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To File Or Not To File Under Rule 260.103?

California's limited offering exemption (Cal. Corp. Code § 25102(f)) requires an issuer to file a notice of transaction with the Department of Business Oversight with 15 calendar days after the first first sale of the security in California. 10 CCR § 260.102.14(d)  If the issuer fails to file the notice as required, it must do so within 15 business days after discovery of the failure to file or after demand by the Commissioner of Business Oversight, whichever occurs first.  Cal. Corp. Code § 25102(f). Unless the issuer claims a hardship exemption, the notice must be filed electronically through the Department's Docqnet portal.  

The notice of transaction, commonly referred to in California as an "F" notice, requires that a filer disclose whether the filing is being made pursuant to Rule 260.103.  This may seem a bit mysterious but is explained by the fact that Section 25102(f) is an exemption only from the issuer qualification requirements of Section 25110. 

The California Corporate Securities Law of 1968 also requires qualification of recapitalization, reorganization and conversion transactions.  Cal. Corp. Code § 25120.  Rule 260.103 exempts, among other things, any change in the rights, preferences, privileges, or restrictions of or on outstanding securities, and any exchange of securities by an issuer with its existing security holders exclusively, if the transaction, had it involved the issuance of a new security containing the changed rights, preferences, privileges, or restrictions, or a new issuance of the exchange security, would have been exempt under Section 25102.  If the issuer is relying on Section 25102(f), the rule requires that a notice of transaction be filed. 

Thus, an issuer should indicate that it is filing pursuant to Rule 260.103 only if it is filing the "F" notice with respect to either a change in the rights, preferences, privileges, or restrictions of or on outstanding securities or an exchange with its existing security holders exclusively.  Rule 260.130 is not applicable to the offer or sale of transactions in connection with an issuer transaction.

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30172DBAB0084D3A8F39D7AF0A8E79BC.ashx Keith Paul Bishop
Partner at Allen Matkins
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