As Passed by the Senate 1
123rd General Assembly 4
Regular Session Am. Sub. H. B. No. 6 5
1999-2000 6
REPRESENTATIVES D.MILLER-SCHULER-DePIERO-OPFER-TRAKAS- 8
FORD-SULLIVAN-GERBERRY-BOYD-JONES-STAPLETON-O'BRIEN- 9
WINKLER-MOTTLEY-SCHUCK-ALLEN-WILLAMOWSKI-JACOBSON- 10
CALLENDER-WOMER BENJAMIN-SALERNO-PETERSON-BUCHY- 11
OLMAN-SYKES-COUGHLIN-KRUPINSKI-FLANNERY-BENDER- 12
DAMSCHRODER-BARNES-VERICH-METELSKY-HOUSEHOLDER- 13
MAIER-TERWILLEGER-LOGAN-BARRETT- 15
SENATORS LATTA-DRAKE-SPADA-MUMPER
_________________________________________________________________ 17
A B I L L
To amend sections 1701.48, 1707.01, 1707.03, 19
1707.161, 1707.36, and 1707.44 and to enact 20
section 1707.439 of the Revised Code to include
electronic transmissions as a method of 22
appointing a voting proxy, to apply the Ohio 23
Securities Law's prohibitions against fraud to 24
the purchase of securities, and to make other 25
changes in the Ohio Securities Law.
BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF OHIO: 27
Section 1. That sections 1701.48, 1707.01, 1707.03, 29
1707.161, 1707.36, and 1707.44 be amended and section 1707.439 of 30
the Revised Code be enacted to read as follows: 31
Sec. 1701.48. (A) A person who is entitled to attend a 40
shareholders' meeting, to vote thereat AT A SHAREHOLDERS' 42
MEETING, or to execute consents, waivers, or releases, may be 43
represented at such THE meeting or vote thereat AT THE MEETING, 46
and MAY execute consents, waivers, and releases, and MAY exercise 48
any of his THE PERSON'S other rights, by proxy or proxies 50
appointed by a writing signed by such THE person OR APPOINTED BY 51
2
A VERIFIABLE COMMUNICATION AUTHORIZED BY THE PERSON. 52
(B) A ANY TRANSMISSION THAT CREATES A RECORD CAPABLE OF 54
AUTHENTICATION, INCLUDING, BUT NOT LIMITED TO, A telegram or, A 56
cablegram appearing, ELECTRONIC MAIL, OR AN ELECTRONIC, 57
TELEPHONIC, OR OTHER TRANSMISSION, THAT APPEARS to have been 58
transmitted by such A person, or a DESCRIBED IN DIVISION (A) OF 60
THIS SECTION, AND THAT APPOINTS A PROXY IS A SUFFICIENT 61
VERIFIABLE COMMUNICATION TO APPOINT A PROXY. A photographic,
photostatic, FACSIMILE TRANSMISSION, or equivalent reproduction 63
of a writing, appointing THAT IS SIGNED BY A PERSON DESCRIBED IN 64
DIVISION (A) OF THIS SECTION AND THAT APPOINTS a proxy is a 65
sufficient writing TO APPOINT A PROXY. 66
(C) No appointment of a proxy is valid after the 68
expiration of eleven months after it is made unless the writing 69
OR VERIFIABLE COMMUNICATION specifies the date on which it is to 71
expire or the length of time it is to continue in force. No 72
proxy appointed for or in connection with the shareholder 73
authorization of a control share acquisition pursuant to section 74
1701.831 of the Revised Code is valid if it provides that it is 75
irrevocable or if it is sought, appointed, and received other 76
than both:
(1) In accordance with all applicable requirements of the 78
law of this state and the law of the United States; 79
(2) Separate and apart from the sale or purchase, contract 81
or tender for sale or purchase, or request or invitation for 82
tender for sale or purchase, of shares of the issuing public 83
corporation. 84
(D) Every appointment of a proxy shall be revocable unless 86
such THAT appointment is coupled with an interest, except that, 87
as provided in division (C) of this section, proxies appointed 89
for or in connection with the shareholder authorization of a 90
control share acquisition pursuant to section 1701.831 of the 91
Revised Code shall be revocable at all times prior to the 92
obtaining of such THAT shareholder authorization, whether or not 93
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coupled with an interest. A revocation of a revocable 95
appointment may be made only as provided in this section. 96
Without affecting any vote previously taken, the person 97
appointing a proxy may revoke a revocable appointment by a later 98
appointment received by the corporation or by giving notice of 99
revocation to the corporation in writing, IN A VERIFIABLE 100
COMMUNICATION, or in open meeting. The presence at a meeting of 101
the person appointing a proxy does not revoke the appointment. 102
(E) A revocable appointment of a proxy is not revoked by 104
the death or incompetency of the maker unless, before the vote is 105
taken or the authority granted is otherwise exercised, written 106
notice of such THE death or incompetency OF THE MAKER is received 108
by the corporation from the executor or administrator of the 109
estate of such THE maker or from the fiduciary having control of 110
the shares in respect of which the proxy was appointed. 112
(F) Unless the writing OR VERIFIABLE COMMUNICATION 114
appointing a proxy otherwise provides: 116
(1) Each proxy has the power of substitution, and, when 118
IF three or more proxies are appointed, a majority of them or of 120
their substitutes may appoint one or more substitutes to act for 121
all;. 122
(2) If more than one proxy is appointed, then (a) with 124
respect to voting or executing consents, waivers, or releases, or 125
objections to consents at a shareholders' meeting, a majority of 126
such THE proxies as THAT attend the meeting, or if only one 128
attends then that one, may exercise all the voting and consenting 129
authority thereat AT THE MEETING; and if one or more attend and a 130
majority do not agree on any particular issue, each proxy so 132
attending shall be entitled to exercise such THAT authority with 133
respect to an equal number of shares; (b) with respect to 135
exercising any other authority, a majority may act for all. 136
Sec. 1707.01. As used in this chapter: 145
(A) Whenever the context requires it, "division" or 147
"division of securities" may be read as "director of commerce" or 148
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as "commissioner of securities." 149
(B) "Security" means any certificate or instrument that 151
represents title to or interest in, or is secured by any lien or 152
charge upon, the capital, assets, profits, property, or credit of 153
any person or of any public or governmental body, subdivision, or 154
agency. It includes shares of stock, certificates for shares of 155
stock, membership interests in limited liability companies, 156
voting-trust certificates, warrants and options to purchase 157
securities, subscription rights, interim receipts, interim 158
certificates, promissory notes, all forms of commercial paper, 159
evidences of indebtedness, bonds, debentures, land trust 160
certificates, fee certificates, leasehold certificates, syndicate 161
certificates, endowment certificates, certificates or written 162
instruments in or under profit-sharing or participation 163
agreements or in or under oil, gas, or mining leases, or 164
certificates or written instruments of any interest in or under 165
the same, receipts evidencing preorganization or reorganization 166
subscriptions, preorganization certificates, reorganization 167
certificates, certificates evidencing an interest in any trust or 168
pretended trust, any investment contract, any instrument 169
evidencing a promise or an agreement to pay money, warehouse 170
receipts for intoxicating liquor, and the currency of any 171
government other than those of the United States and Canada, but 172
sections 1707.01 to 1707.45 of the Revised Code do not apply to 173
the sale of real estate. 174
(C)(1) "Sale" has the full meaning of "sale" as applied by 176
or accepted in courts of law or equity, and includes every 177
disposition, or attempt to dispose, of a security or of an 178
interest in a security. "Sale" also includes a contract to sell, 179
an exchange, an attempt to sell, an option of sale, a 180
solicitation of a sale, a solicitation of an offer to buy, a 181
subscription, or an offer to sell, directly or indirectly, by 182
agent, circular, pamphlet, advertisement, or otherwise. 183
(2) "Sell" means any act by which a sale is made. 185
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(3) The use of advertisements, circulars, or pamphlets in 187
connection with the sale of securities in this state exclusively 188
to the purchasers specified in division (D) of section 1707.03 of 189
the Revised Code is not a sale when the advertisements, 190
circulars, and pamphlets describing and offering those securities 191
bear a readily legible legend in substance as follows: "This 192
offer is made on behalf of dealers licensed under sections 193
1707.01 to 1707.45 of the Revised Code, and is confined in this 194
state exclusively to institutional investors and licensed 195
dealers." 196
(4) The offering of securities by any person in 198
conjunction with a licensed dealer by use of advertisement, 199
circular, or pamphlet is not a sale if that person does not 200
otherwise attempt to sell securities in this state. 201
(5) Any security given with, or as a bonus on account of, 203
any purchase of securities is conclusively presumed to constitute 204
a part of the subject of that purchase and has been "sold." 205
(6) "Sale" by an owner, pledgee, or mortgagee, or by a 207
person acting in a representative capacity, includes sale on 208
behalf of such party by an agent, including a licensed dealer or 209
salesperson. 210
(D) "Person," except as otherwise provided in this 212
chapter, means a natural person, firm, partnership, limited 214
partnership, partnership association, syndicate, joint-stock 215
company, unincorporated association, trust or trustee except 216
where the trust was created or the trustee designated by law or 217
judicial authority or by a will, and a corporation or limited 218
liability company organized under the laws of any state, any 219
foreign government, or any political subdivision of a state or 220
foreign government.
