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The Committee that acted for the National Conference of Commissioners on Uniform State Laws in preparing the Uniform Securities Act (1985) with 1988 Amendments was as follows:

JOHN FOX ARNOLD, 714 Locust Street, St. Louis, MO 63101, Co-Chairman

HAROLD E. READ, JR., P.O. Box 5283, Carefree, AZ 85377, Co-Chairman

DAVID N. BARKHAUSEN, Suite 2700, 69 West Washington Street, Chicago, IL 60602

PETER J. DYKMAN, Room 217 North, State Capitol Building, Madison, WI 53702,

STANLEY M. FISHER, 1100 Huntington Building, Cleveland, OH 44115

MENDES HERSHMAN, 575 Madison Avenue, New York, NY 10022

CARL H. LISMAN, P.O. Box 728, Burlington, VT 05402

FRED H. MILLER, University of Oklahoma, College of Law, 300 West Timberdell

Road, Norman, OK 73019

MICHAEL P. SULLIVAN, P.O. Box 35286, Minneapolis, MN 55435

HOWARD J. SWIBEL, 75th Floor, 233 South Wacker Drive, Chicago, IL 60606

ROBERT B. TITUS, Western New England College, School of Law, 1215 Wilbraham

Road, Springfield, MA 01119, Reporter

CARLYLE C. RING, JR., Room 322-D, 5390 Cherokee Avenue, Alexandria,

VA 22312, President (Member Ex Officio)

WILLIAM J. PIERCE, University of Michigan Law School, Ann Arbor, MI 48109,

Executive Director

MAURICE A. HARTNETT, III, Chambers, Court of Chancery, 45 The Green, Dover,

DE 19901, Chairman, Division G (Member Ex Officio)

WILLIAM H. WOOD, 210 Walnut Street, Harrisburg, PA 17108, Chairman

ARTHUR E. BONFIELD, University of Iowa, College of Law, Iowa City, IA 52242

DAVID HUDSON, 202 Central Park One, 525 Central Park Drive, Oklahoma City,

OK 73105

ROGER P. MORGAN, One Financial Plaza, Hartford, CT 06103

MARY BELLAMY, Investment Company Institute

ROBERT L. BEVAN, American Bankers Association

CHARLES H.B. BRAISTED, American Bar Association

MILTON H. GRAY, American Bar Association, Section of Corporation, Banking and

Business Law

ROYCE O. GRIFFIN, North American Securities Administrators Association

ROBERT D. GUIOD, American Bar Association, Section of Corporation, Banking and

Business Law

JACK S. LEVIN, American Bar Association, Section of Taxation

BARRY W. MOSES, National Association of Attorneys General

LANNY PROFFER, National Conference of State Legislatures

FRED M. STONE, American Stock Exchange

FRANK J. WILSON, National Association of Securities Dealers

GRAIG GOETTSCH, North American Securities Administrators Association

CONRAD G. GOODKIND, American Bar Association, Committee on State Regulation

of Securities

F. LEE LIEBOLT, JR., American Bar Association, Committee on State Regulation of

Securities

HUGH H. MAKENS, American Bar Association, Committee on State Regulation of

Securities

JAMES C. MEYER, North American Securities Administrators Association

ROBERT D. STRAHOTA, American Bar Association, Committee on State Regulation of

Securities

BOB F. THOMPSON, American Bar Association, Committee on State Regulation of

Securities

Final, approved copies of this Act and copies of all Uniform and Model Acts and other printed matter issued by the Conference may be obtained from:

The original Uniform Securities Act was promulgated by the National Conference of Commissioners on Uniform State Laws in 1956. The 1956 Act has been adopted, in whole or in part, in 37 jurisdictions.

In undertaking to draft a revised Uniform Securities Act, the Drafting Committee was guided by the following principles:

(1) The 1956 Act generally has worked well and the substantive content of that Act should be modified only if there is shown to be a need to do so;

(2) The licensing and registration procedures specified in the 1956 Act should be updated to reflect the various federal and state securities law developments during the past 30 years;

(3) The authority of the state securities administrators in the enforcement area should be strengthened; and

(4) Some expedited registration process should be available for certain "seasoned" issuers where there appears less need for detailed securities review in order to protect investors.

The Drafting Committee reviewed numerous drafts. The Committee had the assistance of advisers from several interested groups, including, alphabetically, the American Bankers Association, the American Bar Association, the American Stock Exchange, the Investment Company Institute, the National Association of Securities Dealers, Inc., the North American Securities Administrators Association, and the Securities Industry Association. In addition, the Reporter and individual members of the Drafting Committee met on various occasions with committees or representatives of these groups.

Notwithstanding comprehensive reorganization and relocation, a very substantial amount of the statutory law of the 1956 Act has been retained in the Uniform Securities Act (1985). The cross-reference sheet included with these materials indicates where the provisions of the 1956 Act may be found in the draft Uniform Securities Act (1985).

The structural reorganization undertaken follows the Conference's general drafting style. The Uniform Securities Act (1985) is divided into eight sections as follows (the comparable sections of the 1956 Act are noted parenthetically):

Part

I - Definitions (401)

II - Broker-Dealer, Sales Representatives, and Investment Adviser Licensing(201-204)

III - Registration of Securities (301-306)

IV - Exemptions from Registration (402-403)

V - Fraudulent and other Prohibited Practices (101-102, 404-405)

VI - Enforcement and Civil Liability (407-410)

VII - Administration (406, 412-413)

VIII - Miscellaneous (414-419)

While a state which previously has adopted the 1956 Act obviously could choose to update only certain of its law by adopting provisions from one or more Parts above, the Drafting Committee strongly encourages that a state not do so. The revisions encompassed in this Act reflect a conscious effort to carefully balance the various interests involved in state securities regulation.

It should be noted that considerable effort was expended by the Drafting Committee to reach an accomodation of competing interests on the issues generating the most discussion. Thus, Section 302, the expedited registration of securities provision, was modified significantly from the draft presented to the Conference at the 1984 Annual Conference. In its final form, the section includes several criteria for eligibility designed to assure that the expedited registration process is available only to active operating companies with well established market activity for their securities.

Similarly, the new provision regarding administrative sanctions, Section 602, spells out the various enforcement sanctions available to an administrator and cross-references the procedural and substantive provisions applicable to the imposition of those sanctions.

To the extent practicable, the Uniform Securities Act (1985) encourages both greater coordination between federal and state securities law regulation and greater cooperation among states. Sections 205 and 209 reflect the former theme in the licensing and post-licensing provisions applicable to broker-dealers and investment advisers. Section 704 specifies numerous areas in which it is hoped that the states will continue to work jointly and achieve a maximum degree of uniformity.

Section 705 sets forth in a single provision the general standards guiding the state securities administrator, which standards essentially are the same as those under the 1956 Act, namely that the action to be taken is "in the public interest and appropriate for the protection of investors" and is "consistent with the purposes fairly intended by the policy and provisions of this [Act]."

The comments following the sections have been prepared by the Reporter and the Chairmen of the Drafting Committee, based, among other sources, upon discussions and comments from various parties during the Drafting Committee meetings and comments to comparable provisions of the 1956 Act, where applicable.

SECTION 101. DEFINITIONS. As used in this [Act], unless the context otherwise requires:

(1) "[Administrator]" [substitute any other appropriate term, such as "Commission," "Commissioner," "Secretary"] means the [insert name of administrative agency or individual].

(2) "Broker-dealer" means a person engaged in the business of effecting transactions in securities for the account of others or for the person's own account. The term does not include:

(i) a sales representative;

(ii) an issuer, except when effecting transactions other than with respect to its own securities;

(iii) a depository institution; or

(iv) any other person the [Administrator], by rule or order, designates.

(3) "Depository institution" means:

(i) a person that is organized, chartered, or holding an authorization certificate under the laws of a state or of the United States which authorizes the person to receive deposits, including a savings, share, certificate, or deposit account, and which is supervised and examined for the protection of depositors by an official or agency of a state or the United States; and

(ii) a trust company or other institution that is authorized by federal or state law to exercise fiduciary powers of the type a national bank is permitted to exercise under the authority of the Comptroller of the Currency and is supervised and examined by an official or agency of a state or the United States. The term does not include an insurance company or other organization primarily engaged in the insurance business or a Morris Plan bank, industrial loan company, or a similar bank or company unless its deposits are insured by a federal agency.

(4) "Filed" means the actual delivery of a document or application to the [Administrator] or designee of the [Administrator] or to the principal office of the [Administrator].

(5) "Financial or institutional investor" means any of the following, whether acting for itself or others in a fiduciary capacity:

(i) a depository institution;

(ii) an insurance company;

(iii) a separate account of an insurance company;

(iv) an investment company as defined in the Investment Company Act of 1940;

(v) an employee pension, profit-sharing, or benefit plan if the plan has total assets in excess of $5,000,000 or its investment decisions are made by a named fiduciary, as defined in the Employee Retirement Income Security Act of 1974, that is either a broker-dealer registered under the Securities Exchange Act of 1934, an investment adviser registered or exempt from registration under the Investment Advisers Act of 1940, a depository institution, or an insurance company; and

(vi) any other institutional buyer.

(6) "Fraud," "deceit," and "defraud" are not limited to common-law fraud or deceit.

