HB-4996, As Passed House, November 5, 2013

SUBSTITUTE FOR

HOUSE BILL NO. 4996

A bill to amend 2008 PA 551, entitled

"Uniform securities act (2002),"

by amending sections 202 and 504 (MCL 451.2202 and 451.2504) and by

adding section 202a.

THE PEOPLE OF THE STATE OF MICHIGAN ENACT:

Sec. 202. (1) The following transactions are exempt from the

requirements of sections 301 to 306 and 504:

(a) An isolated nonissuer transaction, whether effected by or

through a broker-dealer or not.

(b) A nonissuer transaction by or through a broker-dealer

registered or exempt from registration under this act, and a resale

transaction by a sponsor of a unit investment trust registered

under the investment company act of 1940, in a security of a class

that has been outstanding in the hands of the public for at least

90 days, if all of the following are met at the date of the

transaction:

(i) The issuer of the security is engaged in business, the

issuer is not in the organizational stage or in bankruptcy or

receivership, and the issuer is not a blank check, blind pool, or

shell company that has no specific business plan or purpose or has

indicated that its primary business plan is to engage in a merger

or combination of the business with, or an acquisition of, an

unidentified person.

(ii) The security is sold at a price reasonably related to its

current market price.

(iii) The security does not constitute the whole or part of an

unsold allotment to, or a subscription or participation by, the

broker-dealer as an underwriter of the security or a

redistribution.

(iv) A nationally recognized securities manual or its

electronic equivalent designated by rule or order under this act or

a record filed with the securities and exchange commission that is

publicly available contains all of the following:

(A) A description of the business and operations of the

issuer.

(B) The names of the issuer's executive officers and the names

of the issuer's directors, if any.

18 months before the date of the transaction or, in the case of a

reorganization or merger, and when the parties to the

reorganization or merger each had an audited balance sheet, a pro

forma balance sheet for the combined entity.

(D) An audited income statement for each of the issuer's 2

immediately previous fiscal years or for the period of existence of

the issuer, whichever is shorter, or, in the case of a

reorganization or merger when each party to the reorganization or

merger had audited income statements, a pro forma income statement.

(v) Any of the following requirements are met:

(A) The issuer of the security has a class of equity

securities listed on a national securities exchange registered

under section 6 of the securities exchange act of 1934, 15 USC 78f,

or designated for trading on the national association of securities

dealers automated quotation system.

(B) The issuer of the security is a unit investment trust

registered under the investment company act of 1940.

has been engaged in continuous business for at least 3 years.

(D) The issuer of the security has total assets of at least

$2,000,000.00 based on an audited balance sheet as of a date within

18 months before the date of the transaction or, in the case of a

reorganization or merger when the parties to the reorganization or

merger each had an audited balance sheet as of a date within 18

months before the date of the transaction, a pro forma balance

sheet for the combined entity.

registered or exempt from registration under this act in a security

of a foreign issuer that is a margin security defined in

regulations or rules adopted by the board of governors of the

federal reserve system.

(d) A nonissuer transaction by or through a broker-dealer

registered or exempt from registration under this act in an

outstanding security if the guarantor of the security files reports

with the securities and exchange commission under the reporting

requirements of section 13 or 15(d) of the securities exchange act

of 1934, 15 USC 78m or 78o.

(e) A nonissuer transaction by or through a broker-dealer

registered or exempt from registration under this act in a security

that meets 1 or more of the following:

(i) Is rated at the time of the transaction by a nationally

recognized statistical rating organization in 1 of its 4 highest

rating categories.

(ii) Has a fixed maturity or a fixed interest or dividend, if

both of the following are met:

(A) A default has not occurred during the current fiscal year

or within the 3 previous fiscal years or during the existence of

the issuer and any predecessor if less than 3 fiscal years, in the

payment of principal, interest, or dividends on the security.

(B) The issuer is engaged in business, is not in the

organizational stage or in bankruptcy or receivership, and is not

and has not been within the previous 12 months a blank check, blind

pool, or shell company that has no specific business plan or

purpose or has indicated that its primary business plan is to

engage in a merger or combination of the business with, or an

acquisition of, an unidentified person.

(f) A nonissuer transaction by or through a broker-dealer

registered or exempt from registration under this act effecting an

unsolicited order or offer to purchase.

