-dealer registered under section 301 of the act (70 P. S. § 1-301) that sells a security to an experienced private placement investor in reliance on subsection (a) must receive a written representation that the purchaser meets the definition of experienced private placement investor in subsection (d)(1) and must have reasonable grounds to believe, after reasonable inquiry, that the written representation is correct.
(2) An issuer that either is organized under the laws of the Commonwealth or has its principal place of business in this Commonwealth and sells its securities to experienced private placement investors in reliance on subsection (a) must receive a written representation that the purchaser meets the definition of experienced private placement investor in subsection (d)(1) and must have reasonable grounds to believe, after reasonable inquiry, that the written representation is correct.
(f) Statutory basis for offers and sales under this section. All offers and sales made to persons permitted by this section are deemed to be offers and sales made under section 203(d) and (e) of the act and all conditions imposed by those sections of the act are applicable to offers and sales to persons permitted by this section.
[Pa.B. Doc. No. 00-10. Filed for public inspection December 30, 2000, 9:00 a.m.]
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