(E)(1) "Dealer," except as otherwise provided in this 222
chapter, means every person, other than a salesperson, who 224
engages or professes to engage, in this state, for either all or
part of the person's time, directly or indirectly, either in the 225
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business of the sale of securities for the person's own account, 226
or in the business of the purchase or sale of securities for the 227
account of others in the reasonable expectation of receiving a 228
commission, fee, or other remuneration as a result of engaging in 229
the purchase and sale of securities. "Dealer" does not mean any 230
of the following:
(a) Any issuer, including any officer, director, employee, 232
or trustee of, or member or manager of, or partner in, or any 233
general partner of, any issuer, that sells, offers for sale, or 235
does any act in furtherance of the sale of a security that 236
represents an economic interest in that issuer, provided no 237
commission, fee, or other similar remuneration is paid to or 238
received by the issuer for the sale; 239
(b) Any licensed attorney, public accountant, or firm of 241
such attorneys or accountants, whose activities are incidental to 242
the practice of the attorney's, accountant's, or firm's 243
profession;
(c) Any person that, for the account of others, engages in 245
the purchase or sale of securities that are issued and 246
outstanding before such purchase and sale, if a majority or more 247
of the equity interest of an issuer is sold in that transaction, 248
and if, in the case of a corporation, the securities sold in that 249
transaction represent a majority or more of the voting power of 250
the corporation in the election of directors; 251
(d) Any person that brings an issuer together with a 253
potential investor and whose compensation is not directly or 254
indirectly based on the sale of any securities by the issuer to 255
the investor; 256
(e) Any bank, savings and loan association, savings bank, 258
or credit union chartered under the laws of the United States or 259
any state thereof OF THE UNITED STATES, provided that all 261
transactions are consummated by or through a person licensed 262
pursuant to section 1707.14 of the Revised Code; 263
(f) Any person that the division of securities by rule 265
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exempts from the definition of "dealer" under division (E)(1) of 266
this section. 267
(2) "Licensed dealer" means a dealer licensed under this 270
chapter.
(F)(1) "Salesman" or "salesperson" means every natural 272
person, other than a dealer, WHO IS employed, authorized, or 275
appointed by a dealer to sell securities within this state. 276
(2) The general partners of a partnership, and the 278
executive officers of a corporation or unincorporated 279
association, licensed as a dealer are not salespersons within the 281
meaning of this definition, nor are such clerical or other
employees of an issuer or dealer as are employed for work to 282
which the sale of securities is secondary and incidental; but the 283
division of securities may require a license from any such 284
partner, executive officer, or employee if it determines that 285
protection of the public necessitates the licensing. 286
(3) "Licensed salesperson" means a salesperson licensed 289
under this chapter.
(G) "Issuer" means every person who has issued, proposes 291
to issue, or issues any security. 292
(H) "Director" means each director or trustee of a 294
corporation, each trustee of a trust, each general partner of a 295
partnership, except a partnership association, each manager of a 296
partnership association, and any person vested with managerial or 297
directory power over an issuer not having a board of directors or 298
trustees. 299
(I) "Incorporator" means any incorporator of a corporation 301
and any organizer of, or any person participating, other than in 302
a representative or professional capacity, in the organization of 303
an unincorporated issuer. 304
(J) "Fraud," "fraudulent," "fraudulent acts," "fraudulent 307
practices," or "fraudulent transactions" means anything 308
recognized on or after July 22, 1929, as such in courts of law or 309
equity; any device, scheme, or artifice to defraud or to obtain 310
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money or property by means of any false pretense, representation, 311
or promise; any fictitious or pretended purchase or sale of 312
securities; and any act, practice, transaction, or course of 313
business relating to the PURCHASE OR sale of securities that is 314
fraudulent or that has operated or would operate as a fraud upon 316
the SELLER OR purchaser.
(K) Except as otherwise specifically provided, whenever 318
any classification or computation is based upon "par value," as 319
applied to securities without par value, the average of the 320
aggregate consideration received or to be received by the issuer 321
for each class of those securities shall be used as the basis for 322
that classification or computation. 323
(L)(1) "Intangible property" means patents, copyrights, 325
secret processes, formulas, services, good will, promotion and 326
organization fees and expenses, trademarks, trade brands, trade 327
names, licenses, franchises, any other assets treated as 328
intangible according to generally accepted accounting principles, 329
and securities, accounts receivable, or contract rights having no 330
readily determinable value. 331
(2) "Tangible property" means all property other than 333
intangible property and includes securities, accounts receivable, 334
and contract rights, when the securities, accounts receivable, or 335
contract rights have a readily determinable value. 336
(M) "Public utilities" means those utilities defined in 338
sections 4905.02, 4905.03, 4907.02, and 4907.03 of the Revised 339
Code; in the case of a foreign corporation, it means those 340
utilities defined as public utilities by the laws of its 341
domicile; and in the case of any other foreign issuer, it means 342
those utilities defined as public utilities by the laws of the 343
situs of its principal place of business. The term always 344
includes railroads whether or not they are so defined as public 345
utilities. 346
(N) "State" means any state of the United States, any 348
territory or possession of the United States, the District of 349
9
Columbia, and any province of Canada. 350
(O) "Bank" means any bank, trust company, savings and loan 352
association, savings bank, or credit union that is incorporated 354
or organized under the laws of the United States, any state of 355
the United States, Canada, or any province of Canada and that is 356
subject to regulation or supervision by that country, state, or 357
province.
(P) "Include," when used in a definition, does not exclude 359
other things or persons otherwise within the meaning of the term 360
defined. 361
(Q)(1) "Registration by description" means that the 363
requirements of section 1707.08 of the Revised Code have been 364
complied with. 365
(2) "Registration by qualification" means that the 367
requirements of sections 1707.09 and 1707.11 of the Revised Code 368
have been complied with. 369
(3) "Registration by coordination" means that there has 371
been compliance with section 1707.091 of the Revised Code. 372
Reference in this chapter to registration by qualification also 373
shall be deemed to include registration by coordination unless 374
the context otherwise indicates. 375
(R) "Intoxicating liquor" includes all liquids and 377
compounds that contain more than three and two-tenths per cent of 378
alcohol by weight and are fit for use for beverage purposes. 379
(S) "Institutional investor" means any corporation, bank, 381
insurance company, pension fund or pension fund trust, employees' 382
profit-sharing fund or employees' profit-sharing trust, any 383
association engaged, as a substantial part of its business or 384
operations, in purchasing or holding securities, or any trust in 385
respect of which a bank is trustee or cotrustee. "Institutional 386
investor" does not include any business entity formed for the 387
primary purpose of evading sections 1707.01 to 1707.45 of the 388
Revised Code. 389
(T) "Securities Act of 1933," 48 Stat. 74, 15 U.S.C. 77a, 392
10
"Securities Exchange Act of 1934," 48 Stat. 881, 15 U.S.C. 78a, 394
"Internal Revenue Code of 1986," 100 Stat. 2085, 26 U.S.C. 1, 396
"Investment Advisers Act of 1940," 54 Stat. 847, 15 U.S.C. 80b, 398
and "Investment Company Act of 1940," 54 Stat. 789, 15 U.S.C. 80a 400
mean the federal statutes of those names as amended before or 402
after the effective date of this amendment MARCH 18, 1999. 403
(U) "Securities and exchange commission" means the 405
securities and exchange commission established by the Securities 406
Exchange Act of 1934. 407
(V)(1) "Control bid" means the purchase of or offer to 409
purchase any equity security of a subject company from a resident 410
of this state if either of the following applies: 411
(a) After the purchase of that security, the offeror would 413
be directly or indirectly the beneficial owner of more than ten 414
per cent of any class of the issued and outstanding equity 415
securities of the issuer. 416
(b) The offeror is the subject company, there is a pending 418
control bid by a person other than the issuer, and the number of 419
the issued and outstanding shares of the subject company would be 420
reduced by more than ten per cent. 421
(2) For purposes of division (V)(1) of this section, 423
"control bid" does not include any of the following: 424
(a) A bid made by a dealer for the dealer's own account in 426
the ordinary course of business of buying and selling securities; 427
(b) An offer to acquire any equity security solely in 429
exchange for any other security, or the acquisition of any equity 430
security pursuant to an offer, for the sole account of the 431
offeror, in good faith and not for the purpose of avoiding the 432
provisions of this chapter, and not involving any public offering 433
of the other security within the meaning of Section 4 of Title I 434
of the "Securities Act of 1933," 48 Stat. 77, 15 U.S.C.A. 77d(2), 435
as amended; 436
(c) Any other offer to acquire any equity security, or the 438
acquisition of any equity security pursuant to an offer, for the 439
11
sole account of the offeror, from not more than fifty persons, in 440
good faith and not for the purpose of avoiding the provisions of 441
this chapter. 442
(W) "Offeror" means a person who makes, or in any way 444
participates or aids in making, a control bid and includes 445
persons acting jointly or in concert, or who intend to exercise 446
jointly or in concert any voting rights attached to the 447
securities for which the control bid is made and also includes 448
any subject company making a control bid for its own securities. 449
(X)(1) "Investment adviser" means any person who, for 452
compensation, engages in the business of advising others, either 453
directly or through publications or writings, as to the value of 454
securities or as to the advisability of investing in, purchasing, 455
or selling securities, or who, for compensation and as a part of 456
regular business, issues or promulgates analyses or reports 457
concerning securities.
