KRS § 292.411 — KY Code / Title XXV / Chapter 292 / Section 292.411
292.411 Exemption from KRS 292.330 to 292.390 for offer or sale of security after January 1, 2015 -- Conditions -- Application of KRS 292.410(3) and (4)
Status: in_force

292.411 Exemption from KRS 292.330 to 292.390 for offer or sale of security after

January 1, 2015 -- Conditions -- Application of KRS 292.410(3) and (4).

(1) Except as expressly provided in this section and KRS 292.412, KRS 292.330 to

292.390 shall not apply to the offer or sale of a security after July 1, 2015, by the

issuer of the security if all of the following conditions are met:

(a) The issuer of the security is:

1. A business entity organized under the laws of Kentucky;

2. Authorized to do business in Kentucky; and

3. Doing business in Kentucky in accordance with the Securities Act of

1933 Rule 17 C.F.R.

sec. 230.147(c);

(b) The transaction meets the requirement of the federal exemption for intrastate

offerings in the Securities Act of 1933 Rules, 15 U.S.C. sec. 77c(a)(11) and 17

C.F.R. sec. 230.147;

(c) The aggregate offering price of the securities complies with the following

criteria:

1. If the issuer has not undergone and made available to each prospective

purchaser and the commissioner the opinion letter and applicable

documentation resulting from a financial audit of its most recently

completed fiscal year that complies with generally accepted accounting

principles, the sum of all cash, and other consideration to be received for

all sales of securities in reliance on this exemption, shall not exceed one

million dollars ($1,000,000) in a twelve (12) month period, less the

aggregate amount received for all sales of securities by the issuer that do

not take place prior to the six (6) month period immediately preceding or

after the six (6) month period immediately following any offers or sales

made in reliance on this exemption;

2. If the issuer has undergone and made available to each prospective

purchaser and the commissioner the opinion letter and applicable

documentation resulting from a financial audit of its most recently

completed fiscal year that complies with generally accepted accounting

principles, the sum of all cash, and other consideration to be received for

all sales of securities in reliance on this exemption, shall not exceed two

million dollars ($2,000,000) in a twelve (12) month period, less the

aggregate amount received for all sales of securities by the issuer that do

not take place prior to the six (6) month period immediately preceding or

after the six (6) month period immediately following any offers or sales

made in reliance on this exemption;

3. In 2020, and every fifth year thereafter, the commissioner shall, by rule,

cumulatively adjust the dollar limitations provided in this paragraph to

reflect the change in the Consumer Price Index for All Urban

Consumers, published by the federal Bureau of Labor Statistics,

rounding each dollar limitation to the nearest fifty thousand dollars

($50,000); and

4. An offer or sale to an officer, director, partner, trustee, or individual

occupying similar status or performing similar functions with respect to

the issuer or to a person owning ten percent (10%) or more of the

outstanding shares of any class or classes of securities of the issuer shall

not count toward the monetary limitations set forth in this paragraph;

(d) All sales that are part of the same offering, made in reliance on this

exemption, meet all of the terms and conditions of this exemption. Offers and

sales that are made more than six (6) months before the start of an offering or

are made more than six (6) months after completion of an offering shall not be

considered part of the offering, if during those six (6) month periods there are

no offers or sales of securities by or for the issuer that are of the same or a

similar class as those offered or sold under this exemption, other than offers

and sales to individuals identified in the disclosure document;

(e) The issuer does not accept more than ten thousand dollars ($10,000) from any

single purchaser unless the purchaser is an accredited investor, as defined by

the Securities Act of 1933 Rule 17 C.F.R. sec. 230.501;

(f) Unless waived by written consent of the commissioner, not less than ten (10)

days before the commencement of an offering of securities, pursuant to this

exemption, the issuer submits the following to the commissioner:

1. A notice filing on a form prescribed by the department;

2. The filing fee established by the commissioner;

3. A copy of the disclosure document to be provided to prospective

purchasers pursuant to paragraph (p) of this subsection;

