H.B. 142





Chief Sponsor: Francis D. Gibson

Senate Sponsor: ____________

             7      LONG TITLE
             8      General Description:
             9          This bill modifies the Utah Uniform Securities Act.
             10      Highlighted Provisions:
             11          This bill:
             12          .    modifies a transaction exemption from certain registration and sales literature
             13      requirements; and
             14          .    makes technical changes.
             15      Money Appropriated in this Bill:
             16          None
             17      Other Special Clauses:
             18          None
             19      Utah Code Sections Affected:
             20      AMENDS:
             21           61-1-14 , as last amended by Laws of Utah 2010, Chapter 218
             23      Be it enacted by the Legislature of the state of Utah:
             24          Section 1. Section 61-1-14 is amended to read:
             25           61-1-14. Exemptions.
             26          (1) The following securities are exempt from Sections 61-1-7 and 61-1-15 :
             27          (a) a security, including a revenue obligation, issued or guaranteed by the United

             28      States, a state, a political subdivision of a state, or an agency or corporate or other
             29      instrumentality of one or more of the foregoing, or a certificate of deposit for any of the
             30      foregoing;
             31          (b) a security issued or guaranteed by Canada, a Canadian province, a political
             32      subdivision of a Canadian province, an agency or corporate or other instrumentality of one or
             33      more of the foregoing, or another foreign government with which the United States currently
             34      maintains diplomatic relations, if the security is recognized as a valid obligation by the issuer
             35      or guarantor;
             36          (c) a security issued by and representing an interest in or a debt of, or guaranteed by, a
             37      depository institution organized under the laws of the United States, or a depository institution
             38      or trust company supervised under the laws of a state;
             39          (d) a security issued or guaranteed by a public utility or a security regulated in respect
             40      of its rates or in its issuance by a governmental authority of the United States, a state, Canada,
             41      or a Canadian province;
             42          (e) (i) a federal covered security specified in the Securities Act of 1933, [Section] Sec.
             43      18(b)(1), 15 U.S.C. [Section] Sec. 77r(b)(1), or by rule adopted under that provision;
             44          (ii) a security listed or approved for listing on another securities market specified by
             45      rule under this chapter;
             46          (iii) any of the following with respect to a security described in Subsection (1)(e)(i) or
             47      (ii):
             48          (A) a put or a call option contract;
             49          (B) a warrant; or
             50          (C) a subscription right on or with respect to the security;
             51          (iv) an option or similar derivative security on a security or an index of securities or
             52      foreign currencies issued by a clearing agency that is:
             53          (A) registered under the Securities Exchange Act of 1934; and
             54          (B) listed or designated for trading on a national securities exchange, or a facility of a
             55      national securities association registered under the Securities Exchange Act of 1934;
             56          (v) an offer or sale, of the underlying security in connection with the offer, sale, or
             57      exercise of an option or other security that was exempt when the option or other security was
             58      written or issued; or

             59          (vi) an option or a derivative security designated by the Securities and Exchange
             60      Commission under Securities Exchange Act of 1934, [Section] Sec. 9(b), 15 U.S.C. [Section]
             61      Sec. 78i(b);
             62          (f) (i) a security issued by a person organized and operated not for private profit but
             63      exclusively for religious, educational, benevolent, charitable, fraternal, social, athletic, or
             64      reformatory purposes, or as a chamber of commerce or trade or professional association; and
             65          (ii) a security issued by a corporation organized under Title 3, Chapter 1, General
             66      Provisions Relating to Agricultural Cooperative Associations, and a security issued by a
             67      corporation to which that chapter is made applicable by compliance with Section 3-1-21 ;
             68          (g) an investment contract issued in connection with an employees' stock purchase,
             69      option, savings, pension, profit-sharing, or similar benefit plan;
             70          (h) a security issued by an investment company that is registered, or that has filed a
             71      registration statement, under the Investment Company Act of 1940; and
             72          (i) a security as to which the director, by rule or order, finds that registration is not
             73      necessary or appropriate for the protection of investors.
             74          (2) The following transactions are exempt from Sections 61-1-7 and 61-1-15 :
             75          (a) an isolated nonissuer transaction, whether effected through a broker-dealer or not;
             76          (b) a nonissuer transaction in an outstanding security, if as provided by rule of the
             77      division:
             78          (i) information about the issuer of the security as required by the division is currently
             79      listed in a securities manual recognized by the division, and the listing is based upon such
             80      information as required by rule of the division; or
             81          (ii) the security has a fixed maturity or a fixed interest or dividend provision and there
             82      is no default during the current fiscal year or within the three preceding fiscal years, or during
             83      the existence of the issuer and any predecessors if less than three years, in the payment of
             84      principal, interest, or dividends on the security;
             85          (c) a nonissuer transaction effected by or through a registered broker-dealer pursuant to
             86      an unsolicited order or offer to buy;
             87          (d) a transaction between the issuer or other person on whose behalf the offering is
             88      made and an underwriter, or among underwriters;
             89          (e) a transaction in a bond or other evidence of indebtedness secured by a real or