(g) A nonissuer transaction executed by a bona fide pledgee

without any purpose of evading this act.

(h) A nonissuer transaction by a federal covered investment

adviser with investments under management in excess of

$100,000,000.00 acting in the exercise of discretionary authority

in a signed record for the account of others.

(i) A transaction in a security, whether or not the security

or transaction is otherwise exempt, in exchange for 1 or more bona

fide outstanding securities, claims, or property interests, or

partly in exchange and partly for cash, if the terms and conditions

of the issuance and exchange or the delivery and exchange and the

fairness of the terms and conditions have been approved by the

administrator at a hearing.

(j) A transaction between the issuer or other person on whose

behalf the offering is made and an underwriter, or among

underwriters.

(k) A transaction in a note, bond, debenture, or other

evidence of indebtedness secured by a mortgage or other security

agreement if all of the following are met:

(i) The note, bond, debenture, or other evidence of

indebtedness is offered and sold with the mortgage or other

security agreement as a unit.

(ii) A general solicitation or general advertisement of the

transaction is not made.

(iii) A commission or other remuneration is not paid or given,

directly or indirectly, to a person not registered under this act

as a broker-dealer or as an agent.

(l) A transaction by an executor, administrator of an estate,

sheriff, marshal, receiver, trustee in bankruptcy, guardian, or

conservator.

(m) A sale or offer to sell to any of the following:

(i) An institutional investor.

(ii) A federal covered investment adviser.

(iii) Any other person exempted by rule or order under this act.

(n) A sale or an offer to sell securities by or on behalf of

an issuer, if the transaction is part of a single issue in which

all of the following are met:

(i) There are not more than 25 purchasers in this state during

any 12 consecutive months, other than those designated in

subdivision (m).

(ii) There is no general solicitation or general advertising

used in connection with the offer to sell or sale of the

securities.

(iii) A commission or other remuneration is not paid or given,

directly or indirectly, to a person other than a broker-dealer

registered under this act or an agent registered under this act for

soliciting a prospective purchaser in this state.

(iv) The issuer reasonably believes that all the purchasers in

this state other than those designated in subdivision (m) are

purchasing for investment.

(o) A transaction under an offer to existing security holders

of the issuer, including persons that at the date of the

transaction are holders of convertible securities, options, or

warrants, if a commission or other remuneration, other than a

standby commission, is not paid or given, directly or indirectly,

for soliciting a security holder in this state.

(p) An offer to sell, but not a sale, of a security not exempt

from registration under the securities act of 1933 if both of the

following are met:

(i) A registration or offering statement or similar record as

required under the securities act of 1933 has been filed, but is

not effective, or the offer is made in compliance with rule 165

adopted under the securities act of 1933, 17 CFR 230.165.

(ii) A stop order of which the offeror is aware has not been

issued against the offeror by the administrator or the securities

and exchange commission, and an audit, inspection, or proceeding

that is public and may culminate in a stop order is not known by

the offeror to be pending.

(q) An offer to sell, but not a sale, of a security exempt

from registration under the securities act of 1933 if all of the

following are met:

(i) A registration statement has been filed under this act, but

is not effective.

(ii) A solicitation of interest is provided in a record to

offerees in compliance with a rule adopted by the administrator

under this act.

(iii) A stop order of which the offeror is aware has not been

issued by the administrator under this act, and an audit,

inspection, or proceeding that may culminate in a stop order is not

known by the offeror to be pending.

(r) A transaction involving the distribution of the securities

of an issuer to the security holders of another person in

connection with a merger, consolidation, exchange of securities,

sale of assets, or other reorganization to which the issuer, or its

parent or subsidiary, and the other person, or its parent or

subsidiary, are parties.

(s) A rescission offer, sale, or purchase under section 510.

(t) An offer or sale of a security to a person not resident in

this state and not present in this state if the offer or sale does

not constitute a violation of the laws of the state or foreign

jurisdiction in which the offeree or purchaser is present and is

not part of an unlawful plan or scheme to evade this act.

(u) An offer or sale of a security pursuant to an employee's

stock purchase, savings, option, profit-sharing, pension, or

similar employees' benefit plan, including any securities, plan

interests, and guarantees issued under a compensatory benefit plan

or compensation contract, contained in a record, established by the

issuer, its parents, its majority-owned subsidiaries, or the

majority-owned subsidiaries of the issuer's parent for the

participation of their employees including any of the following:

(i) Offers or sales of those securities to directors; general

partners; trustees, if the issuer is a business trust; officers; or

consultants and advisors.

