70 Pa. Stat. § 1-203

Current through P.A. Acts 2023-32

Section 1-203 - Exempt transactions

The following transactions are exempted from sections 201 and 211:

(a) Any non-issuer transaction except where directly or indirectly for the benefit of an affiliate of the issuer.

(b) Any non-issuer transaction directly or indirectly for the benefit of an affiliate of the issuer which is exempted from section 5 of the Securities Act of 1933, other than those transactions exempted pursuant to section 3(a)(11) or 3(b) of the Securities Act of 1933, and the rules and regulations now or hereafter adopted thereunder.

(c) Any offer or sale to an institutional investor or to a broker-dealer, whether the buyer is acting for itself or in some fiduciary capacity.

(d) Any sales by an issuer to not more than twenty-five persons in this State during a period of twelve consecutive months if (i) the issuer shall obtain the written agreement of each such person not to sell the security within twelve months after the date of purchase; (ii) no general solicitation through public media advertising, mass mailing, Internet or other means is used in connection with soliciting such sales; (iii) no cash or securities is given or paid, directly or indirectly, to any promoter as compensation in connection therewith unless such compensation is given or paid in connection with a sale made by a broker-dealer registered pursuant to section 301 and any person receiving such compensation is either such broker-dealer or an agent registered pursuant to section 301 of such broker- dealer; (iv) the filing fee specified in section 602(b.1) is paid; and (v) the issuer has provided written notice to each such person of the right to withdraw an acceptance as provided by section 207(m)(2). Purchasers of securities registered under this act or sold in reliance upon an exemption under this act other than this subsection (d), (f) or (s) shall not be included in computing the twenty-five persons for purposes of this exemption. A notice in the form prescribed by the department, signed by an officer of the issuer and stating the name, principal business address of the issuer, proposed use of the proceeds from the sale and such facts as are necessary to establish this exemption shall be filed, together with a copy of any offering literature used in connection with such offer or sale, with the department not later than the day on which the issuer receives from any person an executed subscription agreement or other contract to purchase the securities being offered or the issuer receives consideration from any person therefor, whichever is earlier.

(e) Any offer to not more than fifty persons in this State during a period of twelve consecutive months (i) if no sales result from such offer or if sales resulting from such offer are exempt by reason of subsection (d) or (f) hereof and (ii) no general solicitation through public media advertising, mass mailing, Internet or other means is used in connection with making the offer. This subsection shall not be applicable to offers made pursuant to any other subsection of this section, except subsections (d) and (f).

(f) Any offer or sale of a preorganization subscription or securities of a newly-formed person as part of its initial capitalization to not more than five persons, if no general solicitation through public media advertising, mass mailing, Internet or other means is used in connection with soliciting the sales.

(g) Any transaction between the issuer or other person on whose behalf the offering is made and an underwriter, or among underwriters.

(h) Any offer, but not a sale, of a security for which a registration statement has been filed under the Securities Act of 1933 (48 Stat. 74, 15 U.S.C. § 77a et seq.) or a notification of exemption from registration pursuant to Regulation A promulgated under section 3(b) of such act (15 U.S.C. § 77c(b)) if (i) no stop order or refusal order is in effect and no public proceeding or examination looking toward such an order is pending under the Securities Act of 1933 or this act; and (ii) no such offer is made until after such registration statement, including a prospectus, has been filed with the department.

(i.1) Any sale of an equity security, if:

(i) the securities are proposed to be registered under section 5 of the Securities Act of 1933 (15 U.S.C. § 77e) and, in fact, become registered under section 5 of the Securities Act of 1933 (15 U.S.C. § 77e);

(iv) the issuer of the security is a reporting company as defined in section 102(q);

(v) no stop order or refusal order is in effect and no public proceeding or investigation looking toward such an order is pending under the Securities Act of 1933 or this act;

(vi) the equity security is quoted on the OTC Bulletin Board;

(vii) the issuer, at the time the registration statement becomes effective under section 5 of the Securities Act of 1933, has not received an auditor's report for the immediately preceding fiscal year expressing substantial doubt about the issuer's ability to continue as a going concern unless the securities being sold in reliance upon this subsection are the subject of an offering that is being underwritten on a firm commitment basis by a broker-dealer registered under section 301. An exemption under this section shall terminate upon the termination of the effective period of the registration statement under section 5 of the Securities Act of 1933. For purposes of this subsection, the department, by regulation, may define the term "equity security."