(7) "Investment adviser" means a person who, for compensation, engages in the business of advising others as to the value of securities or as to the advisability of investing in, purchasing, or selling securities or who, for compensation and as a part of a business, issues or promulgates analyses or reports concerning securities. The term does not include:

(i) an employee of an investment adviser;

(ii) a depository institution;

(iii) a lawyer, accountant, engineer, or teacher whose performance of investment advisory services is solely incidental to the practice of the person's profession;

(iv) a broker-dealer whose performance of investment advisory services is solely incidental to the conduct of business as a broker-dealer and who receives no special compensation for the investment advisory services;

(v) a publisher, employee, or columnist of a newspaper, news magazine, or business or financial publication, or an owner, operator, producer, or employee of a cable, radio, or television network, station, or production facility if, in either case, the financial or business news published or disseminated is made available to the general public and the content does not consist of rendering advice on the basis of the specific investment situation of each client;

(vi) a person whose advice, analyses, or reports relate only to securities exempt under paragraph (1) of Section 401(b); and

(vii) any other person the [Administrator], by rule or order, designates.

(8) Except as provided in subparagraph (i), (ii), or (iii), "issuer" means a person who issues or proposes to issue a security, but:

(i) The "issuer" of a collateral trust certificate, voting trust certificate, certificate of deposit for a security, or share in an investment company without a board of directors or persons performing similar functions, is the person performing the acts and assuming the duties of depositor or manager pursuant to the trust or other agreement or instrument under which the security is issued.

(ii) The "issuer" of an equipment trust certificate, including a conditional sales contract or similar security serving the same purpose, is the person to whom the equipment or property is or is to be leased or conditionally sold.

(iii) The "issuer" of a fractional undivided interest in an oil, gas, or other mineral lease or in payments out of production under a lease, right, or royalty is the owner of an interest in the lease or in payments out of production under a lease, right, or royalty, whether whole or fractional, who creates fractional interests for the purpose of sale.

(9) "Nonissuer transaction" means a transaction not directly or indirectly for the benefit of the issuer.

(10) "Person" means an individual, corporation, business trust, estate, trust, partnership, association, joint venture, government, governmental subdivision or agency, or any other legal or commercial entity.

(11) "Price amendment" means the amendment to a registration statement filed under the Securities Act of 1933 or, if no amendment is filed, the prospectus or prospectus supplement filed under the Securities Act of 1933, which includes a statement of the offering price, underwriting and selling discounts or commissions, amount of proceeds, conversion rates, call prices, and other matters dependent upon the offering price.

(12) "Promoter" includes:

(i) a person who, acting alone or in concert with one or more other persons, takes the entrepreneurial initiative in founding or organizing the business or enterprise of an issuer;

(ii) an officer or director owning securities of an issuer or a person who owns, beneficially or of record, ten percent or more of a class of securities of the issuer if the officer, director, or person acquires any of those securities in a transaction within three years before the filing by the issuer of a registration statement under this [Act] and the transaction does not possess the indicia of arms-length bargaining; and

(iii) a member of the immediate family of a person within subparagraph (i) or (ii) if the family member receives securities of the issuer from that person in a transaction within three years before the filing by the issuer of a registration statement under this [Act] and the transaction does not possess the indicia of arms-length bargaining.

(13) "Sale" or "sell" includes every contract of sale, contract to sell, or other disposition, of a security or interest in a security for value. In this context:

(i) "Offer to sell" includes every attempt or offer to dispose of, or solicitation of an offer to purchase, a security or interest in a security for value.

(ii) "Offer to purchase" includes every attempt or offer to obtain, or solicitation of an offer to sell, a security or interest in a security for value, but the term does not include a transaction that is subject to Section 14(d) of the Securities Exchange Act of 1934.

(iii) A security given or delivered with, or as a bonus on account of, a purchase of securities or other item is considered to constitute part of the subject of the purchase and to have been offered and sold for value.

(iv) A gift of assessable stock is deemed to involve an offer and sale.

(v) A sale or offer of a warrant or right to purchase or subscribe to another security of the same or another issuer, or a sale or offer of a security that gives the holder a present or future right or privilege to convert into another security of the same or another issuer, is deemed to include an offer of the other security.

(vi) The terms defined in this paragraph do not include the creation of a security interest or a loan; a stock dividend, whether the corporation distributing the dividend is the issuer of the stock or not, if nothing of value is given by stockholders for the dividend other than the surrender of a right to a cash or property dividend and each stockholder may elect to take the dividend in cash, property, or stock; or an act incident to a judicially approved reorganization in which a security is issued in exchange for one or more outstanding securities, claims, or property interests, or partly in exchange and partly for cash.

(14) "Sales representative" means an individual, other than a broker-dealer, authorized to act and acting for a broker-dealer or issuer in effecting or attempting to effect purchases or sales of securities. A partner, officer, or director of a broker-dealer or issuer, or a person occupying a similar status or performing similar functions, is a sales representative only if the person otherwise comes within the definition.

(15) "Securities Act of 1933," "Securities Exchange Act of 1934," "Public Utility Holding Company Act of 1935," "Investment Company Act of 1940," "Investment Advisers Act of 1940," "Employee Retirement Income Security Act of 1974," "National Housing Act," and "Commodity Exchange Act" mean the federal statutes of those names, as amended.

(16) "Security" means: a note; stock; treasury stock; bond; debenture; evidence of indebtedness; certificate of interest or participation in a profit-sharing agreement; a limited partnership interest; collateral-trust certificate; preorganization certificate or subscription; transferable share; investment contract; voting-trust certificate; certificate of deposit for a security; fractional undivided interest in an oil, gas, or other mineral lease or in payments out of production under a lease, right, or royalty; a put, call, straddle, or option entered into on a national securities exchange relating to foreign currency; a put, call, straddle, or option on a security, certificate of deposit, or group or index of securities, including an interest in or based on the value of any of the foregoing; or, in general, an interest or instrument commonly known as a "security," or a certificate of interest or participation in, temporary or interim certificate for, receipt for, whole or partial guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing. The term does not include:

(i) an insurance or endowment policy or annuity contract under which an insurance company promises to pay a fixed sum of money either in a lump sum or periodically for life or some other specified period; or

(ii) an interest in a contributory or noncontributory pension or welfare plan subject to the Employee Retirement Income Security Act of 1974.

(17) "Self-regulatory organization" means a national securities exchange registered under Section 6 of the Securities Exchange Act of 1934, a national securities association of brokers and dealers registered under Section 15A of the Securities Exchange Act of 1934, a clearing agency registered under Section 17A of the Securities Exchange Act of 1934, the Municipal Securities Rulemaking Board established under Section 15B(b)(1) of the Securities Exchange Act of 1934, or Section 21 of the Commodity Exchange Act.

(18) "State" means a state, commonwealth, territory, or possession of the United States, the District of Columbia, or the Commonwealth of Puerto Rico.

1. Under Section 705(a)(4) the Administrator has power to define by rule any terms, whether or not used in this Act, so long as the definition so adopted is not inconsistent with the provisions of this Act.

2. Definition (1) [Prior Provision: USA 401(a)].

3. Definition (2) [Prior Provision: USA 401(c)]. This definition generally follows the definition of "broker-dealer" in the 1956 Act. The use of the compound term is meant to include either a broker or a dealer. The recognized distinction is that a broker acts for the benefit of another while a dealer acts for itself (e.g., in buying or selling from its own inventory). An individual who is merely a substantial trader in securities is not considered to be "engaged in the business of effecting transactions."

The prior provision also excluded from the definition of broker-dealer persons who conducted the business of a broker-dealer but had only de minimis or incidental contacts with the state. The Committee believes it is appropriate to recognize that entities such as these are broker-dealers exempt from licensing. Section 202(a) now identifies the categories of broker-dealers exempt from licensing.

The exclusion in the 1956 Act for banks and other financial institutions has been retained, notwithstanding that many depository institutions now offer to customers brokerage services. The Committee concluded that comprehensive resolution of this issue can only be accomplished by legislation at the federal level. Under most legislative and administrative agency proposals under consideration, any financial institution wishing to offer brokerage services would have to establish a separate subsidiary. This also appears to be the most likely result under Rule 3b-9 promulgated by the Securities and Exchange Commission. Since the exclusion in Section 101(2)(iii) does not extend to a subsidiary established for such a purpose, that entity would be a broker-dealer subject to the licensing requirements of this Act.

Subparagraph (iv) was added to give the Administrator authority, by rule or order, to exempt additional persons from the definition. In taking such action, the Administrator is to be guided by the general standards provision of Section 705(c).

4. Definition (3) [Prior Provision: None]. This definition was added to enable uniform treatment in this Act of all banks and other similar depository institutions. As a result of recent regulatory developments, the differences among the powers of various banking entities have been substantially eliminated. While both a dual federal and state regulatory scheme and a diffusion of responsible agencies at the federal level still exist, the Committee was unable to justify differential treatment for purposes of this Act.

The definition expressly excludes insurance companies as well as various institutions which conduct small loan business operations.

5. Definition (4) [Prior Provision: USA 413(a)]. This definition prescribes no particular method of filing, although the Administrator is free to specify further by rule under Section 705. The scope of the definition is broad enough to authorize filing with another entity designated by the Administrator, e.g., the CRD system presently administered by the National Association of Securities Dealers, Inc. Since the definition does not describe any actual means of delivery, it also is sufficient to authorize filing through a central electronic dissemination and retrieval system such as Project Edgar if and when that technology is more generally available.

This definition does use a different standard than that of contract law. Under this Act, the document actually must be received in order to be filed; mere mailing is not sufficient.

A document delivered without a required fee is "filed" under this definition. An Administrator may deny effectiveness of a license or a registration statement for failure to pay the required fee (see Sections 212(a)(ii)(12) and 306(a)(2)(ix)), but that requires affirmative action by the Administrator.

6. Definition (5) [Prior Provision: None; see USA 402(b)(8)]. In light of the recurrent use of the concept of financial and institutional investors, e.g., see Sections 202(a), 204(a), and 402(10), a definition based largely upon the listing in Section 402(b)(8) of the 1956 Act has been added here. The retention of the term "institutional buyer" in subparagraph (vi) is meant to preserve the exemption in Section 402(10) when offers and sales are made to other appropriate persons, e.g., a college purchasing for its endowment fund.