(ii) Family members who acquire those securities from those

persons through gifts or domestic relations orders.

(iii) Former employees, directors, general partners, trustees,

officers, consultants, and advisors if those individuals were

employed by or providing services to the issuer when the securities

were offered.

(iv) Insurance agents who are exclusive insurance agents of the

issuer, its subsidiaries or parents, or who derive more than 50% of

their annual income from those organizations.

(v) A transaction involving any of the following:

(i) A stock dividend or equivalent equity distribution, whether

the corporation or other business organization distributing the

dividend or equivalent equity distribution is the issuer or not, if

nothing of value is given by stockholders or other equity holders

for the dividend or equivalent equity distribution other than the

surrender of a right to a cash or property dividend if each

stockholder or other equity holder may elect to take the dividend

or equivalent equity distribution in cash, property, or stock.

(ii) An act incident to a judicially approved reorganization in

which a security is issued in exchange for 1 or more outstanding

securities, claims, or property interests, or partly in exchange

and partly for cash.

(iii) The solicitation of tenders of securities by an offeror in

a tender offer in compliance with rule 162 adopted under the

securities act of 1933, 17 CFR 230.162.

(w) Subject to subsection (2), a nonissuer transaction in an

outstanding security by or through a broker-dealer registered or

exempt from registration under this act, if both of the following

are met:

(i) The issuer is a reporting issuer in a foreign jurisdiction

designated in subsection (2)(a), or by rule or order of the

administrator, and has been subject to continuous reporting

requirements in the foreign jurisdiction for not less than 180 days

before the transaction.

(ii) The security is listed on the foreign jurisdiction's

securities exchange that has been designated in subsection (2)(a),

or by rule or order under this act, or is a security of the same

issuer that is of senior or substantially equal rank to the listed

security or is a warrant or right to purchase or subscribe to any

of the foregoing.

(x) Any offer or sale of a security by an issuer under section

202a.

(y) Any offer or sale of a security that meets the

requirements for the federal exemption for a regulation A offering

under section 3(b) of the securities act of 1933, 15 USC 77c(b),

and SEC rule 251, 17 CFR 230.251, if the offer or sale meets all of

the following requirements:

(i) The issuer has filed SEC form 1A with the securities and

exchange commission with respect to the regulation A offering, in a

manner acceptable to the securities and exchange commission, and in

that filing the issuer has satisfied all of the requirements of 17

CFR 230.251 to 230.263 inclusively, including the filing of the

regulation A offering circular required under 17 CFR 230.253.

(ii) At least 10 days before commencing an offering of

securities in reliance on this exemption or the use of any publicly

available website in connection with an offering of securities in

reliance on this exemption, the issuer files a notice with the

administrator, in writing or in electronic form as specified by the

administrator, that contains all of the following:

(A) A notice of claim of exemption from registration,

specifying that the issuer intends to conduct an offering in

reliance on a regulation A exemption, accompanied by a

nonrefundable filing fee of $100.00 for filing the exemption

notice. The fees paid to the administrator under this sub-

subparagraph shall be used to pay the costs incurred in

administering and enforcing this act.

(B) A copy of the completed SEC form 1A and all of the

accompanying documents filed with the securities and exchange

commission, including the final regulation A offering circular to

be provided to prospective purchasers in connection with the

offering. Before filing SEC form 1A with the administrator, the

issuer may advertise its intent to make a regulation A offering

within the state and to solicit interest from prospective

purchasers under 17 CFR 230.254.

(iii) The sum of all cash and other consideration to be received

for all sales of the security in reliance on this exemption does

not exceed the amount set forth in subsection (b) of 17 CFR

230.251, less the aggregate amount received for all sales of

securities by the issuer within the 12 months before the first

offer or sale made in reliance on this exemption.