(2) "Investment adviser" does not mean any of the 460
following:
(a) Any attorney, accountant, engineer, or teacher, whose 463
performance of investment advisory services described in division 465
(X)(1) of this section is solely incidental to the practice of 467
the attorney's, accountant's, engineer's, or teacher's 468
profession; 469
(b) A publisher of any bona fide newspaper, news magazine, 473
or business or financial publication of general and regular 474
circulation;
(c) A person who acts solely as an investment adviser 476
representative; 477
(d) A bank holding company, as defined in the "Bank 479
Holding Company Act of 1956," 70 Stat. 133, 12 U.S.C. 1841, that 481
is not an investment company; 482
(e) A bank, or any receiver, conservator, or other 484
liquidating agent of a bank; 485
(f) Any licensed dealer or licensed salesperson whose 487
12
performance of investment advisory services described in division 488
(X)(1) of this section is solely incidental to the conduct of the 489
dealer's or salesperson's business as a licensed dealer or 490
licensed salesperson and who receives no special compensation for 491
the services;
(g) Any person, the advice, analyses, or reports of which 493
do not relate to securities other than securities that are direct 494
obligations of, or obligations guaranteed as to principal or 495
interest by, the United States, or securities issued or 496
guaranteed by corporations in which the United States has a 497
direct or indirect interest, and that have been designated by the 498
secretary of the treasury as exempt securities as defined in the 499
"Securities Exchange Act of 1934," 48 Stat. 881, 15 U.S.C. 78c; 501
(h) Any person that is excluded from the definition of 503
investment adviser pursuant to section 202(a)(11)(A) to (E) of 506
the "Investment Advisers Act of 1940," 15 U.S.C. 80b-2(a)(11), or 511
that has received an order from the securities and exchange 512
commission under section 202(a)(11)(F) of the "Investment 514
Advisers Act of 1940," 15 U.S.C. 80b-2(a)(11)(F), declaring that 519
the person is not within the intent of section 202(a)(11) of the 520
Investment Advisers Act of 1940. 523
(i) Any other person that the division designates by rule, 525
if the division finds that the designation is necessary or 526
appropriate in the public interest or for the protection of 527
investors or clients and consistent with the purposes fairly 528
intended by the policy and provisions of this chapter.
(Y)(1) "Subject company" means an issuer that satisfies 530
both of the following: 531
(a) Its principal place of business or its principal 533
executive office is located in this state, or it owns or controls 534
assets located within this state that have a fair market value of 535
at least one million dollars. 536
(b) More than ten per cent of its beneficial or record 538
equity security holders are resident in this state, more than ten 539
13
per cent of its equity securities are owned beneficially or of 540
record by residents in this state, or more than one thousand of 541
its beneficial or record equity security holders are resident in 542
this state. 543
(2) The division of securities may adopt rules to 545
establish more specific application of the provisions set forth 546
in division (Y)(1) of this section. Notwithstanding the 547
provisions set forth in division (Y)(1) of this section and any 548
rules adopted under this division, the division, by rule or in an 549
adjudicatory proceeding, may make a determination that an issuer 550
does not constitute a "subject company" under division (Y)(1) of 551
this section if appropriate review of control bids involving the 552
issuer is to be made by any regulatory authority of another 553
jurisdiction. 554
(Z) "Beneficial owner" includes any person who directly or 556
indirectly through any contract, arrangement, understanding, or 557
relationship has or shares, or otherwise has or shares, the power 558
to vote or direct the voting of a security or the power to 559
dispose of, or direct the disposition of, the security. 560
"Beneficial ownership" includes the right, exercisable within 561
sixty days, to acquire any security through the exercise of any 562
option, warrant, or right, the conversion of any convertible 563
security, or otherwise. Any security subject to any such option, 564
warrant, right, or conversion privilege held by any person shall 565
be deemed to be outstanding for the purpose of computing the 566
percentage of outstanding securities of the class owned by that 567
person, but shall not be deemed to be outstanding for the purpose 568
of computing the percentage of the class owned by any other 569
person. A person shall be deemed the beneficial owner of any 570
security beneficially owned by any relative or spouse or relative 571
of the spouse residing in the home of that person, any trust or 572
estate in which that person owns ten per cent or more of the 573
total beneficial interest or serves as trustee or executor, any 574
corporation or entity in which that person owns ten per cent or 575
14
more of the equity, and any affiliate or associate of that 576
person. 577
(AA) "Offeree" means the beneficial or record owner of any 579
security that an offeror acquires or offers to acquire in 580
connection with a control bid. 581
(BB) "Equity security" means any share or similar 583
security, or any security convertible into any such security, or 584
carrying any warrant or right to subscribe to or purchase any 585
such security, or any such warrant or right, or any other 586
security that, for the protection of security holders, is treated 587
as an equity security pursuant to rules of the division of 588
securities. 589
(CC) "Investment company" has the same meaning as in 591
section 3(A) of the "Investment Company Act of 1940," 54 Stat. 592
789, 15 U.S.C. 80a-1 to 80a-52. 593
(DD) "Penny stock" has the same meaning as in section 596
3(A)(51) of the "Securities Exchange Act of 1934," 48 Stat. 881, 597
15 U.S.C. 78a-78jj, and the rules, regulations, and orders issued 598
pursuant to that section. 599
(EE) "Going concern transaction" has the same meaning 602
given that term under the rules or regulations on the securities 603
and exchange commission issued pursuant to section 13(c) of the 604
"Securities Exchange Act of 1934," 48 Stat. 881, 15 U.S.C.
78a-78jj. 605
(FF) "Person acting on behalf of an issuer" means an 608
officer, director, or employee of an issuer.
(GG) "Blank check company," "roll-up transaction," 611
"executive officer of an entity," and "direct participation
program" have the same meanings given those terms by rule or 612
regulation of the securities and exchange commission. 613
(HH) "Forward-looking statement" means any of the 615
following:
(1) A statement containing a projection of revenues, 617
income including income loss, earnings per share including 618
15
earnings loss per share, capital expenditures, dividends, capital 619
structure, or other financial items;
(2) A statement of the plans and objectives of the 621
management of the issuer for future operations, including plans 622
or objectives relating to the products or services of the issuer; 623
(3) A statement of future economic performance, including 625
any statement of that nature contained in a discussion and 626
analysis of financial conditions by the management or in the 627
results of operations included pursuant to the rules and 628
regulations of the securities and exchange commission;
(4) Any disclosed statement of the assumptions underlying 630
or relating to a statement described in division (B)(1), (2), or 632
(3) of section 1707.437 of the Revised Code; 633
(5) Any report issued by an outside reviewer retained by 635
an issuer to the extent that the report relates to a 636
forward-looking statement made by the issuer; 637
(6) A statement containing a projection or estimate of any 639
other items that may be specified by rule or regulation of the 640
securities and exchange commission. 641
(II)(1) "Investment adviser representative" means a 643
supervised person of an investment adviser, provided that the 645
supervised person has more than five clients who are natural 646
persons other than excepted persons defined in division (KK) of 647
this section, and that more than ten per cent of the supervised 648
person's clients are natural persons other than excepted persons
defined in division (KK) of this section. "Investment adviser 649
representative" does not mean any of the following: 650
(a) A supervised person that does not on a regular basis 652
solicit, meet with, or otherwise communicate with clients of the 653
investment adviser;
(b) A supervised person that provides only investment 655
advisory services described in division (X)(1) of this section by 656
means of written materials or oral statements that do not purport 657
to meet the objectives or needs of specific individuals or 658
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accounts;
(c) Any other person that the division designates by rule, 661
if the division finds that the designation is necessary or 662
appropriate in the public interest or for the protection of
investors or clients and is consistent with the provisions fairly 664
intended by the policy and provisions of this chapter. 665
(2) For the purpose of the calculation of clients in 667
division (II)(1) of this section, a natural person and the 669
following persons are deemed a single client: Any minor child of 670
the natural person; any relative, spouse, or relative of the 671
spouse of the natural person who has the same principal residence 672
as the natural person; all accounts of which the natural person 673
or the persons referred to in division (II)(2) of this section 675
are the only primary beneficiaries; and all trusts of which the 676
natural person or persons referred to in division (II)(2) of this 677
section are the only primary beneficiaries. Persons who are not 678
residents of the United States need not be included in the 680
calculation of clients under division (II)(1) of this section. 681
(3) If subsequent to the effective date of this amendment 684
MARCH 18, 1999, amendments are enacted or adopted defining 685
"investment adviser representative" for purposes of the 686
Investment Advisers Act of 1940 or additional rules or 690
regulations are promulgated by the securities and exchange
commission regarding the definition of "investment adviser 691
representative" for purposes of the Investment Advisers Act of 695
1940, the division of securities shall, by rule, adopt the 696
substance of the amendments, rules, or regulations, unless the 697
division finds that the amendments, rules, or regulations are not 698
necessary for the protection of investors or in the public 699
interest.