The federal securities laws utilize the concept of "accredited investors" which include a variety of corporate and individual investors satisfying financial and other criteria.

An Administrator obviously may add, by rule, additional categories of persons who qualify as financial or institutional investors.

The term "separate account" in subparagraph (5)(iii) has the same meaning as in Section 2(a)(37) of the federal Investment Company Act of 1940.

In light of developments in the employee retirement plan area since the 1956 Act was promulgated, changes have been made concerning employee pension, profit-sharing or other benefit plans. Those plans now qualify as a financial or institutional investor only if the total plan assets exceed $5,000,000 or there is an independent plan fiduciary of the type noted.

7. Definition (6) [Prior Provision: USA 401(d)]. This definition continues the 1956 Act rule that "fraud" as used in the federal and state securities laws is not limited to common law deceit.

The term "fraud" is used both in connection with the registration of securities provisions (Section 306) and in the general antifraud provisions (Sections 501 and 503).

8. Definition (7) [Prior Provision: USA 401(f)]. The intent is to follow the scope and interpretations under Section 202(a)(11) of the Investment Advisers Act of 1940 generally and the provisions of paragraphs (1) through (5) of Section 401(f) of the 1956 Act. The exclusions in paragraph (6) of the existing definition in the 1956 Act have been recast in this Act as exemptions from the investment adviser licensing requirements. See Section 204.

The term "engineer" in subparagraph (7)(iii) can include a geologist or geophysicist.

Subparagraph (v) has been revised to make it clear that newsletters, radio, or TV broadcasts and other financial publications do not constitute giving investment advice if the information is made available to the general public and the content is not based upon the specific investment situations of the publisher's clients. This provision is consistent with the United States Supreme Court's construction in Lowe v. SEC, 105 S. Ct. 2557 (1985), of the counterpart provision in the Investment Advisers Act of 1940.

9. Definition (8) [Prior Provision: USA 401(g)]. Subparagraph (i) follows the 1956 Act and Section 2(4) of the Securities Act of 1933.

Subparagraph (ii) has been added to reflect the use of equipment trust and conditional sale financing devices as substitutes for direct issues of securities.

Subparagraph (iii) does modify the rule articulated in the 1956 Act. It seems appropriate to identify a person who creates fractional undivided interests in an oil, gas, or other mineral lease or comparable right as the issuer of the fractional interests, who must thus register or otherwise establish an exemption for the securities represented by the fractional interests.

10. Definition (9) [Prior Provision: USA 401(h)]. This definition is primarily relevant to secondary trading transactions. See Sections 305(m) and 402(1) through (5) and the Comments relating to those provisions.

11. Definition (10) [Prior Provision: USA 401(i)]. This language is the standard definition used by the National Conference of Commissioners on Uniform State Laws.

12. Definition (11) [Prior Provision: None]. This concept concerns only the registration by filing (Section 302) and registration by coordination (Section 303) provisions. The definition has been drafted to reflect the increasing practice whereby issuers are not required to file a final amendment to their registration statement under the Securities Act of 1933, but rather set forth the offering price and underwriters' commissions in a final prospectus filed under Rule 424 promulgated by the Securities and Exchange Commission.

13. Definition (12) [Prior Provision: None]. The concept of a "promoter" is relevant primarily to the registration of securities. Section 306(a)(ii)(6) authorizes the Administrator to deny registration of securities if the offering is made with "unreasonable amounts of ... promoter's profits." Under Section 305(g) the Administrator may require the escrow for a period of up to three years of securities issued to a promoter within three years prior to a registered public offering for a consideration substantially less than the offering price at which the security would now be sold to the public.

While this definition is not exhaustive, it is intended to give guidance both to practitioners and to the Administrator as to what persons should be considered to be promoters of a particular issuer. There may well be other factual circumstances in which, due to absence of arms-length bargaining or other factors, other persons similarly should be treated as promoters.

14. Definition (13) [Prior Provision: USA 401(j)]. Much of this definition follows the 1956 Act and Section 2(3) of the Securities Act of 1933.

The exclusion in subparagraph (ii) for transactions subject to Section 14(d) of the Securities Exchange Act of 1934 simply means that tender offers are not the subject of regulation by this Act. It is not intended to limit the exercise of jurisdiction by a state under other law with respect to tender offers if and to the extent a state constitutionally may do so.

Subparagraph (v) provides that there is always an "offer" of the security called for by a conversion privilege or a warrant to purchase a security. Hence, that security must be registered (unless some exemption is available) before the convertible security or the warrants are offered. Under certain conditions, Section 402(14) exempts offers to existing security holders, specifically including "persons who at the time of the transaction are holders of transferable warrants exercisable within not more than 90 days of their issuance, convertible securities, or nontransferable warrants."

Stock dividends have been treated almost universally as not involving a "sale" since there is no volitional element on the part of the recipient of the stock dividend. Under subparagraph (vi) a stock dividend does not involve either an "offer" or a "sale."

The substitution of "security interest" for "pledge" reflects current terminology.

The former exception from the definition for statutory mergers and sales of assets has been deleted in light of the change in the federal securities law regarding such transactions. Corporate combinations involving the exchange of stock now generally require registration pursuant to Rule 145 promulgated under the Securities Act of 1933. This Act conceptually treats such transactions in the same manner; however, many such transactions will qualify under the exemption from registration set out in Section 402(17).

The exclusion in the 1956 Act for judicially approved reorganizations is retained in the last part of subparagraph (vi).

15. Definition (14) [Prior Provision: USA 401(b)]. In keeping with current industry practices, the term "sales representative" has been substituted for the term "agent."

Certain of the exceptions to the prior definition of agent are now treated as classes of sales representatives exempt from licensing. See Section 202(b).

The definition is intended to include any person who acts as sales representative, whether or not the person conducts business as an incorporated organization, a phenomenon which occurs from time to time, usually for federal tax purposes.

An individual who acts concurrently or sequentially on behalf of a number of issuers, e.g., a general partner of various oil and gas partnerships who receives commissions for selling securities of those entities, may be considered a broker-dealer rather than a sales representative.

This section continues the prior practice of not considering a person a sales representative merely because of status as a partner, officer, or director of a broker-dealer or issuer. If the person is limited to a purely managerial or clerical role without ever attempting to effect purchases or sales or simply has furnished capital without taking an active role in management, there appears no need to include that person within the scope of a sales representative.

16. Definition (15) [Prior Provision: USA 401(k)].

17. Definition (16) [Prior Provision: USA 401(l)]. Except for the added language regarding limited partnership interests and various option securities, this section follows the 1956 Act provision. That provision in turn was substantially identical to Section 2(1) of the Securities Act of 1933.

A number of states, e.g., Oklahoma, Hawaii, and Washington, have adopted revised definitions of "security" incorporating additional criteria. The Committee determined to retain the essential parts of the existing definition because it has been broadly construed in federal and state courts and seems adequate generally to embrace most investment vehicles that the human mind can conceive. With respect to the specific, more traditional instruments included within the definition, for example, the courts have used a "plain meaning" approach, i.e., does the particular instrument possess the usual characteristics associated with that instrument? If so, then the relevant securities act applies. See, e.g., Landreth Timber Company v. Landreth, 471 U.S. 681 (1985). For other specific instruments, the "unless the content otherwise requires" language may require a further inquiry. The burden, however, still will be on the person claiming that the instrument is not a security to establish either that such instrument does not possess the essential attributes or that it bears a strong family resemblance to those instruments not commonly understood as being securities (e.g., notes issued in truly mercantile transactions as opposed to notes issued to investors). See Exchange National Bank of Chicago v. Touche Ross & Co., 544 F.2d, 1126 (2 Cir., 1976). The more unusual investment devices continue to be judged by the "economic realities" test of SEC v. W.M. Howey Co., 328 U.S. 293 (1946).

The introductory clause "unless the context requires otherwise," which modifies all the definitions in the Act, has been retained due in part to the relevance of that language to the various federal and state court decisions interpreting the definition of a "security."

Interests in various employee plans governed by ERISA are excluded from the definition. Similarly, insurance products providing for the payment of a fixed sum of money are excluded from the definition. Variable annuities and similar products are treated as securities under this definition, but are exempted from registration under Section 401(4).

18. Definition (17) [Prior Provision: None]. This definition is patterned after a comparable provision in the Federal Securities Code. The term "self-regulatory organization" is used on numerous occasions in Parts II and VI, the most typical such organizations being the national stock exchanges and the National Association of Securities Dealers, Inc.

19. Definition (18) [Prior Provision: USA 401(m)]. This language makes clear that the term does include territories and possessions as well as the District of Columbia and Puerto Rico, but that it does not include any foreign government.

SECTION 201. LICENSING OF BROKER-DEALER AND SALES REPRESENTATIVE.

(a) A person may not transact business in this State as a broker-dealer or sales representative unless licensed or exempt from licensing under this [Act].

(b) A broker-dealer licensed under this [Act] and an issuer may not employ a person as a sales representative in this State unless the sales representative is licensed under this [Act] or is exempt from licensing under this [Act].

(c) A broker-dealer or issuer engaged in offering securities in this State may not employ, directly or indirectly, a person to engage in any activity in this State contrary to a suspension or bar from association with a broker-dealer or investment advisor imposed against that person by the [Administrator]. A broker-dealer or issuer does not violate this subsection unless the broker-dealer or issuer knows or in the exercise of reasonable care should know of the suspension or bar. Upon request from a broker-dealer or issuer and for good cause shown, the [Administrator], by order, may waive the prohibition of this subsection with respect to a person suspended or barred.

Prior Provision: USA 201; New.