             90      chattel mortgage or deed of trust, or by an agreement for the sale of real estate or chattels, if the
             91      entire mortgage, deed of trust, or agreement, together with all the bonds or other evidences of
             92      indebtedness secured thereby, is offered and sold as a unit;
             93          (f) a transaction by an executor, administrator, sheriff, marshal, receiver, trustee in
             94      bankruptcy, guardian, or conservator;
             95          (g) a transaction executed by a bona fide pledgee without a purpose of evading this
             96      chapter;
             97          (h) an offer or sale to one of the following whether the purchaser is acting for itself or
             98      in a fiduciary capacity:
             99          (i) a depository institution;
             100          (ii) a trust company;
             101          (iii) an insurance company;
             102          (iv) an investment company as defined in the Investment Company Act of 1940;
             103          (v) a pension or profit-sharing trust;
             104          (vi) other financial institution or institutional investor; or
             105          (vii) a broker-dealer;
             106          (i) an offer or sale of a preorganization certificate or subscription if:
             107          (i) no commission or other remuneration is paid or given directly or indirectly for
             108      soliciting a prospective subscriber;
             109          (ii) the number of subscribers acquiring a legal or beneficial interest therein does not
             110      exceed 10;
             111          (iii) there is no general advertising or solicitation in connection with the offer or sale;
             112      and
             113          (iv) no payment is made by a subscriber;
             114          (j) subject to Subsection (6), a transaction pursuant to an offer by an issuer of its
             115      securities to its existing securities holders, if:
             116          (i) no commission or other remuneration, other than a standby commission is paid or
             117      given directly or indirectly for soliciting a security holder in this state; and
             118          (ii) the transaction constitutes:
             119          (A) the conversion of convertible securities;
             120          (B) the exercise of nontransferable rights or warrants;

             121          (C) the exercise of transferable rights or warrants if the rights or warrants are
             122      exercisable not more than 90 days after their issuance;
             123          (D) the purchase of securities under a preemptive right; or
             124          (E) a transaction other than one specified in Subsections (2)(j)(ii)(A) through (D) if:
             125          (I) the division is furnished with:
             126          (Aa) a general description of the transaction;
             127          (Bb) the disclosure materials to be furnished to the issuer's securities holders in the
             128      transaction; and
             129          (Cc) a non-refundable fee; and
             130          (II) the division does not, by order, deny or revoke the exemption within 20 working
             131      days after the day on which the filing required by Subsection (2)(j)(ii)(E)(I) is complete;
             132          (k) an offer, but not a sale, of a security for which a registration statement is filed under
             133      both this chapter and the Securities Act of 1933 if no stop order or refusal order is in effect and
             134      no public proceeding or examination looking toward such an order is pending;
             135          (l) a distribution of securities as a dividend if the person distributing the dividend is the
             136      issuer of the securities distributed;
             137          (m) a nonissuer transaction effected by or through a registered broker-dealer where the
             138      broker-dealer or issuer files with the division, and the broker-dealer maintains in the
             139      broker-dealer's records, and makes reasonably available upon request to a person expressing an
             140      interest in a proposed transaction in the security with the broker-dealer information prescribed
             141      by the division under its rules;
             142          (n) a transaction not involving a public offering;
             143          (o) an offer or sale of "condominium units" or "time period units" as those terms are
             144      defined in Title 57, Chapter 8, Condominium Ownership Act, whether or not to be sold by
             145      installment contract, if the following are complied with:
             146          (i) Title 57, Chapter 8, Condominium Ownership Act, or if the units are located in
             147      another state, the condominium act of that state;
             148          (ii) Title 57, Chapter 11, Utah Uniform Land Sales Practices Act;
             149          (iii) Title 57, Chapter 19, Timeshare and Camp Resort Act; and
             150          (iv) Title 70C, Utah Consumer Credit Code;
             151          (p) a transaction or series of transactions involving a merger, consolidation,