(JJ) "Supervised person" means a natural person who is any 701
of the following: 702
(1) A partner, officer, or director of an investment 704
adviser, or other person occupying a similar status or performing 705
17
similar functions with respect to an investment adviser; 706
(2) An employee of an investment adviser; 708
(3) A person who provides investment advisory services 710
described in division (X)(1) of this section on behalf of the 711
investment adviser and is subject to the supervision and control 712
of the investment adviser.
(KK) "Excepted person" means a natural person to whom any 714
of the following applies: 715
(1) Immediately after entering into the investment 717
advisory contract with the investment adviser, the person has at 718
least seven hundred fifty thousand dollars under the management 720
of the investment adviser.
(2) The investment adviser reasonably believes either of 722
the following at the time the investment advisory contract is 723
entered into with the person:
(a) The person has a net worth, together with assets held 726
jointly with a spouse, of more than one million five hundred 727
thousand dollars.
(b) The person is a qualified purchaser as defined in 730
division (LL) of this section. 731
(3) Immediately prior to entering into an investment 733
advisory contract with the investment adviser, the person is 734
either of the following: 735
(a) An executive officer, director, trustee, general 738
partner, or person serving in a similar capacity, of the 739
investment adviser;
(b) An employee of the investment adviser, other than an 742
employee performing solely clerical, secretarial, or 743
administrative functions or duties for the investment adviser, 744
which employee, in connection with the employee's regular 745
functions or duties, participates in the investment activities of 746
the investment adviser, provided that, for at least twelve 747
months, the employee has been performing such nonclerical, 748
nonsecretarial, or nonadministrative functions or duties for or 749
18
on behalf of the investment adviser or performing substantially 750
similar functions or duties for or on behalf of another company. 751
If subsequent to the effective date of this amendment MARCH 754
18, 1999, amendments are enacted or adopted defining "excepted 755
person" for purposes of the Investment Advisers Act of 1940 or 758
additional rules or regulations are promulgated by the securities 759
and exchange commission regarding the definition of "excepted 760
person" for purposes of the Investment Advisers Act of 1940, the 763
division of securities shall, by rule, adopt the substance of the 764
amendments, rules, or regulations, unless the division finds that 766
the amendments, rules, or regulations are not necessary for the 767
protection of investors or in the public interest.
(LL)(1) "Qualified purchaser" means either of the 770
following:
(a) A natural person who owns not less than five million 773
dollars in investments as defined by rule by the division of 774
securities;
(b) A natural person, acting for the person's own account 777
or accounts of other qualified purchasers, who in the aggregate 778
owns and invests on a discretionary basis, not less than 779
twenty-five million dollars in investments as defined by rule by 780
the division of securities. 781
(2) If subsequent to the effective date of this amendment 784
MARCH 18, 1999, amendments are enacted or adopted defining 785
"qualified purchaser" for purposes of the Investment Advisers Act 789
of 1940 or additional rules or regulations are promulgated by the 790
securities and exchange commission regarding the definition of 791
"qualified purchaser" for purposes of the Investment Advisers Act 794
of 1940, the division of securities shall, by rule, adopt the 795
amendments, rules, or regulations, unless the division finds that 796
the amendments, rules, or regulations are not necessary for the 797
protection of investors or in the public interest. 798
(MM)(1) "PURCHASE" HAS THE FULL MEANING OF "PURCHASE" AS 800
APPLIED BY OR ACCEPTED IN COURTS OF LAW OR EQUITY AND INCLUDES 801
19
EVERY ACQUISITION OF, OR ATTEMPT TO ACQUIRE, A SECURITY OR AN 802
INTEREST IN A SECURITY. "PURCHASE" ALSO INCLUDES A CONTRACT TO 803
PURCHASE, AN EXCHANGE, AN ATTEMPT TO PURCHASE, AN OPTION TO 804
PURCHASE, A SOLICITATION OF A PURCHASE, A SOLICITATION OF AN 805
OFFER TO SELL, A SUBSCRIPTION, OR AN OFFER TO PURCHASE, DIRECTLY 806
OR INDIRECTLY, BY AGENT, CIRCULAR, PAMPHLET, ADVERTISEMENT, OR
OTHERWISE. 807
(2) "PURCHASE" MEANS ANY ACT BY WHICH A PURCHASE IS MADE. 809
(3) ANY SECURITY GIVEN WITH, OR AS A BONUS ON ACCOUNT OF, 811
ANY PURCHASE OF SECURITIES IS CONCLUSIVELY PRESUMED TO CONSTITUTE 812
A PART OF THE SUBJECT OF THAT PURCHASE. 813
Sec. 1707.03. (A) As used in this section, "exempt" means 822
that, except in the case of securities the right to buy, sell, or 823
deal in which has been suspended or revoked under an existing 824
order of the division of securities under section 1707.13 of the 825
Revised Code or under a cease and desist order under division (H) 826
of section 1707.23 of the Revised Code, transactions in 827
securities may be carried on and completed without compliance 828
with sections 1707.08 to 1707.11 of the Revised Code. 829
(B) A sale of securities made by or on behalf of a bona 831
fide owner, neither the issuer nor a dealer, is exempt if the 832
sale is made in good faith and not for the purpose of avoiding 833
this chapter and is not made in the course of repeated and 834
successive transactions of a similar character. Any sale of 835
securities over a stock exchange that is lawfully conducted in 836
this state and regularly open for public patronage and that has 837
been established and operated for a period of at least five years 838
prior to the sale at a commission not exceeding the commission 839
regularly charged in such transactions also is exempt. 840
(C) The sale of securities by executors, administrators, 842
receivers, trustees, or anyone acting in a fiduciary capacity is 843
exempt, where such relationship was created by law, by a will, or 844
by judicial authority, and where such sales are subject to 845
approval by, or are made in pursuance to authority granted by, 846
20
any court of competent jurisdiction or are otherwise authorized 847
and lawfully made by such fiduciary. 848
(D) A sale to the issuer, to a dealer, or to an 850
institutional investor is exempt. 851
(E) A sale in good faith, and not for the purpose of 853
avoiding this chapter, by a pledgee of a security pledged for a 854
bona fide debt is exempt. 855
(F) The sale at public auction by a corporation of shares 857
of its stock because of delinquency in payment for the shares is 858
exempt. 859
(G)(1) The giving of any conversion right with, or on 861
account of the purchase of, any security that is exempt, is the 862
subject matter of an exempt transaction, has been registered by 863
description, by coordination, or by qualification, or is the 864
subject matter of a transaction that has been registered by 865
description is exempt. 866
(2) The giving of any subscription right, warrant, or 868
option to purchase a security or right to receive a security upon 869
exchange, which security is exempt at the time the right, 870
warrant, or option to purchase or right to receive is given, is 871
the subject matter of an exempt transaction, is registered by 872
description, by coordination, or by qualification, or is the 873
subject matter of a transaction that has been registered by 874
description is exempt. 875
(3) The giving of any subscription right or any warrant or 877
option to purchase a security, which right, warrant, or option 878
expressly provides that it shall not be exercisable except for a 879
security that at the time of the exercise is exempt, is the 880
subject matter of an exempt transaction, is registered by 881
description, by coordination, or by qualification, or at such 882
time is the subject matter of a transaction that has been 883
registered by description is exempt. 884
(H) The sale of notes, bonds, or other evidences of 886
indebtedness that are secured by a mortgage lien upon real 887
21
estate, leasehold estate other than oil, gas, or mining 888
leasehold, or tangible personal property, or which evidence of 889
indebtedness is due under or based upon a conditional-sale 890
contract, if all such notes, bonds, or other evidences of 891
indebtedness are sold to a single purchaser at a single sale, is 892
exempt. 893
(I) The delivery of securities by the issuer on the 895
exercise of conversion rights, the sale of securities by the 896
issuer on exercise of subscription rights or of warrants or 897
options to purchase securities, the delivery of voting-trust 898
certificates for securities deposited under a voting-trust 899
agreement, the delivery of deposited securities on surrender of 900
voting-trust certificates, and the delivery of final certificates 901
on surrender of interim certificates are exempt; but the sale of 902
securities on exercise of subscription rights, warrants, or 903
options is not an exempt transaction unless those rights, 904
warrants, or options when granted were the subject matter of an 905
exempt transaction under division (G) of this section or were 906
registered by description, by coordination, or by qualification. 907
(J) The sale of securities by a bank, savings and loan 909
association, savings bank, or credit union organized under the 910
laws of the United States or of this state is exempt if at a 911
profit to that seller of not more than two per cent of the total 912
sale price of the securities. 913
(K)(1) The distribution by a corporation of its securities 915
to its security holders as a share dividend or other distribution 916
out of earnings or surplus is exempt. 917
(2) The exchange or distribution by the issuer of any of 919
its securities or of the securities of any of the issuer's wholly 920
owned subsidiaries exclusively with or to its existing security 921
holders, if no commission or other remuneration is given directly 922
or indirectly for soliciting the exchange, is exempt. 923
(3) The sale of preorganization subscriptions for shares 925
of stock of a corporation prior to the incorporation of the 926
22
corporation is exempt, when the sale is evidenced by a written 927
agreement, no remuneration is given, or promised, directly or 928
indirectly, for or in connection with the sale of those 929
securities, and no consideration is received, directly or 930
indirectly, by any person from the purchasers of those securities 931
until registration by qualification, by coordination, or by 932