1. "Broker-dealer" and "sales representative" are defined in Sections 101(2) and 101(14). The scope of subsection (a) with reference to the phrase "transact business in this State" is specified in Section 801.

2. Subsection (b) prohibits a broker-dealer or issuer from employing a person as sales representative unless the latter is licensed as such or exempt under Section 202(b). The duration and effectiveness of a sales representative's license are set forth in Section 208(b) through (e).

3. Subsection (c) prohibits a broker-dealer or issuer from employing any person in a capacity from which that person has been suspended or barred by the Administrator. Violation of this provision does not result in strict liability. Ordinarily, both the Administrator and the person suspended or barred would have knowledge of the order. However, in order for the employer to be liable, it also either must have known or should have known of the existence of the order.

A broker-dealer or issuer may request a waiver of the prohibitions of this subsection for good cause shown.

SECTION 202. EXEMPT BROKER-DEALERS AND SALES REPRESENTATIVES.

(a) The following broker-dealers are exempt from the licensing requirements of Section 201:

(1) a broker-dealer who either is registered or, except as provided in subsection (b), is not required to be registered under the Securities Exchange Act of 1934 and who has no place of business in this State if:

(i) the transactions effected by the broker-dealer in this State are exclusively with the issuer of the securities involved in the transactions, other broker-dealers licensed or exempt under this [Act], or financial or institutional investors;

(ii) the broker-dealer is licensed under the securities act of a state in which the broker-dealer maintains a place of business and the broker-dealer offers and sells in this State to a person who is an existing customer of the broker-dealer and whose principal place of residence is not in this State; or

(iii) the broker-dealer is licensed under the securities law of a state in which the broker-dealer maintains a place of business and the broker-dealer during any 12 consecutive months does not effect more than [15] transactions with more than [5] persons in this State in addition to transactions with the issuers of the securities involved in the transactions, financial or institutional investors, or broker-dealers, whether or not the offeror or an offeree is then present in this State; and

(2) other broker-dealers the [Administrator] by rule or order exempts.

(b) The exemption provided in subsection (a)(1)(i) is not available to a broker-dealer who deals solely in government securities and is not registered under the Securities Exchange Act of 1934 unless the broker-dealer is subject to supervision as a dealer in government securities by the Federal Reserve Board.

(c) The following sales representatives are exempt from the licensing requirements of Section 201:

(i) a sales representative acting for a broker-dealer exempt under subsection (a);

(ii) a sales representative acting for an issuer in effecting transactions in a security exempted by paragraphs (1) through (4) and (11) through (13) of Section 401(b);

(iii) a sales representative acting for an issuer effecting offers or sales of securities in transactions exempted by Section 402;

(iv) a sales representative acting for an issuer effecting transactions with employees, partners, officers, or directors of the issuer, a parent or a wholly-owned subsidiary of the issuer, if no commission or other similar compensation is paid or given directly or indirectly to the sales representative for soliciting an employee, partner, officer, or director in this State; and

(v) other sales representatives the [Administrator] by rule or order exempts.

Prior Provision: USA 401(b) and (c).

1. The predominant existing pattern of state regulation is to exclude from the definition of broker-dealer any person who has no place of business in the state if he effects transactions with specified classes of investors or only a fixed number of persons within any 12 consecutive months. That pattern has been continued in subsection (a) except that such persons are simply exempted from the licensing requirements rather than being excluded from the definition entirely.

Where the activities being carried on by a person are generic broker-dealer activities, it is appropriate to require that person to be subject to broker-dealer regulation at some level. Accordingly, an additional condition to the exemption is that the person be registered as a broker-dealer under the Securities Exchange Act of 1934 unless exempt under the terms of that act. However, by virtue of subsection (b), a person who is exempt from registration under the 1934 Act by reason of acting as a secondary dealer in government securities is required to register as a broker-dealer if otherwise within the definitional provisions. The intent of the exclusion for dealers subject to supervision by the Federal Reserve Board is to exclude the so-called primary dealers from the licensing requirements.

2. Subsection (a)(i)(2) was added to cover the nonresident broker who has contact with a customer whose residence is in another state and who is in this State on a temporary basis, e.g., vacationing.

3. Subsection (c) continues the existing pattern of exempting sales representatives of issuers effecting exempt transactions. However, one should note that some of the exemption provisions are applicable only if no compensation is paid or if the only compensation paid is paid to a broker-dealer licensed or not required to be licensed under this Act. See, for example, Section 402(11). This approach should minimize the potential for abuse which has occurred in the past with respect to unlicensed sales representatives offering securities in limited or private offerings.

Sales representatives acting on behalf of issuers offering certain exempt securities may be exempt under subsection (c)(iii). A person acting on behalf of an issuer offering securities exempt under paragraphs (5) through (10) and paragraph (14) of Section 401(b) is required to be licensed if he or she otherwise comes within the definition of sales representative in Section 101(14).

4. The Administrator has authority to exempt additional classes of persons from the broker-dealer or sales representative licensing requirements, assuming the standards set forth in Section 705(c) are met.

SECTION 203. LICENSING OF INVESTMENT ADVISER.

(a) A person may not transact business in this State as an investment adviser unless licensed as an investment adviser or exempt from licensing under this [Act].

(b) An investment adviser may not employ, directly or indirectly, a person to engage in any activity in this State contrary to a suspension or bar from association with a broker-dealer or investment adviser imposed against that person by the [Administrator]. An investment adviser does not violate this subsection unless the investment adviser knows or in the exercise of reasonable care should know of the suspension or bar. Upon request from an investment adviser and for good cause shown, the [Administrator], by order, may waive the prohibition of this subsection with respect to a person suspended or barred.

Prior Provision: USA 201(c); New.

1. "Investment adviser" is defined in Section 101(7). That definition excludes a broker-dealer who receives no special compensation for investment advisory services. In that instance, the broker-dealer does not have to become licensed in two different capacities in this State. The scope of subsection (a) with respect to the phrase "transact business in this State" is specified in Section 801.

2. Subsection (b) prohibits an investment adviser from employing any person in any capacity from which suspended or barred by the Administrator. In order for the investment advisor to be liable, it must know or should know of the existence of the order. An investment adviser may request a waiver of the prohibition for good cause shown.

3. Licensing of employees or representatives of an investment adviser has not been required. The Committee concluded that such separate licensing was not essential to adequate regulation since the Administrator has authority over the investment adviser itself. However, the antifraud provision relating to investment adviser activities, Section 503, does extend to such persons.

SECTION 204. EXEMPT INVESTMENT ADVISERS. The following investment advisers are exempt from the licensing requirements of Section 203:

(1) an investment adviser who is registered or is not required to be registered as an investment adviser under the Investment Advisers Act of 1940 if:

(i) its only clients in this State are other investment advisers, broker-dealers, or financial or institutional investors; (ii) the investment adviser has no place of business in this State and the investment adviser directs business communications in this State to a person who is an existing client of the investment adviser and whose principal place of residence is not in this State; or

(iii) the investment adviser has no place of business in this State and the investment adviser during any 12 consecutive months does not direct business communications in this State to more than [five] present or prospective clients other than those specified in subparagraph (i), whether or not the person or client to whom the communication is directed is present in this State; and

(2) other investment advisers the [Administrator], by rule or order, exempts.

Prior Provision: USA 401(f).

1. A person exempt from licensing under any of the paragraphs of this section remains subject to the broad antifraud provisions of Sections 501 and 503.

2. Paragraphs (1)(ii) and (iii) create exemptions from licensing for persons dealing solely with transient clients or a de minimis number of clients comparable to the exemption provisions of Section 202(a) relating to broker-dealers.

3. The Administrator has power to exempt additional classes of persons from the licensing requirements, subject to the applicable standards of Section 705(c).

SECTION 205. APPLICATION.

(a) An applicant for licensing as a broker-dealer, sales representative, or investment adviser shall file with the [Administrator] an application for licensing and a consent to service of process under Section 708. The application for licensing must contain the information that the [Administrator], by rule, requires.

(b) The requirements of subsection (a) are satisfied by an applicant who has filed and maintains a completed and current registration with the Securities and Exchange Commission or a self-regulatory organization by filing with the [Administrator] notice of the registration in the form and content determined by the [Administrator], by rule, and a consent to service of process under Section 708. The registration information filed with the Securities and Exchange Commission or self-regulatory organization must be available to the [Administrator] through a central registration depository system approved by the [Administrator]. The [Administrator], by order, may require the submission of additional information by an applicant.

Prior Provision: USA 202(a).

1. This section has been revised to eliminate the listing of specific information required in applications for licensing. Emphasis is placed on coordinating the requirements of federal and state securities agencies.

Subsection (b) recognizes the substantial steps at coordination already undertaken by those agencies. The subsection provides that licensing may be accomplished through a central registration depository system such as the CRD system of the National Association of Securities Dealers, Inc. Unless the Administrator requires additional information in a particular case, the information filed by the applicant with the Securities and Exchange Commission or a self-regulatory organization is sufficient for licensing purposes. The definition of "filed" in Section 101(3) includes the filing of information with an approved designee of the Administrator.

2. Section 101(14) states that a "partner, officer, or director of a broker-dealer or issuer, or a person occupying a similar status or performing similar functions, is a sales representative only if the person otherwise comes within the definition." Unlike the present law, the licensing of a firm does not automatically constitute the licensing as a sales representative of each such person. If any such person intends to act as a sales representative in this State, he or she must become licensed as such. Otherwise, there is no requirement that the executive officers of a broker-dealer be separately licensed, as principals or otherwise. However, the qualifications of those principals may be considered by the Administrator in determining whether the broker-dealer satisfies the requisite experience and training disqualification of a partner, executive officer, or director, as distinct from an ordinary sales representative, is a basis for a proceeding against the firm if the Administrator finds it in the public interest to do so. See Section 212.

