Department of State Division of Publications

For Department of State Use Only

312 Rosa L. Parks Ave., 8th Floor, Snodgrass/TN Tower Nashville, TN 37243 Phone: 615-741-2650 Email: publications.information@tn.gov

Proposed Rule(s) Filing Form

Sequence Number:

Rule ID(s):

File Date:

Effective Date:

Proposed rules are submitted pursuant to Tenn. Code Ann. §§ 4-5-202, 4-5-207, and 4-5-229 in lieu of a rulemaking hearing. It is the intent of the Agency to promulgate these rules without a rulemaking hearing unless a petition requesting such hearing is filed within ninety (90) days of the filing of the proposed rule with the Secretary of State. To be effective, the petition must be filed with the Agency and be signed by ten (10) persons who will be affected by the amendments, or submitted by a municipality which will be affected by the amendments, or an association of ten (10) or more members, or any standing committee of the General Assembly. The agency shall forward such petition to the Secretary of State.

Pursuant to Tenn. Code Ann. § 4-5-229, any new fee or fee increase promulgated by state agency rule shall take effect on July 1, following the expiration of the ninety (90) day period as provided in § 4-5-207. This section shall not apply to rules that implement new fees or fee increases that are promulgated as emergency rules pursuant to§ 4-5-208(a) and to subsequent rules that make permanent such emergency rules, as amended during the rulemaking process. In addition, this section shall not apply to state agencies that did not, during the preceding two (2) fiscal years, collect fees in an amount sufficient to pay the cost of operating the board, commission or entity in accordance with § 4-29-121 (b).

Agency/Board/Commission:_ Tennessee Department of qommerce and Insurance_ Division: Securities Division - --

Co_!lt~~t~erson: Virginia ~mith

r--Address: 500 James Robertson Parkway.!...Nashville, TN_

Zip: 37243 Phone: I 615-291-5890 Email: Virginia.Smith@tn.gov ----- - ...........•.. - -

Revision Type (check all that apply): Amendment

x New Repeal

Rule(s) (ALL chapters and rules contained in filing must be listed here. If needed, copy and paste additional tables to accommodate multiple chapters. Please make sure that ALL new rule and repealed rule numbers are listed in the chart below. Please enter only ONE Rule Number/Rule Title per row)

Chapter Title Ch<!P-ter Number 0780-04-02 Securities R~gistr~i~ and Exem tions _____ _

Rule Title --- --- --- --Rule Number 0780-04-02.18 Tier 2 of Reg}Jlation A Secondary Sales Exemption

----------

r Chapter Number I Chapter Title -------

l. RuleNumber I Rule Title -

t-- ~ ---SS-7038 (October 2018} RDA 1693

Place substance of rules and other info here. Please be sure to include a detailed explanation of the changes being made to the listed rule(s). Statutory authority must be given for each rule change. For information on formatting rules go to https://sos.tn .gov/products/division-publications/rulemaking-guidelines.

RULES OF TENNESSEE DEPARTMENT OF COMMERCE AND INSURANCE DIVISION OF SECURITIES

0780-04-02-.01 0780-04-02-.02 0780-04-02-.03 0780-04-02-.04 0780-04-02-.05 0780-04-02-.06 0780-04-02-.07 0780-04-02-.08 0780-04-02-.09

CHAPTER 0780-04-02 SECURITIES REGISTRATION AND EXEMPTIONS

TABLE OF CONTENTS

Registration by Coordination Registration by Qualification Securities Registration Generally Advertising and Sales Literature Renewals Standards of Fairness and Reasonableness Non-Profit Exemption Reserved Successor Corporate Issuers

0780-04-02-.10 0780-04-02-.11 0780-04-02-.12 0780-04-02-.13 0780-04-02-.14 0780-04-02-.15 0780-04-02-.16 0780-04-02-.17 0780-04-02-.18

NASDAQINMS Exemption Rescission Offers Notice Filings for Covered Securities Notice Filings for Exempt Employee Plans Notice Filings for Securities Sold to Accredited Investors Bank Holding Company Exemption Unsolicited Transaction Exemption Invest Tennessee Exemption Tier 2 of Regulation A Secondary Sales Exemption