4. A copy of the escrow agreement entered pursuant to paragraph (g) of

this subsection; and

5. Any other documents or information the commissioner may require to

administer and enforce the requirement of this exemption;

(g) All cash and other consideration paid for securities sold pursuant to an

offering in accordance with this exemption are directed to and deposited into a

single escrow account maintained by a bank, credit union, or other depository

financial institution located in Kentucky, authorized to do business in

Kentucky, and which maintains deposit or share insurance on its deposits or

shares. The escrow agent for any such escrow account shall maintain the

records necessary to obtain pass-through insurance for the escrowed funds.

The commissioner may request information from the financial institution

necessary to ensure compliance with this section. Any information received by

the commissioner or the department shall be confidential and shall not be

subject to disclosure pursuant to the Kentucky Open Records Act, KRS

61.870 to 61.884;

(h) Offers made pursuant to this exemption state a target offering amount and an

offering deadline. The offering deadline shall not be less than twenty-one (21)

days nor more than one (1) year from the date the offer is made;

(i) If the sum of all cash and other consideration received and held in escrow, as

required by paragraph (g) of this subsection, does not equal or exceed the

target offering amount upon expiration of the offering deadline or the early

closing of the offering, pursuant to paragraph (k) of this subsection, the

transaction is void and the escrow agent shall return all funds deposited into

the escrow account to the purchasers;

(j) A purchaser is permitted to cancel his or her commitment to invest at any time

prior to forty-eight (48) hours before expiration of the offering deadline if

notice of cancellation is delivered electronically or physically in writing to the

individual or addresses identified in the disclosure document. If a purchaser is

given notice of an early closing, pursuant to paragraph (k) of this subsection,

the purchaser shall be permitted to cancel the commitment within seventy-two

(72) hours of delivery of the notice;

(k) An issuer may close an offering prior to the offering deadline if notice of the

closing is delivered to each purchaser in accordance with the notice provisions

set forth in the disclosure document, required pursuant to paragraph (p) of this

subsection, and posts it conspicuously on each Internet Web site on which the

offer was posted, at least five (5) days prior to the early closing;

(l) Before or as a result of the offering, the issuer is not:

1. An investment company, as defined by the Investment Company Act of

1940, 15 U.S.C. sec. 80a-3;

2. An entity that would be an investment company, but for the exclusions

provided in the Investment Company Act of 1940, 15 U.S.C. sec. 80a-

3(c);

3. Subject to the reporting requirements of the Securities Exchange Act of

1934, 15 U.S.C. sec. 78m or 15 U.S.C. sec. 78o(d); or

4. A company that has not yet defined its business operations, has no

business plan, has no stated investment goal for the funds being raised,

or that plans to engage in a merger or acquisition with an unspecified

business entity;

(m) The issuer informs all prospective purchasers of securities that the securities

have not been registered under federal or state securities law and that the

securities are subject to limitations on resale. The issuer shall display the

following notice on the cover page of the disclosure document in a

conspicuous manner in at least twelve (12) point, boldface type:

"BEWARE, YOU MAY LOSE YOUR ENTIRE INVESTMENT IN THIS

TRANSACTION.

IN MAKING AN INVESTMENT DECISION, INVESTORS SHALL RELY

ON THEIR OWN EXAMINATION OF THE ISSUER AND THE TERMS

OF THE OFFERING, INCLUDING THE MERITS AND RISKS

INVOLVED. THESE SECURITIES HAVE NOT BEEN RECOMMENDED

BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR

DIVISION OR REGULATORY AUTHORITY. FURTHERMORE, THE

FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE

ACCURACY OR DETERMINED THE ADEQUACY OF THIS

DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A

CRIMINAL OFFENSE. THESE SECURITIES ARE SUBJECT TO

RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY

NOT BE TRANSFERRED OR RESOLD, EXCEPT AS PERMITTED BY

SUBSECTION (e) OF SEC RULES 147, 17 C.F.R. SEC. 230.147(e) AS

PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS

AMENDED, AND THE APPLICABLE STATE SECURITIES LAWS,

PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM.