3. The prior practice of renewal applications has been eliminated. Section 206 merely requires in its place the filing of an annual fee.

SECTION 206. LICENSING FEES.

(a) An applicant for licensing shall pay a licensing fee as follows:

(1) broker-dealer [$100] and for each branch office [$50].

(2) sales representative [$25].

(3) investment adviser [$50].

(b) Except in a year in which a licensing fee is paid, a licensed person shall pay an annual fee as follows:

(1) broker-dealer [$75] and for each branch office [$30].

(2) sales representative [$15].

(3) investment adviser [$35].

(c) For purposes of this section, "branch office" means an office of a broker-dealer in this State, other than the principal office in this State of the broker-dealer, from which three or more sales representatives transact business.

(d) If an application is denied or withdrawn or the license is revoked, suspended, or withdrawn, the [Administrator] shall retain the fee paid.

Prior Provision: USA 202(b).

1. Each state should determine the appropriate fees to be assessed for each type of license. Recommended amounts are set forth in brackets.

2. The definition of "branch office" includes only offices in this State from which three or more sales representatives transact business. Computer processing facilities and other locations at which sales representatives are not located do not constitute branch offices.

3. The Administrator, by rule, may require licensed persons to submit sufficient information as to the licensed person, its sales representatives, or branch offices to enable the Administrator to verify or ascertain the fees due under this section.

SECTION 207. EXAMINATIONS.

(a) The [Administrator], by rule or order, may require an examination of:

(1) an applicant for licensing under this Part;

(2) a class of applicants; and

(3) a class of persons who will represent an investment adviser in performing an act that requires licensing as an investment adviser in this State.

(b) An examination may be administered by the [Administrator] or a designee of the [Administrator]. An examination may be oral or written, or both, and may differ for each class of applicants.

(c) The [Administrator], by rule or order, may waive an examination as to a person or class of persons if the [Administrator] determines that an examination is not necessary for the protection of investors.

Prior Provision: USA 204(b)(6).

1. Requirements for examination of applicants for licensing are discretionary with the Administrator, subject, of course, to the limitations in Section 213 regarding denials, suspensions, or revocations based upon lack of qualification. Examinations are intended to relate to the qualifications required in order for the applicant to conduct the business for which it is being licensed.

2. Subsection (b) is intended to encourage coordination among federal and state agencies in administering examinations.

3. Subsection (c) gives the Administrator authority to waive examination requirements either as to a particular applicant or a class of applicants if the Administrator determines that investor protection will not be jeopardized. For example, the Administrator could elect to waive for a minimum period of time the examination requirements for persons in a successor firm which takes over a troubled broker-dealer or investment adviser, to enable the uninterrupted operation of the rescued firm.

SECTION 208. LICENSING, GENERAL PROVISIONS.

(a) Unless a proceeding under Section 212 is instituted or the applicant is notified that the application is incomplete, the license of a broker-dealer, sales representative, or investment adviser becomes effective 30 days after the later of the date an application for licensing is filed and is complete or the date an amendment to an application is filed and is complete, in either case only if all requirements imposed under Section 207 are satisfied. An application is complete when the applicant has furnished information responsive to each applicable item of the application. The [Administrator] by order may authorize an earlier effective date of licensing.

(b) The license of a broker-dealer, sales representative, or investment adviser is effective until terminated by expiration, revocation, or withdrawal.

(c) The license of a sales representative is effective only with respect to transactions effected on behalf of the broker-dealer or issuer for whom the sales representative is licensed.

(d) A person may not act at any one time as a sales representative for more than one broker-dealer or for more than one issuer, unless the broker-dealers or issuers for whom the sales representative acts are affiliated by direct or indirect common control or the [Administrator], by rule or order, authorizes multiple licenses.

(e) If a person licensed as a sales representative terminates association with a broker-dealer or issuer or ceases to be a sales representative, the sales representative and the broker-dealer or issuer on whose behalf the sales representative was acting shall promptly notify the [Administrator].

(f) The [Administrator] by rule may authorize one or more special classifications of licenses as a broker-dealer, sales representative, or investment adviser to be issued to applicants subject to limitations and conditions on the nature of the activities that may be conducted by persons so licensed.

Prior Provision: USA 202(a).

1. Subsection (a) is similar to Section 15(b) of the Securities Exchange Act of 1934 and Section 203(c) of the Investment Advisers Act of 1940. Unless the Administrator determines that an application is incomplete or has initiated a proceeding under Section 212, an application becomes effective automatically 30 days after the later of the date of filing or the date of any amendment to the initial application, provided any examination requirements imposed under Section 207 have been satisfied. The 30-day period may be shortened by the Administrator in an appropriate case.

Subsection (a) attempts to set forth a statutory test as to when an application is complete in the absence of any contrary notification from the Administrator.

2. Nothing in this section precludes an applicant from waiving the 30-day automatic effectiveness period if it chooses to do so, e.g., to avoid the institution otherwise by the Administrator of a denial proceeding under Section 212(a)(ii)(1).

3. The federal pattern of continuing registration has been adopted in lieu of the 1956 Act provisions requiring annual renewals. Under subsection (b), expiration, revocation, or withdrawal are the events now which generally terminate the effectiveness of a license.

4. The license of a sales representative expires when he or she ceases to be employed by the broker-dealer or issuer for whom licensed. Both the sales representative and the former broker-dealer are required to notify the Administrator promptly.

5. Except in the circumstances noted in subsection (d), a sales representative may not act at the same time for more than one broker-dealer or issuer. As used in this subsection, "affiliated" means controlling, controlled by, or under common control with another. Subsection (e) imposes a duty on a sales representative and his or her former employer to notify the Administrator promptly upon termination of their association.

6. The purpose of subsection (f) is to authorize limited licenses in appropriate situations. Thus, a person may be licensed to engage in a narrow range of activities (e.g., sale of real estate partnership interests) without having to satisfy all the conditions applicable to ordinary broker-dealers, sales representatives, or investment advisers. Any limited license is subject to such limitations and conditions as the Administrator reasonably may specify.

SECTION 209. POST-LICENSING REQUIREMENTS.

(a) The [Administrator] by rule may require that:

(1) a licensed broker-dealer who is not registered under the Securities Exchange Act of 1934 maintain minimum net capital and a prescribed ratio between net capital and aggregate indebtedness, which may vary with type or class of broker-dealer; or

(2) a licensed investment adviser who is not registered under the Investment Advisers Act of 1940 maintain a minimum net worth.

(b) If a licensed broker-dealer or investment adviser knows, or has reasonable cause to know, that a requirement imposed on it under this subsection is not being met, the broker-dealer or investment adviser shall promptly notify the [Administrator] of its current financial condition.

(c) The [Administrator] by rule may require a fidelity bond from a broker-dealer who is not registered under the Securities Exchange Act of 1934.

(d) A licensed broker-dealer or investment adviser shall file with the [Administrator] the financial and other information the [Administrator] by rule or order requires, but:

(1) A licensed broker-dealer required to file financial reports under the Securities Exchange Act of 1934 may satisfy periodic financial report requirements of this subsection by filing with the [Administrator] a copy of the financial reports filed under the Securities Exchange Act of 1934; and

(2) A licensed investment adviser required to file financial reports under the Investment Advisers Act of 1940 may satisfy periodic financial report requirements of this subsection by filing with the [Administrator] a copy of the financial reports filed under the Investment Advisers Act of 1940.

(e) A licensed broker-dealer, sales representative, or investment adviser shall maintain the records the [Administrator] by rule requires, but compliance with the recordkeeping requirements of the Securities Exchange Act of 1934 by a broker-dealer or the Investment Advisers Act of 1940 by an investment adviser satisfies the requirements of this subsection.

(f) Required records may be maintained in any form of data storage if they are readily accessible to the [Administrator]. Required records must be preserved for [five] years unless the [Administrator] by rule specifies a different period for a particular type or class of records.

(g) If the information contained in a document filed with the [Administrator] as part of the application for licensing or under this section, except information the [Administrator] by rule or order excludes, is or becomes inaccurate or incomplete in a material respect, the licensed person shall promptly file correcting information, unless notification of termination has been given under Section 208(e).

Prior Provision: USA 202(d), (e); 203(a) through (e).

1. Financial and reporting requirements appear to be two particular areas in which it is important to encourage substantial uniformity and federal-state coordination. Indeed, this already is an area where a substantial federal-state coordination effort has been undertaken. Subsections (d) and (e) reflect these developments, providing that compliance with the applicable federal financial and reporting requirements ordinarily satisfies the state requirement as well. On the other hand, a state may have reporting or other requirements, e.g., relating to sales representatives, for which there is no federal counterpart. Those requirements are not affected by these provisions.

2. The 1956 Act's surety bond requirements have been replaced by a provision authorizing the Administrator to require fidelity bonds.

3. Subsection (d) continues to be modeled on Section 17(a) of the Securities Exchange Act of 1934.

4. Subsection (e) is based upon Section 203(c) of the 1956 Act and a comparable provision appears in most state statutes.

SECTION 210. LICENSING OF SUCCESSOR FIRMS.

(a) A licensed broker-dealer or investment adviser may file an application for licensing of a successor, whether or not the successor is in existence, if the fee the [Administrator] prescribes for the application is submitted with the application.

(b) If a broker-dealer or investment adviser succeeds to and continues the business of a licensed broker-dealer or investment adviser and the successor files an application for licensing within 30 days after the succession, the license of the predecessor remains effective as the license of the successor for 60 days after the succession.

(c) Licensing of each licensed sales representative of the broker-dealer filing an application under subsection (a) or (b) continues without a separate filing or fee upon the licensing of the successor.

Prior Provision: USA 202(c).

