Chapter 2 Part 4

Question 1

Securities offered through a private placement may be sold to no more than

Answer 1

35 nonaccrcdited investors (rule 506).

Question 2

In a regulation D offering, nonaccrcdited investors may be required to designate a

Answer 2

purchaser representative (e.g., an investment adviser). A purchaser representative is someone with knowledge and experience in financial and business matters who is capable of evaluating the risks and merits of the prospective investment. This person must be designated, in writing, for each offering. A blanket designation, appointing a person to act as a purchaser representative on all Regulation D) offerings on behalf of one client, is not permitted.

Question 3

Advertising for securities being sold pursuant to regulation D is

Answer 3

limited. The issuer may not advertise in any general media, or make any public dissemination of information regarding the sale. An investment seminar open to the public is not permitted. However, a seminar that is limited to potential purchasers accompanied by their purchaser representatives may be allowed.

Question 4

Rule 147

Answer 4

(the intrastate exemption) is available for securities sold within the borders of one state.

Question 5

Rule 147 In order to avoid registration with the SEC, companies that want to offer their securities under this exemption must meet all the following minimum requirements.

Answer 5

• 80% of the company’s assets are located within one state. • 80% of the company’s gross revenues are generated from operations within one state. • 80% of the proceeds of the offering are used to expand facilities within the state. • 100% of the purchasers arc principal residents of that state.

Question 6

Rule 147 (intrastate) offerings are exempt from federal registration. However,

Answer 6

state registration may be required.

Question 7

Securities offered through a Reg A offering, also known as the

Answer 7

small-issue exemption, provide an issuer with an exemption from registration with the SEC if the offering limits the amount of capital raised to a maximum of$5 million during a 12-month period.

Question 8

“Reg A the

exemption is not total. The issuer is still required to”

Answer 8

file an offeiing statement with the SEC and provide an offering circular (disclosure document) to prospective purchasers.

Question 9

Some of the advantages of a Regulation A offering include

Answer 9

lower legal and filing fees, and a shorter period necessary for doctunent preparation.

Question 10

Under the USA, it is unlawful for any person to offer or sell a security in a state unless

Answer 10

the security is either registered or is exempt from registration.

Question 11

State Administrators require registrants to provide general information about the securities offering. The information that must be provided includes:

Answer 11

• The amount of securities to be offered in the state • Any adverse ruling entered in connection with the offering by a state regulatory authority, a court, or the SEC • Other states in which a registration statement has been or will be filed

Question 12

The Administrator will want to know the other states where the security will be offered. However, the

Answer 12

number of shares being offered is not required.

Question 13

The effective date is the date when

Answer 13

the appropriate regulator releases the security for public distribution.

Question 14

the registration statement remains in force for

Answer 14

one year frorn its effective date.

Question 15

If any securities of the sanme class are outstanding, a registration statement may

Answer 15

not be withdrawn for one year after its effective date, unless the Administrator determines otherwise.

Question 16

An Administrator may also require that the same person who filed the initial registration statement to file

Answer 16

quarterly reports

Question 17

Security registrations expire

Answer 17

one year after the effective date. In order to continue to offer or sell the security, it must be reregistered or sold through a transaction that does not require the security to be registered.

Question 18

Securities registrations expire one year after the effective date. Remember not to confuse this rule with the expiration of a person’s registration, which is

Answer 18

December 31.

Question 19

Issuers are required to pay filing fees at

Answer 19

both initial registration and at annual renewal. IF either of these fees is not paid, the Administrator may issue a stop order, which suspends the sale of the security.

Question 20

In addition to meeting the general registration requirements previously described, each registration must be completed using one of the following three methods

Answer 20

coordination, filing {notification), and qualification.