description of those securities is made under this chapter. 933
(L) The issuance of securities in exchange for one or more 935
bona fide outstanding securities, claims, or property interests, 936
not including securities sold for a consideration payable in 937
whole or in part in cash, under a plan of reorganization, 938
recapitalization, or refinancing approved by a court pursuant to 939
the Bankruptcy Act of the United States or to any other federal 940
act giving any federal court jurisdiction over such plan of 941
reorganization, or under a plan of reorganization approved by a 942
court of competent jurisdiction of any state of the United States 943
is exempt. As used in this division, "reorganization," 944
"recapitalization," and "refinancing" have the same meanings as 945
in section 1707.04 of the Revised Code. 946
(M) A sale by a licensed dealer, acting either as 948
principal or as agent, of securities issued and outstanding 949
before the sale is exempt, unless the sale is of one or more of 950
the following: 951
(1) Securities constituting the whole or a part of an 953
unsold allotment to or subscription by a dealer as an underwriter 954
or other participant in the distribution of those securities by 955
the issuer, whether that distribution is direct or through an 956
underwriter, provided that, if the issuer is such by reason of 957
owning one-fourth or more of those securities, the dealer has 959
knowledge of this fact or reasonable cause to believe this fact; 961
(2) Any class of shares issued by a corporation when the 963
number of beneficial owners of that class is less than 964
twenty-five, with the record owner of securities being deemed the 965
beneficial owner for this purpose, in the absence of actual 966
23
knowledge to the contrary; 967
(3) Securities that within one year were purchased outside 969
this state or within one year were transported into this state, 970
if the dealer has knowledge or reasonable cause to believe, 971
before the sale of those securities, that within one year they 972
were purchased outside this state or within one year were 973
transported into this state; but such a sale of those securities 974
is exempt if any of the following occurs: 975
(a) A recognized securities manual contains the names of 977
the issuer's officers and directors, a balance sheet of the 978
issuer as of a date within eighteen months, and a profit and loss 979
statement for either the fiscal year preceding that date or the 980
most recent year of operations; 981
(b) Those securities, or securities of the same class, 983
were registered within one year on the basis provided in section 984
1707.05 of the Revised Code, or within one year were qualified 985
under section 1707.09 or 1707.091 of the Revised Code, and that 986
registration or qualification is in full force and effect; 987
(c) Those securities at the time of sale could be 989
registered on the basis provided in section 1707.05 of the 990
Revised Code; 991
(d) The sale is made by a licensed dealer on behalf of the 993
bona fide owner of those securities in accordance with division 994
(B) of this section; 995
(e) Those securities were transported into Ohio in a 997
transaction of the type described in division (L), (K), or (I) of 998
this section, or in a transaction registered under division (A) 999
of section 1707.06 of the Revised Code. 1,000
(N) For the purpose of this division and division (M) of 1,002
this section, "underwriter" means any person who has purchased 1,003
from an issuer with a view to, or sells for an issuer in 1,004
connection with, the distribution of any security, or who 1,005
participates directly or indirectly in any such undertaking or in 1,006
the underwriting thereof, but "underwriter" does not include a 1,007
24
person whose interest is limited to a discount, commission, or 1,008
profit from the underwriter or from a dealer that is not in 1,009
excess of the customary distributors' or sellers' discount, 1,010
commission, or profit; and "issuer" includes any person or any 1,011
group of persons acting in concert in the sale of such 1,012
securities, owning beneficially one-fourth or more of the 1,013
outstanding securities of the class involved in the transactions 1,014
in question, with the record owner of securities being deemed the 1,015
beneficial owner for this purpose, in the absence of actual 1,016
knowledge to the contrary. 1,017
(O)(1) The sale of any equity security is exempt if all 1,019
the following conditions are satisfied: 1,020
(a) The sale is by the issuer of the security. 1,022
(b) The total number of purchasers in this state of all 1,024
securities issued or sold by the issuer in reliance upon this 1,025
exemption during the period of one year ending with the date of 1,026
the sale does not exceed ten. A sale of securities registered 1,027
under this chapter or sold pursuant to an exemption under this 1,028
chapter other than this exemption shall not be integrated with a 1,029
sale pursuant to this exemption in computing the number of 1,030
purchasers under this exemption. 1,031
(c) No advertisement, article, notice, or other 1,033
communication published in any newspaper, magazine, or similar 1,034
medium or broadcast over television or radio is used in 1,035
connection with the sale, but the use of an offering circular or 1,036
other communication delivered by the issuer to selected 1,037
individuals does not destroy this exemption. 1,038
(d) The issuer reasonably believes after reasonable 1,040
investigation that the purchaser is purchasing for investment. 1,041
(e) The aggregate commission, discount, and other 1,043
remuneration, excluding legal, accounting, and printing fees, 1,044
paid or given directly or indirectly does not exceed ten per cent 1,045
of the initial offering price. 1,046
(f) Any such commission, discount, or other remuneration 1,048
25
for sales in this state is paid or given only to dealers or 1,049
salespersons registered pursuant to this chapter. 1,050
(2) For the purposes of division (O)(1) of this section, 1,052
each of the following is deemed to be a single purchaser of a 1,053
security: husband and wife, a child and its parent or guardian 1,054
when the parent or guardian holds the security for the benefit of 1,055
the child, a corporation, a limited liability company, a 1,056
partnership, an association or other unincorporated entity, a 1,057
joint-stock company, or a trust, but only if the corporation, 1,058
limited liability company, partnership, association, entity, 1,059
joint-stock company, or trust was not formed for the purpose of 1,060
purchasing the security. 1,061
(3) As used in division (O)(1) of this section, "equity 1,063
security" means any stock or similar security of a corporation or 1,064
any membership interest in a limited liability company; or any 1,065
security convertible, with or without consideration, into such a 1,066
security, or carrying any warrant or right to subscribe to or 1,067
purchase such a security; or any such warrant or right; or any 1,068
other security that the division considers necessary or 1,069
appropriate, by such rules as it may prescribe in the public 1,070
interest or for the protection of investors, to treat as an 1,071
equity security. 1,072
(P) The sale of securities representing interests in or 1,074
under profit-sharing or participation agreements relating to oil 1,075
or gas wells located in this state, or representing interests in 1,076
or under oil or gas leases of real estate situated in this state, 1,077
is exempt if the securities are issued by an individual, 1,078
partnership, limited partnership, partnership association, 1,079
syndicate, pool, trust or trust fund, or other unincorporated 1,080
association and if each of the following conditions is complied 1,081
with: 1,082
(1) The beneficial owners of the securities do not, and 1,084
will not after the sale, exceed five natural persons; 1,085
(2) The securities constitute or represent interests in 1,087
26
not more than one oil or gas well; 1,088
(3) A certificate or other instrument in writing is 1,090
furnished to each purchaser of the securities at or before the 1,091
consummation of the sale, disclosing the maximum commission, 1,092
compensation for services, cost of lease, and expenses with 1,093
respect to the sale of such interests and with respect to the 1,094
promotion, development, and management of the oil or gas well, 1,095
and the total of that commission, compensation, costs, and 1,096
expenses does not exceed twenty-five per cent of the aggregate 1,097
interests in the oil or gas well, exclusive of any landowner's 1,098
rental or royalty; 1,099
(4) The sale is made in good faith and not for the purpose 1,101
of avoiding this chapter. 1,102
(Q) The sale of any security is exempt if all of the 1,104
following conditions are satisfied: 1,105
(1) The provisions of section 5 of the Securities Act of 1,107
1933 do not apply to the sale by reason of an exemption under 1,108
section 4 (2) of that act. 1,109
(2) The aggregate commission, discount, and other 1,111
remuneration, excluding legal, accounting, and printing fees, 1,112
paid or given directly or indirectly does not exceed ten per cent 1,113
of the initial offering price. 1,114
(3) Any such commission, discount, or other remuneration 1,116
for sales in this state is paid or given only to dealers or 1,117
salespersons registered under this chapter. 1,118
(4) The issuer or dealer files with the division of 1,120
securities, not later than sixty days after the sale, a report 1,121
setting forth the name and address of the issuer, the total 1,122
amount of the securities sold under this division, the number of 1,123
persons to whom the securities were sold, the price at which the 1,124
securities were sold, and the commissions or discounts paid or 1,125
given. 1,126
(5) The issuer pays a filing fee of one hundred dollars 1,128
for the first filing and fifty dollars for every subsequent 1,129
27
filing during each calendar year. 1,130
(R) A sale of a money order, travelers' check, or other 1,132
instrument for the transmission of money by a person qualified to 1,133
engage in such business under section 1109.60 or Chapter 1315. of 1,135
the Revised Code is exempt. 1,136
(S) A sale by a licensed dealer of securities that are in 1,138
the process of registration under the Securities Act of 1933, 1,139
unless exempt under that act, and that are in the process of 1,141
registration, if registration is required under this chapter, is 1,142
exempt, provided that no sale of that nature shall be consummated 1,143
prior to the registration by description or qualification of the 1,144
securities.
