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2014 UPDATES TO D&O QUESTIONNAIRES

STEVE QUINLIVAN JILL RADLOFF ETHAN MARK DAVID JENSON


LEONARD, STREET AND DEINARD PROFESSIONAL ASSOCIATION DECEMBER 2013

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The SEC has adopted rules prohibiting bad actors from using Rule 506 after September 23, 2013 (the effective date of the rules), or if prohibited conduct occurred prior to the effective date of the rules, the prohibition will not apply if disclosure of the past prohibited conduct is made to investors a reasonable amount of time prior to the sale of securities. Since public companies often rely on Rule 506 for financing transactions, it seems logical that many would want to update their D&O questionnaires for the bad actor provisions to ensure that the 506 exemption is available going forward and to cure through disclosure past prohibited conduct by the applicable covered persons. Public companies are currently required to make disclosure about directors and officers prior criminal convictions, securities law violations and other matters in proxy statements pursuant to Item 401(f) of Form S-K. While similar to many of the bad actor events, Item 401(f) was separately drafted at a different time. The result is two parallel sets of background questions drafted in separate styles that are similar enough to be repetitive but dissimilar enough to be difficult to combine in a way that makes sense. One way to update D&O questionnaires is to just paste the bad actor questions after the 401(f) questions. It is a valid choice and may be the easiest way to go, and easier to monitor for annual updates. However it results in one set of questions regarding a seemingly loosely related and arbitrary series of events for 401(f) being followed by another set of questions regarding another seemingly loosely related and arbitrary series of events for Rule 506, the cumulative effective of which is to make it look like all of the events are posted in random order. The other way to do it is to try and group similar Item 401(f) events with similar Rule 506 events, or better yet combine and consolidate related questions. While easily said, it is difficult to execute. Since both rules aggregate multiple, highly specific events within a single question, this approach results, as we have tried to implement it, in probably more questions being asked, albeit in maybe a more understandable format. You can find a sample of both forms of updates that we have prepared below. Whatever approach you choose, we suggest the questionnaire be given not only to current officers and directors, but potential officers and directors, and present and potential security holders and others that could potentially trip the bad actor rules. If you have any ideas, suggestions for improvements, or corrections, please forward them to stephen.quinlivan@leonard.com.

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FORM 1 S-K 401 DISCLOSURE QUIESTIONS COMBINED WITH RULE 506 BAD ACTOR QUESTIONS Please indicate as follows: I have carefully reviewed the list of events below: Yes No

Check Yes if any of the events are applicable to you, and check No if none of the events are applicable to you: Yes No

If you checked Yes to the immediately preceding question, please indicate which event is applicable to you and provide additional information in an attachment to this questionnaire.

Source

LookBack Period

Event

Check if Applicable (1)

S-K 401(f)(1)

10 years

General You filed or someone filed against you a petition under any bankruptcy on insolvency law (federal or state), or a receiver, fiscal agent or similar officer was appointed by a court for your business or property, or any partnership, corporation, or business association of which you were a general partner or executive officer within two years before todays date You were the subject of an order, judgment or decree permanently or temporarily enjoining you, or otherwise limiting you, from engaging in any type of business practice You were the subject of any federal or state judicial or administrative order relating to an alleged violation of any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity Criminal Proceedings You were convicted in a criminal proceeding or are a named subject of a pending criminal proceeding, excluding traffic violations and other minor offenses, 2

S-K 401(f)(3)(ii)

10 years

S-K 401(f)(7)(iii)

10 years

S-K 401(f)(2)

10 Years

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Reg D 506(d)(i)

but including any felony or misdemeanor (A) in connection with the purchase or sale of any security; (B) involving the making of any false filing with the Securities and Exchange Commission (SEC); or (C) arising out of the conduct of the business of an underwriter, broker, dealer, municipal securities dealer, investment adviser or paid solicitor of purchasers of securities Federal Securities Laws You were the subject of an order, judgment, or decree, permanently or temporarily enjoining you from, or barring or suspending you from, or limiting your right to be associated with persons engaged in the following activities, or otherwise limiting, the following activities: acting as an investment adviser, underwriter, broker or dealer in securities, or as an affiliated person, director or employee of any investment company or engaging in or continuing any conduct or practice in connection with such activity You were the subject of an order, judgment or decree permanently or temporarily enjoining you from, or otherwise limiting, your engaging in any activity in connection with the purchase or sale of any security in connection with any violation of federal securities laws You were found by a court or the SEC in a civil action to have violated any federal securities law You were the subject of or party to a federal or state judicial or administrative order relating to an alleged violation of any federal securities law or regulation

S-K 401(f)(3)(i) and (f)(4)

10 years

S-K 401(f)(3)(iii)

10 years

S-K 401(f)(5) S-K 401(f)(7)(i)

