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Statutes > Delaware > Title6 > C073

TITLE 6

Commerce and Trade

SUBTITLE IV

Commercial Development

CHAPTER 73. SECURITIES ACT

§ 7301. Short title; purpose.

(a) This chapter shall be known and may be cited as the "Delaware Securities Act."

(b) The purpose of the Delaware Securities Act is to prevent the public from being victimized by unscrupulous or overreaching broker-dealers, investment advisers or agents in the context of selling securities or giving investment advice, as well as to remedy any harm caused by securities law violations. This prophylactic and remedial purpose shall be deemed of paramount importance in the interpretation of the provisions of this chapter and particularly in any judicial review of sanctions or penalties imposed by the Securities Commissioner and of motions or requests by persons affected to stay such sanctions or penalties.

6 Del. C. 1953, § 7301; 59 Del. Laws, c. 208, § 1; 68 Del. Laws, c. 181, § 17.;

§ 7302. Definitions.

(a) Generally. -- When used in this chapter, unless the context otherwise requires:

(1) "Attorney General" means the Attorney General of the State or the Attorney General's duly appointed deputy.

(2) "Agent" means any individual, other than a broker-dealer, who represents a broker-dealer or issuer in effecting or attempting to effect purchases or sales of securities. "Agent" does not include an individual who represents (A) an issuer in (i) effecting transactions in a security exempted by § 7309(a)(1), (2), (3), (10), or (11) of this title, (ii) effecting transactions exempted by § 7309(b) of this title, (iii) effecting transactions in a covered security as described in § 18(b)(3) and (4)(D) of the Securities Act of 1933 [15 U.S.C. § 77r], or (iv) effecting transactions with existing employees, partners or directors of the issuer if no commission or other remuneration is paid or given directly or indirectly for soliciting any person in this State; (B) a broker-dealer in effecting transactions in this State limited to those transactions described in § 15(h)(2) of the Securities Exchange Act of 1934 [15 U.S.C. § 78o]; or (C) an issuer or a member of a bona fide agricultural cooperative whose securities are exempt from registration under § 7309(a)(12) of this title. A partner, officer or director of a broker-dealer or issuer, or a person occupying a similar status or performing similar functions, is an agent only if such person otherwise comes within this definition.

(3) "Broker-dealer" means any person engaged in the business of effecting transactions in securities for the account of others or for the broker-dealer's own account. "Broker-dealer" does not include:

a. An agent;

b. An issuer;

c. A bank, savings institution or trust company, to the extent that these entities are exempt or excluded from broker-dealer registration requirements under federal securities law;

d. A person who has no place of business in this State and effects transactions in this State exclusively with or through (i) the issuers of the securities involved in the transactions, (ii) other broker-dealers, or (iii) banks, savings institutions, trust companies, insurance companies, investment companies as defined in the Investment Company Act of 1940 [15 U.S.C. § 80a-1 et seq.], pension or profit-sharing trust, or other financial institutions or institutional buyers, whether acting for themselves or as trustees;

e. An issuer or an individual who represents an issuer or a member of such issuer provided said issuer is exempt from registration under § 7309(a)(12) of this title.

(4) "Commissioner" means the Securities Commissioner, the principal executive officer of the Division of Securities designated in § 7325 of this title.

(5) "Federal covered adviser" means a person who is registered under § 203 of the Investment Advisers Act of 1940 [15 U.S.C. § 80b-3].

(6) "Federal covered security" means any security that is a covered security under § 18(b) of the Securities Act of 1933 [15 U.S.C. § 77r(b)] or rules or regulations promulgated thereunder.

(7) "Fraud," "deceit," and "defraud" are not limited to common-law deceit.

(8) "Investment adviser" means any person who, for compensation, engages in the business of advising others, either directly or through publications or writings, as to the value of securities or as to the advisability of investing in, purchasing or selling securities, or who, for compensation and as a part of a regular business, issues or promulgates analyses or reports concerning securities. "Investment adviser" also includes financial planners and other persons who, as an integral component of other financially related services, provide the foregoing investment advisory services to others for compensation and as part of a business or who hold themselves out as providing the foregoing investment advisory services to others for compensation. "Investment adviser" does not include (A) an investment adviser representative; (B) a bank, savings institution or trust company; (C) a lawyer, accountant, engineer or teacher whose performance of these services is solely incidental to the practice of such person's profession; (D) a broker-dealer or its agent whose performance of these services is solely incidental to the conduct of its business as a broker-dealer and who receives no special compensation for them; (E) a publisher of any bona fide newspaper, news column, newsletter, news magazine or business or financial publication or service, whether communicated in hard copy form or by electronic means, or otherwise, that does not consist of the rendering of advice on the basis of the specific investment situation of each client; (F) any person who is a federal covered adviser; or (G) such other persons not within the intent of this subsection as the Commissioner may by rule or order designate.

(9) "Investment adviser representative" means any partner, officer, director (or a person occupying a similar status or performing similar functions) or other individual, except clerical or ministerial personnel, who is employed by or associated with an investment adviser that is registered or required to be registered under this chapter, or who has a place of business located in this State and is employed by or associated with a federal covered adviser; and who does any of following: (A) makes any recommendations or otherwise renders advice regarding securities, (B) manages accounts or portfolios of clients, (C) determines which recommendation or advice regarding securities should be given, (D) solicits, offers or negotiates for the sale of or sells investment advisory services, or (E) supervises employees who perform any of the foregoing.

(10) "Issuer" means any person who issues or proposes to issue any security.

(11) "Nonissuer" means not directly or indirectly for the benefit of the issuer.

(12) "Person" means an individual, a corporation, a partnership, an association, a joint stock company, a trust where the interests of the beneficiaries are evidenced by a security, an unincorporated organization, a government, or a political subdivision of a government.