(j) Any transaction in a bond or other evidence of indebtedness secured by a real or chattel mortgage or deed of trust, or by an agreement for the sale of real estate or chattels if: (i) the entire mortgage, deed of trust, or agreement, together with all the bonds or other evidences of indebtedness secured thereby, is offered and sold as a unit; (ii) no public media advertisement is used, mass mailing made or other form of general solicitation is utilized in connection with soliciting the transaction; and (iii) no compensation is paid or given directly or indirectly for soliciting any person in this State in connection with the transaction.

(k) Any judicial sale or any transaction by an executor, administrator, sheriff, marshal, receiver, trustee in bankruptcy, guardian or conservator.

(l) Any transaction now or hereafter exempted from section 5 of the Securities Act of 1933 by virtue of sections 3(a)(9) or 3(a)(10) thereof.

(m) Any transaction executed by a bona fide pledgee without any purpose of evading this act.

(n) Any transaction pursuant to an offer of securities to existing equity security holders of (i) the issuer; (ii) a corporation which prior to the commencement of the offer owned substantially all of the voting stock of the issuer; or (iii) a corporation which organized the issuer for the purpose of the offer, if no compensation, other than a standby commission, is paid or given directly or indirectly for soliciting any equity security holder in this State. "Equity security holders" include persons who at the time of the transaction are holders of convertible securities, nontransferable warrants, or transferable warrants exercisable within not more than ninety days of their issuance.

(o) Any transaction incident to a vote by security holders, or written consent of some or all security holders in lieu of such vote, pursuant to the articles of incorporation or the applicable corporation statute or other statute governing such person, or pursuant to a partnership agreement, a declaration of trust, trust indenture or any agreement among security holders on a merger, consolidation, sale of assets in consideration, in whole or in part, of the issuance of securities of another person, reclassification of securities, or reorganization involving the exchange of securities, in whole or in part, for the securities of any other person if, in the case of any proposed transaction where no proxy materials are required or permitted to be filed with the Securities and Exchange Commission by either party to the transaction and where more than twenty-five per cent of the security holders of either party to the transaction are residents of this State, materials specified by regulation of the department are prepared in connection with the proposed transaction and, after filing with and review by the department, distributed to the security holders of each party to the transaction prior to the vote or solicitation of written consent and the filing fee specified in section 602(b.1) is paid.

(o.1) Any transaction incident to a vote by security holders, or written consent of some or all security holders in lieu of the vote, pursuant to the articles of incorporation or the applicable corporation statute or other statute governing the person, or pursuant to a partnership agreement, a declaration of trust, trust indenture or an agreement among security holders on a merger, consolidation, sale of assets in consideration, in whole or in part, of the issuance of securities of another person, reclassification of securities or reorganization involving the exchange of securities, in whole or in part, for the securities of another person if each of the parties to a transaction described in this section is a bank holding company registered under the Bank Holding Company Act of 1956 (70 Stat. 133, 12 U.S.C. § 1841) and subject to the supervision of the Board of Governors of the Federal Reserve System.

(p) Any offer or sale of an evidence of indebtedness of an issuer either: organized exclusively for educational, benevolent, fraternal, religious, charitable, social, athletic or reformatory purposes and not for pecuniary profit, if no part of the net earnings of the issuer inures to the benefit of any private shareholder or individual; or organized as a chamber of commerce or trade or professional association if all the following are met:

(1) The issuer files a notice with the department in the form prescribed by the department not later than five business days before the issuer receives from any person an executed subscription agreement or other contract to purchase the securities being offered or the issuer receives consideration from any person therefor, whichever is earlier. The notice filed with the department shall be accompanied by a copy of a disclosure document and any offering literature to be used in connection with an offer or sale of securities under this section.

(2) The filing fee prescribed in section 602(b.1)(x) has been paid.

(3) Each person who accepts an offer to purchase securities under this subsection has received a written notice of a right to withdraw an acceptance as provided in section 207(m)(2).

(4) The issuer and any predecessor of the issuer have not defaulted within the current fiscal year and the three preceding fiscal years with respect to any debt security previously sold by the issuer or its predecessor.

(5) The total amount of securities proposed to be offered under this subsection are secured by a mortgage or deed of trust upon the existing land and buildings owned by the issuer which mortgage or deed of trust is or will become a first lien at or prior to the issuance of the securities or there exists a provision satisfactory to the department for escrowing of the proceeds from the sale of the securities until such first lien is established.

