Unit 2.1

Question 1

1. Purpose of Securities Act of 1933

2. State Securities Laws

Answer 1

1. Regulates the initial offering of securities by requiring the filing of a registration statement with the SEC prior to sale or offer to sell securities.
2. Each state has adopted its own securities laws, called blue sky laws.

Question 2

1. Definition of security

2. Definition of issuer

Answer 2

1. Security includes almost any offering that constitutes an investment. Examples- stocks, stock subscriptions, bonds, warrants and limited partnership interests.
2. Issuer- initially offers a security for sale to the public.

Question 3

1. Nonreporting Issuer
2. Unseasoned issuer
3. Seasoned issuer
4. Well know seasoned issuer

Answer 3

1. A nonreporting issuer does not file under the 1934 act and has a market registration statement under the securities act of 1933.
2. An unseasoned issuer has reported for at least three consecutive years under the 1934 act.
3. A seasoned issuer has filed for at least 1 year under the 1934 act and has a market capitalization of at least $75 million.
4. A well known seasoned issuer has filed for at least 1 year under the 1934 act and
   a. has a worldwide market capitalization of at least 700 milllion.
   b. has issued securities for cash in a registered offering of at least 1 billion of debt or preferred stock in the past 3 years.

Question 4

What is a registration statement?

Answer 4

A registration statement is a public disclosure to the SEC of all material financial and other information regarding an issue of specific securities. It includes the prospectus given to each potential investor and any other information about the securities not required in the prosepectus.

Question 5

The purpose of registration

Answer 5

The purpose of registration is to help investors evaluate the merits of its securities. A registration statement includes description of:

1. The registrant’s business property and competition.
2. Management compensation of directors and officers, material transactions with them and their holdings of the registrant’s securities.
3. The most recent audited financial statements and managements discussion and analysis.
4. The signatures of the issuer, CEO, CFO, chief accounting officer and a majority of the directors.

Question 6

When is a registration statement effective?

Answer 6

The registration statement is effective on the 20th day after filing unless the SEC accelerates the effective date or requires an amendment.

Question 7

What is a prospectus?

Answer 7

A prospectus is an offer of securities for sale that includes key information from the registration statement.

Question 8

What is shelf registration?

Answer 8

Corporations that are seasoned or well known seasoned issuers can file registration statements covering an unlimited amount of securities that may be issued within three years of the effective date of the registration. Shelf registration benefits large corporations that frequently offer securities to the public.

Question 9

Exempt securities under the 1933 act who are not subject to the act.

Answer 9

1. Domestic governments if used for a governmental purpose.
2. Not for profit organizations.
3. Domestic banks and savings and loan associations.
4. Insurance policies and annuity contract of state regulated insurers.

Question 10

What is rule 147?

Answer 10

Rule 147 provides a safe harbor for an intrastate offering. The following are requirements of the safe harbor:

1. The issuer is organized or incorporated in the state in which the issue is made.
2. 80% of the proceeds are to be used in that state.
3. 80% of its assets are located there and the issuer does at least 80% of its business within that state.
4. All purchases and offerees are residents of the state.
5. No resales to nonresidents occur for at least nine months after the initial sale of the security by the issue r is completed.

Question 11

What is regulation A?

Answer 11

Regulation A- also referred to as Regulation A+, permits certain issuers to offer up to $50 million of securities in any 12 month period without filing a formal registration statement and prospectus. General solicitation and advertising are allowed and resale is NOT restricted.

Question 12

Tier 1- Regulation A

Answer 12

Under Tier 1 of Regulation A, the number and nature of investors are not limited and no ongoing reporting requirements apply.

Question 13

Tier 2- Regulation A

Answer 13

Under Tier 2 of Regulation A, a nonaccredited investor in unlisted securities cannot purchase an amount exceeding 10% of the greater of the investor’’s net worth or annual income. Furthermore, tier 2 requires:

1. Annual, semi annual and current events filings must be made.
2. Audited statements must be included in the offering statement and
3. Issuers are exempt from registration and qualification under state securities blue sky laws.

Question 14

Regulation D

Answer 14

Regulation D of the Securities Act of 1933 provides certain exemptions for small issuances of securities and small issuers. Two types of Regulation D exemptions- Rule 504 and Rule 506.

Question 15

Accredited investors

Answer 15

Individuals that meet income or net worth thresholds. Most institutional investors are considered accredited investors.

Question 16

Nonaccredited investors

Answer 16

All investors who are not accredited investors. Non accredited investors must be given material information about the issuer, its business and the securities being offered prior to the sale.

Question 17

Rule 504

Answer 17

Rule 504 permits qualified investors to sell up to $5 million of securities during a 12 month period to any number or type of purchasers. Registration is not required and the issuer need not provide specific financial information.

Question 18

Rule 506

Answer 18

Rule 506 implements the private placement exemption from registration for transactions by an issuer not involving any public offering. Rule 506 unlike Rule 504 has no maximum amount.

Question 19

Section 4 (6)

Answer 19

Exempts up to $5 million of offers and sales if made only to accredited investors. The number of such investors may be unlimited and no information is required to be given to them, but general advertising and solicitation are no permitted.

Question 20

What is shelf registration?

Answer 20

Shelf registration benefits large corporations that frequently offer securities to the public. Corporations that are seasoned or well known issuers can file registration statements covering an unlimited amount of securities that may be issued within 3 years of the effective date of the registration. The securities are issued without:

1. Filing a new registration statement.
2. Observing a 20 day waiting period.
3. Preparing a new prospectus.