(13) "Promoter" includes:

a. Any person who, acting alone or in conjunction with one or more other persons, directly or indirectly takes the initiative in founding and organizing the business or enterprise of an issuer;

b. Any person who, in connection with the founding or organizing of the business or enterprise of an issuer, directly or indirectly receives in consideration of services or property, or both services and property, 10 percent or more of any class of securities of the issuer or 10 percent or more of the proceeds from the sale of any class of securities. However, a person who receives such securities or proceeds either solely as underwriting commissions or solely in consideration of property shall not be deemed a promoter within the meaning of this paragraph if such person does not otherwise take part in founding and organizing the enterprise.

(14) "Public interest" means that it shall appear to the Commissioner that the action taken or sanction imposed will further the purpose of this chapter.

(15) "Sale" or "sell" includes every contract of sale of, contract to sell or disposition of a security or interest in a security for value.

a. "Offer" or "offer to sell" includes every attempt or offer to dispose of, or solicitation of an offer to buy, a security or interest in a security for value.

b. A purported gift of assessable stock is considered to involve an offer and sale.

c. Every sale or offer of a warrant or right to purchase or subscribe to another security of the same or another issuer, as well as every sale or offer of a security which gives the holder a present or future right or privilege to convert into another security of the same or another issuer, is considered to include an offer of the other security.

d. The terms defined in this subsection do not include any bona fide pledge or loan; any stock dividend whether the corporation distributing the dividend is the issuer of the stock or not, if nothing of value is given by stockholders for the dividend other than the surrender of a right to a cash or property dividend when each stockholder may elect to take the dividend in cash or property or in stock; any act incident to a vote by stockholders (or approval pursuant to § 228 of Title 8) pursuant to the certificate of incorporation, or the provisions of Title 8, on a merger, consolidation, reclassification of securities, dissolution, or sale of corporate assets in consideration of the issuance of securities of the same or another corporation; or any act incident to a judicially approved reorganization in which a security is issued in exchange for one or more outstanding securities, claims or property interests, or partly in such exchange and partly for cash.

(16) "Securities Act of 1933," "Securities Exchange Act of 1934," "Public Utility Holding Company Act of 1935," and "Investment Company Act of 1940" mean the federal statutes of those names as amended before or after the effective date of this chapter.

(17) "Security" means any note; stock; treasury stock; bond; debenture; evidence of indebtedness; certificate of interest or participation in any profit-sharing agreement; collateral-trust certificate; preorganization certificate or subscription; transferable share; investment contract, including pyramid promotion which includes any plan or operation for the sale or distribution of property, services, or any other thing of value wherein a person for a consideration is offered an opportunity to obtain a benefit which is based in whole or in part on the inducement, by himself or herself or by others, of additional persons to purchase the same or a similar opportunity; voting-trust certificate; certificate of deposit for a security; certificate of interest of participation in an oil, gas or mining title or lease or in payments out of production under such a title or lease; options on commodities; or, in general, any interest or instrument commonly known as a "security," or any certificate of interest or participation in, temporary or interim certificate, for, receipt for guarantee of, or warrant or right to subscribe to or purchase, any of the aforegoing. "Security" does not include any insurance or endowment policy or annuity contract under which an insurance company promises to pay money either in a lump sum or periodically for life or for some other specified period.

(18) "State" means any state, territory, or possession of the United States, the District of Columbia, and Puerto Rico.

(b) Principles of definition. --

(1) In this chapter when the word "means" is employed in defining a word or term, the definition is limited to the meaning given.

(2) In this chapter when the word "includes" is employed in defining a word or term, the definition is not limited to the meaning given, but in appropriate cases the word or term may be defined in any way not inconsistent with the definition given.

(3) If a word used in this chapter is not defined herein, it has its commonly accepted meaning, and may be defined as appropriate under § 7325(b) of this title

6 Del. C. 1953, § 7302; 59 Del. Laws, c. 208, § 1; 67 Del. Laws, c. 274, § 1; 68 Del. Laws, c. 181, §§ 18, 21, 27, 29; 70 Del. Laws, c. 186, § 1; 70 Del. Laws, c. 560, §§ 3, 5; 71 Del. Laws, c. 162, §§ 1-5.;

§ 7303. Fraud.

It is unlawful for any person, in connection with the offer, sale or purchase of any security, directly or indirectly:

(1) To employ any device, scheme or artifice to defraud;

(2) To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they are made, not misleading; or

(3) To engage in any act, practice or course of business which operates or would operate as a fraud or deceit upon any person.

6 Del. C. 1953, § 7303; 59 Del. Laws, c. 208, § 1; 68 Del. Laws, c. 181, § 16.;

§ 7304. Registration of and notice filing for securities.

It is unlawful for any person to offer or sell any security in this State unless (1) it is registered under this chapter; (2) the security or transaction is exempted under § 7309 of this title; or (3) it is a federal covered security for which a notice filing has been made pursuant to the provisions of § 7309A of this title.

6 Del. C. 1953, § 7304; 59 Del. Laws, c. 208, § 1; 71 Del. Laws, c. 162, § 6.;

§ 7305. Registration of securities by coordination.

(a) Any security for which a registration statement has been filed under the Securities Act of 1933 [15 U.S.C. § 77a et seq.] in connection with the same offering may be registered by coordination.

