Talacker 41, 8001 Zurich, Switzerland, Phone: +41 43 443 72 00, Fax +41 43 497 22 70, info@amcham.ch 
what we do
home  |  sitemap  |  disclaimer  | 
News Chamber in the Media Events Publications Key Topics
who we are
About us
How to join
Leadership
Our Members
Regional Chapters
 
Switzerland 
|
Legal 
|
Setting up a business 
|
Tax 
|
FATCA 
|
CH-US Treaty 
|
Arbitration 
USA 
|
Legal 
|
Legal ACC 
|
Setting up a business 
|
Tax 
Forms of Business Organizations
Founding a company
USA Immigration and Visa Rules
Labor and Employment Law
Product Liability in the U.S.
Being sued in the U.S.
Intellectual Property Law
Corporate Governance, SOX
Patriot Act
Security Laws
Arbitration in the U.S.
Website Liability
Treaty, agreement, convention
Further legal information sources
 
Site history
Date: November 2007
Prepared by:
John A. Burgess, Esq.
Wendell C. Taylor, Esq.
Wilmer Cutler Pickering Hale and Dorr LLP
60 State Street
Boston, MA 02109
Tel.: +1 (617) 526-6418
Fax: +1 (617) 526-5000
E-Mail:   john.burgess@wilmerhale.com
Introduction
This outline focuses primarily on the Securities Act of 1933 and the Securities Exchange Act of 1934 and the regulations that have been promulgated under those statutes.

This outline is a general overview of many complex legal topics. It is not intended to be, nor is it, comprehensive in scope or substance. References within this outline are not all-inclusive.

This outline does not address the securities laws of the several states of the United States, generally referred to as state “blue sky laws.” State blue sky laws apply to offers and sales of securities within the respective states.
Detailed Information
Overview and definitions
Who is regulated: An issuer is an entity that has issued securities in the United States. Examples of securities are: (i) common stock; (ii) preferred stock; (iii) options; (iv) warrants; and (v) debentures.

Foreign Private Issuers: A “foreign private issuer” is a company incorporated outside the United States that is eligible to receive certain accommodations under the federal securities laws. Not every foreign company, however, qualifies as a “foreign private issuer.” A company may be incorporated outside of the United States, but nevertheless may not qualify as a “foreign private issuer” if such company exceeds certain thresholds of U.S. business contacts and has a majority of its shares held by U.S. residents. Foreign companies that do not qualify as “foreign private issuers” are subject to the more extensive and onerous regulations which govern companies incorporated in the United States.