INVESTORS SHALL BE AWARE THAT THEY WILL BE REQUIRED TO

BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN

INDEFINITE PERIOD OF TIME.";

(n) The issuer requires each purchaser to certify in writing or electronically as

follows:

"I understand and acknowledge that I am investing in a high-risk, speculative

business venture. I may lose all of my investment, or under some

circumstances more than my investment, and I can afford this loss. This

offering has not been reviewed or approved by any state or federal securities

commission or division or other regulatory authority and no such person or

authority has confirmed the accuracy or determined the adequacy of any

disclosure made to me relating to this offering. The securities I am acquiring

in this offering are illiquid, there is no ready market for the sale of such

securities, it may be difficult or impossible for me to sell or otherwise dispose

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

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

losses of the company, whether or not I have sold or otherwise disposed of my

investment or received any dividends or other distributions from the

company.";

(o) The issuer obtains from each prospective purchaser evidence that the

prospective purchaser is a resident of Kentucky and, if applicable, is an

accredited investor. A prospective purchaser's residence shall be determined in

accordance with the Securities Act of 1933 Rule 17 C.F.R. sec. 230.147(d).

An affirmative representation made by a natural person that the individual is a

Kentucky resident and proof of at least one (1) of the following shall be

considered sufficient evidence that the individual is a resident of Kentucky:

1. A valid Kentucky driver's license or other official personal identification

card issued by the Commonwealth of Kentucky;

2. A current Kentucky voter registration; or

3. General property tax records showing that the individual owns and

occupies property in Kentucky as his or her principal residence;

(p) The issuer shall provide a disclosure document to each prospective purchaser

at the time the offer of securities is made that contains all of the following:

1. A description of the company, its type of entity, the address and

telephone number of its principal office, its history, its business plan,

and the intended use of the offering proceeds, including any amounts to

be paid as compensation or otherwise to any owner, executive officer,

director, managing member, or other person occupying a similar status

with the company or performing similar functions on behalf of the

issuer;

2. The identity of all persons owning more than ten percent (10%) of the

ownership interests of any class of securities of the company;

3. The identity of the executive officers, directors, managing members, and

other persons occupying a similar status or performing similar functions

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

experience;

4. The terms and conditions of the securities being offered and of any

outstanding securities of the company;

5. The offering deadline and the target offering amount;

6. Any conditions upon which the issuer may exercise its right to close an

offering prior to the offering deadline, including but not limited to the

notice that will be provided to both purchasers and potential purchasers

if the offering is closed prior to the offering deadline and the method in

which the notice will be delivered;

7. Either the percentage ownership of the company represented by the

offered securities or the valuation of the company implied by the price of

the offered securities;

8. The price per share, unit, or interest of the securities being offered;

9. Any restrictions on transfer of the securities being offered;

10. A disclosure of any anticipated future issuance of securities that might

dilute the value of securities being offered;

11. The identity of any person who has been or will be retained by the issuer

to assist the issuer in conducting the offering and sale of the securities,

including any Internet Web site operator, but excluding persons acting

solely as accountants, attorneys, or employees whose primary job

responsibilities involve operating the business of the issuer;

12. A description of the consideration being paid to any person identified in

subparagraph 11. of this paragraph, for such assistance to the issuer;

13. A description of any litigation, legal proceedings, or pending regulatory

action involving the company or its management;

14. The names and addresses, including the uniform resource locator, of

each Internet Web site that will be used by the issuer to offer or sell

securities pursuant to this exemption;

15. The name of the individual and addresses to which purchasers may

deliver cancellations, pursuant to paragraph (j) of this subsection. Issuers

shall provide the name of at least one natural person with both an

electronic and a physical address to which cancellations may be

delivered;