(iv) The issuer does not accept more than $10,000.00 from any

single purchaser unless the purchaser is an accredited investor as

defined by rule 501 of SEC regulation D, 17 CFR 230.501. The issuer

may rely on confirmation that the purchaser is an accredited

investor from a licensed broker-dealer or another third party in

making a determination that the purchaser is an accredited

investor. Every fifth year, the administrator shall cumulatively

adjust the $10,000.00 limitation amount described in this

subparagraph to reflect the change in the consumer price index for

all urban consumers published by the federal bureau of labor

statistics, rounding the dollar limitation to the nearest $100.00.

(2) For purposes of subsection (1)(w), both of the following

apply:

(a) Canada, together with its provinces and territories, is a

designated foreign jurisdiction and the Toronto stock exchange,

inc., is a designated securities exchange.

(b) After an administrative hearing in compliance with

applicable state law, the administrator, by rule or order under

this act, may revoke the designation of a securities exchange under

subsection (1)(w) or this subsection if the administrator finds

that revocation is necessary or appropriate in the public interest

and for the protection of investors.

(3) An issuer that sells securities in this state in reliance

on this exemption described in subsection (1)(y) may advertise the

offering in any manner, including advertising on website platforms

that may be owned and controlled by nonissuer third parties, if no

commissions are paid to either employees of the issuer for the sale

of the securities or to third parties that facilitate the sale of

the securities, unless those third parties are licensed broker-

dealers authorized to conduct transactions described in subsection

(1)(y).

Sec. 202a. (1) Except as otherwise provided in this act, an

offer or sale of a security by an issuer is exempt from the

requirements of sections 301 to 306 and 504 if the offer or sale

meets all of the following requirements:

(a) The issuer of the security is an entity that is

incorporated or organized under the laws of this state and is

authorized to do business in this state.

(b) The transaction meets the requirements for the federal

exemption for intrastate offerings under section 3(a)(11) of the

securities act of 1933, 15 USC 77c(a)(11), and SEC rule 147, 17 CFR

230.147, including, but not limited to, the requirements for

determining whether an offeree or purchaser is a resident of this

state. All of the following apply concerning these requirements:

(i) Each of the following is prima facie evidence that an

individual is a resident of this state:

(A) A valid operator's license, chauffeur's license, or

official personal identification card issued by this state.

(B) A current Michigan voter registration.

general property tax act, 1893 PA 206, MCL 211.7cc, that indicates

that the purchaser owns and occupies property in this state as his

or her principal residence.

(D) Any other record or documents issued by this state that

establishes that the purchaser's principal residence is in this

state.

(ii) The provisions of SEC rule 147, 17 CFR 230.147, apply in

determining the residency of an offeree or purchaser that is a

corporation, partnership, trust, or other form of business

organization.

(iii) A person's agreement to purchase, or the purchase of, an

exempt security under this section is considered a representation

that the person is a resident of this state at the time that

agreement is made, and if this representation is subsequently shown

to be false, the agreement is void.

(iv) If a purchaser of a security that is exempt under this

section resells that security to a person that is not a resident of

this state within 9 months after the closing of the particular

offering in which the purchaser obtained that security, the

original investment agreement between the issuer and the purchaser

is void.

(v) If an agreement to purchase, or the purchase of, a

security is void under subparagraph (iii) or (iv), the issuer may

recover damages from the misrepresenting offeree or purchaser.

These damages include, but are not limited to, the issuer's

expenses in resolving the misrepresentation. However, damages

described in this subparagraph shall not exceed the amount of the

person's investment in the security.

for all sales of the security in reliance on this exemption does

not exceed the following amounts:

(i) One million dollars, less the aggregate amount received for

all sales of securities by the issuer within the 12 months before

the first offer or sale made in reliance on this exemption, if the

issuer has not made available to each prospective purchaser and the

administrator audited financial statements or reviewed financial

statements for the issuer's most recently completed fiscal year,

prepared by a certified public accountant, as defined in section

720 of the occupational code, 1980 PA 299, MCL 339.720, in

accordance with the statements on auditing standards of the

American institute of certified public accountants or the

statements on standards for accounting and review services of the

American institute of certified public accountants, as applicable.

(ii) Two million dollars, less the aggregate amount received

for all sales of securities by the issuer within the 12 months

before the first offer or sale made in reliance on this exemption,

if the issuer has made available to each prospective purchaser and

the administrator audited financial statements or reviewed

financial statements for the issuer's most recently completed

fiscal year, prepared by a certified public accountant, as defined

in section 720 of the occupational code, 1980 PA 299, MCL 339.720,

in accordance with the statements on auditing standards of the

American institute of certified public accountants or the

statements on standards for accounting and review services of the

American institute of certified public accountants, as applicable.