Subsection (a) is designed to avoid unnecessary interruptions of business by removing any question as to the propriety of a predecessor's filing an application for registration of a successor. Subsection (b) authorizes the emergency takeover of a troubled broker-dealer by deeming the license of that company to remain effective as the license of a successor, provided an application is filed by the successor within 30 days after the succession. The provision is modeled after a comparable rule under the Securities Exchange Act of 1934. Subsection (c) eliminates the necessity for reapplying for sales representative licenses on behalf of employees continuing with the successor company.

SECTION 211. POWER OF INSPECTION.

(a) The [Administrator], without notice, may examine in a manner reasonable under the circumstances the records, within or without this State, of a licensed broker-dealer, sales representative, or investment adviser in order to determine compliance with this [Act]. Broker-dealers, sales representatives, and investment advisers shall make their records available to the [Administrator] in legible form.

(b) The [Administrator] may copy records or require a licensed person to copy records and provide the copies to the [Administrator] to the extent and in a manner reasonable under the circumstances.

(c) The [Administrator] may impose a reasonable fee for the expense of conducting an examination under this section.

Prior Provision: USA 203(d).

This provision is based upon Section 203(d) of the 1956 Act and Section 17(b) of the Securities Exchange Act of 1934. It vests in the Administrator a visitatorial power which is to be distinguished from the power to investigate and issue subpoenas under Section 601. Failure to submit to a reasonable inspection is a violation of the Act. See Section 602.

Section 702 includes provisions intended to prevent misuse by the Administrator or his or her employees of information obtained in the course of an inspection.

SECTION 212. GROUNDS FOR DENIAL, SUSPENSION, OR REVOCATION.

(a) The [Administrator] by order may (i) deny, suspend, or revoke a license, (ii) limit the securities activities that an applicant or licensed person may perform in this State, (iii) bar an applicant or licensed person from association with a licensed broker-dealer or investment adviser, or (iv) bar from employment with a licensed broker-dealer or investment adviser a person who is a partner, officer, director, or a person occupying a similar status or performing a similar function for an applicant or licensed person. Subject to Section 213, those actions may be taken only if the [Administrator] finds that the order is in the public interest and that the applicant or licensed person or, in the case of a broker-dealer or investment adviser, a partner, officer, or director, a person occupying a similar status or performing similar functions, or a person directly or indirectly controlling the broker-dealer or investment adviser:

(1) has filed an application for licensing with the [Administrator] which, as of its effective date or any date after filing in the case of an order denying effectiveness, was incomplete in a material respect or contained a statement that was, in light of the circumstances under which it was made, false or misleading with respect to a material fact;

(2) has willfully violated or willfully failed to comply with this [Act], a predecessor act, or a rule or order under this [Act] or a predecessor act;

(3) is the subject of an adjudication or determination, after notice and opportunity for hearing, within the last five years by a securities agency or administrator of another state or a court of competent jurisdiction that the person has willfully violated the Securities Act of 1933, the Securities Exchange Act of 1934, the Investment Advisers Act of 1940, the Investment Company Act of 1940, or the Commodity Exchange Act, or the securities law of any other state but only if the acts constituting the violation of that state's law would constitute a violation of this [Act] had the acts occurred in this State;

(4) within the last ten years, has been convicted of an offense that the [Administrator] finds:

(i) involves the purchase or sale of a security, taking a false oath, making a false report, bribery, perjury, burglary, robbery, or attempt or conspiracy to commit any of those offenses;

(ii) arises out of the conduct of business as a broker-dealer, investment adviser, depository institution, insurance company, or fiduciary; or

(iii) involves the larceny, theft, robbery, extortion, forgery, counterfeiting, fraudulent concealment, embezzlement, fraudulent conversion, or misappropriation of funds or securities or an attempt or conspiracy to commit any of those offenses;

(5) is permanently or temporarily enjoined by a court of competent jurisdiction from acting as an investment adviser, underwriter, broker-dealer, or as an affiliated person or employee of an investment company, depository institution, or insurance company, or from engaging in or continuing conduct or practice in connection with any of the foregoing activities, or in connection with the purchase or sale of a security;

(6) is the subject of an order of the [Administrator] denying, suspending, or revoking the person's license as a broker-dealer, sales representative, or investment adviser;

(7) is the subject of any of the following orders that are currently effective and were issued within the last five years:

(i) an order by the securities agency or administrator of another state or Canadian province or territory, or by the Securities and Exchange Commission, entered after notice and opportunity for hearing, denying, suspending, or revoking the person's license as a broker-dealer, sales representative, or investment adviser, or the substantial equivalent of those terms;

(ii) a suspension or expulsion from membership in or association with a member of a self-regulatory organization;

(iii) a United States Postal Service fraud order;

(iv) a cease and desist order entered after notice and opportunity for hearing by the [Administrator], the securities agency or administrator of another state, or a Canadian province or territory, the Securities and Exchange Commission, or the Commodity Futures Trading Commission; or

(v) an order by the Commodity Futures Trading Commission denying, suspending, or revoking registration under the Commodity Exchange Act;

(8) has engaged in unethical or dishonest practices in the securities business;

(9) is insolvent, either in the sense that liabilities exceed assets or in the sense that obligations cannot be met as they mature, but the [Administrator] may not enter an order against a broker-dealer or investment adviser under this subsection without a finding of insolvency as to the broker-dealer or investment adviser;

(10) is determined by the [Administrator] in compliance with Section 213 not to be qualified because of the lack of training, experience, and knowledge of the securities business;

(11) has failed reasonably to supervise a sales representative or employee; or

(12) has failed to pay the proper filing fee within 30 days after being notified by the [Administrator] of a deficiency, but the [Administrator] shall vacate an order under this subsection when the deficiency is corrected.

(b) The [Administrator] may not begin a proceeding on the basis of a fact or transaction known to the [Administrator] when the license became effective unless the proceeding is begun within the 90 days after issuance of the license.

(c) If the [Administrator] finds that an applicant or licensed person is no longer in existence, has ceased to do business as a broker-dealer, sales representative, or investment adviser, is adjudicated mentally incompetent or subjected to the control of a committee, conservator, or guardian, or cannot be located after reasonable search, the [Administrator], by order, may deny the application or revoke the license.

Prior Provision: USA 204(a).

1. If the requisite determination is made under Section 212(a), the Administrator may take one or more of the following actions:

i. deny, revoke, or suspend the license in question;

ii. limit the activities in which the licensed person can engage; or

iii. bar the applicant or licensed person from association with a licensed broker-dealer or investment adviser.

These sanctions are intended to be available to the Administrator primarily as an adjunct to the licensing responsibilities under Part II. The Administrator is not precluded from seeking sanctions under Sections 602 or 603 against licensed persons in appropriate cases.

2. The reference in subparagraph (a) to the "public interest" is intended to emphasize that not every minor or technical infraction is meant to result in one of the above sanctions being imposed.

3. Paragraph (1): The completeness and accuracy of the application for licensing are to be tested as of its effective date in a suspension or revocation proceeding. The fact that an application has become misleading by virtue of developments after its effective date is not a ground for action under this paragraph; action in that instance would have to be predicated under paragraph (2) upon violation of Section 209(e).

On the other hand, in a proceeding to deny effectiveness to a pending license application, the completeness and accuracy of the application cannot be tested as of the effective date; it is judged "as of any date after filing."

4. Paragraphs (2) and (3): As the federal courts and the Securities and Exchange Commission have construed the term "willfully" in Section 15(b) of the Securities Exchange Act of 1934, all that is required is proof that the person acted intentionally in the sense that the person was aware of what he or she was doing.

Paragraph (3) is new and affords the Administrator an additional basis for denial, revocation, suspension, or other specified actions. In order to constitute such a ground, there must have been an adjudication, after notice and opportunity for hearing, that the person violated the other securities law specified.

5. Paragraphs (4) and (5): These provisions are similar to Section 15 of the Securities Exchange Act of 1934. "Affiliated" person for purpose of paragraph (5) has the meaning attributed to that term by the self-regulatory organizations authorized by the 1934 Act.

6. Paragraphs (5), (6), and (7): The present tense of the word "is" means that an injunction or order which has expired or been vacated is no longer a ground for action under the appropriate paragraph.

7. Paragraph (8): This carries over the language of the former clause (G), itself the subject of considerable controversy. See, e.g., the discussion in Loss and Cowett, Blue Sky Law at p. 276. It should be noted that the National Association of Securities Dealers, Inc. and other self-regulatory organizations have evolved some ethical standards based upon their authority under Section 15A of the Securities Exchange Act of 1934. It is the Committee's belief that the customs and practices in the securities industry at any particular time are important factors to be considered in determining whether a particular act or practice is unethical.

8. Paragraph (9): A broker-dealer's or investment adviser's insolvency may be used against that licensed person, but an order may not be entered against a broker-dealer or investment adviser on the basis of the insolvency of a partner, officer, director, or controlling person.

9. Paragraph (11): This paragraph continues the view held by regulatory agencies that licensed persons must be held responsible for violations resulting from inadequate supervision of subordinates.

10. Subsection (b) simply means that when an Administrator knowingly waives an old criminal conviction or other adverse determination and permits an applicant to become licensed, neither the Administrator nor his or her successor may continue to hold that over the licensed person's head as long as the latter is licensed.

However, if the Administrator is still investigating an applicant when the application would automatically become effective under Section 205, the last clause of subsection (b) gives the Administrator an additional period of time to determine whether or not to institute a proceeding against the applicant.

SECTION 213. DENIAL, SUSPENSION, OR REVOCATION ON GROUNDS OF LACK OF QUALIFICATION. The [Administrator's] determination that an applicant or licensed person lacks qualification under Section 212 is limited by the following provisions:

(1) The [Administrator] may not enter an order against a broker-dealer because of the lack of qualification of (i) a person other than the broker-dealer if the broker-dealer is an individual or (ii) a sales representative of the broker-dealer.

