§ 203.185. Offers before effectiveness of registration by qualification exempt.
(a) Under section 203(r) of the act (70 P.S. § 1-203(r)), the Department finds that it is not in the public interest or necessary for the protection of investors to require the registration under section 201 of the act (70 P.S. § 1-201) for securities to be offered but not sold to an applicant filing a registration statement for its securities under section 206 of the act (70 P.S. § 1-206) before the effectiveness of the registration statement if all of the following criteria are met:
(1) The applicant has done all of the following:
(i) Filed a registration statement under section 206 of the act to register the securities for which offers will be made.
(ii) Filed a written opinion of management which states that all of the following conditions apply to the applicant:
(A) The business, including any predecessor, is an existing business which possesses a history of operations of 4 years or more.
(B) The business, including any predecessor, maintains and will continue to maintain a place of business in this Commonwealth which employs at least 25 persons.
(C) The business, including any predecessor, has averaged annual gross revenues of at least $500,000 for the past 2 years.
(D) The business, including any predecessor, possesses at least 4 years of historical financial information.
(iii) Filed an intention to comply with paragraph (3) and subsections (b)—(d).
(2) The minimum amount of the proceeds from the securities to be sold under the registration statement described in paragraph (1)(i) is $500,000.
(3) There is a withdrawal procedure as follows:
(i) Nonbinding subscription agreements received in connection with the offer but not sale of securities made under this section must contain withdrawal rights which permit the investor to withdraw moneys tendered under the nonbinding subscription agreements with accrued interest under one of the following circumstances:
(A) Investors may withdraw moneys tendered under a nonbinding subscription agreement with accrued interest at any time before the effectiveness of the registration statement described in paragraph (1)(i).
(B) Investors may withdraw moneys tendered under a nonbinding subscription agreement with accrued interest within 2 business days from the date of receipt of notification of effectiveness of the registration statement described in paragraph (1)(i), as set forth in subsection (d).
(ii) Investors are considered automatically to have withdrawn any moneys tendered under a nonbinding subscription agreement and the moneys with accrued interest shall be returned to the investors on the occurrence of any of the following:
(A) The registration statement described in paragraph (1)(i) does not become effective within 150 days from the date of filing with the Department, unless extended by the Department.
(B) The registration statement described in paragraph (1)(i) is withdrawn by the applicant.
(C) The Department denies the registration statement described in paragraph (1)(i), regardless of whether the denial was a result of a hearing or rehearing requested by the applicant unless the Department permits, in its Denial Order, that the moneys remain in escrow pending any request for a rehearing on the Denial Order.
(b) Moneys tendered under nonbinding subscription agreements as a result of offers made under this section shall be placed in interest-bearing escrow accounts in a bank and are subject to the investor withdrawal rights set forth in subsection (a)(3).
(1) If, before the effectiveness of the registration statement described in subsection (a)(1)(i), the nonbinding subscription agreement is withdrawn under subsection (a)(3), the deposit and accrued interest is payable to the investor.
(2) After the effectiveness of the registration statement described in subsection (a)(1)(i), the deposit plus accrued interest is payable to the applicant except if the investor withdraws under subsection (d), in which event the investor shall receive the deposit plus accrued interest.
(c) All offers for securities made under this section must be accompanied by the delivery of a preliminary prospectus which has been prepared and filed to satisfy the requirements of section 206(b) of the act and § 206.010(c) (relating to registration by qualification).
(d) All persons whose moneys have been placed in escrow as a result of the making of offers for the securities that are the subject of the registration statement described in subsection (a)(1)(i) shall:
(1) Be notified of the effectiveness of the registration statement either by certified mail or by direct delivery of the information.
(2) Receive a copy of the final prospectus concurrent with the notification of the effectiveness of the registration statement unless the Department permits a supplement to the preliminary prospectus setting forth all changes and modifications to be used for these purposes.
(e) The following do not constitute the sale of a security:
(1) Receipt by the applicant of a nonbinding subscription agreement which is subject to the withdrawal provision of subsection (a)(3).
(2) Deposit of moneys under subsection (b).
(f) The exemption contained in this section may not be available for a transaction entered into primarily to avoid the provisions of section 201 of the act.
Authority The provisions of this § 203.185 issued under the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-101—1-704); amended under 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 (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)); section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).
Source The provisions of this § 203.185 adopted January 21, 1983, effective January 22, 1983, 13 Pa.B. 526; amended December 30, 1999, effective January 1, 2000, 30 Pa.B. 18; amended September 1, 2000, effective September 2, 2000, 30 Pa.B. 4551; transferred and renumbered from 64 Pa. Code § 203.185, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364686) to (364689).
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