16. Current financial statements certified by the principal executive officer

shall be true and complete in all material respects. If applicable, the

documentation required by paragraph (c)2. of this subsection shall also

be provided; and

17. Any additional information material to the offering, including if

appropriate a written statement of significant factors that make the

offering speculative or risky. This statement shall be concise and

organized logically and shall not be limited to risks that could apply to

any issuer or any offering;

(q) 1. The exemption shall not be used if an issuer or person affiliated with the

issuer or offering is subject to disqualification pursuant to:

a. The Securities Act of Kentucky, KRS Chapter 292;

b. A rule or order of the commissioner;

c. The Securities Act of 1933, 15 U.S.C. sec. 77c(a)(11); or

d. The Securities Act of 1933 Rule 17 C.F.R. sec. 230.262.

2. Disqualification may be set aside by the commissioner if:

a. Upon a showing of good cause and without prejudice to any other

action by the commissioner, the commissioner determines that it is

not necessary that an exemption be denied under the

circumstances; and

b. The issuer establishes that it made a factual inquiry into whether

any disqualification existed under this subsection, but did not

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

that a disqualification existed. The nature and scope of the

requisite inquiry will vary based on the circumstances of the

subject issuer and the other offering participants;

(r) The offering is made exclusively through one (1) or more Internet Web sites

that are operated by a broker-dealer, registered pursuant to KRS 292.330, or

an Internet Web site operator, registered pursuant to KRS 292.412. Each

issuer and registrant shall comply with the following:

1. Before any offer or sale of securities, the issuer shall provide to the

registrant evidence that the issuer is organized under the laws of

Kentucky and is authorized to do business in Kentucky;

2. The registrant shall maintain continuous registration with the

department;

3. The registrant shall limit Web site access to the offer or sale of securities

to Kentucky residents only;

4. The registrant shall not be a purchaser in any offering made pursuant to

this exemption;

5. The registrant shall not hold an interest in or be affiliated with or under

common control with any issuer making an offer or sale pursuant to this

exemption;

6. Prior to and throughout the term of any offering, the registrant shall give

the commissioner access to the Internet Web site on which any offering

is made pursuant to this exemption; and

7. The issuer may distribute a limited notice stating that the issuer is

conducting an offering pursuant to this exemption, the name of the

registrant or registrants through which the offer is being conducted, and

a link directing potential purchasers to the Internet Web site of the

registrant or registrants. The notice shall contain a disclaimer that states

that the offering is limited to Kentucky residents;

(s) The issuer shall make and keep all accounts, correspondence, memoranda,

papers, books, and other records which the commissioner prescribes by

administrative regulation or order. All required records shall be:

1. Preserved for three (3) years unless the commissioner prescribes

otherwise for particular types of record, by administrative regulation or

order; and

2. Maintained within this state, or at the request of the commissioner be

made available at any time for examination by the department in the

issuer's principal office or by production of exact copies in this state; and

(t) The issuer shall provide, free of charge, a quarterly report to the issuer's

purchasers until no securities issued under this exemption are outstanding.

The issuer may satisfy this reporting requirement by making the information

available on an Internet Web site if the information is made available within

forty-five (45) days after the end of each fiscal quarter and remains available

until the succeeding quarterly report is issued. The issuer shall file each

quarterly report with the department and, if the quarterly report is made

available on an Internet Web site, the issuer shall also provide a written copy

of the report to any purchaser upon request. The report shall contain all of the

following:

1. Any compensation received by each director or executive officer,

including cash compensation earned since the previous report and on an

annual basis, any bonuses, stock options, or other rights to receive

securities of the issuer or any affiliate of the issuer, and payments that

reduce personal living expenses, such as company vehicle, free housing,

meals, or club dues; and

2. An analysis by the issuer’s management of the business operations and

financial condition of the issuer.

(2) The provisions of KRS 292.410(3) and (4) shall apply to the exemption set forth in

this section.