A. SMALL ISSUERS

Small issuers, attempting to sell not more than $5 million of securities, can have a public offering by filing a notification with the Securities and Exchange Commission pursuant to Regulation A.[1] This notification will include an offering circular and exhibits.[2]

B. EMPLOYEE OFFERINGS

It is important for small businesses to be able to offer securities to employees as investment incentive programs.[3] It is likewise important that the company give such employees full disclosure about its business, including any established pension plans.[4]

C. INTRASTATE OFFERINGS

An issuer of securities can avail itself of an intrastate exemption from registration for a public offering by selling the securities only to residents of a single state.[5] All of the purchasers must be actual residents of that state and the issuer must conduct at least 80% of its business within such state of the investors.[6]

SECTION 3(a)(11) OF THE SECURITIES ACT OF 1933, 15 U.S.C. § 77c(a)(11) (1988)

SEC RULE 147, 17 C.F.R. § 230.147 (1990)

D. PRIVATE OFFERINGS

An issuer can rely on an exemption from registration for the sale of securities not involving a public offering.[7] This will allow a private placement of securities by an issuer who sells to a limited number of investors without any general advertising or mass solicitation of investors.[8]

SECTION 4(2) OF THE SECURITIES ACT OF 1933, 15 U.S.C. § 77d(2) (1988)

SEC v. RALSTON PURINA CO., 346 U.S. 119 (1953)

NONPUBLIC OFFERING EXEMPTION, Securities Exchange Act Release No. 33-4552 (November 6, 1962)

In 1974, Rule 146 provided a safe harbor for private placements.[9] In 1978, an amendment to this safe harbor rule required a notice filing with the SEC.[10]

SEC REGULATION D, 17 C.F.R. §§ 230.501-.508 (1990)

SEC RULE 215, 17 C.F.R. § 230.215 (1990)

SEC RULE 152, 17 C.F.R. § 230.152 (1990)

E. SECONDARY SALES

SECTION 4(1) OF THE SECURITIES ACT OF 1933, 15 U.S.C. § 77d(1) (1988)

SECTION 15 OF THE SECURITIES ACT OF 1933, 15 U.S.C. § 77o(15) (1988)

Since investors who purchase securities from an issuer in an unregistered offering have restrictions against resales, these investors must usually hold such securities indefinitely.[11] In addition, if an investor is a controlling person or an underwriter by definition, a resale is very difficult to accomplish.[12] Over the years, a mechanism devised by securities attorneys provided for such resales by a Section 4(1-1/2) exemption.[13] This was not an actual exemption, since there is obviously not a Section 4(1-1/2) in the Securities Act of 1933.[14] This was a procedure whereby an investor who had held restricted securities for quite a while could sell such restricted securities to a purchaser who would, in turn, agree to hold the securities indefinitely subject to the same restrictions on resale.[15] Such an investor would become a substitute investor, but would then be subject to a very long additional time of holding the securities before even considering any additional restricted resale.[16]

Investors who purchase restricted securities in an unregistered offering must hold the securities until such time as the issuer might file for a registration with the Securities and Exchange Commission and allow the investors to include the restricted securities in the registration.[17] Rule 144[18] allows many of those investors to sell restricted securities pursuant to an exemption from registration, provided a necessary holding period exists and subject to limitations on the amount of the sales of securities within a given period of time.[19]

Rule 144A[20] allows certain qualified institutional buyers to sell restricted securities pursuant to an exemption from registration.

SEC RULE 144, 17 C.F.R. § 230.144 (1990)

SEC RULE 144A, 17 C.F.R. § 230.144A (1990)

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[1] 15 U.S.C. § 77c(b) (1988); 17 C.F.R. §§ 230.251-.264 (1990).

[2] See LOUIS LOSS, FUNDAMENTALS OF SECURITIES REGULATION 309-13 (2d ed. 1988); Ezra Weiss, Regulation A Under the Securities Act of 1933 - Highways and Byways, 8 N.Y. L.F. 3, 40-115 (1962); Ezra Weiss, Highways and Byways Revisited, 15 N.Y. L.F. 218, 251-68 (1969); Guy P. Lander, SEC Adopts Guidelines on Raising Capital, N.Y. L.J., Dec. 7, 1992, at 9.

[3] See DAVID R. HERWITZ, BUSINESS PLANNING 273-87 (1966); Stephen J. Friedman, The Securities Act of 1933 and Employee Compensation Plans, in FOURTH ANNUAL INSTITUTE ON SECURITIES REGULATION 353, 354-56 (Robert H. Mundheim, Arthur Fleischer, Jr. & John D. Schupper eds., 1973).