(d) The issuer has not accepted more than $10,000.00 from any

single purchaser unless the purchaser is an accredited investor as

defined by rule 501 of SEC regulation D, 17 CFR 230.501. The issuer

may rely on written or electronic confirmation from an independent

third party that the purchaser is an accredited investor, if that

confirmation is provided by a qualified source such as a licensed

broker-dealer or investment advisor, a lawyer, an accountant, a

bank, an angel investor group, or any other person that is

qualified to attest to that purchaser's accredited status,

including an organization that is established specifically to

provide confirmation that purchasers are accredited investors under

rule 501 of SEC regulation D, 17 CFR 230.501.

(e) At least 10 days before an offer of securities is made in

reliance on this exemption or the use of any publicly available

website in connection with an offering of securities in reliance on

this exemption, the issuer files a notice with the administrator,

in writing or in electronic form as specified by the administrator,

that contains all of the following:

(i) A notice of claim of exemption from registration,

specifying that the issuer intends to conduct an offering in

reliance on this exemption, accompanied by the filing fee specified

in this section.

(ii) A copy of the disclosure statement to be provided to

prospective investors in connection with the offering. The

disclosure statement must contain all of the following:

(A) A description of the issuer, including its type of entity,

the address and telephone number of its principal office, its

formation history, its business plan, and the intended use of the

offering proceeds, including any amounts to be paid, as

compensation or otherwise, to any owner, executive officer,

director, managing member, or other person occupying a similar

status or performing similar functions on behalf of the issuer.

(B) The identity of each person that owns more than 10% of the

ownership interests of any class of securities of the issuer.

managing members of the issuer, and any other individuals who

occupy similar status or perform similar functions in the name of

and on behalf of the issuer, including their titles and their prior

experience.

(D) The terms and conditions of the securities being offered

and of any outstanding securities of the issuer, the minimum and

maximum amount of securities being offered, if any, and either the

percentage ownership of the issuer represented by the offered

securities or the valuation of the issuer implied by the price of

the offered securities.

(E) The identity of any person that the issuer has or intends

to retain to assist the issuer in conducting the offering and sale

of the securities, including the owner of any websites, if known,

but excluding any person acting solely as an accountant or attorney

and any employees whose primary job responsibilities involve the

operating business of the issuer rather than assisting the issuer

in raising capital, and for each person identified in response to

this sub-subparagraph, a description of the consideration being

paid to that person for that assistance.

(F) A description of any litigation or legal proceedings

involving the issuer or its management.

(G) The name and address of any website that the issuer

intends to use in connection with the offering, including its

uniform resource locator or URL. If the issuer has not engaged a

website described in this sub-subparagraph at the time the issuer

files the disclosure statement described in this subparagraph with

the administrator under this subdivision but subsequently does

engage a website for use in connection with the offering, the

issuer shall provide the information described in this sub-

subparagraph to the administrator by filing a supplemental notice.

(iii) An escrow agreement with a bank or other depository

institution located in this state, in which the purchaser funds

will be deposited, that provides that all offering proceeds will be

released to the issuer only when the aggregate capital raised from

all purchasers is equal to or greater than the minimum target

offering amount specified in the disclosure statement as necessary

to implement the business plan and that all purchasers will receive

a return of their subscription funds if that target offering amount

is not raised by the time stated in the disclosure statement. The

bank or other depository institution may contract with the issuer

to collect reasonable fees for its escrow services regardless of

whether the target offering amount is reached.

(f) The issuer is not, either before or as a result of the

offering, an investment company, as defined in section 3 of the

investment company act of 1940, 15 USC 8a-3, or an entity that

would be an investment company but for the exclusions provided in

subsection (c) of that section, or subject to the reporting

requirements of section 13 or 15(d) of the securities exchange act

of 1934, 15 USC 78m and 78o(d).

