Model Accredited Investor Exemption
(As adopted by the North American Securities Administrators Association on April 27, 1997)

Any offer or sale of a security by an issuer in a transaction that meets the requirements of this rule is exempted from [Sections requiring registration and filing of advertising materials].

1. Sales of securities shall be made only to persons who are or the issuer reasonably believes are accredited investors. "Accredited investor" is defined in 17 CFR 230.501(a) [amendment or successor rule][some states may elect to include the entire text of SEC Rule 501(a) in lieu of an incorporation by reference].
2. The exemption is not available to an issuer that is in the development stage that either has no specific business plan or purpose or has indicated that its business plan is to engage in a merger or acquisition with an unidentified company or companies, or other entity or person.
3. The issuer reasonably believes that all purchasers are purchasing for investment and not with the view to or for sale in connection with a distribution of the security. Any resale of a security sold in reliance on this exemption within 12 months of sale shall be presumed to be with a view to distribution and not for investment, except a resale pursuant to a registration statement effective under sections [insert registration sections] or to an accredited investor pursuant to an exemption available under [state securities act].
4.   1.   The exemption is not available to an issuer if the issuer, any of the issuer's predecessors, any affiliated issuer, any of the issuer's directors, officers, general partners, beneficial owners of 10% or more of any class of its equity securities, any of the issuer's promoters presently connected with the issuer in any capacity, any underwriter of the securities to be offered, or any partner, director or officer of such underwriter:
   
   1. within the last five years, has filed a registration statement which is the subject of a currently effective registration stop order entered by any state securities administrator or the United States Securities and Exchange Commission;
   2. within the last five years, has been convicted of any criminal offense in connection with the offer, purchase or sale of any security, or involving fraud or deceit;
   3. is currently subject to any state or federal administrative enforcement order or judgment, entered within the last five years, finding fraud or deceit in connection with the purchase or sale of any security; or
   4. is currently subject to any order, judgment or decree of any court of competent jurisdiction, entered within the last five years, temporarily, preliminarily or permanently restraining or enjoining such party from engaging in or continuing t o engage in any conduct or practice involving fraud or deceit in connection with the purchase or sale of any security.
   
      2.Subparagraph (D)1 shall not apply if:
   
   1. the party subject to the disqualification is licensed or registered to conduct securities related business in the state in which the order, judgment or decree creating the disqualification was entered against such party;
   2. before the first offer under this exemption, the state securities administrator, or the court or regulatory authority that entered the order, judgment, or decree, waives the disqualification; or
   3. the issuer establishes that it did not know and in the exercise of reasonable care, based on a factual inquiry, could not have known that a disqualification existed under this paragraph.
5.    1.   A general announcement of the proposed offering may be made by any means.
   1. The general announcement shall include only the following information, unless additional information is specifically permitted by the [Administrator]:
      
      1. The name, address and telephone number of the issuer of the securities;
      2. The name, a brief description and price (if known) of any security to be issued;
      3. A brief description of the business of the issuer in 25 words or less;
      4. The type, number and aggregate amount of securities being offered;
      5. The name, address and telephone number of the person to contact for additional information; and
      6. A statement that:
         
         1. sales will only be made to accredited investors;
         2. no money or other consideration is being solicited or will be accepted by way of this general announcement; and
         3. the securities have not been registered with or approved by any state securities agency or the U.S. Securities and Exchange Commission and are being offered and sold pursuant to an exemption from registration.
6. The issuer, in connection with an offer, may provide information in addition to the general announcement under paragraph (E), if such information:
   
   1. is delivered through an electronic database that is restricted to persons who have been prequalified as accredited investors; or
   2. is delivered after the issuer reasonably believes that the prospective purchaser is an accredited investor.
7. No telephone solicitation shall be permitted unless prior to placing the call, the issuer reasonably believes that the prospective purchaser to be solicited is an accredited investor.
8. Dissemination of the general announcement of the proposed offering to persons who are not accredited investors shall not disqualify the issuer from claiming the exemption under this rule.
9. [ The issuer shall file with the [Commission/Division] a notice of transaction, a consent to service of process, a copy of the general announcement, and a [$fee/fee language] within 15 days after the first sale in this state.]