(b) A registration statement under this section shall contain the following information and be accompanied by the following documents, in addition to the information specified in § 7307(b) of this title and the consent to service of process required by § 7327 of this title, and a filing fee as established by the Commissioner under § 7306(e) of this title:

(1) One copy of the latest form of prospectus filed under the Securities Act of 1933 [15 U.S.C. § 77a et seq.], unless the Commissioner requires additional copies;

(2) If the Commissioner by rule or otherwise requires, a copy of the articles of incorporation and bylaws (or their substantial equivalents) currently in effect, a copy of any agreements with or among underwriters, a copy of any indenture or other instrument governing the issuance of the security to be registered, and a specimen or copy of the security;

(3) If the Commissioner requests, any other information, or copies of other documents, filed under the Securities Act of 1933 [15 U.S.C. § 77a et seq.] or with other states or regulatory agencies;

(4) An undertaking to forward all future amendments to the federal prospectus, other than an amendment which merely delays the effective date of the registration statement, promptly and in any event not later than the 1st business day after the day they are forwarded to or filed with the Securities and Exchange Commission, whichever first occurs.

(c) A registration statement under this section automatically becomes effective at the moment the federal registration statement becomes effective if all the following conditions are satisfied:

(1) No stop order is in effect and no proceeding is pending under § 7308 of this title;

(2) The registration statement has been on file with the Commissioner for at least 10 days; and

(3) A statement of the maximum and minimum proposed offering prices and the maximum underwriting discounts and commissions is then on file and the offering is made within those limitations. The registrant shall promptly notify the Commissioner by telephone or telegram of the date and time when the federal registration statement became effective and the content of the price amendment, if any, and shall promptly file posteffective amendment containing the information and documents in the price amendment. "Price amendment" means the final federal amendment which includes a statement of the offering price, underwriting and selling discounts or commissions, amount of proceeds, conversion rates, call prices and other matters dependent upon the offering price. Upon failure to receive the required notification posteffective amendment with the respect to the price amendment, the Commissioner may enter a stop order, without notice or hearing, retroactively denying effectiveness to the registration statement or suspending its effectiveness until compliance with this subsection, if the Commissioner promptly notifies the registrant by telephone or telegram (and promptly confirms by letter or telegram when notifying by telephone) of the issuance of the order. If the registrant proves compliance with the requirements of this subsection as to notice and posteffective amendment, the stop order is void as of the time of its entry.

The Commissioner may by rule or otherwise waive either or both of the conditions specified in subsections (c)(2) and (c)(3) of this section. If the federal registration statement becomes effective before all the conditions in this subsection are satisfied and they are not waived, the registration statement automatically becomes effective as soon as all the conditions are satisfied.

(d) Any security for which the documents required by any regulation adopted by the Securities and Exchange Commission under sections 3(b) or 3(c) of the Securities Act of 1933 [15 U.S.C. § 77c(b) or (c)] have been filed with said Commission in connection with the same offering may be registered by coordination upon compliance with subsections (b) and (c) of this section in such manner as the Commissioner by rule or order may prescribe. For purposes of this subsection, the terms "federal registration statement" and "federal prospectus" shall include the documents (including the offering circular, if any) which may be filed with the Securities and Exchange Commission pursuant to any such regulation.

6 Del. C. 1953, § 7305; 59 Del. Laws, c. 208, § 1; 67 Del. Laws, c. 274, § 2; 68 Del. Laws, c. 181, § 2; 70 Del. Laws, c. 186, § 1.;

§ 7306. Registration of securities by qualification.

(a) Any security may be registered by qualification.

(b) A registration statement under this section shall contain the following information and be accompanied by the following documents in addition to the information specified in § 7307(b) of this title and the consent to service of process required by § 7327 of this title:

(1) The name of the issuer, its address, and form of organization; the state and date of its organization; the general character and location of its business; a description of its physical properties and equipment; and a statement of the general competitive conditions in the industry or business in which it is or will be engaged;

(2) With respect to every director and officer of the issuer, or person occupying a similar status or performing similar functions: The person's name, address and principal occupation for the past 5 years; the amount of securities of the issuer held by the person as of a specified date within 30 days of the filing; the amount of the securities covered by the filing to which the person has indicated an intention to subscribe; and a description of any material interest in any material transaction with the issuer or any significant subsidiary effected within the past 3 years or proposed to be effected;

(3) With respect to persons covered by subsection (b)(2) of this section: The remuneration paid during the past 12 months and estimated to be paid during the next 12 months, directly or indirectly, by the issuer (together with all predecessors, parents, subsidiaries and affiliates) to all those persons in the aggregate;

(4) With respect to any person owning of record, or beneficially 10 percent or more of the outstanding shares of any class or equity security of the issuer; the information specified in subsection (b)(2) of this section other than the person's occupation;

(5) With respect to every promoter if the issuer was organized within the past 3 years; the information specified in subsection (b)(2) of this section, any amount paid within that period or intended to be paid to him or her, and the consideration for any such payment;

(6) With respect to any person on whose behalf any part of the offering is to be made in a nonissuer distribution or in a distribution in which only part of the securities are being distributed by the issuer: The person's name and address; the amount of securities of the issuer held as of the date of the filing; a description of any material interest in any material transaction with the issuer or any significant subsidiary effected within the past 3 years or proposed to be effected; and a statement of the person's reasons for making the offering;

(7) The capitalization and long-term debt (on both a current and a pro forma basis) of the issuer and any significant subsidiary, including a description of each security outstanding or being registered or otherwise offered, and a statement of the amount and kind of consideration (whether in the form of cash, physical assets, services, patents, goodwill, or anything else) for which the issuer or any subsidiary has issued any of its securities within the past 2 years or is obligated to issue any of its securities;