(g) The issuer informs each prospective purchaser that the

securities are not registered under federal or state securities

laws and that the securities are subject to limitations on transfer

or resale and displays the following legend conspicuously on the

cover page of the disclosure statement:

"IN MAKING AN INVESTMENT DECISION, PURCHASERS MUST RELY ON

THEIR OWN EXAMINATION OF THE ISSUER AND THE TERMS OF THE OFFERING,

INCLUDING THE MERITS AND RISKS INVOLVED. THESE SECURITIES HAVE NOT

BEEN RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR

REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING AUTHORITIES HAVE

NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THIS

DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND

RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED BY

SUBSECTION (E) OF SEC RULE 147, 17 CFR 230.147(E), AS PROMULGATED

UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND THE APPLICABLE

STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION

THEREFROM. PURCHASERS SHOULD BE AWARE THAT THEY WILL BE REQUIRED TO

BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE

PERIOD OF TIME.".

(h) The issuer requires each purchaser to certify in writing,

and to include as part of that certification his or her signature,

and his or her initials next to each paragraph of the

certification, as follows: "I understand and acknowledge that:

I am investing in a high-risk, speculative business venture. I

may lose all of my investment, and I can afford the loss of my

investment.

This offering has not been reviewed or approved by any state

or federal securities commission or other regulatory authority and

that no regulatory authority has confirmed the accuracy or

determined the adequacy of any disclosure made to me relating to

this offering.

The securities I am acquiring in this offering are illiquid,

that the securities are subject to possible dilution, that there is

no ready market for the sale of those securities, that it may be

difficult or impossible for me to sell or otherwise dispose of this

investment, and that, accordingly, I may be required to hold this

investment indefinitely.

I may be subject to tax on my share of the taxable income and

losses of the issuer, whether or not I have sold or otherwise

disposed of my investment or received any dividends or other

distributions from the issuer.

By entering into this transaction with the issuer, I am

affirmatively representing myself as being a Michigan resident at

the time that this contract is formed, and if this representation

is subsequently shown to be false, the contract is void.

If I resell any of the securities I am acquiring in this

offering to a person that is not a Michigan resident, within 9

months after the closing of the offering, my contract with the

issuer for the purchase of these securities is void.".

(i) If the offer and sale of securities under this section is

made through an internet website, all of the following requirements

are met:

(i) Before any offer of an investment opportunity to residents

of this state through the use of a website, the issuer provides to

the website and to the administrator evidence that the issuer is

organized under the laws of this state and that it is authorized to

do business in this state.

(ii) The issuer obtains from each purchaser of a security under

this section evidence that the purchaser is a resident of this

state and, if applicable, an accredited investor.

(iii) The website operator files a written notice with the

administrator that includes the website operator's name, business

address, and contact information and states that it is authorized

to do business in this state and is being utilized to offer and

sell securities under this exemption. Beginning 12 months after the

date of the written notice, a website operator that has filed a

written notice under this subparagraph shall annually notify the

administrator in writing of any changes in the information provided

to the administrator under this subparagraph.

(iv) The issuer and the website keep and maintain records of

the offers and sales of securities made through the website and

provide ready access to the records to the administrator on

request. The administrator may access, inspect, and review any

website described in this subdivision and its records.

(j) All payments for the purchase of securities are directed

to and held by the bank or depository institution subject to the

provisions of subdivision (e)(iii).

(k) Offers or sales of a security are not made through an

internet website unless the website has filed the written notice

required under subdivision (i)(iii) with the administrator.

(l) The issuer does not pay, directly or indirectly, any

commission or remuneration to an executive officer, director,

managing member, or other individual who has a similar status or

performs similar functions in the name of and on behalf of the

issuer for offering or selling the securities unless he or she is

registered as a broker-dealer, investment adviser, or investment

adviser representative under chapter 4. An executive officer,

director, managing member, or other individual who has a similar

status or performs similar functions in the name of and on behalf

of the issuer is exempt from the registration requirements under

chapter 4 if he or she does not receive, directly or indirectly,

any commission or remuneration for offering or selling securities

of the issuer that are exempt from registration under this section.

(m) The issuer provides a copy of the disclosure statement

provided to the administrator under subdivision (e)(ii) to each

prospective purchaser at the time the offer of securities is made

to the prospective purchaser. In addition to the information

described in subdivision (e)(ii), the disclosure statement provided

to the administrator and to prospective purchasers shall include

additional information material to the offering, including, where

appropriate, a discussion of significant factors that make the

offering speculative or risky. This discussion must be concise and

organized logically and should not present risks that could apply

to any issuer or any offering.

