2020 Kentucky Revised Statutes Chapter 292 - Securities (blue sky law) 292.411 Exemption from KRS 292.330 to 292.390 for offer or sale of security after January 1, 2015 -- Conditions -- Application of KRS 292.410(3) and (4).
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292.411 Exemption from KRS 292.330 to 292.390 for offer or sale of security after
January 1, 2015 -- Conditions -- Application of KRS 292.410(3) and (4).
(1)
Except as expressly provided in this section and KRS 292.412, KRS 292.330 to
292.390 shall not apply to the offer or sale of a security after July 1, 2015, by the
issuer of the security if all of the following conditions are met:
(a) The issuer of the security is:
1.
A business entity organized under the laws of Kentucky;
2.
Authorized to do business in Kentucky; and
3.
Doing business in Kentucky in accordance with the Securities Act of
1933 Rule 17 C.F.R.
sec. 230.147(c);
(b) The transaction meets the requirement of the federal exemption for intrastate
offerings in the Securities Act of 1933 Rules, 15 U.S.C. sec. 77c(a)(11) and 17
C.F.R. sec. 230.147;
(c) The aggregate offering price of the securities complies with the following
criteria:
1.
If the issuer has not undergone and made available to each prospective
purchaser and the commissioner the opinion letter and applicable
documentation resulting from a financial audit of its most recently
completed fiscal year that complies with generally accepted accounting
principles, the sum of all cash, and other consideration to be received for
all sales of securities in reliance on this exemption, shall not exceed one
million dollars ($1,000,000) in a twelve (12) month period, less the
aggregate amount received for all sales of securities by the issuer that do
not take place prior to the six (6) month period immediately preceding or
after the six (6) month period immediately following any offers or sales
made in reliance on this exemption;
2.
If the issuer has undergone and made available to each prospective
purchaser and the commissioner the opinion letter and applicable
documentation resulting from a financial audit of its most recently
completed fiscal year that complies with generally accepted accounting
principles, the sum of all cash, and other consideration to be received for
all sales of securities in reliance on this exemption, shall not exceed two
million dollars ($2,000,000) in a twelve (12) month period, less the
aggregate amount received for all sales of securities by the issuer that do
not take place prior to the six (6) month period immediately preceding or
after the six (6) month period immediately following any offers or sales
made in reliance on this exemption;
3.
In 2020, and every fifth year thereafter, the commissioner shall, by rule,
cumulatively adjust the dollar limitations provided in this paragraph 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 fifty thousand dollars
(d)
(e)
(f)
(g)
(h)
($50,000); and
4.
An offer or sale to an officer, director, partner, trustee, or individual
occupying similar status or performing similar functions with respect to
the issuer or to a person owning ten percent (10%) or more of the
outstanding shares of any class or classes of securities of the issuer shall
not count toward the monetary limitations set forth in this paragraph;
All sales that are part of the same offering, made in reliance on this
exemption, meet all of the terms and conditions of this exemption. Offers and
sales that are made more than six (6) months before the start of an offering or
are made more than six (6) months after completion of an offering shall not be
considered part of the offering, if during those six (6) month periods there are
no offers or sales of securities by or for the issuer that are of the same or a
similar class as those offered or sold under this exemption, other than offers
and sales to individuals identified in the disclosure document;
The issuer does not accept more than ten thousand dollars ($10,000) from any
single purchaser unless the purchaser is an accredited investor, as defined by
the Securities Act of 1933 Rule 17 C.F.R. sec. 230.501;
Unless waived by written consent of the commissioner, not less than ten (10)
days before the commencement of an offering of securities, pursuant to this
exemption, the issuer submits the following to the commissioner:
1.
A notice filing on a form prescribed by the department;
2.
The filing fee established by the commissioner;
3.
A copy of the disclosure document to be provided to prospective
purchasers pursuant to paragraph (p) of this subsection;
4.
A copy of the escrow agreement entered pursuant to paragraph (g) of
this subsection; and
5.
Any other documents or information the commissioner may require to
administer and enforce the requirement of this exemption;
All cash and other consideration paid for securities sold pursuant to an
offering in accordance with this exemption are directed to and deposited into a
single escrow account maintained by a bank, credit union, or other depository
financial institution located in Kentucky, authorized to do business in
Kentucky, and which maintains deposit or share insurance on its deposits or
shares. The escrow agent for any such escrow account shall maintain the
records necessary to obtain pass-through insurance for the escrowed funds.