The word “private” in the term “foreign private issuer” sometimes causes confusion. It is intended to make the distinction between private-sector, commercial entities and public-sector, governmental entities, and does not refer to whether the company is publicly traded or not.
Definition of Foreign Private Issuer: The definition of “foreign private issuer” has two parts, one based on the level of U.S. shareholding in the company and the other on its business contacts with the United States. A non-U.S. company may have to analyze both parts of the definition to determine whether it is a “foreign private issuer.”
Shareholder Test: Are more than 50% of the company’s outstanding voting securities held by U.S. residents?
  • If the answer is “no,” the company qualifies as a foreign private issuer. It may end its analysis at this point, and does not have to apply the second part of the test.
  • If the answer is “yes,” the company still may be a foreign private issuer depending on its business contacts with the United States. It must apply the second part of the definitional test.
    Business Contacts Test: Ask the following questions: (i) are a majority of the company’s executive officers or directors U.S. citizens or residents, (ii) are more than 50% of the company’s assets located in the United States, and (iii) is the company’s business administered principally in the United States?
  • If the answer to ALL three of these questions is “no,” the company is still a foreign private issuer, even if more than 50 percent of its shares are held by U.S. residents.
  • If the answer to ANY ONE of these three questions is “yes,” these business contacts, together with the majority U.S. share ownership in the first test, will result in the company not being a foreign private issuer.
    Federal Securities Regulation: The United States Congress enacted the following two statutes which primarily regulate transactions in securities in the United States:
  • Securities Act of 1933, which regulates the offer and sale of securities; and
  • Securities Exchange Act of 1934, which seeks to assure the availability of reliable information about publicly traded securities.
    Administration: To administer and enforce these statutes, the United States Congress created the United States Securities and Exchange Commission (the “SEC”). In addition, several self -regulating organizations, such as the national stock exchanges and the National Association of Securities Dealers, Inc., play a significant role in the administration of the federal securities laws. (The Securities Act of 1933)
    The Securities Act regulates offers and sales of securities in two ways
  • The Securities Act requires companies to disclose all material facts about the company and its securities to investors before offering those securities for sale.
  • The Securities Act prohibits fraudulent or deceptive practices in securities offerings.
    Registration: Section 5 of the Securities Act sets forth one of the most fundamental rules of the federal securities laws - the rule of registration. The general rule of Section 5 can be stated as follows: If no exemption from registration is available, no offers of securities can be made unless a registration statement has been filed with the SEC and no sales of securities can be made unless the registration statement has been declared effective by the SEC.
    Exemptions from Registration: As with most rules, however, there are exceptions. For this rule, there are two types of exceptions:
  • If the security is an exempted security, registration is not required. Exempted securities include securities issued or guaranteed by the government, securities issued by banks and certain securities exchanged by a company with its existing securityholders. A list of exempted securities is contained in Section 3 of the Securities Act.
  • If the security is sold in an exempted transaction, registration is not required. Exempted transactions include transactions that do not involve a public offering and transactions by persons other than the issuer of the securities, underwriters or dealers. A list of exempted transactions is contained in Section 4 of the Securities Act.
    Sales outside of the United States: In general, Regulation S states that only offers and sales which occur in the United States are subject to the provisions of Section 5 of the Securities Act. Accordingly, if an offer or sale occurs outside of the United States, within the meaning of Regulation S (Regulation S relates solely to the applicability of the registration requirements of Section 5 of the Act. It does not limit the extraterritorial application of the antifraud or other provisions of the federal securities laws or provisions of state law relating to the offer and sale of securities.), as discussed below, the registration requirements of Section 5 of the Securities Act will not apply. However, please note that securities acquired outside of the United States, whether or not in compliance with Regulation S, may be resold in the United States only if they are registered under the Securities Act or an exemption from registration is available.
    Registration
    Registration Generally: To register a security for sale, the issuer of the security must file a registration statement with the SEC. The purpose of the registration statement is to disclose to investors information that they can use to evaluate the security and to make an informed decision in determining whether to invest. The registration statement includes a prospectus and typically contains: (i) a description of the risks of investing in the issuer’s securities or the transaction in which the securities are being issued; (ii) a description of the issuer’s business and management; (iii) a description of the securities being offered, the plan for distributing the securities, the issuer’s planned use of the proceeds from the transaction and the underwriters for the offering; and (iv) the issuer’s financial statements.

    SEC Review. The SEC may review the registration statement after it has been filed to ensure that the disclosure is accurate and complete. The SEC typically reviews registration statements in depth if they are filed by issuers that are registering securities for the first time. For more experienced issuers that have been reviewed in the past, the SEC may make a more limited review or may not review the registration statement at all.

    Registration Timeline: The restrictions on the issuer during the registration process vary depending on the point in the registration process.

    Pre-filing Period: Before the registration statement has been filed with the SEC, no offers to sell a security can be made, either orally or in writing. Under Rule 135, prior to filing a registration statement, an issuer may publish a notice regarding a proposed offering to be registered under the Securities Act, as long as the notice is limited to the information permitted by the rule and contains the legends required by the rule. Any such notice under Rule 135 is not deemed an offer under Section 5 of the Securities Act. In addition, Rule 135e under the Securities Act provides a non-exclusive safe harbor for press activities outside the United States conducted in connection with a securities offering by a foreign private issuer. Provided certain conditions are met, the safe harbor allows journalists for publications with a general circulation in the United States access to (i) press conferences and meetings with the issuer or its representatives conducted outside the United States and (ii) press-related materials released outside the United States in which the offering is discussed.

    Post-Filing/Pre-Effectiveness Period: After the registration statement is filed but before it has been declared effective, oral offers can be made and written offers can be made if they are accompanied by a copy of the preliminary prospectus. During the period between filing and effectiveness of the registration statement, offers cannot be accepted, but “indications of interest” may be made by prospective purchasers.