(T) The execution by a licensed dealer of orders for the 1,146
purchase of any security is exempt, provided that the dealer acts 1,147
only as agent for the purchaser, has made no solicitation of the 1,148
order to purchase the security, has no interest in the 1,149
distribution of the security, and delivers to the purchaser 1,150
written confirmation of the transaction that clearly itemizes his 1,151
THE DEALER'S commission. "Solicitation," as used in this 1,153
division, means solicitation of the order for the specific 1,154
security purchased and does not include general solicitations or 1,155
advertisements of any kind. 1,156
(U) The sale insofar as the security holders of a person 1,158
are concerned, where, pursuant to statutory provisions of the 1,159
jurisdiction under which that person is organized or pursuant to 1,160
provisions contained in its articles of incorporation, 1,161
certificate of incorporation, partnership agreement, declaration 1,162
of trust, trust indenture, or similar controlling instrument, 1,163
there is submitted to the security holders, for their vote or 1,164
consent, (1) a plan or agreement for a reclassification of 1,165
securities of that person that involves the substitution of a 1,166
security of that person for another security of that person, (2) 1,167
a plan or agreement of merger or consolidation or a similar plan 1,168
or agreement of acquisition in which the securities of that 1,169
28
person held by the security holders will become or be exchanged 1,170
for securities of any other person, or (3) a plan or agreement 1,171
for a combination as defined in division (Q) of section 1701.01 1,172
of the Revised Code or a similar plan or agreement for the 1,173
transfer of assets of that person to another person in 1,174
consideration of the issuance of securities of any person, is 1,175
exempt if, with respect to any of the foregoing transactions, 1,176
either of the following conditions is satisfied: 1,177
(a) The securities to be issued to the security holders 1,179
are effectively registered under sections 6 to 8 of the 1,180
Securities Act of 1933 and offered and sold in compliance with 1,181
section 5 of that act; 1,182
(b) At least twenty days prior to the date on which a 1,184
meeting of the security holders is held or the earliest date on 1,185
which corporate action may be taken when no meeting is held, 1,186
there is submitted to the security holders, by that person, or by 1,187
the person whose securities are to be issued in the transaction, 1,188
information substantially equivalent to the information that 1,189
would be required to be included in a proxy statement or 1,190
information statement prepared by or on behalf of the management 1,191
of an issuer subject to section 14(a) or 14(c) of the Securities 1,193
Exchange Act of 1934.
(V) The sale of any security is exempt if the division by 1,195
rule finds that registration is not necessary or appropriate in 1,196
the public interest or for the protection of investors. 1,197
(W) Any offer or sale of securities made in reliance on 1,199
the exemptions provided by Rule 505 of Regulation D made pursuant 1,200
to the Securities Act of 1933 and the conditions and definitions 1,201
provided by Rules 501 to 503 thereunder is exempt if the offer or 1,202
sale satisfies all of the following conditions: 1,203
(1) No commission or other remuneration is given, directly 1,205
or indirectly, to any person for soliciting or selling to any 1,206
person in this state in reliance on the exemption under this 1,207
division, except to dealers licensed in this state. 1,208
29
(2)(a) Unless the cause for disqualification is waived 1,210
under division (W)(2)(b) of this section, no exemption under this 1,211
section is available for the securities of an issuer unless the 1,212
issuer did not know and in the exercise of reasonable care could 1,213
not have known that any of the following applies to any of the 1,214
persons described in Rule 262(a) to (c) of Regulation A under the 1,216
Securities Act of 1933: 1,217
(i) The person has filed an application for registration 1,219
or qualification that is the subject of an effective order 1,220
entered against the issuer, its officers, directors, general 1,221
partners, controlling persons or affiliates thereof, pursuant to 1,222
the law of any state within five years before the filing of a 1,223
notice required under division (W)(3) of this section denying 1,224
effectiveness to, or suspending or revoking the effectiveness of, 1,225
the registration statement. 1,226
(ii) The person has been convicted of any offense in 1,228
connection with the offer, sale, or purchase of any security or 1,229
franchise, or any felony involving fraud or deceit, including, 1,230
but not limited to, forgery, embezzlement, fraud, theft, or 1,231
conspiracy to defraud. 1,232
(iii) The person is subject to an effective administrative 1,234
order or judgment that was entered by a state securities 1,235
administrator within five years before the filing of a notice 1,236
required under division (W)(3) of this section and that 1,237
prohibits, denies, or revokes the use of any exemption from 1,238
securities registration, prohibits the transaction of business by 1,239
the person as a dealer, or is based on fraud, deceit, an untrue 1,240
statement of a material fact, or an omission to state a material 1,241
fact. 1,242
(iv) The person is subject to any order, judgment, or 1,244
decree of any court entered within five years before the filing 1,245
of a notice required under division (W)(3) of this section, 1,246
temporarily, preliminarily, or permanently restraining or 1,247
enjoining the person from engaging in or continuing any conduct 1,248
30
or practice in connection with the offer, sale, or purchase of 1,249
any security, or the making of any false filing with any state. 1,250
(b)(i) Any disqualification under this division involving 1,252
a dealer may be waived if the dealer is or continues to be 1,253
licensed in this state as a dealer after notifying the 1,254
commissioner of the act or event causing disqualification. 1,255
(ii) The commissioner may waive any disqualification under 1,257
this paragraph upon a showing of good cause that it is not 1,258
necessary under the circumstances that use of the exemption be 1,259
denied. 1,260
(3) Not later than five business days before the earlier 1,262
of the date on which the first use of an offering document or the 1,263
first sale is made in this state in reliance on the exemption 1,264
under this division, there is filed with the commissioner a 1,265
notice comprised of offering material in compliance with the 1,266
requirements of Rule 502 of Regulation D under the Securities Act 1,267
of 1933 and a fee of one hundred dollars. Material amendments to 1,268
the offering document shall be filed with the commissioner not 1,269
later than the date of their first use in this state. 1,270
(4) The aggregate commission, discount, and other 1,272
remuneration paid or given, directly or indirectly, does not 1,273
exceed twelve per cent of the initial offering price, excluding 1,274
legal, accounting, and printing fees. 1,275
(X) Any offer or sale of securities made in reliance on 1,278
the exemption provided in Rule 506 of Regulation D under the 1,281
Securities Act of 1933, and in accordance with Rules 501 to 503 1,284
of Regulation D under the Securities Act of 1933, is exempt 1,288
provided that all of the following apply: 1,289
(1) The issuer makes a notice filing with the division on 1,291
form D of the securities and exchange commission within fifteen 1,293
days of the first sale in this state; 1,294
(2) Any commission, discount, or other remuneration for 1,296
sales of securities in this state is paid or given only to 1,297
dealers or salespersons licensed under this chapter; 1,298
31
(3) The issuer pays a filing fee of one hundred dollars to 1,300
the division; however, no filing fee shall be required to file 1,301
amendments to the form D of the securities and exchange 1,303
commission.
(Y) The offer or sale of securities BY AN ISSUER is exempt 1,305
provided that all of the following apply: 1,306
(1) The sale of securities is made only to persons who 1,308
are, or who the issuer reasonably believes are, accredited 1,309
investors as defined in Rule 501 of Regulation D under the 1,310
Securities Act of 1933. 1,311
(2) The issuer reasonably believes that all purchasers are 1,313
purchasing for investment and not with a view to or for sale in 1,314
connection with a distribution of the security. Any resale of a 1,315
security sold in reliance on this exemption within twelve months 1,316
of sale shall be presumed to be with a view to distribution and 1,317
not for investment, except a resale to which any of the following 1,319
applies:
(a) The resale is pursuant to a registration statement 1,322
effective under section 1707.09 or 1707.091 of the Revised Code. 1,324
(b) The resale is to an accredited investor, as defined in 1,327
Rule 501 of Regulation D under the Securities Act of 1933. 1,331
(c) The resale is to an institutional investor pursuant to 1,334
the exemptions under division (B) or (D) of this section. 1,336
(3) The exemption under this division is not available to 1,338
an issuer that is in the development stage and that either has no 1,340
specific business plan or purpose or has indicated that its
business plan is to engage in a merger or acquisition with an 1,341
unidentified company or companies, or other entities or persons. 1,343
(4) The exemption under this division is not available to 1,345
an issuer, if the issuer, any of the issuer's predecessors, any 1,346
affiliated issuer, any of the issuer's directors, officers, 1,347
general partners, or beneficial owners of ten per cent or more of 1,349
any class of its equity securities, any of the issuer's promoters 1,350
presently connected with the issuer in any capacity, any 1,351
32
underwriter of the securities to be offered, or any partner,
director, or officer of such underwriter: 1,352
(a) Within the past five years, has filed a registration 1,355
statement that is the subject of a currently effective 1,356
registration stop order entered by any state securities 1,357
administrator or the securities and exchange commission; 1,358
(b) Within the past five years, has been convicted of any 1,361
criminal offense in connection with the offer, purchase, or sale 1,362
of any security, or involving fraud or deceit; 1,363
(c) Is currently subject to any state or federal 1,366
administrative enforcement order or judgment, entered within the 1,367
past five years, finding fraud or deceit in connection with the 1,368
purchase or sale of any security;
(d) Is currently subject to any order, judgment, or decree 1,371
of any court of competent jurisdiction, entered within the past 1,372
five years, that temporarily, preliminarily, or permanently 1,373
restrains or enjoins the party from engaging in or continuing to 1,374
engage in any conduct or practice involving fraud or deceit in 1,375
connection with the purchase or sale of any security. 1,376
(5) Division (Y)(4) of this section is inapplicable if any 1,379
of the following applies: 1,380
(a) The party subject to the disqualification is licensed 1,383
or registered to conduct securities business in the state in 1,384
which the order, judgment, or decree creating the 1,385
disqualification was entered against the party described in 1,386
division (Y)(4) of this section. 1,387
(b) Before the first offer is made under this exemption, 1,391
the state securities administrator, or the court or regulatory 1,392
authority that entered the order, judgment, or decree, waives the 1,393
disqualification.