ACE-Net Guide for Securities Attorneys
Overview

This Guide is designed to provide securities attorneys with a reference to the federal and state securities laws and regulation that govern securities offerings on ACE-Net. The following is also the first comprehensive guide for securities attorneys on the North American Securities Administrators Association's Model Accredited Investor Exemption (Model Exemption) and similar accredited investor exemptions adopted by the various states.

This guide is not meant to be a legal interpretation of securities laws or the Model Exemption but merely a starting point for attorneys to become familiar with recent innovations in the capital raising process for small companies. Both federal and state securities laws and regulations govern small company securities offerings. Offerings on ACE-Net must adhere to both sets of laws. In addition to the items mentioned in this guide, small companies must be in compliance with all relevant anti-fraud statutes and regulations.

Traditionally, small companies offering securities would have to either register their stock through a "public offering" or sell securities to former business associated under a "private placement exemption." With the Model Accredited Investor Exemption, small entrepreneurs may obtain the best of both worlds. Generally, the Model Exemption provides relief for small companies from the registration of securities for small companies if they sell the securities exclusively to accredited investors. The Model Exemption permits limited general announcements of such offerings.

In addition to this guide, please refer to the "Frequently Asked Questions (Securities Attorneys)" and to the list of states which have adopted an accredited investor exemption under the "What's New" section of ACE-Net.

Eligibility for ACE-Net
As ACE-Net is a securities listing service only those companies and limited liability companies (LLC's) that can sell securities are permitted to list on ACE-Net. Therefore sole proprietorships, partnerships, and limited liability partnerships are ineligible to be listed on ACE-Net. In addition, the following companies are not permitted to list on ACE-Net since these companies may not utilize the small business federal and state offering exemptions: blank check companies, development state companies (that has either no specific business plan or purpose, or has indicated that its business plan is to engage in merger or acquisition with an unidentified company or companies or other entity or person), investment companies, and oil, gas, mineral interest or other extractive industry companies.

Qualifications
Even if a company is eligible to use ACE-Net, the company may be disqualified from listing on ACE-Net if the company or any of its officers, directors, ten percent or greater stockholders, promoters, or selling agents is subject to one of the disqualification provisions (commonly know as "bad boy" provisions). For details on these provisions, please refer to the U.S. Securities and Exchange Commission's (SEC) qualifications (17 C.F.R. § 230.262) and the North American Securities Administrators Association (NASAA)'s "Statement of Policy Regarding Small Company Offering Registration."

Available Federal and State Exemptions for ACE- Net
In order to be listed on the ACE-Net Company Database, the company's securities offering must be exempt from federal registration requirements under either SEC Regulation A, SEC Regulation D, Rule 504, or SEC Rule 1001. At the state level, the offering must either be registered in each state where the offering is to be made or offered under the Model Accredited Investor Exemption or similar state variation. As detailed below, ACE-Net is specifically designed to work with the Model Accredited Investor Exemption.

SEC Regulation D, Rule 504
Rule 504 of SEC Regulation D (17 CFR 230.504) exempts from federal registration offerings of up to $1 million to be raised in a 12 month period.

This exemption can work for an ACE-Net offering in two ways:

1. If the entrepreneur chooses to make the offering available only to accredited investors by limiting the offering to states where the Model Accredited Investor Exemption or a similar state exemption has been adopted, then the securities offering is not required to be registered with those states. This is known as the ACE-Net "Short Form" Option, or;
2. If the entrepreneur chooses to offer to the general public (or to accredited investors residing in a state(s) that has not adopted the Model Accredited Investor Exemption or a similar state exemption) then the offering must be registered with every state where the issuer wishes to sell the securities.

Any sale of securities under Regulation D, the entrepreneur ir required to file a Form D with the SEC no later than 15 days after the first sale has been completed. In addition, many states will also require the filing of the Form D for sales made in those states. Many states may also require a "Consent to Service of Process" (Form U-2) to be filed and others states may require additional forms to be filed. Please check with each state regulator for the specific filing requirements.

SEC Rule 1001
SEC Rule 1001 (17 CFR 230.1001) recognizes state exemptions that are based upon a "qualified purchaser" exemption. Companies may list their Rule 1001 offerings on ACE-Net but it should be noted that the definition of a "qualified purchaser" is different than an "accredited investor." Currently, only California has adopted a qualified purchaser exemption that qualifies under SEC Rule 1001. California companies or companies with business in California are exempt from federal and state registration of offerings of up to $5 million if the sales are made only to "qualified purchasers" as defined by paragraph (n) of section 25102 of the California Corporation Code.