The commissioner may request information from the financial institution
necessary to ensure compliance with this section. Any information received by
the commissioner or the department shall be confidential and shall not be
subject to disclosure pursuant to the Kentucky Open Records Act, KRS
61.870 to 61.884;
Offers made pursuant to this exemption state a target offering amount and an
offering deadline. The offering deadline shall not be less than twenty-one (21)
days nor more than one (1) year from the date the offer is made;
(i)
If the sum of all cash and other consideration received and held in escrow, as
required by paragraph (g) of this subsection, does not equal or exceed the
target offering amount upon expiration of the offering deadline or the early
closing of the offering, pursuant to paragraph (k) of this subsection, the
transaction is void and the escrow agent shall return all funds deposited into
the escrow account to the purchasers;
(j) A purchaser is permitted to cancel his or her commitment to invest at any time
prior to forty-eight (48) hours before expiration of the offering deadline if
notice of cancellation is delivered electronically or physically in writing to the
individual or addresses identified in the disclosure document. If a purchaser is
given notice of an early closing, pursuant to paragraph (k) of this subsection,
the purchaser shall be permitted to cancel the commitment within seventy-two
(72) hours of delivery of the notice;
(k) An issuer may close an offering prior to the offering deadline if notice of the
closing is delivered to each purchaser in accordance with the notice provisions
set forth in the disclosure document, required pursuant to paragraph (p) of this
subsection, and posts it conspicuously on each Internet Web site on which the
offer was posted, at least five (5) days prior to the early closing;
(l) Before or as a result of the offering, the issuer is not:
1.
An investment company, as defined by the Investment Company Act of
1940, 15 U.S.C. sec. 80a-3;
2.
An entity that would be an investment company, but for the exclusions
provided in the Investment Company Act of 1940, 15 U.S.C. sec. 80a3(c);
3.
Subject to the reporting requirements of the Securities Exchange Act of
1934, 15 U.S.C. sec. 78m or 15 U.S.C. sec. 78o(d); or
4.
A company that has not yet defined its business operations, has no
business plan, has no stated investment goal for the funds being raised,
or that plans to engage in a merger or acquisition with an unspecified
business entity;
(m) The issuer informs all prospective purchasers of securities that the securities
have not been registered under federal or state securities law and that the
securities are subject to limitations on resale. The issuer shall display the
following notice on the cover page of the disclosure document in a
conspicuous manner in at least twelve (12) point, boldface type:
"BEWARE, YOU MAY LOSE YOUR ENTIRE INVESTMENT IN THIS
TRANSACTION.
IN MAKING AN INVESTMENT DECISION, INVESTORS SHALL 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
DIVISION OR REGULATORY AUTHORITY. FURTHERMORE, THE
(n)
(o)
(p)
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 RULES 147, 17 C.F.R. SEC. 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 SHALL BE AWARE THAT THEY WILL BE REQUIRED TO
BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN
INDEFINITE PERIOD OF TIME.";
The issuer requires each purchaser to certify in writing or electronically as
follows:
"I understand and acknowledge that I am investing in a high-risk, speculative
business venture. I may lose all of my investment, or under some
circumstances more than my investment, and I can afford this loss. This
offering has not been reviewed or approved by any state or federal securities
commission or division or other regulatory authority and no such person or
authority has confirmed the accuracy or determined the adequacy of any
disclosure made to me relating to this offering. The securities I am acquiring
in this offering are illiquid, there is no ready market for the sale of such
securities, it may be difficult or impossible for me to sell or otherwise dispose
of this investment, and accordingly, I may be required to hold this investment
indefinitely. I may be subject to tax on my share of the taxable income and
losses of the company, whether or not I have sold or otherwise disposed of my
investment or received any dividends or other distributions from the
company.";
The issuer obtains from each prospective purchaser evidence that the
prospective purchaser is a resident of Kentucky and, if applicable, is an
accredited investor. A prospective purchaser's residence shall be determined in
accordance with the Securities Act of 1933 Rule 17 C.F.R. sec. 230.147(d).
An affirmative representation made by a natural person that the individual is a
Kentucky resident and proof of at least one (1) of the following shall be
considered sufficient evidence that the individual is a resident of Kentucky:
1.
A valid Kentucky driver's license or other official personal identification
card issued by the Commonwealth of Kentucky;
2.
A current Kentucky voter registration; or
3.
General property tax records showing that the individual owns and
occupies property in Kentucky as his or her principal residence;
The issuer shall provide a disclosure document to each prospective purchaser
at the time the offer of securities is made that contains all of the following:
1.
A description of the company, its type of entity, the address and
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
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
with the company or performing similar functions on behalf of the
issuer;
The identity of all persons owning more than ten percent (10%) of the
ownership interests of any class of securities of the company;
The identity of the executive officers, directors, managing members, and
other persons occupying a similar status or performing similar functions
in the name of and on behalf of the issuer, including their titles and prior
experience;
The terms and conditions of the securities being offered and of any
outstanding securities of the company;
The offering deadline and the target offering amount;
Any conditions upon which the issuer may exercise its right to close an
offering prior to the offering deadline, including but not limited to the
notice that will be provided to both purchasers and potential purchasers
if the offering is closed prior to the offering deadline and the method in
which the notice will be delivered;
Either the percentage ownership of the company represented by the
offered securities or the valuation of the company implied by the price of
the offered securities;
The price per share, unit, or interest of the securities being offered;
Any restrictions on transfer of the securities being offered;
A disclosure of any anticipated future issuance of securities that might
dilute the value of securities being offered;
The identity of any person who has been or will be retained by the issuer
to assist the issuer in conducting the offering and sale of the securities,
including any Internet Web site operator, but excluding persons acting
solely as accountants, attorneys, or employees whose primary job
responsibilities involve operating the business of the issuer;
A description of the consideration being paid to any person identified in
subparagraph 11. of this paragraph, for such assistance to the issuer;
A description of any litigation, legal proceedings, or pending regulatory
action involving the company or its management;
The names and addresses, including the uniform resource locator, of
each Internet Web site that will be used by the issuer to offer or sell
securities pursuant to this exemption;
The name of the individual and addresses to which purchasers may
deliver cancellations, pursuant to paragraph (j) of this subsection. Issuers
shall provide the name of at least one natural person with both an
(q)
(r)
electronic and a physical address to which cancellations may be
delivered;
16. Current financial statements certified by the principal executive officer
shall be true and complete in all material respects. If applicable, the
documentation required by paragraph (c)2. of this subsection shall also
be provided; and
17. Any additional information material to the offering, including if
appropriate a written statement of significant factors that make the
offering speculative or risky. This statement shall be concise and
organized logically and shall not be limited to risks that could apply to
any issuer or any offering;
1.