    Post-effectiveness Period: Once the registration statement is declared effective by the SEC, offers can be accepted and sales can be made. A copy of the final prospectus, which is part of the registration statement when it is declared effective, must be delivered to each purchaser of the securities.

    Integrated Disclosure: The SEC has adopted an integrated disclosure system. Under this sys-tem, as set forth in Part II of this outline, if a document filed under the Exchange Act (such as a company’s annual report on Form 20-F) is required to contain disclosure about a particular item (e.g. the company’s business), the requirements regarding this disclosure are substantially simi-lar to the disclosure requirements about that same item (business) in a Securities Act registra-tion statement. As a result of this integrated disclosure system, documents filed with the SEC, or parts thereof, often may be incorporated by reference from an Exchange Act filing into a reg-istration statement. That is, information that is incorporated by reference does not need to be duplicated in the registration statement. Generally, information about the issuer (e.g., a descrip-tion of its business or its management), as opposed to information about the transaction (e.g., the plan of distribution), may be incorporated by reference rather than described in full in the prospectus. The amount of information that can be incorporated by reference in a registration statement directly correlates with how fast a securities offering can be completed. This is be-cause (i) incorporation of information by reference makes preparation of the registration state-ment easier and therefore expedites that process; and (ii) the SEC has generally already had an opportunity to review much of the important information about the company (e.g. financial statements) incorporated by reference and therefore may, but not necessarily will, be less likely to delay the securities offering by reviewing the registration statement.

    Securities Act Form Types: There are five basic Securities Act registration statement types or forms that are available to foreign private issuers: Form F-1, Form F-2, Form F-3, Form F-4 and Form S-8. Descriptions of these forms are set forth on Exhibit A attached hereto. Substantially the same information is required to be included in registration statements on Forms F-1, F-2 and F-3. Differences in the information required to be included in the forms reflect the SEC’s deter-mination as to how much information about the issuer is available to the public from other sources (e.g., reports filed under the Exchange Act). Those issuers that are not widely followed must use Form F-1, for example, and present the required disclosure in full in the prospectus. Those that are somewhat widely followed, such as Form F-2 registrants, may either disclose certain information on a streamlined basis or incorporate the disclosure by reference and deliver the incorporated documents to investors along with the prospectus. Finally, those issuers that are most widely followed may use Form F-3 and incorporate significant portions of the required disclosure by reference to documents filed under the Exchange Act without delivering the incor-porated documents to investors.

    Resales: Note that registration statements are not only used when the issuer desires to sell its securities where no exemption is available. Section 5 requires that all sales of securities, re-gardless of who sells the security, be made pursuant to an effective registration statement unless an exemption is available. For example, where a securityholder desires to sell securities that the securityholder has purchased from the issuer, if no exemption for this resale is avail-able, the issuer must register the shares on an appropriate registration statement form or the sale will violate Section 5. Only issuers can register their securities under the Securities Act. As a result, investors who purchase securities in transactions where no exemption for the resale of the securities will be readily available will frequently negotiate the right to force the issuer to reg-ister the securities being purchased for resale.
    Exemptions from registration
    Exemptions Generally: Because of the expense of registration, both in time and money, issuers generally seek to find an exemption from the registration requirement for the sale of securities. The Securities Act has several exemptions based on the type of security or the transaction in which the securities are issued. In addition, there are exemptions found under the rules promulgated by the SEC, including Regulation D, Regulation S and Rule 144.

    Statutory Exemptions:
    Section 2: Transactions may be structured so as to fall outside of the scope of the Securities Act. Section 2 broadly defines the terms “security”, “offer” and “sale”. If the type of thing that is being issued, for example, is not a “security,” registration is not required. A bona fide gift for no consideration is an example of such a transaction.

    Section 3 – Exempted Securities: Section 3 exempts certain securities from the registration requirements including securities exchanged by an issuer with its existing securityholders for no additional consideration and securities issued, at least in part, in exchange for other securities or property interests, where the terms and conditions of the exchange are approved in a governmental fairness hearing (which may include a hearing conducted outside the United States).