(c) The issuer did not know and, in the exercise of 1,396
reasonable care based on reasonable investigation, could not have 1,397
known that a disqualification from the exemption existed under 1,398
division (Y)(4) of this section. 1,399
33
(6) A general announcement of the proposed offering may be 1,401
made by any means; however, the general announcement shall 1,402
include only the following information, unless additional 1,403
information is specifically permitted by the division by rule: 1,405
(a) The name, address, and telephone number of the issuer 1,408
of the securities;
(b) The name, a brief description, and price of any 1,411
security to be issued;
(c) A brief description of the business of the issuer; 1,414
(d) The type, number, and aggregate amount of securities 1,417
being offered;
(e) The name, address, and telephone number of the person 1,420
to contact for additional information; and
(f) A statement indicating all of the following: 1,423
(i) Sales will only be made to accredited investors as 1,426
defined in Rule 501 of Regulation D under the Securities Act of 1,431
1933;
(ii) No money or other consideration is being solicited or 1,434
will be accepted by way of this general announcement; 1,435
(iii) The securities have not been registered with or 1,438
approved by any state securities administrator or the securities 1,439
and exchange commission and are being offered and sold pursuant 1,440
to an exemption from registration. 1,441
(7) The issuer, in connection with an offer, may provide 1,443
information in addition to the general announcement described in 1,444
division (Y)(6) of this section, provided that either of the 1,446
following applies:
(a) The information is delivered through an electronic 1,449
database that is restricted to persons that are accredited 1,450
investors as defined in Rule 501 of Regulation D under the 1,453
Securities Act of 1933. 1,455
(b) The information is delivered after the issuer 1,458
reasonably believes that the prospective purchaser is an 1,459
accredited investor as defined in Rule 501 of Regulation D under 1,462
34
the Securities Act of 1933. 1,464
(8) No telephone solicitation shall be done, unless prior 1,466
to placing the telephone call, the issuer reasonably believes 1,467
that the prospective purchaser to be solicited is an accredited 1,468
investor as defined in Rule 501 of Regulation D under the 1,471
Securities Act of 1933. 1,473
(9) Dissemination of the general announcement described in 1,475
division (Y)(6) of this section to persons that are not 1,477
accredited investors, as defined in Rule 501 of Regulation D 1,480
under the Securities Act of 1933, does not disqualify the issuer 1,483
from claiming an exemption under this division. 1,484
(10) The issuer shall file with the division notice of the 1,486
offering of securities within fifteen days after notice of the 1,487
offering is made to the public or a general announcement is made 1,488
to the public in this state. The filing shall be on forms 1,489
adopted by the division and shall include a copy of the general 1,490
announcement, if one is made regarding the proposed offering, and 1,492
copies of any offering materials, circulars, or prospectuses. A 1,493
filing fee of one hundred dollars also shall be included. 1,494
Sec. 1707.161. (A) Subject to division (F) of this 1,503
section, no person shall act as an investment adviser 1,504
representative, unless one of the following applies: 1,505
(1) The person is licensed as an investment adviser 1,507
representative by the division of securities. 1,508
(2) The person is a natural person who is licensed as an 1,510
investment adviser by the division, and does not act as an 1,511
investment adviser representative for another investment adviser; 1,512
however, a natural person who is licensed as an investment 1,514
adviser by the division may act as an investment adviser 1,515
representative for another investment adviser if the natural 1,516
person also is licensed by the division, OR IS PROPERLY EXCEPTED 1,517
FROM LICENSURE, as an investment adviser representative of the 1,518
other investment adviser.
(3) The person is employed by or associated with an 1,520
35
investment adviser registered under section 203 of the 1,521
"Investment Advisers Act of 1940," 15 U.S.C. 80b-3, and does not 1,523
have a place of business in this state. 1,524
(4) The person is employed by or associated with an 1,526
investment adviser that is exempted EXCEPTED from licensure 1,527
pursuant to division (A)(3) or (4) of section 1707.141 of the 1,529
Revised Code OR EXCEPTED FROM NOTICE FILING PURSUANT TO DIVISION 1,530
(B)(3) OF SECTION 1707.141 OF THE REVISED CODE.
(B)(1) No investment adviser representative required to be 1,532
licensed under this section shall act as an investment adviser 1,533
representative for more than two investment advisers. An 1,534
investment adviser representative that acts as an investment 1,535
adviser representative for two investment advisers shall do so 1,536
only after the occurrence of both of the following: 1,537
(a) Being properly licensed, or properly excepted from 1,540
licensure under this section, as an investment adviser 1,541
representative for both investment advisers; 1,542
(b) Complying with the requirements set forth in rules 1,545
adopted by the division regarding consent of both investment 1,546
advisers and notice.
(2) Nothing in this section shall be construed to prohibit 1,548
a natural person from being licensed by the division as both an 1,551
investment adviser and an investment adviser representative. 1,552
(3) Nothing is IN this section shall be construed to 1,554
prohibit a natural person from being licensed by the division as 1,555
both a salesperson and an investment adviser representative. 1,557
(4) NOTHING IN THIS SECTION SHALL BE CONSTRUED TO PROHIBIT 1,559
A NATURAL PERSON FROM BEING LICENSED BY THE DIVISION AS BOTH A 1,560
DEALER AND AN INVESTMENT ADVISER REPRESENTATIVE. 1,561
(C) An investment adviser representative's license issued 1,563
under this section shall not be effective during any period when 1,564
the investment adviser representative is not employed by or 1,565
associated with an investment adviser that is licensed by the 1,566
division or that is in compliance with the notice filing 1,567
36
requirements of division (B) of section 1707.141 of the Revised 1,568
Code. Notice of the commencement and termination of the 1,569
employment or association of an investment adviser representative 1,571
licensed under this section shall be given to the division within 1,572
thirty days after the commencement or termination by either of
the following: 1,573
(1) The investment adviser, in the case of an investment 1,575
adviser representative licensed under this section and employed 1,576
by or associated with, or formerly employed by or associated 1,578
with, an investment adviser licensed under section 1707.141 of 1,579
the Revised Code;
(2) The investment adviser representative, in the case of 1,581
an investment adviser representative licensed under this section 1,582
and employed by or associated with, or formerly employed by or 1,584
associated with, an investment adviser that is subject to the
notice filings requirements of division (B) of section 1707.141 1,586
of the Revised Code.
(D)(1) Application for an investment adviser 1,588
representative license shall be made in accordance with this 1,589
section and by filing with the division the information, 1,590
materials, and forms specified in rules adopted by the division. 1,591
(2) The division shall by rule require an applicant to 1,593
pass an examination designated by the division or achieve a 1,594
specified professional designation.
(3) Prior to issuing the investment adviser representative 1,597
license, the division may require the applicant to reimburse the 1,598
division for the actual expenses incurred in investigating the 1,599
applicant. An itemized statement of any such expenses that the 1,601
applicant is required to pay shall be furnished to the applicant
by the division. 1,602
(E) If the division finds that the applicant is of good 1,604
business repute, appears to be qualified to act as an investment 1,605
adviser representative, and has complied with sections 1707.01 to 1,607
1707.45 of the Revised Code and the rules adopted under those 1,608
37
sections by the division, the division, upon payment of the fees 1,609
prescribed by division (B) of section 1707.17 of the Revised 1,610
Code, shall issue to the applicant a license authorizing the 1,611
applicant to act as an investment adviser representative for the 1,612
investment adviser, or investment advisers that are under common 1,613
ownership or control, named in the application.
(F) On the effective date of this section MARCH 18, 1999, 1,616
a person required to be licensed as an investment adviser 1,617
representative pursuant to this section has until no later than 1,618
December 31, 1999, to be licensed as an investment adviser 1,619
representative by the division of securities. However, a person 1,620
required to be licensed by the division as an investment adviser 1,621
representative by no later than December 31, 1999, may be 1,623
licensed as an investment adviser representative by the division 1,624
on the effective date of this section MARCH 18, 1999, and prior 1,625
to December 31, 1999. 1,626
Sec. 1707.36. (A) There is hereby created in the division 1,635
of securities a position to be known as attorney-inspector, which 1,636
shall be held only by an attorney at law. The duties of this 1,637
position are to investigate and report upon all complaints and 1,638
alleged violations of this chapter or rules adopted under this 1,639
chapter by the division and to represent the division in 1,640
prosecutions AND OTHER MATTERS arising from such complaints and 1,641
alleged violations.