(8) The kind and amount of securities to be offered; the proposed offering price or the method by which it is to be computed; any variation therefrom at which any proportion of the offering is to be made to any person or class or persons other than the underwriters with a specification of any such person or class; the basis upon which the offering is to be made if otherwise than for cash; the estimated aggregate underwriting and selling discounts or commissions and finders' fees (including separately cash, securities, contracts, or anything else of value to accrue to the underwriters or finders in connection with the offering) or, if the selling discounts or commissions are variable, the basis of determining them and their maximum and minimum amounts; the estimated amounts of other selling expenses, including legal, engineering, and accounting charges; the name and address of every underwriter and every recipient of a finder's fee; a copy of any underwriting or selling-group agreement pursuant to which the distribution is to be made, or the proposed form of any such agreement whose terms have not yet been determined, and a description of the plan of distribution of any securities which are to be offered otherwise than through an underwriter;

(9) The estimated cash proceeds to be received by the issuer from the offering; the purposes for which the proceeds are to be used by the issuer; the amount to be used for each purpose; the order or priority in which the proceeds will be used for the purposes stated; the amounts of any funds to be raised from other sources to achieve the purposes stating the sources of any such funds; and, if any part of the proceeds is to be used to acquire any property (including goodwill) otherwise than in the ordinary course of business, the names and addresses of the vendors, the purchase price, the names of any persons who have received commissions in connection with the acquisition, and the amounts of any such commissions and any other expense in connection with the acquisition (including the cost of borrowing money to finance the acquisition);

(10) A description of any stock options or other security options outstanding or to be created in connection with the offering, together with the amount of any such options held or to be held by every person required to be named in subsection (b)(2), (4), (5), (6), or (8) of this section and by any person who holds or will hold 10 percent or more in the aggregate of any such options;

(11) The dates of, parties to, and general effect concisely stated of, every management or other material contract made or to be made otherwise than in the ordinary course of business if it is to be performed in whole or in part at or after the filing of the registration statement or was made within the past 2 years, together with a copy of every such contract; and a description of any pending litigation or proceeding to which the issuer is a party and which materially affects its business or assets (including any such litigation or proceeding known to be contemplated by governmental authorities);

(12) Three copies of the prospectus required by subsection (d) of this section, together with a copy of any other prospectus, pamphlet, circular, form letter, advertisement, or other sales literature intended as of the effective date to be used in connection with the offering;

(13) A specimen or copy of the security being registered; a copy of the issuer's articles of incorporation and bylaws, or their substantial equivalents, as currently in effect; and a copy of any indenture or other instrument covering the security to be registered;

(14) A signed or conformed copy of an opinion of counsel as to the legality of the security being registered (with an English translation if it is in a foreign language), which shall state whether the security when sold will be legally issued, fully paid, and nonassessable, and if a debt security, a binding obligation of the issuer;

(15) The written consent of any accountant, engineer, appraiser, or other person whose profession gives authority to a statement made by him or her, if any such person is named as having prepared or certified the report or evaluation (other than a public and official document or statement) which is used in connection with the registration statement;

(16) A balance sheet of the issuer as of a date within the last quarter prior to the filing of the registration statement; a profit and loss statement and analysis of surplus for each of the 3 fiscal years preceding the date of the balance sheet and for any period between the close of the last fiscal year and the date of the balance sheet, or for the period of the issuer's and predecessor's existence of less than 3 years; and, if any part of the proceeds of the offering is to be applied to the purchase of any business, the same financial statements which would be required of that business for the registrant;

(17) Such additional information as the Commissioner requires by rule, regulation, or order.

(d) As a condition of registration under this section, a prospectus containing any designated part of the information specified in subsection (b) of this section shall be sent or given to each person to whom an offer is made before or concurrently with:

(1) The first written offer made to the person (otherwise than by means of a public advertisement) by or for the account of the issuer or any other person on whose behalf the offering is being made, or by any other writer or broker-dealer who is offering part of an unsold allotment or subscription taken by the person as a participant in the distribution;

(2) The confirmation of any sale made by or for the account of any such person;

(3) Payment pursuant to any such sale; or

(4) Delivery of the security pursuant to any such sale, whichever first occurs; provided, however, that subsection (d)(1) of this section may be satisfied by the use of a preliminary prospectus, so designated and bearing such legend as the Commissioner may prescribe, if a final prospectus is sent or given to each recipient of the preliminary prospectus before or concurrently with whichever event in subsection (d)(2), (3) and (4) of this section first occurs.

(e) Every person filing a registration statement under this section, or under § 7305 of this title, shall pay a filing fee as provided by rule or regulation, but in no case shall the fee be less than $200 or more than $1,000. In addition, the Commissioner may require reasonable fees for miscellaneous costs absorbed by the Securities Division for the printing, copying, filing or transcription of other documents.

(f) The Commissioner may exercise rule making authority under § 7325(b) of this title to establish special registration procedures for limited offerings. These procedures, including filing requirements and fees, may differ from the qualification procedures set forth above.

6 Del. C. 1953, § 7306; 59 Del. Laws, c. 208, § 1; 68 Del. Laws, c. 181, §§ 1, 13; 70 Del. Laws, c. 186, § 1; 70 Del. Laws, c. 560, §§ 1, 6.;

§ 7307. Provisions applicable to registration of securities generally.

(a) A registration statement may be filed by the issuer, and the other person on whose behalf the offering is to be made, or a registered broker-dealer.

(b) Every registration statement shall specify the amount of securities to be offered in this State; the states in which a registration statement or similar document in connection with the offering has been or is to be filed; and any adverse order, judgment, or decree entered in connection with the offering by the regulatory authorities in each state or by any court or the Securities and Exchange Commission.

(c) The Commissioner may by rule or otherwise permit the omission of any item of information or document from any registration statement.

(d) Every registration statement is effective for any period during which the security is being offered or distributed in a nonexempted transaction by or for the account of the issuer or other person on whose behalf the offering is being made or by any underwriter or broker-dealer who is still offering part of an unsold allotment or subscription taken by him or her as a participant in the distribution, except during the time a stop order is in effect under § 7308 of this title. The registration statement may be withdrawn only in the discretion of the Commissioner.