10 years

10 years

Reg D 506(d)(ii)

Currently You are subject to any order, judgment or decree entered within five years before todays date, that, restrains or enjoins you from engaging or continuing to engage in any conduct or practice: (A) in connection with the purchase or sale of any security; (B) involving the making of any false filing with the SEC; or (C) arising out of the conduct of the business of an underwriter, broker, dealer, municipal securities dealer, investment adviser or paid solicitor of purchasers of securities Currently You are subject to an order of the SEC entered 3

Reg D

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506(d)(iv)

pursuant to Section 15(b) or 15B(c) of the Securities Exchange Act of 1934 or Section 203(e) or (f) of the Investment Advisers Act of 1940 that (i) suspends or revokes your registration as a broker, dealer, municipal securities dealer or investment adviser; (ii) places limitations on your activities, functions or operations; or (iii) bars you from being associated with any entity or from participating in the offering of any penny stock Currently You are subject to any order of the SEC entered within five years before todays date that, orders you to cease and desist from committing or causing a violation or future violation of (A) any scienter-based anti-fraud provision of the federal securities laws, including without limitation Section 17(a)(1) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule10b-5, Section 15(c)(1) of the Securities Exchange Act of 1934 and Section 206(1) of the Investment Advisers Act of 1940, or any other rule or regulation thereunder; or (B) Section 5 of the Securities Act of 1933 Currently You are the subject of an investigation or proceeding to determine whether a stop order or suspension order should be issued in connection with any registration statement or Regulation A offering statement filed with the SEC 5 years You filed (as a registrant or issuer), or were or were named as an underwriter in, any registration statement or Regulation A offering statement filed with the SEC that, within five years before todays date, was the subject of a refusal order, stop order, or order suspending the Regulation A exemption State Securities Laws

Reg D 506(d)(v)

Reg D 506(d)(vii)

Reg D 506(d)(vii)

S-K 401(f)(3)(iii)

10 years

You were the subject of an order, judgment or decree permanently or temporarily enjoining you from, or otherwise limiting, your engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of state securities laws You were found by a court or the SEC in a civil action to have violated any state securities law 4

S-K 401(f)(5)

10 years

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S-K 401(f)(5)

10 years

You were the subject of or party to a federal or state judicial or administrative order relating to an alleged violation of any state securities law or regulation

Reg D Currently You are the subject of a final order from any State 506(d)(iii)(A) securities regulator that bars you from (i) associating with a regulated entity; (ii) engaging in the business of securities, insurance or banking; or (iii) engaging in savings association or credit union activities Reg D 10 years 506(d)(iii)(B) A final order was entered against you by state securities regulators that prohibits fraudulent, manipulative, or deceptive conduct Commodity Laws You were the subject of any order, judgment or decree permanently or temporarily enjoining you from, or barring or suspending you from, or limiting your right to be associated with persons engaged in the following activities, or otherwise limiting, your acting as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, leverage transaction merchant, any other person regulated by the CFTC, or an associated person of any of the foregoing or engaging in or continuing any conduct or practice in connection with such activity You were the subject of an order, judgment or decree permanently or temporarily enjoining you, or otherwise limiting you, from engaging in any activity in connection with the purchase or sale of any commodity or in connection with any violation of federal commodities laws You were found by a court or the CFTC in a civil action to have violated any federal commodities law You were the subject of or party to a federal or state judicial or administrative order relating to an alleged violation of any state commodities law or regulation

S-K 401(f)(3)(i) and (f)(4)

10 years

S-K 401(f)(3)(iii)

10 years

S-K 401(f)(6) S-K 401(f)(7)(i)

10-years

10 years

Reg D Currently You are the subject of a final order from the CFTC that 506(d)(iii)(A) bars you from (i) associating with a regulated entity; (ii) engaging in the business of securities, insurance or 5
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banking; or (iii) engaging in savings association or credit union activities Reg D 10 years 506(d)(iii)(B) A final order was entered against you by the CFTC that prohibits fraudulent, manipulative, or deceptive conduct Banking and Insurance Laws You were the subject of an order, judgment or decree permanently or temporarily enjoining you from, or barring or suspending you from, or limiting your right to be associated with persons engaged in the following activities, or otherwise limiting, your acting as as an affiliated person, director or employee of any bank, savings and loan association or insurance company or engaging in or continuing any conduct or practice in connection with such activity You were the subject of or party to a federal or state judicial or administrative order relating to an alleged violation of any law or regulation respecting financial institutions or insurance companies

S-K 401(f)(3)(i) and (f)(4)

10 years

S-K 401(f)(7)(iii)