[4] See, e.g., ROBERT C. POZEN, FINANCIAL INSTITUTIONS: INVESTMENT MANAGEMENT 627-51 (1978); Robert C. Clark, The Four Stages of Capitalism: Reflections on Investment Management Treatises, 94 Harv. L. Rev. 561, 571-73 (1981); James J. Junewitz, Portfolio Theory and Pension Plan Disclosure, 53 N.Y.U. L. Rev. 1153, 1155-60 (1978).

[5] 15 U.S.C. § 77c(a)(11) (1988); 17 C.F.R. § 230.147 (1990); SEC Securities Act Release No. 5450 (Jan. 7, 1974), reprinted in 3 SEC DOCKET 349 (1974).

[6] See LOUIS LOSS, FUNDAMENTALS OF SECURITIES REGULATION 295-305 (2d ed. 1988).

[7] 15 U.S.C. § 77d(2) (1988); 17 C.F.R. §§ 230.501-.508 (1990); SEC Securities Act Release No. 6389 (Mar. 8, 1982), reprinted in 24 SEC DOCKET 1166 (1982).

[8] See MOIRA JOHNSTON, TAKEOVER 151-52 (1986); LOUIS LOSS, FUNDAMENTALS OF SECURITIES REGULATION 317-50 (2d ed. 1988); Marc H. Morgenstern, Private Placement Guidelines - A Lawyer's Letter to a First-Time Issuer, 48 Bus. Law. 257, 259-76 (1992); see also Robert McGough, Money to Burn, FW, June 26, 1990, at 18.

[9] 17 C.F.R. § 230.146 (1981); SEC Securities Act Release No. 5487 (Apr. 23, 1974), reprinted in 4 SEC DOCKET 154 (1974); see Jerry C. Paradis, Safe Harbor for the Non-Public Sale of Securities - Rule 146, 22 La. B.J. 167, 173-77 (1974); Robert L. Frome, `Continental Tobacco' Decision Analyzed, N.Y. L.J., Mar. 7, 1977, at 1; see, e.g., SEC v. Continental Tobacco Co. of South Carolina, 463 F.2d 137 (5th Cir. 1972); Hill York Corp. v. American Int'l Franchises, Inc., 448 F.2d 680 (5th Cir. 1971).

[10] SEC Securities Act Release No. 5912 (Mar. 3, 1978), reprinted in 14 SEC DOCKET 306 (1978).

[11] . See RICHARD W. JENNINGS & HAROLD MARSH, JR., SECURITIES REGULATION 504-07 (6th ed. 1987).

[12] See A.A. Sommer, Jr., Who's "In Control"? ‑ S.E.C., 21 Bus. Law. 559, 559-62 (1966).

[13] See Carl W. Schneider, Section 4(1-1/2) ‑ Private Resales of Restricted or Control Securities, 49 Ohio St. L.J. 501, 501-14 (1988); Lawrence R. Seidman, Comment, SEC Rule 144A: The Rule Heard Round the Globe - Or the Sounds of Silence?, 47 Bus. Law. 333, 334-36 (1991).

[14] See LOUIS LOSS, FUNDAMENTALS OF SECURITIES REGULATION 375-76 (2d ed. 1988).

[15] See 3 LOUIS LOSS & JOEL SELIGMAN, SECURITIES REGULATION 1499-1502 (3d ed. 1989).

[16] See DAVID L. RATNER, SECURITIES REGULATION 317-40 (3d ed. 1986); Stephen Glover, Good Intentions in a Bad Economy, Legal Times, Dec. 31, 1990, at 20.

[17] See LOUIS LOSS, FUNDAMENTALS OF SECURITIES REGULATION 365-66 (2d ed. 1988).

[18] 17 C.F.R. § 230.144 (1990); SEC Securities Act Release No. 5223 (Jan. 11, 1972); see James F. Olson, SEC Makes Unheralded Changes in Rule 144 On Sales Volume, Manner, Legal Times of Wash., Oct. 2, 1978, at 14.

[19] See 3 LOUIS LOSS & JOEL SELIGMAN, SECURITIES REGULATION 1502-75 (3d ed. 1989).

[20] 17 C.F.R. § 230.144A (1990); SEC Securities Act Release No. 6862 (Apr. 23, 1990), reprinted in 46 SEC DOCKET 26 (1990); see Simon Brady, Evolution, Not Revolution, Euromoney, June 1990, at 47.