    Section 4 – Exempted Transactions: Section 4 exempts certain transactions from the registration requirements of Section 5 as set forth in Exhibit B attached hereto.

    Regulatory Exemptions:
    Regulation D: Regulation D provides safe harbor exemptions for certain types of sales of securities by issuers. The exemptions are nonexclusive safe harbors – that is, if an issuer seeks to qualify under Regulation D, but fails to satisfy one or more of its requirements, the issuer may still rely on another exemption from registration, such as the 4(2) exemption set forth above. Rules 504, 505 and 506, as set forth in Exhibit C attached hereto, each describe a separate set of conditions to be met in order for a transaction to be exempt from the registration requirements of the Securities Act. An issuer needs to satisfy only one of the three rules.

    Rule 144: Rule 144 applies to resales of securities (i.e., sales made by someone other than the issuer or underwriters). It makes the exemption from registration offered by Section 4(1) of the Securities Act available to persons other than an issuer or underwriter by providing the seller with a nonexclusive safe harbor from being deemed to be an underwriter. If a person seeks to qualify under Rule 144, but fails to satisfy one or more of its requirements, the person may still rely on Section 4(1). Rule 144 permits the resale without registration of the types of securities set forth on Exhibit D attached hereto. Rule 144(k) provides that once restricted securities have been held for two years from the date of purchase by persons that are not affiliates of the issuer (and that have not been affiliates within the prior three months), they can be resold under Rule 144 without regard to the rule’s current public information, volume limitations, manner of sale or notice requirements.

    Rule 144A: Rule 144A provides a nonexclusive safe harbor under Section 4(1) of the Securities Act for resales of certain restricted securities to certain large institutional investors known as “QIBS”. Technically, the initial offering by the issuer is exempt from registration under Section 5 pursuant to Section 4(2) of the Securities Act and the subsequent resale is governed by Rule 144A. Similar to Rule 144, a person utilizing the safe harbor afforded by Rule 144A will not be deemed to be an underwriter. A foreign private issuer that intends to use the Rule 144A safe harbor must meet certain informational requirements by either being a registered company under the Exchange Act, furnishing certain information to the SEC under Rule 12g3-2(b), as described below, or undertaking to provide to the holder of the securities or the prospective purchaser certain information about the company.

    Regulation S: Regulation S exempts from the registration requirements of the Securities Act certain offers and sales of securities occurring outside the United States. In general, Rule 901(a) of Regulation S states that only offers and sales which occur in the United States are subject to the provisions of Section 5 of the Act. Accordingly, if an offer or sale occurs outside of the United States, within the meaning of Rule 901, the registration requirements of Section 5 of the Act will not apply. Regulation S provides two nonexclusive safe harbors in Rule 903 (which governs the offer or sale of securities by the original issuer) and Rule 904 (which governs the resale of securities) to identify whether an offer or sale will be deemed to have occurred outside of the United States. All offers and sales, whether made in reliance on the issuer safe harbor or the resale safe harbor, must satisfy two general conditions as well as the specific conditions set forth in each safe harbor. The general conditions applicable to all offers and sales governed by Regulation S, whether based on the issuer or resale safe harbor, are that: (i) the offer or sale is made in an “offshore transaction;” and (ii) there are no “directed selling efforts” in the United States in connection with the distribution or resale of the securities.
    Antifraud provisions
    As stated above, the second primary purpose of the Securities Act is to prevent fraudulent and deceptive practices in securities offerings. The antifraud provisions of the Securities Act are summarized below. Certain of these provisions are only applicable to registered offerings, but some apply to all securities offerings, including exempt offerings.

    Section 11 Liability Section 11 provides a broad remedy against false statements or omissions in registration statements. The due diligence defense to Section 11 liability is available to all defendants, except the issuer. The due diligence standard varies depending on the defendant (e.g., is the defendant an “expert” or not).

    Section 12 Liability: Section 12 (a) (1) imposes civil liability on any person who “offers or sells securities in violation of Section 5” (i.e., without a registration statement or an exemption from registration). Section 12 (a) (2) imposes liability on persons who offer or sell securities by using a prospectus or oral representation which contains materially false statements or omissions of fact.