(e) So long as a registration statement is effective, the Commissioner may by rule or order require the person who filed the registration statement to file reports, not more often than quarterly, to keep reasonably current the information contained in the registration statement and to disclose the progress of the offering.

(f)(1) A registration statement relating to a security issued by a face-amount certificate company or a redeemable security issued by an open-end management company or unit investment trust, as those terms are defined in the Investment Company Act of 1940 [15 U.S.C. § 80a-1 et seq.], may be amended after its effective date so as to increase the securities specified as proposed to be offered. Such an amendment becomes effective when the Commissioner so orders. Every person filing such an amendment shall pay a filing fee, in accordance with § 7306(e) of this title, with respect to the additional securities proposed to be offered.

(2) The Commissioner may require that registrations of securities be renewed annually. Where the Commissioner finds that an additional security from the same issuer has different characteristics from the security first registered, such as being a separate portfolio or series of an investment company or mutual fund, the Commissioner may require separate registration and renewal of the additional security.

(g) The Commissioner may require by rule, regulation or order any issuer of securities registered under this chapter or those offered pursuant to § 7309 of this title to file periodic reports with the Commissioner, and to provide them to holders of those securities.

6 Del. C. 1953, § 7307; 59 Del. Laws, c. 208, § 1; 68 Del. Laws, c. 181, § 3; 70 Del. Laws, c. 186, § 1.;

§ 7308. Stop orders.

(a) Subject to § 7309A(e) of this title, the Commissioner may issue a stop order prohibiting the offering and sale of a security, or the Commissioner may issue a stop order denying effectiveness to, or suspending or revoking the effectiveness of, any registration statement, if the Commissioner finds that the order is in the public interest and that:

(1) The registration statement as of its effective date or as of any earlier date in the case of an order denying effectiveness, or any amendment under § 7307(f) of this title as of its effective date, or any report under § 7307(e) of this title is incomplete in any material respect or contains any statement which was, in the light of the circumstances under which it was made, false or misleading with respect to any material fact;

(2) Any provision of this chapter or any rule, order, or condition lawfully imposed under this chapter has been violated, in connection with the offering, by (i) the person filing the registration statement, (ii) the issuer, any partner, officer, or director of the issuer, any person occupying a similar status or performing similar functions, or any person directly or indirectly controlling or controlled by the issuer, but only if the person filing the registration statement is directly or indirectly controlled by or acting for the issuer, or (iii) any underwriter;

(3) The security registered or sought to be registered is the subject of an administrative stop order or similar order or permit or temporary injunction of any court of competent jurisdiction entered under any federal or state act applicable to the offering; but the Commissioner may not institute the proceeding against an effective registration statement under this subsection more than one year from the date of the order or injunction relied on, and may not enter an order under this subsection on the basis of an order or injunction entered under any other state act unless that order or injunction is based on facts which would currently constitute a ground for stop order under this section;

(4) The issuer's enterprise or method of business includes or would include activities which are illegal where performed;

(5) The offering has worked or tended to work a fraud upon purchasers or would so operate;

(6) The offering has been or would be made with unreasonable amounts of underwriters' and sellers' discounts, commissions, or other compensation, or promoters' profits or participation, or unreasonable amounts or kinds of options;

(7) The applicant or registrant has failed to pay the proper filing fee; but the Commissioner shall vacate any such order when the deficiency has been corrected; or

(8) When a security is sought to be registered by coordination, there has been a failure to comply with the undertaking required by § 7305(b)(4) of this title.

(b) The Commissioner may not institute a stop-order proceeding against an effective registration statement on the basis of a fact or transaction known to the Commissioner when the registration statement became effective, unless the proceeding is instituted within the next 90 days.

(c) The Commissioner may by order summarily postpone or suspend the effectiveness of the registration statement pending final determination of any proceeding under this section. Upon the entry of the order, the Commissioner shall promptly notify each person specified in subsection (d) that it has been entered and of the reasons therefor and that within 15 days after the receipt of a written request the matter will be set down for hearing. If no hearing is requested and none is ordered by the Commissioner, the order will remain in effect until it is modified or vacated by the Commissioner. If a hearing is requested or ordered, the Commissioner, after notice of and opportunity for hearing to each person specified in subsection (d), may modify or vacate the order or extend it until final determination.

(d) No stop order may be entered under any part of this section, except the first sentence of subsection (c) of this section, without appropriate prior notice to the applicant making the filing, the issuer, and the person on whose behalf the securities are to be or have been offered, opportunity for hearing, and written findings of fact and conclusions of law.

(e) The Commissioner may vacate or modify a stop order upon finding that the conditions which prompted entry have changed or that it is otherwise in the public interest to do so.

6 Del. C. 1953, § 7308; 59 Del. Laws, c. 208, § 1; 68 Del. Laws, c. 181, § 13; 70 Del. Laws, c. 186, § 1; 70 Del. Laws, c. 186, § 1; 70 Del. Laws, c. 560, § 2; 71 Del. Laws, c. 162, § 7.;

§ 7309. Exemptions.