The exemption shall not be used if an issuer or person affiliated with the
issuer or offering is subject to disqualification pursuant to:
a.
The Securities Act of Kentucky, KRS Chapter 292;
b.
A rule or order of the commissioner;
c.
The Securities Act of 1933, 15 U.S.C. sec. 77c(a)(11); or
d.
The Securities Act of 1933 Rule 17 C.F.R. sec. 230.262.
2.
Disqualification may be set aside by the commissioner if:
a.
Upon a showing of good cause and without prejudice to any other
action by the commissioner, the commissioner determines that it is
not necessary that an exemption be denied under the
circumstances; and
b.
The issuer establishes that it made a factual inquiry into whether
any disqualification existed under this subsection, but did not
know and could not have known in the exercise of reasonable care
that a disqualification existed. The nature and scope of the
requisite inquiry will vary based on the circumstances of the
subject issuer and the other offering participants;
The offering is made exclusively through one (1) or more Internet Web sites
that are operated by a broker-dealer, registered pursuant to KRS 292.330, or
an Internet Web site operator, registered pursuant to KRS 292.412. Each
issuer and registrant shall comply with the following:
1.
Before any offer or sale of securities, the issuer shall provide to the
registrant evidence that the issuer is organized under the laws of
Kentucky and is authorized to do business in Kentucky;
2.
The registrant shall maintain continuous registration with the
department;
3.
The registrant shall limit Web site access to the offer or sale of securities
to Kentucky residents only;
4.
The registrant shall not be a purchaser in any offering made pursuant to
this exemption;
5.
The registrant shall not hold an interest in or be affiliated with or under
(2)
common control with any issuer making an offer or sale pursuant to this
exemption;
6.
Prior to and throughout the term of any offering, the registrant shall give
the commissioner access to the Internet Web site on which any offering
is made pursuant to this exemption; and
7.
The issuer may distribute a limited notice stating that the issuer is
conducting an offering pursuant to this exemption, the name of the
registrant or registrants through which the offer is being conducted, and
a link directing potential purchasers to the Internet Web site of the
registrant or registrants. The notice shall contain a disclaimer that states
that the offering is limited to Kentucky residents;
(s) The issuer shall make and keep all accounts, correspondence, memoranda,
papers, books, and other records which the commissioner prescribes by
administrative regulation or order. All required records shall be:
1.
Preserved for three (3) years unless the commissioner prescribes
otherwise for particular types of record, by administrative regulation or
order; and
2.
Maintained within this state, or at the request of the commissioner be
made available at any time for examination by the department in the
issuer's principal office or by production of exact copies in this state; and
(t) The issuer shall provide, free of charge, a quarterly report to the issuer's
purchasers until no securities issued under this exemption are outstanding.
The issuer may satisfy this reporting requirement by making the information
available on an Internet Web site if the information is made available within
forty-five (45) days after the end of each fiscal quarter and remains available
until the succeeding quarterly report is issued. The issuer shall file each
quarterly report with the department and, if the quarterly report is made
available on an Internet Web site, the issuer shall also provide a written copy
of the report to any purchaser upon request. The report shall contain all of the
following:
1.
Any compensation received by each director or executive officer,
including cash compensation earned since the previous report and on an
annual basis, any bonuses, stock options, or other rights to receive
securities of the issuer or any affiliate of the issuer, and payments that
reduce personal living expenses, such as company vehicle, free housing,
meals, or club dues; and
2.
An analysis by the issuer’s management of the business operations and
financial condition of the issuer.
The provisions of KRS 292.410(3) and (4) shall apply to the exemption set forth in
this section.
Effective: June 24, 2015
History: Created 2015 Ky. Acts ch. 24, sec. 1, effective June 24, 2015.
Legislative Research Commission Note (6/24/2015). 2015 Ky. Acts ch. 24, sec. 3
provides that this statute and KRS 292.412 created in 2015 Ky. Acts ch. 24, secs. 1
and 2 shall be known and may be referred to as the "Kentucky Intrastate
Crowdfunding Exemption."
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