(2) The [Administrator] may not enter an order against an investment adviser because of the lack of qualification of (i) a person other than the investment adviser if the investment adviser is an individual or (ii) any other person who represents the investment adviser in doing an act that makes the person an investment adviser.

(3) The [Administrator] may not enter an order solely because of lack of experience of the applicant or licensed person if the applicant or licensed person is qualified by training or knowledge, or both.

(4) The [Administrator] shall consider that a sales representative who will work under the supervision of a licensed broker-dealer need not have the same qualifications as a broker-dealer.

(5) The [Administrator] shall consider that an investment adviser is not necessarily qualified solely because of experience as a broker-dealer or sales representative.

Prior Provision: USA 204(b).

1. This section operates as a limitation upon the Administrator's power to deny, revoke, or suspend under Section 212(a)(10).

2. Paragraphs (1) and (2) do not permit the Administrator to find a broker-dealer or investment adviser unqualified simply because some persons, e.g., limited partner investors, other than the principals of the business (who must be qualified), are not.

3. Paragraph (3) makes it clear that adequate training or knowledge may be substituted for experience. Often the qualification for the securities business is satisfied by experience, either as a broker-dealer in another state or as an agent for a broker-dealer locally or elsewhere.

SECTION 214. WITHDRAWAL.

(a) An application for a license may be withdrawn by the applicant without prejudice before the license becomes effective.

(b) Withdrawal from licensing as a broker-dealer, sales representative, or investment adviser becomes effective 30 days after receipt by the [Administrator] of an application to withdraw or within any shorter period the [Administrator], by order, determines, unless:

(1) a revocation or suspension proceeding is pending when the application is filed;

(2) a proceeding to revoke or suspend or to impose conditions upon the withdrawal is instituted within 30 days after the application is filed; or

(3) additional information is requested by the [Administrator] regarding the withdrawal application.

(c) If a proceeding is pending or instituted under subsection (b), withdrawal becomes effective at the time and upon the conditions the [Administrator] by order determines. If additional information is requested, withdrawal is effective 30 days after the additional information is filed. Although no proceeding is pending or instituted and withdrawal becomes effective, the [Administrator] may institute a proceeding under Section 212 within one year after withdrawal became effective and enter an order as of the last date on which licensing was effective.

Prior Provision: USA 204(e).

1. Subsection (a) allows an application for licensing to be withdrawn at any time before effectiveness without prejudice.

2. Subsection (b) is modeled after Section 15(b)(5) of the Securities Exchange Act of 1934, although it goes further in allowing the Administrator to request additional information. The provision is designed to make it possible for an Administrator to prevent the withdrawal of an effective license when there are some significant questions outstanding concerning the licensed person.

Ordinarily a licensed person would file either the BD-W or ADV-W or equivalent forms and would be permitted to withdraw without question. This section gives the Administrator authority to obtain sufficient assurances that customer obligations will be satisfied and any other necessary action taken by the withdrawing licensed party.

SECTION 215. CUSTODY OF CLIENT'S SECURITIES AND FUNDS.

(a) Unless prohibited by rule or order of the [Administrator], an investment adviser registered under the Investment Advisers Act of 1940 may take or retain custody of securities or funds of a client.

(b) To the extent permitted by rule or order of the [Administrator], an investment adviser exempt from registration under the Investment Advisers Act of 1940, but licensed as an investment adviser under this [Act], may take or retain custody of securities or funds of a client.

Prior Provision: USA 102(c).

This modifies the 1956 Act provisions. Under subsection (a), an investment adviser registered under the Investment Advisers Act of 1940 may have custody of customer securities or funds unless the Administrator adopts a rule or order prohibiting the custody. On the other hand, under subsection (b) an investment adviser not federally registered may have custody only if and to the extent permitted by rule or order of the Administrator.

Investment advisers registered under the 1940 Act who have custody of customer funds or securities are subject to certain additional requirements. Subsection (b) affords the Administrator the authority to prescribe comparable or other safeguards for nonfederally registered investment advisers.

This Part contains three procedures by which securities can be registered: by "filing" (Section 302), by "coordination" (Section 303), and by "qualification" (Section 304). The "notification" procedure which was included in the 1956 Act has been used little in recent years and therefore has been eliminated. Section 305 contains various provisions which are applicable to all or most registration procedures.

SECTION 301. REGISTRATION REQUIREMENT. A person may not offer to sell or sell a security in this State unless it is registered under this [Act] or the security or transaction is exempt under this [Act].

Prior Provision: USA 301.

Section 301 forbids sales prior to the effectiveness of a registration statement. The term "sale" is defined in Section 101(13).

The Securities Act of 1933 permits certain types of offers during the "waiting period" between the filing and the effectiveness of a registration statement. The exemptive provisions of Sections 402(15) and (16) operate to permit similar offers for securities which are in the process of registration under federal or state statutes or both.

The scope of the phrase "in this State" in Section 301 is determined by Section 801.

SECTION 302. REGISTRATION BY FILING.

(a) Securities for which a registration statement has been filed under the Securities Act of 1933 in connection with the offering of the securities may be registered by filing, whether or not they are also eligible for registration under Section 303 or 304, if:

(1) the issuer is organized under the laws of the United States or a state or, if the issuer is not organized under the laws of the United States or a state, it has appointed a duly authorized agent in the United States for service of process;

(2) the issuer has actively engaged in business operations in the United States for a period of at least 36 consecutive calendar months immediately before the filing of the federal registration statement;

(3) the issuer has registered a class of equity securities under Section 12(b) or 12(g) of the Securities Exchange Act of 1934, which class of securities is held of record by 500 or more persons;

(4) the issuer has:

(i) either a total net worth of $4,000,000 or a total net worth of $2,000,000 and net pretax income from operations before allowances for extraordinary items, for at least two of the three preceding fiscal years;

(ii) not less than 400,000 units of the class of security registered under Section 12 of the Securities Exchange Act of 1934 held by the public, excluding securities held by officers and directors of the issuer, underwriters and persons beneficially owning ten percent or more of that class of security; and

(iii) no outstanding warrants and options held by the underwriters and executive officers and directors of the issuer in an amount exceeding ten percent of the total number of shares to be outstanding after completion of the offering of the securities being registered;

(5) the issuer has been subject to the requirements of Section 12 of the Securities Exchange Act of 1934 and has filed all the material required to be filed under Sections 13 and 14 of that act for at least 36 consecutive calendar months immediately before the filing of the federal registration statement and the issuer has filed in a timely manner all reports required to be filed during the 12 calendar months next preceding the filing of the federal registration statement;

(6) for at least 30 days during the three months next preceding the offering of the securities registered there have been at least four market makers for the class of equity securities registered under Section 12 of the Securities Exchange Act of 1934;

(7) each of the underwriters participating in the offering of the security and each broker-dealer who will offer the security in this State is a member of or is subject to the rules of fair practice of a national association of securities dealers with respect to the offering and the underwriters have contracted to purchase the securities offered in a principal capacity;

(8) the aggregate commissions or discounts to be received by the underwriters will not exceed ten percent of the aggregate price at which the securities being registered are offered to the public;

(9) neither the issuer nor any of its subsidiaries, since the end of the fiscal year next preceding the filing of the registration statement, have (i) failed to pay a dividend or sinking fund installment on preferred stock, (ii) defaulted on indebtedness for borrowed money, or (iii) defaulted on the rental on one or more long-term leases, which defaults in the aggregate are material to the financial position of the issuer and its subsidiaries, taken as a whole; and

(10) in the case of an equity security, the price at which the security will be offered to the public is not less than five dollars a share.

(b) A registration statement under this section must contain the following information and be accompanied by the following documents in addition to the information specified in Section 305(c) and the consent to service of process required by Section 708:

(1) a statement demonstrating eligibility for registration by filing;

(2) the name, address, and form of organization of the issuer;

(3) with respect to a person on whose behalf a part of the offering is to be made in a nonissuer distribution: name and address; the amount of securities of the issuer held by the person as of the date of the filing of the registration statement; and a statement of the reasons for making the offering;

(4) a description of the security being registered; and

(5) a copy of the latest prospectus filed with the registration statement under and satisfying the requirements of Section 10 of the Securities Act of 1933.

(c) If the information and documents required to be filed by subsection (b) have been on file with the [Administrator] for at least [five] business days or any shorter period the [Administrator] by rule or order allows and the applicable registration fee has been paid before the effectiveness of the federal registration statement, a registration statement under this section automatically becomes effective concurrently with the effectiveness of the federal registration statement. If the federal registration statement becomes effective before the conditions in this subsection are satisfied and they are not waived, the registration statement becomes effective when the conditions are satisfied. The registrant shall promptly notify the [Administrator] by telephone or telegram of the date and time when the federal registration statement became effective and the content of the price amendment, if any, and shall file promptly a post effective amendment containing the information and documents in the price amendment. The [Administrator] shall promptly acknowledge receipt of notification and effectiveness of the registration statement as of the date and time the registration statement became effective with the Securities and Exchange Commission.

Prior Provision: None.

1. This section provides a new procedure for registration by filing in place of the former notification procedure. The intent is to provide a "super coordination" procedure for certain issuers who satisfy specified criteria that demonstrate that those issuers are seasoned companies as to which there already is substantial marketplace information and activity.

2. This procedure for registration allows an eligible issuer to file with various states and become effective concurrent with SEC effectiveness. Unlike a registration by coordination, however, such registration would not be subject to a stop order based upon either Section 306(a)(2)(v) or (vi) - the so-called merit standards. The offering nevertheless is subject to the issuance of a stop order based on inadequate disclosure or any of the other grounds set forth in Section 306(a)(2).