             152      reorganization, recapitalization, reclassification, or sale of assets, if the consideration for
             153      which, in whole or in part, is the issuance of securities of a person or persons, and if:
             154          (i) the transaction or series of transactions is incident to a vote of the securities holders
             155      of each person involved or by written consent or resolution of some or all of the securities
             156      holders of each person involved;
             157          (ii) the vote, consent, or resolution is given under a provision in:
             158          (A) the applicable corporate statute or other controlling statute;
             159          (B) the controlling articles of incorporation, trust indenture, deed of trust, or
             160      partnership agreement; or
             161          (C) the controlling agreement among securities holders;
             162          (iii) (A) one person involved in the transaction is required to file proxy or
             163      informational materials under Section 14(a) or (c) of the Securities Exchange Act of 1934 or
             164      Section 20 of the Investment Company Act of 1940 and has so filed;
             165          (B) one person involved in the transaction is an insurance company that is exempt from
             166      filing under Section 12(g)(2)(G) of the Securities Exchange Act of 1934, and has filed proxy or
             167      informational materials with the appropriate regulatory agency or official of its domiciliary
             168      state; or
             169          (C) all persons involved in the transaction are exempt from filing under Section
             170      12(g)(1) of the Securities Exchange Act of 1934, and file with the division such proxy or
             171      informational material as the division requires by rule;
             172          (iv) the proxy or informational material is filed with the division and distributed to all
             173      securities holders entitled to vote in the transaction or series of transactions at least 10 working
             174      days prior to any necessary vote by the securities holders or action on any necessary consent or
             175      resolution; and
             176          (v) the division does not, by order, deny or revoke the exemption within 10 working
             177      days after filing of the proxy or informational materials;
             178          (q) subject to Subsection (7), a transaction pursuant to an offer to sell securities of an
             179      issuer if:
             180          (i) the transaction is part of an issue in which there [are not more than 15 purchasers in
             181      this state, other than those designated in Subsection (2)(h), during any 12 consecutive months]
             182      is no limit on the number of investors;

             183          (ii) [no] general solicitation or general advertising is [used] allowed in connection with
             184      the offer to sell or sale of the securities;
             185          (iii) no commission or other similar compensation is given, directly or indirectly, to a
             186      person other than a broker-dealer or agent licensed under this chapter, for soliciting a
             187      prospective purchaser in this state;
             188          (iv) the seller reasonably believes that all the purchasers in this state are purchasing for
             189      investment; [and]
             190          (v) the transaction is part of an aggregate offering that does not exceed $1,000,000[, or
             191      a greater amount as prescribed by a division rule,] during any 12 consecutive months;
             192          (vi) the issuer of the securities:
             193          (A) is an entity that is organized and located in the state; and
             194          (B) has at least 80% of its assets and operations within the state;
             195          (vii) each investor in a security of the issuer is a resident of the state; and
             196          (viii) all offers and sales transactions occur within the state;
             197          (r) a transaction involving a commodity contract or commodity option;
             198          (s) a transaction in a security, whether or not the security or transaction is otherwise
             199      exempt if:
             200          (i) the transaction is:
             201          (A) in exchange for one or more outstanding securities, claims, or property interests; or
             202          (B) partly for cash and partly in exchange for one or more outstanding securities,
             203      claims, or property interests; and
             204          (ii) the terms and conditions are approved by the director after a hearing under Section
             205      61-1-11.1 ;
             206          (t) a transaction incident to a judicially approved reorganization in which a security is
             207      issued:
             208          (i) in exchange for one or more outstanding securities, claims, or property interests; or
             209          (ii) partly for cash and partly in exchange for one or more outstanding securities,
             210      claims, or property interests;
             211          (u) a nonissuer transaction by a federal covered investment adviser with investments
             212      under management in excess of $100,000,000 acting in the exercise of discretionary authority
             213      in a signed record for the account of others; and

