33 Act: Pub. Issue of Sec.

Pub. Issue of Sec. & Sec. Act of 1933

Intro

Three Basic Princ's
1. Can't offer 2 sell sec. unless reg. stmt filed
2. Sec. law has expansive def. on what's sec.
3. Exception 2 #1: Exemptions
Four Parts of 33 Act Disc'ed
1. Sec 2: def. of sec.
2. Sec 5: reg. stmt
3. Sec 11: civil liab's
4. Sec 3 & 4: exemptions

Can't Offer / Sell Sec Unless Reg. Stmt Filed

Pub. Offering Overview
1. Nonlegal Aspect
  1. IPO 2 sell sec. 4 $
  2. Need cert. size 4 IPO & source of $ 2 get track record
  3. Maj. SH can retain control if subst'l amt of shares & min. SH's dispersed
  4. Sell 2 underwriters who has client base & lends reputation
Registration Process
1. Reg. Stmt
  1. Two Parts
    1. Prospectus, widely dist'ed during waiting per., incl's
      1. Issuer, officers, & busi.
      2. Changes
      3. Stock option plan
      4. Material trxn btwn insiders & corp.
      5. Material risk in investing
      6. Fin. info & audited fin. stmt
      7. Probable range of price
      8. Aim 4 full discl. of positive & negative stuff
    2. Suppl. info not widely dist'ed
  2. Work w/underwriters
2. Section 5
  1. Can't OFFER sec. unless reg. stmt FILED w/SEC
    1. In pre filing per. offer incl's any attempt 2 dispose sec./condition mkt
    2. In waiting per. btwn filing & effective date
      1. Oral offer ok
      2. Written offer should B in prospectus & no indep. analysis
  2. Can't SELL sec. unless reg. stmt IN EFFECT
3. Reform Movements
  1. Internet will probably change dist. channel of info & sec.
  2. Shelf reg. 4 only large co's so reg. stmt not die of staleness
  3. Co. reg. in future where only 1 reg. stmt so only do 1 maj. discl. & update whenever do pub. offer

Def. of Sec.

Dif. From Def. in 34 Act
1. In 34 Act, sec. def'ed 4 anti-fraud
2. In 33 Act, sec. def'ed 4 oblgn 2 sec. before offering 2 sale
Section 2)1 of 33 Act Def.
1. Gives list of sec. ex's like stock, bond, & investment K
2. Investment K: 4 Factors 2 Satisfy (Howey)
  1. Investment of $
  2. Investment of $ is in common enterprise
    1. Hz commonality of rel. among investors but split on what's hz commonality (maj.)
    2. Vertical commonality where rel. btwn promoter & investor both sharing risk in deals (min.)
  3. Expectation of profit
  4. Profit 2 B solely from efforts of others
    1. Most interp's solely as largely
    2. Others R those tied 2 initial sale & more than just mkt forces

Exemptions

Two Types
1. Exempt Sec. Like Govt Bond & Non Profit Corp
2. Exempt Trxn
Five Exemptions From 33 Act
1. Intra state offering
2. Private placement
3. Regulation D
4. Resales
5. Regulation A
Intra State Offering Exemption: §3)a)11 of 33 Act
1. Reqts
  1. Issue of sec. sold only 2 res. of single state where issuer incorp'ed +
  2. Issuer do busi. in same state: Subst'l / predom. amt of busi. stand.
    1. Location of asset
    2. Location of sale
2. Resale Prob. w/Busi. Stand.
  1. Not know when sec come 2 rest
3. Rule 147: Safe Harbor Rule 4 Busi. Is 80% of
  1. Busi. asset in state
  2. Sale in state
  3. Proceeds from sale 2 sec. used in state
Private Placement Exemption: §4)2 33 Act
1. Reqt
  1. Trxn by issuer not involving pub. offering
2. Stand.
  1. If offeree have same protection as reg. stmt / access 2 same info
  2. Pract'ly, info available 2 offeree + sophisticated purchaser
Regulation D
1. Rule 506
  1. Safe harbor 4 priv. placement exemption
    1. No $ limitation
    2. Assume accredited investors R sophisticated
      1. Insitutional investor
      2. Wealthy indiv. of more than $1m asset / $200k annual inc.
      3. Corp. insiders
    3. Need sophistication 4 non-accredited
    4. No more than 35 non-accredited investors
    5. Aff. discl. 2 any nonaccredited
2. Rule 505: Grounded in §3)b
  1. Reqts
    1. Limit max of sec offering 2 $5 mill.
    2. No more than 35 non-accredited buyers
    3. Aff. discl. 2 any non-accredited
3. Rule 504: Grounded in §3)b
  1. Reqts
    1. Limit max of sec. offering 2 $1 mill.
Resales
1. Restriction: Reg. D
  1. Put on stock certif. legend of restriction / refuse recog. of transfer w/o issuer's consent
2. Section 4)1: Exemption 4 Resale
  1. Exempt 4 trxn of no issuer, underwriter, / dealer
  2. Underwriter is anybody buying sec. w/view 2 dist. / assist issuer
  3. Issuer 4 underwriter def. is any controlled persons like officer, dir'ors & large (10%) SH
3. Rule 144: Safe Harbor 4 Negating Underwriter Status
  1. Holding per. of sec. 2 yrs
  2. Controlled person can resell if trxn not massive & trickle sec.
Regulation A: §3)b Exemption
1. Auth's SEC 2 Dev. Exemption
  1. Mini pub. offering by filing offering stmt which is simplified reg. stmt
  2. Max of sec. offering 2 $5 mill.
  3. Good 4 trxns w/sig. # of investors
  4. No concern of resale 4 issuer even if buyer still needs 2 worry

Civil Liab.: §11 of 33 Act

Liab. 4 Defects in Reg Stmt
1. Def
  1. If material misstmt / omission in reg. stmt
  2. Liab. 4 most critical actors prep'ing reg. stmt
    1. Issuer
    2. Dir'or
    3. Top officers
    4. Underwriters (like investment bank)
    5. Experts like acct's
2. Defense
  1. No defense 4 issuer
  2. Others have due diligence defense
3. Due Diligence: Didn't Know & Couldn't B Expected 2 Know
  1. Non experts satisfy 4 expertized part if no rsn 2 believe there's prob.
  2. Non experts satisfy 4 nonexpertized part only after rsbl investig. thinks rsbly believe there's no prob
  3. Need vigorous investig. 4 nonexpertized part, esp'ly 4 underwriters

State Laws 4 Reg'ing Pub. Offerings

Process
1. Qualify by filing w/state auth.
2. Must comply w/all state jxn 4 nat'l pub. offering
3. Need min. notice @ least
4. Cong. help large pub. co. by req'ing no state reg.

This material is copyrighted by the author. Use of this material for profit is strictly prohibited without written consent from author.

12/7/1996

Ms. Haeji Hong

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