(n) The term of the offering does not exceed 12 months after

the date of the first offer.

(2) Every fifth year, the administrator shall cumulatively

adjust each of the following dollar amounts to reflect the change

in the consumer price index for all urban consumers published by

the federal bureau of labor statistics:

(a) The dollar limitations provided in subsection (1)(c),

rounding each dollar limitation to the nearest $50,000.00.

(b) The dollar limitation provided in subsection (1)(d) and

section 201(1)(y)(iv), rounding that dollar limitation to the

nearest $100.00.

(3) If the offer and sale of a security of an issuer is exempt

under this section, the issuer shall provide a quarterly report to

the issuer's purchasers until none of the securities issued under

this section are outstanding. All of the following apply to the

quarterly report described in this subsection:

(a) The issuer shall provide the report free of charge to the

purchasers.

(b) An issuer may satisfy the report requirement under this

subsection by making the information available on an internet

website if the information is made available within 45 days after

the end of each fiscal quarter and remains available until the next

quarterly report is issued.

and must provide a written copy of the report to any purchaser on

request.

(d) The report must include all of the following:

(i) The compensation received by each director and executive

officer of the issuer, including cash compensation earned since the

previous report and on an annual basis and any bonuses, stock

options, other rights to receive securities of the issuer or any

affiliate of the issuer, or other compensation received.

(ii) An analysis by management of the issuer of the business

operations and financial condition of the issuer.

(4) The exemption provided in this section shall not be used

in conjunction with any other exemption under this chapter, except

offers and sales to controlling persons shall not count toward the

limitation in subsection (1)(c).

(5) The exemption described in this section does not apply if

an issuer or person that is affiliated with the issuer or offering

is subject to any disqualification established by the administrator

by rule or contained in rule 262 as promulgated under the

securities act of 1933, 17 CFR 230.262. However, this subsection

does not apply if both of the following are met:

(a) On a showing of good cause and without prejudice to any

other action by the administrator, the administrator determines

that it is not necessary under the circumstances that an exemption

be denied.

(b) The issuer establishes that it made factual inquiry into

whether any disqualification existed under this subsection but did

not know, and in the exercise of reasonable care could not have

known, that a disqualification existed under this subsection. The

nature and scope of the requisite inquiry will vary based on the

circumstances of the issuer and the other offering participants.

(6) The administrator may adopt rules to implement the

provisions of this section and to protect purchasers that purchase

securities that are exempt from registration under this section.

(7) The administrator shall charge a nonrefundable filing fee

of $100.00 for filing an exemption notice required under subsection

(1). The fees paid to the administrator under this subsection shall

be used to pay the costs incurred in administering and enforcing

this act.

(8) A website through which an offer or sale of securities

under this section is made is not subject to the broker-dealer,

investment adviser, or investment adviser representative

registration requirements under chapter 4 if the website meets all

of the following conditions:

(a) It does not offer investment advice or recommendations.

(b) It does not solicit purchases, sales, or offers to buy the

securities offered or displayed on the website.

for the solicitation or based on the sale of securities displayed

or referenced on the website.

(d) It is not compensated based on the amount of securities

sold and it does not hold, manage, possess, or otherwise handle

purchaser funds or securities.

(e) It does not engage in any other activities that the

administrator by rule determines are inappropriate for an exemption

from the registration requirements under chapter 4.

(9) Except for section 504, article 5 applies to a violation

of this section, including a violation concerning website

operation.

(10) As used in this section, "controlling person" means an

officer, director, partner, or trustee, or another individual who

has similar status or performs similar functions, of or for the

issuer or to a person that owns 10% or more of the outstanding

shares of any class or classes of securities of the issuer.

Sec. 504. (1) Subject to subsection (2), a rule or order under

this act may require the filing of a prospectus, pamphlet,

circular, form letter, advertisement, sales literature, or other

advertising record relating to a security or investment advice

addressed or intended for distribution to prospective investors,

including clients or prospective clients of a person registered or

required to be registered as an investment adviser under this act.

(2) This section does not apply to sales and advertising

literature specified in subsection (1) relating to a federal

covered security, a federal covered investment adviser, or a

security or transaction exempted by section 201, 202, or 203 except

as required under section 201(g) or 202(1)(x).