             214          (v) a transaction as to which the division finds that registration is not necessary or
             215      appropriate for the protection of investors.
             216          (3) A person filing an exemption notice or application shall pay a filing fee as
             217      determined under Section 61-1-18.4 .
             218          (4) Upon approval by a majority of the commission, the director, by means of an
             219      adjudicative proceeding conducted in accordance with Title 63G, Chapter 4, Administrative
             220      Procedures Act, may deny or revoke an exemption specified in Subsection (1)(f) or (g) or in
             221      Subsection (2) with respect to:
             222          (a) a specific security, transaction, or series of transactions; or
             223          (b) a person or issuer, an affiliate or successor to a person or issuer, or an entity
             224      subsequently organized by or on behalf of a person or issuer generally and may impose a fine if
             225      the director finds that the order is in the public interest and that:
             226          (i) the application for or notice of exemption filed with the division is incomplete in a
             227      material respect or contains a statement which was, in the light of the circumstances under
             228      which it was made, false or misleading with respect to a material fact;
             229          (ii) this chapter, or a rule, order, or condition lawfully imposed under this chapter has
             230      been willfully violated in connection with the offering or exemption by:
             231          (A) the person filing an application for or notice of exemption;
             232          (B) the issuer, a partner, officer, or director of the issuer, a person occupying a similar
             233      status or performing similar functions, or a person directly or indirectly controlling or
             234      controlled by the issuer, but only if the person filing the application for or notice of exemption
             235      is directly or indirectly controlled by or acting for the issuer; or
             236          (C) an underwriter;
             237          (iii) subject to Subsection (8), the security for which the exemption is sought is the
             238      subject of an administrative stop order or similar order, or a permanent or temporary injunction
             239      or a court of competent jurisdiction entered under another federal or state act applicable to the
             240      offering or exemption;
             241          (iv) the issuer's enterprise or method of business includes or would include activities
             242      that are illegal where performed;
             243          (v) the offering has worked, has tended to work, or would operate to work a fraud upon
             244      purchasers;

             245          (vi) the offering is or was made with unreasonable amounts of underwriters' and sellers'
             246      discounts, commissions, or other compensation, or promoters' profits or participation, or
             247      unreasonable amounts or kinds of options;
             248          (vii) an exemption is sought for a security or transaction that is not eligible for the
             249      exemption; or
             250          (viii) the proper filing fee, if required, has not been paid.
             251          (5) (a) An order under Subsection (4) may not operate retroactively.
             252          (b) A person may not be considered to have violated Section 61-1-7 or 61-1-15 by
             253      reason of an offer or sale effected after the entry of an order under this Subsection (5) if the
             254      person sustains the burden of proof that the person did not know, and in the exercise of
             255      reasonable care could not have known, of the order.
             256          (6) The exemption created by Subsection (2)(j) is not available for an offer or sale of a
             257      security to an existing securities holder who has acquired the holder's security from the issuer
             258      in a transaction in violation of Section 61-1-7 .
             259          (7) As to a security, a transaction, or a type of security or transaction, the division may:
             260          (a) withdraw or further condition the exemption described in Subsection (2)(q); or
             261          (b) waive one or more of the conditions described in Subsection (2)(q).
             262          (8) (a) The director may not institute a proceeding against an effective exemption under
             263      Subsection (4)(b) more than one year from the day on which the order or injunction on which
             264      the director relies is issued.
             265          (b) The director may not enter an order under Subsection (4)(b) on the basis of an order
             266      or injunction entered under another state act unless that order or injunction is issued on the
             267      basis of facts that would constitute a ground for a stop order under this section at the time the
             268      director enters the order.

Legislative Review Note
    as of 2-17-14 7:55 AM

Office of Legislative Research and General Counsel

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