Section 203.185. Offers prior to effectiveness of registration by qualification exempt

(a) Under section 203(r) of the act (70 P. S. § 1-203(r)), the Commission finds that it is not in the public interest nor necessary for the protection of investors to require the registration under section 201 of the act (70 P. S. § 1-201) for securities to be offered but not sold of an applicant filing a registration statement for its securities under section 206 of the act (70 P. S. § 1-206) prior to the effectiveness of such registration statement if the applicant meets all of the following criteria:

(1) The applicant has done all of the following:

(i) Filed a registration statement under section 206 of the act (70 P. S. § 1-206) to register the securities for which offers will be made.

(ii) Filed a written opinion of management which states that all the following conditions apply to the applicant:

(A) The business, including any predecessor, is an existing business which possesses a history of operations of 4 years or more.

(B) The business, including any predecessor, maintains and will continue to maintain a place of business in this Commonwealth which employs at least 25 persons.

(C) The business, including any predecessor, has averaged annual gross revenues of at least $500,000 for the past 2 years.

(D) The business, including any predecessor, possesses at least four years of historical financial information.

(iii) Filed an intention to comply with paragraphs (4)—(7).

(2) The minimum amount of the proceeds from the securities to be sold under the registration statement described in paragraph (1)(i) is $500,000.

(3) Receipt by the applicant of a nonbinding subscription agreement which is subject to the withdrawal provisions of paragraph (4) shall not constitute a ‘‘sale’’ of a security. Neither shall moneys deposited under paragraph (5) constitute the ‘‘sale’’ of a security.

(4) There is a withdrawal procedure as follows:

(i) Nonbinding subscription agreements received in connection with the offer but not sale of securities made under this section shall contain withdrawal rights which permit the investor to withdraw moneys tendered under such nonbinding subscription agreements with accrued interest under one of the following circumstances:

(A) Investors may withdraw moneys tendered under a nonbinding subscription agreement with accrued interest at any time prior to the effectiveness of the registration statement described in paragraph (1)(i).

(B) Investors may withdraw moneys tendered under a nonbinding subscription agreement with accrued interest within two business days from the date of receipt of notification of effectiveness of the registration statement described in paragraph (1)(i), as set forth in paragraph (7).

(ii) Investors shall be deemed automatically to have withdrawn any moneys tendered under a nonbinding subscription agreement and such moneys with accrued interest shall be returned to the investors upon the occurrence of any of the following:

(A) The registration statement described in paragraph (1)(i) does not become effective within 150 days from the date of filing with the Commission, unless extended by order of the Commission.

(B) The registration statement described in paragraph (1)(i) is withdrawn by the applicant.

(C) The Commission denies the registration statement described in (1)(i), regardless of whether such denial was a result of a hearing or rehearing requested by the applicant unless the Commission permits, in its Denial Order, that the moneys remain in escrow pending any request for a rehearing on the Denial Order.

(5) Moneys tendered under nonbinding subscription agreements as a result of offers made under this section shall be placed in interest-bearing escrow accounts in a bank and shall be subject to the investor withdrawal rights set forth in paragraph (4). If, prior to the effectiveness of the registration statement described in paragraph (1)(i), the nonbinding subscription agreement is withdrawn under paragraph (4), the deposit and accrued interest shall be payable to the investor. After the effectiveness of the registration statement described in paragraph (1)(i), the deposit plus accrued interest shall be payable to the applicant except where the investor withdraws under paragraph (7), in which event the investor shall receive the deposit plus accrued interest.

(6) All offers for securities made under this section shall be accompanied by the delivery of a preliminary prospectus which has been prepared and filed to satisfy the requirements of section 206(b) of the act (70 P. S. § 1-206(b)) and § 206.010(c) (relating to registration by qualification).

(7) All persons whose moneys have been placed in escrow as a result of the making of offers for the securities that are the subject of the registration statement described in paragraph (1)(i) shall be notified of the effectiveness of such registration statement either by certified mail or by direct delivery of such information. Concurrent with the notification of the effectiveness of such registration statement, all persons shall receive a copy of the final prospectus unless the Commission, by order, permits a supplement to the preliminary prospectus setting forth all changes and modifications to be utilized for these purposes.

(b) The exemption contained in this section may not be available for a transaction whose primary purpose is avoidance of the provisions of section 201 of the act (70 P. S. § 1-201).

The provisions of this § 203.185 adopted January 21, 1983, effective January 22, 1983, 13 Pa.B. 526; amended December 30, 1999, effective January 1, 2000, 30 Pa.B. 18; amended September 1, 2000, effective September 2, 2000, 30 Pa.B. 4551; transferred and renumbered from 64 Pa. Code § 203.185, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533. Immediately preceding text appears at serial pages (324418) to (324420).

Notation

Authority

The provisions of this § 203.185 issued under the Pennsylvania Securities Act of 1972 (70 P. S. § § 1-101—1-704); amended under sections 202(g) and (i), 203(d), (i.1), (j) and (n)—(t), 204(a), 205(b), 207(g), (j.1) and (n), 209(b), 211(a) and (b), 504(d), 513, 603(a), 606(d) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P. S. § § 1-202(g) and (i), 1-203(d), (i.1), (j) and (n)—(t), 1-204(a), 1-205(b), 1-207(g), (j.1) and (n), 1-209(b), 1-211(a) and (b), 1-504(d), 1-513, 1-603(a), 1-606(d) and 1-609(a)).