10 years

Reg D Currently You are the subject of a final order from any state 506(d)(iii)(A) insurance, banking, savings association or credit union regulators, federal banking agencies or the National Credit Union Administration that bars you from (i) associating with a regulated entity (ii) engaging in the business of securities, insurance or banking or (iii) engaging in savings association or credit union activities Reg D 10 years 506(d)(iii)(B) A final order was entered against you by any state insurance, banking, savings association or credit union regulator, federal banking agency or the National Credit Union Administration that prohibits fraudulent, manipulative, or deceptive conduct Self-Regulatory Organizations S-K 401(f)(8) 10 years You were the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act), or any equivalent 6
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exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member Reg D 506(d)(vi) Currently You are suspended or expelled from membership in, or suspended or barred from association with a member of, a registered national securities exchange or a registered national or affiliated securities association for any act or omission to act constituting conduct inconsistent with just and equitable principles of trade United States Postal Service Reg D 506(d)(vii) Reg D 506(d)(vii) 5 years You were subject to a United States Postal Service false representation order

Currently You are subject to a temporary restraining order or preliminary injunction with respect to conduct alleged by the United States Postal Service to constitute a scheme or device for obtaining money or property through the mail by means of false representations

(1) If marked a further review of the rules will be required to determine whether the exact nature of the event requires disclosure or is a disqualification.

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FORM 2 RULE 506 BAD ACTOR QUESTIONS ONLY Please indicate as follows: I have carefully reviewed the list of events below: Yes No

Check Yes if any of the events are applicable to you, and check No if none of the events are applicable to you: Yes No

If you checked Yes to the immediately preceding question, please indicate which event is applicable to you and provide additional information in an attachment to this questionnaire. Event Check if applicable (1)

You were convicted, within ten years before todays date, of any felony or misdemeanor: (A) in connection with the purchase or sale of any security; (B) involving the making of any false filing with the United States Securities and Exchange Commission (SEC); or (C) arising out of the conduct of the business of an underwriter, broker, dealer, municipal securities dealer, investment adviser or paid solicitor of purchasers of securities You are subject to any order, judgment or decree of any court, entered within five Whatyears before todays date, that, as of todays date, restrains or enjoins you from engaging or continuing to engage in any conduct or practice: (A) in connection with the purchase or sale of any security; (B) involving the making of any false filing with the SEC; or (C) arising out of the conduct of the business of an underwriter, broker, dealer, municipal securities dealer, investment adviser or paid solicitor of purchasers of securities You are subject to a final order of a state securities commission (or an agency or officer of a state performing like functions); a state authority that supervises or examines banks, savings associations, or credit unions; a state insurance commission (or an agency or officer of a state performing like functions); an appropriate federal banking agency; the U.S. Commodity Futures Trading Commission; or the National Credit Union Administration that: (A) as of todays date, bars you from: (1) association with an entity regulated by such commission, authority, agency, or officer; (2) engaging in the business of securities, insurance or banking; or (3) engaging in savings association or credit union activities; or (B) constitutes a final order based on a violation of any law or regulation that prohibits fraudulent, manipulative, or deceptive conduct entered within ten years before such sale 8
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You are subject to an order of the SEC entered pursuant to Section 15(b) or 15B(c) of the Securities Exchange Act of 1934 or Section 203(e) or (f) of the Investment Advisers Act of 1940 that, as of todays date: (A) suspends or revokes your registration as a broker, dealer, municipal securities dealer or investment adviser; (B) places limitations on your activities, functions or operations; or (C) bars you from being associated with any entity or from participating in the offering of any penny stock You are subject to any order of the SEC entered within five years before todays date that, as of today, orders you to cease and desist from committing or causing a violation or future violation of: (A) Any scienter-based anti-fraud provision of the federal securities laws, including without limitation Section 17(a)(1) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, Section 15(c)(1) of the Securities Exchange Act of 1934 and Section 206(1) of the Investment Advisers Act of 1940, or any other rule or regulation thereunder; or (B) Section 5 of the Securities Act of 1933 You are suspended or expelled from membership in, or suspended or barred from association with a member of, a registered national securities exchange or a registered national or affiliated securities association for any act or omission to act constituting conduct inconsistent with just and equitable principles of trade You have filed (as a registrant or issuer), or were or were named as an underwriter in, any registration statement or Regulation A offering statement filed with the SEC that, within five years before todays date, was the subject of a refusal order, stop order, or order suspending the Regulation A exemption, or is, as of todays date, the subject of an investigation or proceeding to determine whether a stop order or suspension order should be issued You are subject to a United States Postal Service false representation order entered within five years before todays date, or are, as of todays date, subject to a temporary restraining order or preliminary injunction with respect to conduct alleged by the United States Postal Service to constitute a scheme or device for obtaining money or property through the mail by means of false representations

(1) If marked a further review of the rules will be required to determine whether the exact nature of the event requires disclosure or is a disqualification.

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