Please consult the "What's New" section for an updated list of states that have adopted qualified purchaser exemptions.

SEC Regulation A
SEC Regulation A (17 CFR 230.251) exempts from federal registration offerings of up to $5 million to be raised in a 12 month period. To list on ACE-Net utilizing the Regulation A offering exemption, the issuer must file an offering statement with the SEC and with states where the issuer wishes to sell securities. Once the offering has been reviewed and deemed qualified by the SEC and relevant states, the offering can also be activated on the ACE-Net Company Database for potential investors to view. ACE-Net is designed to work with Model A (of Part II, the disclosure document) of Form 1-A (which is identical to the Form U-7).

Please note that at this time, "red herring" and "testing the waters" documents for Regulation A offerings are NOT permitted on ACE-Net.

SEC Regulation D, Rules 505 and 506
Generally, securities regulators regard securities offerings on the Internet to be public offerings engaging in a general solicitation. Private placement offerings, such as SEC Regulation D, Rules 505 and 506, may not be listed on ACE-Net since general solicitation is not permitted. ACE-Net is designed to work with NASAA's Model Accredited Investor Exemption. This exemption combines the best of both public and private offerings because under the exemption, small companies may generally solicit accredited investors without having to register the securities offerings with the state(s).

The Model Accredited Investor Exemption
The North American Securities Administrators Association (NASAA), the association of state securities regulators, drafted and approved a "Model Accredited Investor Exemption" during its 1997 Spring Conference. When adopted by individual states, the Model Exemption provides a new exemption from registration of securities at the state level for small companies that offer and sell their securities exclusively to "accredited investors." The Model Exemption is based on the premise that accredited investors are capable of undertaking their own due diligence and gauging the risk factors before making any investments in small companies. At the federal level, the Model Exemption works with the SEC Regulation D, Rule 504, to provide an exemption for sales under $1 million.

Background of the Model Accredited Investor Exemption
One of the biggest concerns for small, growing companies is access to equity capital.

The two traditional ways of raising equity capital are through registered public offerings or through private placements. If a small company does not have an identifiable affinity group to sell public shares of stock, the registration of a securities offering may be very costly and the outcome unpredictable. As for private placements, many small companies may not have an abundance of prior business relationships in order to cultivate potential investors. In response to this dilemma, state securities regulators have put together regulatory exemptions that bring together the best of both types of raising capital -- the Model Accredited Investor Exemption.

The Model Exemption is a simpler version of California's 25102(n) exemption (the "Qualified Purchaser" Exemption). The SEC in adopting Rule 1001 recognized the California exemption and permitted California companies to raise up to $5 million under the exemption. At the time the SEC adopted Rule 1001, Arizona, Missouri, Texas and Wisconsin had adopted accredited investor exemptions.

In response to the emerging exemptions, NASAA decided a model exemption would help create more uniformity for small businesses trying to sell securities to angel investors and venture capitalists. In addition, the Model Exemption will allow the states to channel money into securities law enforcement that might otherwise be spent on reviewing securities offerings. The Model Exemption was adopted at NASAA's Spring Conference in April of 1997.

Elements of the Model Accredited Investor Exemption
The Model Exemption provides for a limited general announcement to the public and permits additional information may be provided to accredited investors through an electronic database like ACE-Net. The elements of the Model Exemption are:

• A limited general announcement that may contain a brief description of the issuer's business (25 words or less), issuer's name, address, telephone number, brief description of the securities to be sold, type, number and aggregate number of securities to be sold and the name, address, and telephone number of a contact person;
• The appropriate legends and statements for the limited general announcements;
• Additional information to accredited investors is permitted through an electronic database (ACE-Net);
• The purchase of securities is for investment purposes and not with the view to or for sale in connection with a distribution of the securities (the stock is considered "restricted" stock);
• The issuer cannot be in the development stage that either has no specific business plan or purpose or has indicated that its business plan is to engage in a merger or acquisition with an unidentified company or companies, or other entity or person.
• Issuers are disqualification if there are any criminal convictions, enforcement actions or current judgements or decrees concerning fraud or deceit in the connection with the purchase or sale of any security by the issuer and all associated parties.