(a) The following securities are exempted from §§ 7304, 7309A and 7312 of this title:

(1) Any security (including a revenue obligation) issued or guaranteed by the United States, any state, any political subdivision of a state, or any agency or corporation or other instrumentality of one or more of the foregoing, or any certificate of deposit for any of the foregoing;

(2) Any security issued or guaranteed by Canada, any Canadian province, any political subdivision of any such province, any agency or corporate or other instrumentality of one or more of the foregoing, or any other foreign government with which the United States currently maintains diplomatic relations, if the security is recognized as a valid obligation by the issuer or guarantor;

(3) Any security issued by and representing an interest in or a debt of, or guaranteed by, any bank organized under the laws of the United States, or any bank, savings institution, or trust company organized and supervised under the laws of any state;

(4) Any security issued by and representing an interest in or a debt of, or guaranteed by, any federal savings and loan association, or any building and loan association organized and supervised under the laws of any state and authorized to do business in this State;

(5) Any security issued by and representing an interest in or a debt of, or guaranteed by, any insurance company organized under the laws of any state and authorized to do business in this State;

(6) Any security issued or guaranteed by any federal credit union or any credit union, industrial loan association, or similar association organized and supervised under the laws of this State;

(7) Any security issued or guaranteed by any railroad, other common carrier, public utility, or holding company which is subject to the jurisdiction of the Interstate Commerce Commission; a registered holding company under the Public Utility Holding Company Act of 1935 [15 U.S.C. § 79 et seq.] or a subsidiary of such a company within the meaning of that Act; regulated in respect of its rates and charges by a governmental authority of the United States or any state; or regulated in respect of the issuance or guarantee of the security by a governmental authority of the United States, any state, Canada, or any Canadian province;

(8) Any security listed or approved for listing upon notice of issuance on the New York Stock Exchange, the American Stock Exchange, the Pacific Coast Stock Exchange, the Midwest Stock Exchange, or the Philadelphia-Baltimore-Washington Stock Exchange or any other exchange which the Commissioner deems to have substantially the same standards for listing as required by the above mentioned exchanges; any other security of the same issuer which is of senior or substantially equal rank; any security called for by subscription rights or warrants so listed or approved; or any warrant or right to purchase or subscribe to any of the foregoing;

(9) Any security issued by any person organized and operated not for private profit but exclusively for religious, educational, benevolent, charitable, fraternal, social, athletic, or reformatory purposes, or as a chamber of commerce, local industrial development corporation, or trade or professional association;

(10) Any commercial paper which arises out of a current transaction or the proceeds of which have been or are to be used for current transactions, and which evidences an obligation to pay cash within 9 months of the date of issuance, exclusive of days of grace, or any renewal of such paper which is likewise limited, or any guarantee of such paper or of any such renewal;

(11) Any investment contract issued after the effective date of this act in connection with an employee's stock purchase, savings, pension, profit-sharing or similar benefit plan if the Commissioner is notified in writing 30 days before the inception of the plan, or, with respect to plans which are in effect on July 1, 1973, within 60 days, thereafter (or within 30 days before they are reopened if they are closed on July 1, 1973);

(12) Any security issued by a bona fide agricultural cooperative operating in this State that is organized under Chapter 85 of Title 3 of this Code or as a foreign cooperative association organized under the law of another state that has been duly qualified to transact business in this State;

(13) Any security traded pursuant to the National Association of Securities Dealers Automated Quotations System for which the Commissioner by rule has determined that registration is not necessary for the protection of investors.

(b) The following transactions are exempted from §§ 7304, 7309A and 7312 of this title:

(1) Any isolated nonissuer transaction, whether effected through a broker-dealer or not;

(2) Any nonissuer transaction by a registered agent of a registered broker-dealer, and any resale transaction by a sponsor of a unit investment trust registered under the Investment Company Act of 1940 [15 U.S.C. § 80a-1 et seq.], in a security of a class that has been outstanding in the hands of the public for at least 90 days, provided, at the time of the transaction:

a. The issuer of the security is actually engaged in business and not in the organization 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;

b. The security is sold at a price reasonably related to the current market price of the security;

c. 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;

d. A nationally recognized securities manual designated by rule or order of the Commissioner or a document filed with the Securities and Exchange Commission that is publicly available through the SEC's Electronic Data Gathering and Retrieval System (EDGAR) and contains:

1. A description of the business and operations of the issuer;

2. The names of the issuer's officers and directors, if any, or, in the case of an issuer not domiciled in the United States, the corporate equivalents of such persons in the issuer's country of domicile;

3. An audited balance sheet of the issuer 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; and

4. An audited income statement for each of the issuer's immediately preceding 2 fiscal years, or for the period of existence of the issuer, if in existence for less than 2 years or, in the case of a reorganization or merger where the parties to the reorganization or merger had such audited income statement, a pro forma income statement; 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 [15 U.S.C. § 78a et seq.], or designated for trading on the National Association of Securities Dealers Automated Quotation System (NASDAQ), unless:

1. The issuer of the security is a unit investment trust registered under the Investment Company Act of 1940 [15 U.S.C. § 80a-1 et seq.];

2. The issuer of the security has been engaged in continuous business (including predecessors) for at least 3 years; or

3. 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.

(3) Any nonissuer transaction effected by or through a registered broker-dealer pursuant to an unsolicited order or offer to buy; but the Commissioner may by rule require that the customer acknowledge upon a specified form that the sale was unsolicited, and that a signed copy of each such form be preserved by the broker-dealer for a specified period;

(4) Any transaction between the issuer or other person on whose behalf the offering is made and an underwriter, or among underwriters;

(5) Any transaction in a bond or other evidence of indebtedness secured by a real or chattel mortgage or deed of trust, or by an agreement for the sale of real estate or chattels, if the entire mortgage, deed of trust or agreement, together with all the bonds or other evidences of indebtedness secured thereby, is offered and sold as a unit;

(6) Any transaction by an executor, administrator, sheriff, marshal, receiver, trustee in bankruptcy, guardian, or conservator;

(7) Any transaction executed by a bona fide pledgee without any purpose of evading this chapter;

(8) Any offer or sale to a bank, savings institution, trust company, insurance company, investment company as defined in the Investment Company Act of 1940 [15 U.S.C. § 80a-1 et seq.], pension or profit-sharing trust, or other financial institution or institutional buyer, or to a broker-dealer, whether the purchaser is acting for itself or in some fiduciary capacity;