3. The criteria have been drawn from a variety of sources, including the S-2/S-3 registration statement eligibility requirements and several additional requirements urged by representatives of the securities industry and state securities regulators.

In addition to the issuer having securities registered under Section 12 of the 1934 Act and having been engaged in active business operations for at least three years (which should eliminate any attempted use of the procedure by shell companies), subsection (a) also mandates certain minimum net worth, "public float," and breadth of market requirements. See paragraphs (2) through (6) of the subsection.

4. Among the offering conditions to be satisfied is a requirement that all participating underwriters either be a member of, or agree to be bound by the Rules of Fair Practice of, a self-regulatory organization such as the NASD. The obligation of the underwriters must be what historically has been referred to as a "firm commitment" underwriting, rather than simply an agency or best-efforts arrangement. See subsection (a)(7).

5. A further offering condition to be satisfied is a requirement that the aggregate commissions or discounts to the underwriters not exceed 10% of the public offering price (subsection (a)(8)). The Committee's intent here is to limit the direct compensation received for the underwriting and selling effort and avoid the uncertainties raised by trying to include other and more indirect benefits or rights received by such parties (such as a right of first refusal or warrants with an exercise price greater than the public offering price). An alternative formulation would be to specify that the person(s) on whose behalf the securities are offered must receive proceeds equal to 90% or more of the aggregate public offering price.

SECTION 303. REGISTRATION BY COORDINATION.

(a) Securities for which a registration statement has been filed under the Securities Act of 1933 in connection with the offering of the securities may be registered by coordination.

(b) A registration statement under this section must contain the following information and be accompanied by the following documents in addition to the information specified in Section 305(c) and the consent to service of process required by Section 708:

(1) two copies of the latest form of prospectus filed under the Securities Act of 1933;

(2) if the [Administrator] by rule or order requires: a copy of the articles of incorporation and bylaws or their substantial equivalents, currently in effect; a copy of any agreement with or among underwriters; a copy of an indenture or other instrument governing the issuance of the security to be registered; and a specimen, copy, or description of the security;

(3) if the [Administrator] requests, subject to paragraph (2) of Section 703(b), any other information, or copies of any other document, filed under the Securities Act of 1933; and

(4) an undertaking to forward promptly, and not later than the first business day after the day they are forwarded to or filed with the Securities and Exchange Commission, all future amendments to the federal prospectus, other than an amendment that delays the effective date of the registration statement.

(c) A registration statement under this section becomes effective when the federal registration statement becomes effective if all of the following conditions are satisfied:

(1) no stop order is in effect and no proceeding is pending under Section 306;

(2) the registration statement has been on file with the [Administrator] for at least ten days, but if the registration statement is not filed with the [Administrator] within ten days after the initial filing under the Securities Act of 1933, the registration statement has been on file with the [Administrator] for 30 days or any shorter period the [Administrator], by rule or order, specifies; and

(3) a statement of the maximum and minimum proposed offering prices and the maximum underwriting discounts and commissions has been on file for two full business days or any shorter period the [Administrator], by rule or order, specifies and the offering is made within those limitations.

(d) The registrant shall promptly notify the [Administrator] by telephone or telegram of the date and time when the federal registration statement became effective and the content of the price amendment, if any, and shall promptly file a post-effective amendment containing the information and documents in the price amendment.

(e) Upon failure to receive the required notification or post-effective amendment with respect to the price amendment, the [Administrator], without notice or hearing, may enter a stop order retroactively denying effectiveness to the registration statement or suspending its effectiveness until the registrant complies with subsection (d). The [Administrator] shall promptly notify the registrant by telephone or telegram, and promptly confirm by letter or telegram if the [Administrator] notifies by telephone, of the issuance of the order. If the registrant proves compliance with the requirements of subsection (d) as to notice and post-effective amendment, the stop order is void as of its entry.

(f) The [Administrator] by rule or order may waive either or both of the conditions specified in subsection (c)(2) and (3).

(g) If the federal registration statement becomes effective before all of the conditions in subsection (c) are satisfied and they are not waived, the registration statement becomes effective when all the conditions are satisfied. If the registrant advises the [Administrator] of the date when the federal registration statement is expected to become effective, the [Administrator] shall promptly advise the registrant by telephone or telegram, at the registrant's expense, whether all the conditions are satisfied and whether the [Administrator] then contemplates commencing a proceeding under Section 306; but the advice by the [Administrator] does not preclude the institution of a proceeding for a stop order suspending the effectiveness of the registration statement. A stop order issued under this subsection is not retroactive.

(h) The [Administrator] by rule or order may waive or modify the application of a requirement of this section if a provision or an amendment, repeal, or other alteration of the securities registration provisions of the Securities Act of 1933, or the regulations adopted under that act, render the waiver or modification appropriate for further coordination of state and federal registration.

Prior Provision: USA 303.

1. The pattern of dual federal-state regulation of securities is accepted as one of the major premises of this Act as it was under the 1956 Act. However, the legitimate interests of persons offering securities on an interstate basis require that there be some coordination between the federal and state registration statutes without making either subservient to the other. Section 303 is a procedure for coordinating the state registrations with the registration being effected under the Securities Act of 1933.

The vast majority of registrations for which a registration statement has been filed under the Securities Act of 1933 are likely to be effected under this section rather than Section 302. While this section is intended to facilitate state registration by coordination with the federal processing, all the stop order standards set forth in Section 306(a)(2) are applicable.

The phrase "in connection with the same offering" does not require that the federal and state registration statements be filed simultaneously or become effective simultaneously. In most instances, they would be. However, counsel should note that if the state filing is not made within ten days of the initial filing under the Securities Act of 1933, subsection (c)(2) lengthens the time period before which the state registration will become effective.

2. Subsection (b) limits the Administrator to requiring only such information as is filed with the SEC.

3. Subsections (c) through (g) describe the conditions to be satisfied to achieve effectiveness of a coordination filing. For a detailed discussion of this process, see Loss & Cowett's discussion in their book Blue Sky Law at pp. 294-299. The reference to notification by telephone or telegram is intended to include the various contemporary means of written electronic notification.

As noted above, the Administrator retains the right to test the registration statement by the substantive standards of Section 306(a)(2) and may issue a stop or denial order if the Administrator believes any of those provisions are applicable.

4. Subsection (h) has been added to afford the Administrator a basis for modifying any of the requirements of this section if it is appropriate to do so. An example would be the expedited review and processing procedures a number of states have adopted with respect to "shelf registrations" under Rule 415 under the Securities Act of 1933. Alternatively, filing of registration statements through a central electronic dissemination and retrieval system such as Project Edgar could be authorized under this subsection.

In waiving or modifying requirements, the Administrator must make a finding satisfying the general standard set forth in Section 705(c).

SECTION 304. REGISTRATION BY QUALIFICATION.

(a) A security may be registered by qualification.

(b) A registration statement under this section must contain the following information and be accompanied by the following documents in addition to the information specified in Section 305(c) and the consent to service of process required by Section 708:

(1) with respect to the issuer and any significant subsidiary: its name, address, and form of organization; the state or foreign jurisdiction and date of its organization; the general character and location of its business; a description of its physical property and equipment; and a statement of the general competitive conditions in the industry or business in which it is or will be engaged;

(2) with respect to every director and officer of the issuer, or person occupying a similar status or performing similar functions: name, address, and principal occupation for the last five years; the amount of securities of the issuer held by the person as of a specified date within 30 days before the filing of the registration statement; the amount of the securities covered by the registration statement to which the person has indicated an intention to subscribe; and a description of any material interest in any material transaction with the issuer or a significant subsidiary effected within the last three years or proposed to be effected;

(3) with respect to persons covered by paragraph (2): the compensation paid or given, directly or indirectly, during the last 12 months and estimated to be paid during the next 12 months, by the issuer, together with all predecessors, parents, subsidiaries, and affiliates, to all those persons in the aggregate;

(4) with respect to a person owning of record, or beneficially if known, ten percent or more of the outstanding shares of a class of equity security of the issuer: the information specified in paragraph (2) other than occupation;

(5) with respect to a promoter, if the issuer was organized within the last three years: the information specified in paragraph (2), the amount paid or intended to be paid to the person within that period and the consideration for the payment;

(6) with respect to a person on whose behalf a part of the offering is to be made in a nonissuer distribution: name and address; the amount of securities of the issuer held by the person as of the date of the filing of the registration statement; a description of any material interest in any material transaction with the issuer, or a significant subsidiary, effected within the last three years or proposed to be effected; and a statement of the reasons for making the offering;

(7) the capitalization and long-term debt, on both a current and a pro forma basis, of the issuer and any significant subsidiary, including a description of each security outstanding or being registered or otherwise offered, and a statement of the amount and kind of consideration, whether in the form of cash, physical assets, services, patents, goodwill, or anything else, for which the issuer or a subsidiary has issued its securities within the last two years or is obligated to issue its securities;

(8) the kind and amount of securities to be offered; the proposed offering price or the method by which it is to be computed; any variation therefrom at which a proportion of the offering is to be made to a person or class of persons other than the underwriters, with a specification of the person or class; the basis upon which the offering is to be made if other than for cash; the estimated aggregate underwriting and selling discounts or commissions and finders' fees, including separately cash, securities, contracts, or anything else of value to accrue to the underwriters or finders in connection with the offering, or, if the selling discounts or commissions are variable, the basis of determining them and their maximum and minimum amounts; the estimated amounts of other selling expenses, including legal, engineering, and accounting charges; the name and address of every underwriter and every recipient of a finder's fee; a copy of any underwriting or selling-group agreement pursuant to which the distribution is to be made, or the proposed form of the agreement whose terms have not yet been determined; and a description of the plan of distribution of securities that are to be offered other than through an underwriter;