0780-04-02-.18 TIER 2 OF REGULATION A SECONDARY SALES EXEMPTION

(1) By the authority delegated to the commissioner in T.C.A. §§ 48-1-103(b)(11) and 48-1-116, the following transactions are determined to be exempt from the requirements of T.C.A. § 48-1-104:

(2) Any non-issuer transaction by a registered agent of a registered broker-dealer in a security of a class that has been outstanding in the hands of the public for at least 90 days by an issuer that previously sold securities in an offering qualified under Tier 2 of Regulation A, codified at 17 CFR §230.251 et seq., provided that at the time of the transaction:

(a) The issuer is subject to and current in its ongoing reporting requirements under 17 CFR §230.257(b};

(b) The issuer of the security is actually engaged in business and not in the organizational stage or in bankruptcy or receivership and is not a blank check, blind pool or shell company whose primary plan of business is to engage in a merger or combination of the business with, or an acquisition of, an unidentified person or persons;

(c) The security is sold at a price reasonably related to the current market price of the security;

(d} The security does not constitute the whole or part of an unsold allotment to, or a subscription or participation by, the broker-dealer as an underwriter of the security; and

(e) The issuer of the security has a class of equity securities listed on a national securities exchange registered under the Securities Exchange Act of 1934, or designated for trading on the National Association of Securities Dealers Automated Quotation System (NASDAQ}, unless:

1. The issuer of the security has been engaged in continuous business (including predecessors) for at least three years, or

2. The issuer of the security has total assets of at least $2,000,000 based on an audited balance sheet as of a date within 18 months or, in the case of a reorganization or merger where parties to the reorganization or merger had such audited balance sheet, a pro forma balance sheet.

Authority: T.C.A. §§ 48-1-103(b}, 48-1-104, and 48-1-116.

SS-7038 (October 2018} 2 RDA 1693

* If a roll-call vote was necessary, the vote by the Agency on these rules was as follows:

Board Member Aye No Abstain Absent Signature (if required)

I certify that this is an accurate and complete co y of proposed rules , lawfully promulgated and adopted by the (board/commission/other authority) on - "1--h"F-'I-+-..>....____\- - (date as mmldd/yyyy), and is in compliance with the provisions of T.C.A. § 4-5-222. The Secre ry o tate is hereby instructed that, in the absence of a petition for proposed rules being filed under the conditions set out herein and in the locations described, he is to treat the proposed rules as being placed on file in his office as rules at the expiration of ninety (90) days of the filing of the proposed rule with the Secretary of State.

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CJ : • STATE ••• ""-\ • OF • (Jl . . . :

: ! TENNESSEE : 5 ~ • NOTARY • i ... ....&• • .... ~~ • PUBLIC • •~ ~ ~11•• •• §~

Name of Officer:

Title of Officer:

Carter Lawrence Interim Commissioner, Department of Commerce and Insurance

,,#.;va ••• ••• ~~ ~,!.qQUt\1'(~ ubscribed and sworn to before me on:

._.,... "'' MrCommlc: "'t&u,~ Notary Public Signature:

My commission expires on: / J t5 [;tD ____ ___.....,,f-'----+, ----=----------

Agency/Board/Commission: Tennessee Department of Commerce and Insurance

Rule Chapter Number(s): 0780-04-02-.18 -------------------------------

All proposed rules provided for herein have been examined by the Attorney General and Reporter of the State of Tennessee and are approved as to legality pursuant to the provisions of the Administrative Procedures Act, Tennessee Code Annotated, Title 4, Chapter 5.

Department of State Use Only

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SS-7038 (October 2018)

dtMw-c(f;&~ III Attorney General and Reporter y, ~,;,-p ,,

Date

Filed with the Department of State on: _____ q~'~~-O~{ l~t)~------

Effective on:

3

\,Z,(1,ti h1

' Tre Hargett Secretary of State

RDA 1693

Regulatory Flexibility Addendum

Pursuant to T.C.A. §§ 4-5-401 through 4-5-404, prior to initiating the rule making process, all agencies shall conduct a review of whether a proposed rule or rule affects small business.

The analysis set forth by T.C.A. § 4-5-403 is as follows:

(1) The type or types of small business and an identification and estimate of the number of small businesses subject to the proposed rule that would bear the cost of, or directly benefit from the proposed rule.