(9) Any transaction pursuant to an offer directed by the offerer to not more than 25 persons [other than those designated in paragraph (8) of this subsection] in this State during any period of 12 consecutive months, whether or not the offerer or any of the offerees is then present in this State, if the seller reasonably believes that all the buyers in this State, other than those designated in paragraph (8) of this subsection, are purchasing for investment; but the Commissioner may by rule or order, as to any security or transaction or any type of security or transaction, withdraw or further condition this exemption, or increase or decrease the number of offerees permitted, or waive the condition relating to investment intent; provided, however, the Commissioner may by rule or order exempt transactions that are exempt under federal securities laws or regulations;

(10) Any offer or sale of a preorganization certificate or subscription if no commission or other remuneration is paid or given directly or indirectly for soliciting any prospective subscriber, the number of subscribers does not exceed 10, and no payment is made by any subscriber;

(11) Any transaction pursuant to an offer to existing security holders of the issuer, including persons who at the time of the transaction are holders of the convertible securities, nontransferable warrants, or transferable warrants exercisable within not more than 90 days of their issuance, if no commission or other remuneration (other than a standby commission) is paid or given directly or indirectly for soliciting any security holder in this State, or the issuer first files a notice specifying the terms of the offer and the Commissioner does not by order disallow the exemption within the next 5 full business days;

(12) Any offer (but not a sale) of a security for which a registration statement has been filed under this chapter if no stop order or refusal order is in effect and no public proceeding or examination looking toward such an order is pending, and if the offerer complies with § 7306(d) of this title;

(13) Any offer or sale of a security by or through a registered broker-dealer if such offer or sale is not directly or indirectly for the benefit of the issuer or a person who is known or should reasonably be known to such broker-dealer to be the record or beneficial owner of 10 percent or more of the outstanding voting securities of the issuer; the security is not part of an unsold allotment or subscription taken by a participant in a distribution directly or indirectly for the benefit of the issuer or a person who is known or should reasonably be known by such broker-dealer to be the record or beneficial owner of 10 percent or more of the outstanding voting securities of the issuer; and no administrative stop order or similar order or permanent or temporary injunction of any court of competent jurisdiction is in effect under this subtitle or under any federal or state act against the offering or sale of the security or any security of the same class.

(c) The Commissioner may by rule or order deny or revoke any exemption in subsection (a)(9) or (a)(11) or in subsection (b) of this section, either generally or with respect to a specific security or transaction. No such order may be entered without appropriate prior notice to all interested parties, opportunity for hearing, and written findings of fact and conclusions of law, except that the Commissioner may by order summarily deny or revoke any of the specified exemptions pending final determination of any proceeding under this subsection. Upon the entry of a summary order the Commissioner shall promptly notify all interested parties that it has been entered and of the reasons therefor and that within 15 days of the receipt of a written request the matter will be set down for a hearing. If no hearing is requested and none is ordered by the Commissioner, the order will remain in effect until it is modified or vacated by the Commissioner. If a hearing is requested or ordered, the Commissioner, after notice of and opportunity for hearing to all interested persons, may modify or vacate the order or extend it until final determination. No order under this subsection may operate retroactively. No person may be considered to have violated § 7304 or § 7312 of this title by reason of any offer or sale effected after the entry of an order under this subsection if that person sustains the burden of proof that he or she did not know, and in the exercise of reasonable care could not have known, of the order.

(d) In any proceeding under this chapter, the burden of proving an exemption or an exception from a definition is upon the person claiming it.

6 Del. C. 1953, § 7309; 59 Del. Laws, c. 208, § 1; 63 Del. Laws, c. 160, §§ 1, 2; 64 Del. Laws, c. 112, § 1; 68 Del. Laws, c. 181, §§ 12, 13; 70 Del. Laws, c. 186, § 1; 70 Del. Laws, c. 560, § 1; 71 Del. Laws, c. 162, §§ 8-10.;

§ 7309A. Federal covered securities.

(a) The Commissioner, by rule or order, may require the filing of any or all of the following documents with respect to a covered security under § 18(b)(2) of the Securities Act of 1933 [15 U.S.C. § 77r(b)(2)]:

(1) Prior to the initial offer of such federal covered security in this State, all documents that are part of a federal registration statement filed with the Securities and Exchange Commission under the Securities Act of 1933 [15 U.S.C. § 77a et seq.] (or, in lieu of filing such registration statement, a notice as prescribed by the Commissioner by rule or order), together with a consent to service of process signed by the issuer and with a filing fee as provided by rule or regulation, but in no case shall the fee be less than $200 or more than $1,000. In addition, the Commissioner may require reasonable fees for miscellaneous costs absorbed by the Securities Division for printing, copying, filing or transcription of other documents;

(2) After the initial offer of such federal covered security in this state, all documents that are part of an amendment to a federal registration statement filed with the Securities and Exchange Commission under the Securities Act of 1933 [15 U.S.C. § 77a et seq.], which shall be filed concurrently with the Commissioner; and

(3) A report of the value of such covered securities offered or sold in this State, together with a filing fee as provided by rule or regulation, but in no case shall the fee be less than $200 or more than $1,000; provided, however, that if the filing fee paid is equal to $1,000, no report of the value of such covered securities offered or sold in this State need be filed.

(b) With respect to any security that is a covered security under § 18(b)(4)(D) of the Securities Act of 1933 [15 U.S.C. § 77r(b)(4)(D)], the Commissioner, by rule or order, may require the issuer to file a notice on S.E.C. Form D and a consent to service of process signed by the issuer no later than 15 days after the first sale of such covered security in this State, together with a filing fee as provided by rule or regulation, but in no case shall the fee be less than $200 or more than $1,000.