To see the complete text of the Model Exemption please refer to the "Model Accredited Investor" under the "Securities Law" folder. For a list of states that have adopted the Model Exemption please refer to the "What's New" section of ACE-Net. In addition, more information can be found at the NASAA website at www.nasaa.org.

The Model Accredited Investor and the ACE-Net Short Form Option
The ACE-Net Short Form Option was designed to work with the Model Exemption and similar accredited investor exemptions. Under the Model Exemption, an issuer may only provide very limited general information in the general announcement to the public. However, the Model Exemption allows an issuer to provide whatever information the issuer deems essential to be stored in an electronic database and to be view solely by accredited investors. There is no requirement on the amount of information that must be submitted to the accredited investor.

The ACE-Net entrepreneur disclosure document provides all of the essential elements of a detailed business plan. ACE-Net uses the Form U-7 that is recognized by 49 states. The ACE-Net Short Form requires the issuer to provide the most basic information on the company (a subset of the questions of the Form U-7) and then gives the issuer the option of attaching a Business Plan, Executive Summary or completing the rest of the Form U-7. The basic information required by ACE-Net is the same information as is required by SEC Form D.

Model Accredited Investor Exemption Filing Requirements
The filing requirements are set out in last section of Part (I) of the Model Exemption. The issuer of securities must, within 15 days after the first sale in that particular state, file with the state commission/division:

1. a notice of transaction (generally, SEC Form D),
2. a consent to service of process (generally, NASAA's Form U-2),
3. a copy of the general announcement, and
4. the state designated fee.

Please check with each state's securities commission to find out the exact filing procedures, forms and fees to be used. A list of states that have adopted an accredited investor exemption and filing information can be found under the "What's New" section.

Variations of State Accredited Investor Exemptions
While not all states have adopted the Model Exemption, some have existing accredited investor exemptions that are compatible with ACE-Net. However, the filing requirements and other provisions may be different from those of NASAA's Model Exemption. For instance, issuers from Michigan are required to use only the SCOR Form (Form U-7) for disclosure. Issuers attempting to take advantage of California and Minnesota's qualified purchaser/accredited investor exemptions must be residents or have significant business dealings in those states. It cannot be stressed enough that it is imperative for an issuer to fully understand what is required to offer securities in a particular state.

It is also important to note that many states are rapidly gaining ground in the effort to adopt the Model Exemption. Up to date information on the list of states that have adopted accredited investor exemptions and their filing requirements can be found under the "What's New" section.

Internet Stock Offerings and ACE-Net While federal and state securities laws are designed to protect investors within certain geographic boundaries, the Internet has no geographic boundaries. If a securities offering is posted to investors of a certain state on the Internet it is technically available to everyone on the Internet. A stock offering that may be in compliance with one state's laws and regulations may violate another state's laws and regulations. In response to this problem, NASAA adopted an "Internet Resolution" that attempts to develop a uniform policy concerning offers of securities on the Internet.

The resolution encourages states to take appropriate steps to exempt Internet offerings from registration where (1) the Internet offer indicates, directly or indirectly, that the securities are not being offered to the residents of a particular state; and (2) an offer is not otherwise specifically directed to any person in a state by, or on behalf of, an issuer of the securities. Because an offering listed on ACE-Net may be viewed by potential investors residing in every state - even though the securities issuer may not wish to sell to residents of certain states, ACE-Net requires the issuer to prepare "Disclaimers" for the particular states in which the offering is not being made.

Please refer to "Disclaimers" section in the "Frequently Asked Questions (Securities Attorneys)" for sample disclaimers.

In addition, the NASAA Internet Resolution can be found on the NASAA website at: www.nasaa.org/bluesky/guidelines/resolu.html .

Additional Information and Resources
On the ACE-Net homepage, additional securities laws and regulations information can be found in the "Frequently Asked Questions (Securities Attorneys)." In addition, a list of states that have adopted the Model Accredited Investor Exemption or similar exemptions can be found under the "What's New" section.

Please consult the individual state securities commissions' office to receive up to date information on a state's status regarding the Model Accredited Investor Exemption and any other question concerning securities offerings. In addition, please refer to the North American Securities Administrators Associations' website at www.nasaa.org for additional information on state securities laws.

For information on federal securities laws, please consult the U.S. Securities and Exchange Commission's website at www.sec.gov .