This new proposed exemption rule minimally affects small businesses and creates no additional cost. If a small business is involved and it relies on this rule's exemption, then the small business would be exempt from the registration process and the fees associated with registering its securities transactions in Tennessee.

(2) The projected reporting, recordkeeping and other administrative costs required for compliance with the proposed rule, including the type of professional skills necessary for preparation of the report or record.

The new proposed exemption rule requires no fee or additional cost. The exemption is in lieu of requiring registration, which requires a fee. In addition, the reporting requirements for the new proposed rule are less burdensome than requiring registration.

(3) A statement of the probable effect on impacted small businesses and consumers.

This new proposed rule will minimally affect small businesses and consumers.

(4) A description of any less burdensome, less intrusive or less costly alternative methods of achieving the purpose and objectives of the proposed rule that may exist, and to what extent the alternative means might be less burdensome to small business.

The Division does not believe there are any less burdensome or less costly alternative methods since the new proposed exemption rule provides an exemption from registration, which in itself is a less burdensome method.

(5) A comparison of the proposed rule with any federal or state counterparts.

This rule is the proposed model rule of the North American Securities Administrators Association, Inc. ("NASAA"), which was designed to facilitate secondary trading in securities of Regulation A, Tier 2 issuers. Adoption of this rule will ensure uniformity amongst the states regarding these secondary transactions. There is a federal counterpart provided in 17 C.F.R. § 230.257(b), which requires issuers of securities that rely on Tier 2 of Regulation A to meet ongoing reporting requirements.

(6) Analysis of the effect on the possible exemption of small businesses from all or any part of the requirements contained in the proposed rule.

Exempting small businesses from this new proposed exemption rule would create more requirements for, and a larger burden on, small businesses.

SS-7038 (October 2018) 4 RDA 1693

Impact on Local Governments

Pursuant to TC.A.§§ 4-5-220 and 4-5-228 "any rule proposed to be promulgated shall state in a simple declarative sentence, without additional comments on the merits of the policy of the rules or regulation, whether the rule or regulation may have a projected impact on local governments." (See Public Chapter Number 1070 (http://publications.tnsosfiles.com/acts/106/pub/pc1070.pdf) of the 2010 Session of the General Assembly)

The new proposed rule Tenn. Comp. R. Regs. 0780-04-02-.18 will not impact local governments.

SS-7038 (October 2018) 5 RDA 1693

Additional Information Required by Joint Government Operations Committee

All agencies, upon filing a rule, must also submit the following pursuant to T.C.A. § 4-5-226(i)(1 ).

(A) A brief summary of the rule and a description of all relevant changes in previous regulations effectuated by such rule;

Tenn. Comp. R. & Regs. 0780-04-02-.18 Tier 2 of Regulation A Secondary Sales Exemption is identical to the proposed model rule of the North American Securities Administrators Association, Inc. ("NASAA"), which was designed to facilitate secondary trading in securities of Regulation A, Tier 2 issuers. Adoption of this rule will ensure uniformity amongst the states regarding these secondary transactions. The rule exempts these transactions from registration in Tennessee as required by Tenn. Code Ann. § 48-1-104. Tenn. Comp. R. & ReQs. 0780-04-02-.18 will not chanQe any previous reQulations.

(B) A citation to and brief description of any federal law or regulation or any state law or regulation mandating promulgation of such rule or establishing guidelines relevant thereto;

I No federal law or regulation mandates promulgation of this new proposed exemption rule.

(C) Identification of persons, organizations, corporations or governmental entities most directly affected by this rule, and whether those persons, organizations, corporations or governmental entities urge adoption or rejection of this rule;

Secondary issuers of small public offerings of securities that do not exceed $50 million in one year will be most affected. It is likely that issuers involved in this type of transaction would urge adoption of this rule as the rule would exempt them from registration; however, the Division does not know whether small offering issuers urge adoption or rejection of this rule.

(D) Identification of any opinions of the attorney general and reporter or any judicial ruling that directly relates to the rule or the necessity to promulgate the rule;

The Division is unaware of any opinions of the attorney general or any judicial ruling that directly relates to the rule or the necessit to romul ate the rule.