(c) The Commissioner, by rule or otherwise, may require the filing of any document filed with the Securities and Exchange Commission under the Securities Act of 1933 [15 U.S.C. § 77a et seq.], with respect to a covered security under § 18(b)(3) or (4) of the Securities Act of 1933 [15 U.S.C. § 77r(b)(3) or (4)], together with a filing fee as provided by rule or regulation, but in no case shall the fee be less than $200 or more than $1,000.

(d) The Commissioner may require that filings made and fees paid pursuant to subsections (a), (b) and (c) of this section be renewed annually. Where the Commissioner finds that an additional security from the same issuer has different characteristics from the security as to which the first filing was made, such as being a separate portfolio or series of an investment company or mutual fund, the Commissioner may require separate filing, fee payment and renewal for the additional security.

(e) The Commissioner may issue a stop order suspending the offer and sale of a covered security, except a covered security under § 18(b)(1) of the Securities Act of 1933 [15 U.S.C. § 77r(b)(1)], if it finds that (1) the order is in the public interest and (2) there is a failure to comply with any condition established under this section.

(f) The Commissioner, by rule or order, may waive any and all provisions of this section.

(g) Notwithstanding the provisions of this section, until October 10, 1999, the Commissioner may require the registration of any federal covered security for which the fees required by this section have not been paid promptly following written notification from the Commissioner regarding any nonpayment or underpayment of such fees. An issuer shall be considered to have promptly paid such fees if they are remitted to the Commissioner within 15 days following such person's receipt of written notification from the Commissioner.

71 Del. Laws, c. 162, § 11.;

§ 7310. Misleading filings.

It is unlawful for any person to make or cause to be made, in any document filed with the Commissioner or in any proceeding under this chapter, any statement which is, at the time and in the light of the circumstances under which it is made, false or misleading in any material respect.

6 Del. C. 1953, § 7310; 59 Del. Laws, c. 208, § 1.;

§ 7311. Unlawful representations concerning registration, notice filing or exemption.

(a) Neither the fact that a notice filing under this chapter, an application for registration under this chapter, or a registration statement under this chapter has been filed, nor the fact that a person or security is effectively registered, constitutes a finding by the Commissioner that any document filed under this chapter is true, complete and not misleading. Neither any such fact nor the fact that an exemption or exception is available for a security or a transaction means that the Commissioner has passed in any way upon the merits or qualifications of, or recommended or given approval to, any person, security, or transaction.

(b) It is unlawful to make, or cause to be made, to any prospective purchaser, customer, or client any representation inconsistent with subsection (a).

6 Del. C. 1953, § 7311; 59 Del. Laws, c. 208, § 1; 71 Del. Laws, c. 162, §§ 12, 13.;

§ 7312. Filing of sales and advertising literature.

The Commissioner may by rule or order require the filing of any prospectus, pamphlet, circular, form letter, advertisement or other sales literature or advertising communication addressed or intended for distribution to prospective investors, including clients or prospective clients of an investment adviser unless the security or transaction is exempted by § 7309 of this title or is a federal covered security.

6 Del. C. 1953, § 7312; 59 Del. Laws, c. 208, § 1; 71 Del. Laws, c. 162, § 14.;

§ 7313. Registration and notice filing requirements for broker-dealers, agents, investment advisers, federal covered advisers and investment adviser representatives.

(a) It is unlawful for any person to transact business in this State as a broker-dealer or agent unless the person is registered under this chapter.

(b) It is unlawful for any broker-dealer or issuer to employ an agent unless the agent is registered. When an agent begins or terminates a connection with a broker-dealer or issuer, or begins or terminates those activities which make him or her an agent, the agent as well as the broker-dealer or issuer shall promptly notify the Commissioner. Every registration of an agent expires when the agent terminates the agent's connection with a broker-dealer or issuer, though the person may still be subject to disciplinary action by the Commissioner under § 7316(e) of this title. When such an agent begins a connection with another broker-dealer or another issuer, the agent shall file an application for initial registration as provided in § 7314(a) of this title and shall pay a filing fee prescribed by § 7314(c) of this title. Unless the Commissioner takes action under § 7316 or § 7315 of this title, the said agent registration shall become effective 30 days after receipt of a complete application by the Commissioner (or by the Commissioner's designee) and shall continue in effect until it expires under the provisions of subsection (f) of this section, or under the provisions of this subsection, whichever would earlier occur. The Commissioner shall be empowered to waive the 30-day period at the Commissioner's discretion.

(c) It is unlawful for any person to transact business in this State as an investment adviser or as an investment adviser representative unless:

(1) The person is registered under this chapter; or

(2) The person has no place of business in this State; and

a. The person's only clients in this State are investment companies as defined in the Investment Company Act of 1940 [15 U.S.C. § 80a-1 et seq.], other investment advisers, federal covered advisers, broker-dealers, banks, trust companies, savings and loan associations, insurance companies, employee benefit plans with assets of not less than $1,000,000, and governmental agencies or instrumentalities, whether acting for themselves or as trustees with investment control, or other institutional investors as are designated by rule or order of the Commissioner; or

b. During the preceding 12-month period has had not more than 5 clients, other than those specified in subparagraph a., who are residents of this State.

(d) It is unlawful for any person required to be registered as an investment adviser under this chapter to employ an investment adviser representative unless the investment adviser representative is registered under this chapter. When an investment adviser representative begins or terminates employment with an investment adviser, the investment adviser representative as well as the investment adviser shall promptly notify the Commissioner. Every registration of an investment adviser representative expires when the investment adviser representative terminates his or her connection with an investment adviser, though the person may still be subject to disciplinary action by the Commissioner under § 73