Chart Comparing Common California and Federal Exemptions and Registration

Note: Not all requirements are covered here, nor are variations for specific
situations addressed; this is designed to give general guidance. Also, the
securities law area is extremely complex; do not try to make an offering
without advice from an attorney.

1. “Only non-specific info and targeted offers”:

• The company can make a general announcement, meaning that on web sites,
  in advertisements and at seminars can discuss what the company does, its
  need for money and what that money will be used for, and in general the
  type of investments it has or will have available. Certain warnings must
  accompany this general announcement. What the company cannot do is mention
  any rate of return, price per share or unit or percentage of ownership,
  performance of prior offers, solicit offers from potential investors,
  etc. You must have an attorney review the general announcement before
  using it.
• Also, the company can contact individual potential investors by email,
  letter, etc. that it reasonably believes meet the investor suitability
  requirements for the investment and give them the specifics about the
  offering. (Although to actually invest the investor must usually be given
  an investor questionnaire, private placement memorandum or something similar,
  and a subscription agreement). Warning: Do NOT push the envelope on reasonable
  belief here; if unsure, send an appropriate investor questionnaire first.
• Further, the SEC has said (although it has received wide criticism for
  this), that when a federal exemption is being used and there is no prior
  relationship between the offeror and potential investor, the offeror must
  wait 30 to 45 days after receiving responses to the investor questionnaire
  before giving the potential investors any specifics about he offering.

2. “Accredited investors”:

• For companies: Basically, either a) any organization not formed for
  the specific purpose of acquiring the securities offered with total assets
  in excess of $5,000,000, OR b) any organization where each owner is an
  accredited investor.
• For individuals:
  • Any director, executive officer, or general partner of the company
    making the offering;
  • Any natural person whose individual net worth, or joint net worth
    with that person’s spouse, at the time of his purchase exceeds $1,000,000
    (note that as of summer of 2010 the personal residence is not counted
    as part of net worth);
  • Any natural person who had an individual income in excess of $200,000
    in each of the two most recent years or joint income with that person’s
    spouse in excess of $300,000 in each of those years and has a reasonable
    expectation of reaching the same income level in the current year.
  • As of summer of 2010, equity in the principal residence must be
    excluded in determining net worth

3. “Pre-existing substantive relationship”: A preexisting personal
or business relationship with the company or one or more of its officers,
directors or controlling persons of a nature and duration such as would
enable a reasonably prudent purchaser to be aware of the character, business
acumen and general business and financial circumstances of the person with
whom such a relationship exists.

4. “Sophisticated”: Having the capacity to protect own interests,
meaning that by reason of substantial business or financial experience –
or that of Investor’s professional advisors (who are unaffiliated with and
who are not compensated by the company or any affiliate or selling agent
of the company, directly or indirectly) – the capacity to protect investor’s
interests in connection with the transaction.

5. “Qualified investors” (for a 25102(n)): Note that for this
to apply the company must be a corporation and have only a single class
of stock/units. This means a natural person who, either individually or
jointly with the person’s spouse, either:

• (i) has a minimum net worth of $250,000 and had, during the immediately
  preceding tax year, gross income greater than $100,000) and reasonably
  expects gross income greater than $100,000) during the current tax year
  OR
• (ii) has a minimum net worth of five hundred thousand dollars ($500,000).

“Net worth” must be determined exclusive of home, home furnishings,
and automobiles. Also, the amount of the investment of each natural person
cannot exceed 10 percent of their net worth.

6. “Minimum qualifications” (for a qualification by permit with
no merit review): The investor (an individual, counting the husband and
wife as one – and probably an entity) must meet one of the following requirements:

• Have a minimum net worth of at least $75,000 and had minimum gross income
  of $50,000 during the last tax year and will have (based on a good faith
  estimate) minimum gross income of $50,000 during the current tax year
  (with net worth determined exclusive of homes, home furnishings and automobiles
  AND the investment not exceeding 10 percent of that net worth); OR
• Have a minimum net worth of $150,000, provided that in either case the
  investment shall not exceed 10 percent of the net worth of the investor
  (with net worth determined exclusive of homes, home furnishings and automobiles
  AND the investment not exceeding 10 percent of that net worth); OR
• Investing less than $2,500 total in the company, including any investments
  made during the prior 12 months.

7. “Foreign investors certificate”: Foreign investors must sign
certificate stating that they will not re-sell or transfer the securities
back into the U.S. unless U.S. securities laws are complied with.