The office of the attorney-inspector is hereby designated a 1,644
criminal justice agency in investigating reported violations of 1,645
law relating to securities and investment advice, and as such is 1,646
authorized by this state to apply for access to the computerized 1,647
databases administered by the national crime information center 1,648
or the law enforcement automated data system in Ohio, and to 1,649
other computerized databases administered for the purpose of 1,650
making criminal justice information accessible to state criminal 1,651
justice agencies. 1,652
(B) There is hereby created in the division of securities 1,654
38
two positions to be known as control-bid attorneys, which shall 1,655
be held only by attorneys at law. The duties of these positions 1,656
are to investigate and report upon all matters relating to 1,657
control-bids and related matters and to represent the division in 1,658
the regulatory matters arising under the Ohio control-bid law. 1,659
(C) The attorney-inspector and each control-bid attorney 1,661
shall be paid at a rate not less than pay range 47 set out in 1,662
schedule E-2 of section 124.152 of the Revised Code, to be paid 1,663
as other operating expenses of the division. 1,664
Sec. 1707.439. AS USED IN SECTIONS 1707.432 THROUGH 1,666
1707.439 OF THE REVISED CODE, "PRIVATE CIVIL ACTION" SHALL NOT 1,667
INCLUDE AN ACTION FOR RESCISSION PURSUANT TO SECTION 1707.43 OF 1,668
THE REVISED CODE.
Sec. 1707.44. (A)(1) No person shall engage in any act or 1,677
practice that violates division (A), (B), or (C) of section 1,679
1707.14 of the Revised Code, and no salesperson shall sell 1,680
securities in this state without being licensed pursuant to 1,681
section 1707.16 of the Revised Code.
(2) No person shall engage in any act or practice that 1,683
violates division (A) of section 1707.141 or section 1707.161 of 1,684
the Revised Code.
(B) No person shall knowingly make or cause to be made any 1,686
false representation concerning a material and relevant fact, in 1,687
any oral statement or in any prospectus, circular, description, 1,688
application, or written statement, for any of the following 1,689
purposes: 1,690
(1) Complying with this chapter, in regard to registering 1,692
securities by description; 1,693
(2) Securing the qualification of any securities under 1,695
this chapter; 1,696
(3) Procuring the licensing of any dealer, salesperson, 1,699
investment adviser, or investment adviser representative under 1,701
this chapter;
(4) Selling any securities in this state; 1,703
39
(5) Advising for compensation, as to the value of 1,705
securities or as to the advisability of investing in, purchasing, 1,706
or selling securities.
(C) No person shall knowingly and intentionally sell, 1,708
cause to be sold, offer for sale, or cause to be offered for 1,709
sale, any security which comes under any of the following 1,710
descriptions: 1,711
(1) Is not exempt under section 1707.02 of the Revised 1,713
Code, nor the subject matter of one of the transactions exempted 1,714
in sections 1707.03, 1707.04, and 1707.34 of the Revised Code, 1,715
has not been registered by description, coordination, or 1,716
qualification, and is not the subject matter of a transaction 1,717
that has been registered by description; 1,718
(2) The prescribed fees for registering by description, by 1,720
coordination, or by qualification have not been paid in respect 1,721
to such security; 1,722
(3) Such person has been notified by the division, or has 1,724
knowledge of the notice, that the right to buy, sell, or deal in 1,726
such security has been suspended or revoked, or that the 1,727
registration by description, by coordination, or by qualification 1,728
under which it may be sold has been suspended or revoked; 1,729
(4) The offer or sale is accompanied by a statement that 1,731
the security offered or sold has been or is to be in any manner 1,732
indorsed by the division. 1,733
(D) No person who is an officer, director, or trustee of, 1,735
or a dealer for, any issuer, and who knows such issuer to be 1,736
insolvent in that the liabilities of such THE issuer exceed its 1,737
assets, shall sell any securities of or for any such issuer, 1,738
without disclosing the fact of the insolvency to the purchaser. 1,740
(E) No person with intent to aid in the sale of any 1,742
securities on behalf of the issuer, shall knowingly make any 1,743
representation not authorized by such issuer or at material 1,744
variance with statements and documents filed with the division by 1,745
such issuer. 1,746
40
(F) No person, with intent to deceive, shall sell, cause 1,748
to be sold, offer for sale, or cause to be offered for sale, any 1,749
securities of an insolvent issuer, with knowledge that such 1,750
issuer is insolvent in that the liabilities of such THE issuer 1,751
exceed its assets, taken at their fair market value. 1,753
(G) No person in PURCHASING OR selling securities shall 1,755
knowingly engage in any act or practice which THAT is, in this 1,757
chapter, declared illegal, defined as fraudulent, or prohibited. 1,760
(H) No licensed dealer shall refuse to buy from, sell to, 1,762
or trade with any person because the person appears on a 1,763
blacklist issued by, or is being boycotted by, any foreign 1,764
corporate or governmental entity, nor sell any securities of or 1,765
for any issuer who is known in relation to the issuance or sale 1,766
of such securities to have engaged in such practices. 1,767
(I) No dealer in securities, knowing that the dealer's 1,769
liabilities exceed the reasonable value of the dealer's assets, 1,771
shall accept money or securities, except in payment of or as 1,772
security for an existing debt, from a customer who is ignorant of 1,773
the dealer's insolvency, and thereby cause the customer to lose 1,776
any part of the customer's securities or the value thereof OF 1,777
THOSE SECURITIES, by doing either of the following without the 1,778
customer's consent:
(1) Pledging, selling, or otherwise disposing of such 1,780
securities, when the dealer has no lien on or any special 1,782
property in such securities;
(2) Pledging such securities for more than the amount due, 1,784
or otherwise disposing of such securities for the dealer's own 1,786
benefit, when the dealer has a lien or indebtedness on such 1,787
securities. 1,788
It is an affirmative defense to a charge under this 1,790
division that, at the time the securities involved were pledged, 1,791
sold, or disposed of, the dealer had in the dealer's possession 1,793
or control, and available for delivery, securities of the same 1,794
kinds and in amounts sufficient to satisfy all customers entitled 1,795
41
thereto TO THE SECURITIES, upon demand and tender of any amount 1,796
due thereon ON THE SECURITIES. 1,797
(J) No person, with purpose to deceive, shall make, issue, 1,799
publish, or cause to be made, issued, or published any statement 1,800
or advertisement as to the value of securities, or as to alleged 1,801
facts affecting the value of securities, or as to the financial 1,802
condition of any issuer of securities, when the person knows that 1,805
such statement or advertisement is false in any material respect. 1,806
(K) No person, with purpose to deceive, shall make, 1,808
record, or publish or cause to be made, recorded, or published, a 1,809
report of any transaction in securities which is false in any 1,810
material respect. 1,811
(L) No dealer shall engage in any act that violates the 1,813
provisions of section 15(c) or 15(g) of the "Securities Exchange 1,814
Act of 1934," 48 Stat. 881, 15 U.S.C.A. 78o(c) or (g), or any 1,815
rule or regulation promulgated by the securities and exchange 1,816
commission thereunder. If, subsequent to October 11, 1994, 1,817
additional amendments to section 15(c) or 15(g) are adopted, or 1,818
additional rules or regulations are promulgated pursuant to such 1,819
sections, the division of securities shall, by rule, adopt the 1,820
amendments, rules, or regulations, unless the division finds that 1,821
the amendments, rules, or regulations are not necessary for the 1,822
protection of investors or in the public interest.
(M)(1) No investment adviser or investment adviser 1,824
representative shall do any of the following: 1,825
(a) Employ any device, scheme, or artifice to defraud any 1,828
person;
(b) Engage in any act, practice, or course of business 1,830
that operates or would operate as a fraud or deceit upon any 1,831
person; 1,832
(c) In acting as principal for the investment adviser's or 1,834
investment adviser representative's own account, knowingly sell 1,835
any security to or purchase any security from a client, or in 1,836
acting as salesperson for a person other than such client, 1,837
42
knowingly effect any sale or purchase of any security for the 1,838
account of such client, without disclosing to the client in 1,839
writing before the completion of the transaction the capacity in 1,840
which the investment adviser or investment adviser representative 1,842
is acting and obtaining the consent of the client to the 1,843
transaction. Division (M)(1)(c) of this section does not apply 1,845
to any investment adviser registered with the securities and 1,846
exchange commission under section 203 of the "Investment Advisers 1,848
Act of 1940," 15 U.S.C. 80b-3, or to any transaction with a 1,851
customer of a licensed dealer or salesperson if the licensed 1,852
dealer or salesperson is not acting as an investment adviser or 1,853
investment adviser representative in relation to the transaction. 1,854
(d) Engage in any act, practice, or course of business 1,857
that is fraudulent, deceptive, or manipulative. The division of 1,858
securities may adopt rules reasonably designed to prevent such 1,859
acts, practices, or courses of business as are fraudulent, 1,860
deceptive, or manipulative.
(2) No investment adviser or investment adviser 1,862
representative licensed or required to be licensed under this 1,863
chapter shall take or have custody of any securities or funds of 1,864
any person, except as provided in rules adopted by the division. 1,865
(3) In the solicitation of clients or prospective clients, 1,867
no person shall make any untrue statement of a material fact or 1,868
omit to state a material fact necessary in order to make the 1,869
statements made not misleading in light of the circumstances 1,870
under which the statements were made. 1,871
Section 2. That existing sections 1701.48, 1707.01, 1,873
1707.03, 1707.161, 1707.36, and 1707.44 of the Revised Code are 1,875
hereby repealed. 1,876