(E) An estimate of the probable increase or decrease in state and local government revenues and expenditures, if any, resulting from the promulgation of this rule, and assumptions and reasoning upon which the estimate is based. An agency shall not state that the fiscal impact is minimal if the fiscal impact is more than two percent (2%) of the agency's annual budget or five hundred thousand dollars ($500,000), whichever is less;

It is estimated that there will be no increase or decrease in the state and local government revenues and ex enditures.

(F) Identification of the appropriate agency representative or representatives, possessing substantial knowledge and understanding of the rule;

Elizabeth Bowling, Director of Registration; Vir inia N. Smith, Assistant General Counsel for Securities.

(G) Identification of the appropriate agency representative or representatives who will explain the rule at a scheduled meeting of the committees;

I Virginia N. Smith, Assistant General Counsel for Securities, and Elizabeth Bowling, Director of Registration.

(H) Office address, telephone number, and email address of the agency representative or representatives who will explain the rule at a scheduled meeting of the committees; and

I 500 James Robertson Parkway, Nashville, TN 37243; 615-291-5890; Virginia.smith@tn.gov.

SS-7038 (October 2018) 6 RDA 1693

(I) Any additional information relevant to the rule proposed for continuation that the committee requests.

N/A

SS-7038 (October 2018) 7 RDA 1693

RULES OF TENNESSEE DEPARTMENT OF COMMERCE AND INSURANCE DIVISION OF SECURITIES

0780-04-02-.01 0780-04-02-.02 0780-04-02-.03 0780-04-02-.04 0780-04-02-.05 0780-04-02-.06 0780-04-02-.07 0780-04-02-.08 0780-04-02-.09

CHAPTER 0780-04-02 SECURITIES REGISTRATION AND EXEMPTIONS

TABLE OF CONTENTS

Registration by Coordination Registration by Qualification Securities Registration Generally Advertising and Sales Literature Renewals Standards of Fairness and Reasonableness Non-Profit Exemption Reserved Successor Corporate Issuers

0780-04-02-.10 0780-04-02-.11 0780-04-02-.12 0780-04-02-.13 0780-04-02-.14 0780-04-02-.15 0780-04-02-.16 0780-04-02-.17 0780-04-02-.18

NASDAQ/NMS Exemption Rescission Offers Notice Filings for Covered Securities Notice Filings for Exempt Employee Plans Notice Filings for Securities Sold to Accredited Investors Bank Holding Company Exemption Unsolicited Transaction Exemption Invest Tennessee Exemption Tier 2 of Regulation A Secondary Sales Exemption

0780-04-02-.18 TIER 2 OF REGULATION A SECONDARY SALES EXEMPTION

(1) By the authority delegated to the commissioner in T.C.A. §§ 48-1-103{b)(11) and 48-1-116, the following transactions are determined to be exempt from the requirements of T.C.A. § 48-1-104:

(2) Any non-issuer transaction by a registered agent of a registered broker-dealer in a security of a class that has been outstanding in the hands of the public for at least 90 days by an issuer that previously sold securities in an offering qualified under Tier 2 of Regu lation A . codified at 17 CFR §230.251 et seq.,provided that at the time of the transaction:

(a) The issuer is subject to and cu rrent in its ongoing reporting requirements under 17 CFR §230.257(b);

(b) The issuer of the security is actually engaged in business and not in the organizational stage or in bankruptcy or receivership and is not a blank check, blind pool or shell company whose primary plan of business is to engage in a merger or combination of the business with, or an acquisition of,. an unidentified person or persons;

(c) The security Is sold at a price reasonably related to the current market price of the security:

(d} The security does not constitute the whole or part of an unsold allotment to, or a subscription or participation by, the broker-dealer as an underwriter of the security; and

(e) The issuer of the security has a class of equ ity securities listed on a national securities exchange registered un.der the Securities Exchange Act of 1934, or designated for trading on the National Association of Securities Dealers Automated Quotation System (NASDAQ), unless:

1. The issuer of the security has been engaged in continuous business (including predecessors) for at least three years. or

2. The issuer of the security has total assets of at least $2,000,000 based on an audited balance sheet as of a date within 18 months or, in the case of a reorganizatlon or merger where parties to the reorganization or merger had such audited balance sheet, a pro forma balance sheet.

Authority: T.C.A. §§ 48-1-103(b). 48-1-104, and 48-1- 116.