(6) The total amount of securities proposed to be offered under this subsection does not exceed as of the time the form required by this subsection is filed with the department seventy-five per cent of the fair market value of the land and buildings to be included in the mortgage or deed of trust.

(7) No promoter of the issuer expects or intends to make a profit directly or indirectly from any business activity associated with the organization or operation of the issuer.

(8) The issuer complies with regulations of the department with respect to trust indentures and the use of an offering document.

(q) Any bona fide distribution in partial or total liquidation of a person, whether or not the assets being distributed include securities of any other person and whether or not wholly or partially in exchange for the securities of the person making the distribution, and any stock split and any stock dividend, where the corporation distributing the dividend is not the issuer, if nothing of value is given by stockholders for the dividend other than the surrender of a right to a cash or property dividend in lieu of the stock and if the dividend is issued pro rata by class.

(r) Any transaction or class of transactions as to which the department by regulation or order finds that registration is not necessary or appropriate for the protection of investors. As a condition of the availability of an exemption granted or established under this section, the department may require compliance with the provisions of section 207(m)(2) and the rules and regulations promulgated thereunder.

(s) Any offer or sale of a security which is exempt from registration under section 5 of the Securities Act of 1933 (48 Stat. 74, 15 U.S.C. § 77e) pursuant to Rule 505 of Regulation D promulgated under section 3(b) of the Securities Act of 1933 (15 U.S.C. § 77c(b)) if:

(i) The issuer files a notice in the form prescribed by rule of the department, together with a copy of any offering document or literature proposed to be used in connection with such offer and sale, with the department not later than the day on which the issuer receives from any person an executed subscription agreement or other contract to purchase the securities being offered or the issuer receives consideration from any person therefor, whichever is earlier;

(ii) The issuer pays the filing fee specified in section 602(b.1);

(iii) No mass mailing is used, public media advertising made or other form of general solicitation is utilized in connection with offers and sales under this subsection;

(iv) No compensation is given or paid, directly or indirectly, to any person in connection with a sale under this subsection unless the compensation is given or paid in connection with a sale made by a broker-dealer who is registered under section 301; and

(v) Neither the issuer nor a predecessor of the issuer; affiliated issuer; officer, director or general partner of the issuer; promoter of the issuer presently connected with the issuer in any capacity; beneficial owner of ten per cent or more of any class of equity securities of the issuer; underwriter of the securities to be offered under this subsection or any partner, director or officer of such underwriter has within five years of filing a notice pursuant to subparagraph (i):

(A) Filed a registration statement which is the subject of a currently effective registration stop order entered by any state securities administrator or the Securities and Exchange Commission;

(B) Been convicted of any criminal offense in connection with the offer, purchase or sale of a security or involving fraud or deceit;

(C) Been subject to a state administrative enforcement order or judgment finding fraud or deceit in connection with the purchase, offer or sale of any security;

(D) Been subject to a state administrative enforcement order or judgment which prohibits, denies or revokes the use of an exemption from registration in connection with the purchase, offer or sale of a security; or

(E) Been subject to an order, judgment or decree of any court of competent jurisdiction temporarily, preliminarily or permanently restraining or enjoining such party from engaging in or continuing to engage in any conduct or practice involving fraud or deceit in connection with the purchase, offer or sale of any security.

The provisions of this subparagraph shall not apply if the party subject to a disqualification described in clause (A), (B), (C), (D) or (E) is licensed or registered to conduct securities- related business in the state in which the order, judgment or decree creating the disqualification was entered against such party; the state securities administrator or the court or regulatory authority that entered the order judgment or decree waives the disqualification prior to the first offer being made in this State under this subsection; or the issuer establishes that it did not know and, in the exercise of reasonable care based on a factual inquiry, could not have known that a disqualification existed under this subparagraph.

(t) Any offer and any sale resulting from such offer where the securities being offered, whether in or outside of this State, will be sold only to accredited investors as that term is defined in the rules and regulations of the Securities and Exchange Commission if:

(i) The securities are sold in good faith reliance that the offering would qualify for an exemption from registration under section 5 of the Securities Act of 1933 (15 U.S.C. § 77e), pursuant to section 3(a)(11) of the Securities Act of 1933 (15 U.S.C. § 77c(a)(11)) or the regulations adopted by the Securities and Exchange Commission under section 3(b) of the Securities Act of 1933 (15 U.S.C. § 77c(b)), except an offering under Rule 505 of Regulation D promulgated by the Securities and Exchange Commission under section 3(b) of the Securities Act of 1933 (15 U.S.C. § 77c(b));

(ii) The issuer files a notice in the form prescribed by rule of the department, together with a copy of any offering document or literature proposed to be used in connection with such offer and sale, with the department not later than the day on which the issuer receives from any person an executed subscription agreement or other contract to purchase the securities being offered or the issuer receives consideration from any person therefor, whichever is earlier;

(iii) The issuer pays the filing fee specified in section 602(b.1);

(A) Filed a registration statement which is the subject of a currently effective registration stop order entered by any state securities administrator or the Securities and Exchange Commission;

(B) Been convicted of any criminal offense in connection with the offer, purchase or sale of a security or involving fraud or deceit;

(C) Been subject to a state administrative enforcement order or judgment finding fraud or deceit in connection with the purchase, offer or sale of any security;

The provisions of this subparagraph shall not apply if the party subject to a disqualification described in clause (A), (B), (C), (D) or (E) is licensed or registered to conduct securities- related business in the state in which the order, judgment or decree creating the disqualification was entered against such party; the state securities administrator or the court of regulatory authority that entered the order judgment or decree waives the disqualification prior to the first offer being made in this State under this subsection; or the issuer establishes that it did not know and, in the exercise of reasonable care based on a factual inquiry, could not have known that a disqualification existed under this subparagraph;

(vi) The issuer specifies in any advertisement, communication, sales literature or other information which is publicly disseminated in connection with the offering of securities, including by means of electronic transmission or broadcast media, that the securities will be sold only to accredited investors. For purposes of this paragraph, "publicly disseminated" means communicated to 100 or more persons or otherwise communicated, used or circulated in a public manner;

(vii) The issuer does not engage in any solicitation of prospective purchasers by telephone until the issuer has reasonable grounds to believe that the person to be solicited is an accredited investor;

(viii) The issuer places a legend on the cover page of any disclosure document proposed to be used in connection with the offering or on the cover page of the subscription agreement advising that the securities described in the disclosure document or the subscription agreement will be sold only to accredited investors and that any resales of the securities made within 12 months from the original date of purchase shall only be made pursuant to an effective registration or to accredited investors;

(ix) The issuer is not an investment company as defined in the Investment Company Act of 1940 (15 U.S.C. § 80a-1 et seq.);

(x) The issuer is not a development stage company with no specific business plan or purpose or a development stage company that has indicated that its business plan is to engage in a merger or acquisition with an unidentified company or companies or other entity or person; and

(xi) The issuer reasonably believes that all purchasers are purchasing for investment and not with the view to distribute, or for sale in connection with a distribution of, the security. A resale of a security sold in reliance on this exemption within 12 months from the original date of purchase shall be presumed to be with a view to distribution and not for investment, except resales pursuant to a registration statement effective under section 205 or 206, orto accredited investors pursuant to an exemption available under this act.

(u) Any offer or sale of a security in an offering which is exempt from registration under section 5 of the Securities Act of 1933 (48 Stat. 74, 15 U.S.C. §77e) in good faith reliance on section 3(b)(2) of the Securities Act of 1933 and rules and regulation adopted thereunder, provided that the issuer of the securities files with the department all documents that are required by rules of the Securities and Exchange Commission to be filed with the Securities and Exchange Commission at the same time that those documents are filed with the Securities and Exchange Commission.

70 P.S. § 1-203

Amended by P.L. 678 2014 No. 52, § 3, eff. 8/9/2014.

1972, Dec. 5, P.L. 1280, No. 284, § 203, effective Jan. 1, 1973. Amended 1984, May 9, P.L. 235, No. 52, § 2, imd. effective; 1990, Dec. 18, P.L. 755, No. 190, § 2, effective in 60 days; 1993, May 4, P.L. 4, No. 4, § 1, imd. effective; 1994, Dec. 7, P.L. 869, No. 126, § 3, effective in 90 days; 1998, Nov. 24, P.L. 829, No. 109, § 5, effective in 60 days; 2002, July 4, P.L. 721, No. 108, § 3, effective in 60 days; 2004, Nov. 23, P.L. 918, No. 126, § 1, imd. effective.