    Section 17 Liability: Section 17 is a general antifraud provision which imposes liability upon any person who commits fraud in the offer or sale or securities. Whenever a security is sold by use of the mails or through the channels of interstate commerce, whether pursuant to a registration statement or an exemption therefrom or in the course of ordinary market trading, Section 17 prohibits material misstatements and omissions in connection with the sale of securities. The antifraud provisions are enforceable by civil injunctive and criminal sanctions.
    The Securities Exchange Act of 1934
    The Exchange Act is designed to extend the “full disclosure” rationale and investor protection requirements of the Securities Act to securities traded on national securities exchanges and in over-the-counter markets. The Exchange Act seeks to assure the availability of reliable information about publicly offered securities. The Exchange Act does this by imposing registration requirements on various participants in the securities markets and requires continuous disclosure of current information with respect to registered companies. The Exchange Act also seeks to:
    prevent fraud in securities trading and manipulation of the markets (including misuse of non-public information); and regulate the securities markets.
    Registration requirements
    Registration of securities under the Securities Act is a separate and distinct requirement from registration under the Exchange Act – registration under one statute does not constitute registration under the other. When an issuer “registers” securities under the Securities Act, it is registering the specific securities to be offered and sold. In contrast, when an issuer “registers” securities under the Exchange Act, it registers a class of securities (e.g., its ordinary shares) about which information should be disclosed to the public.
    Registration of Classes of Securities
    Registration: Issuers must register the following classes of securities under the Exchange Act: (i) Section 12(b) requires registration of securities traded on a national securities exchange; and (ii) Section 12(g) of the Exchange Act requires a foreign issuer that has total assets exceeding $10,000,000 to register any class of equity securities held of record by 500 or more persons, including 300 or more persons resident in the United States.

    Exemptions: Section 12(g) exempts certain securities from registration under the Exchange Act, generally including securities (i) listed on a national securities exchange (which need to be registered under Section 12(b)); and (ii) issued by certain foreign issuers. Under Section 12(g)(3) of the Exchange Act, the SEC may exempt any security of a foreign issuer from the registration requirements if the SEC finds that such exemption is in the public interest and consistent with the protection of investors. Accordingly, the SEC provides certain foreign private issuers with exemptive relief from the registration requirements of the Exchange Act through Rule 12g3-2.
    Public Company reporting
    Continuous Disclosure: All companies that have a class of securities registered under the Exchange Act and all companies that have filed a registration statement under the Securities Act must file periodic reports with the SEC. Through these reports, the SEC seeks to ensure that important information about registered companies is continually updated in the market.

    Principal Reports: The principal reports to be filed by foreign private issuers with the SEC pursuant to the requirements of Section 13(a) of the Exchange Act are the Annual Report on Form 20-F and Report on Form 6-K. Within 180 days after the end of each fiscal year, issuers must file a Form 20-F with the SEC. An Annual Report on Form 20 F must be signed by an authorized representative of the Company. In addition, the principal executive and principal financial officer of the Company must execute two different certifications, which must be attached as exhibits to the Form 20 F. The Annual Report on Form 20 F must include information on the following matters: (i) the Company’s business; (ii) real property owned or leased by the Company; (iii) legal proceedings; (iv) the trading market for the Company’s securities and historical exchange rates; (v) uses of proceeds from the Company’s initial public offering; (vi) five-year selected financial data; (vii) management’s discussion and analysis of financial condition and results of operations; (viii) disclosures about the Company’s exposure to market risk; (ix) audited financial statements; (x) quarterly financial data for the two preceding fiscal years; (xi) if there has been a change in the Company’s auditors, certain information about disagreements with the Company’s auditors and related matters; (xii) information about the Company’s disclosure controls and procedures and its internal control over financial reporting, as well as an internal control report of management and an attestation report of the Company’s auditors; (xiii) the Board of Directors, committees of the Board of Directors, executive officers and the Company’s code of ethics; (xiv) compensation of executives officers and directors and related matters; (xv) stock ownership of significant shareholders and management and stock plan information; (xvi) related-party transactions; (xvii) fees paid to the Company’s auditors; and (xviii) an updated exhibit index.

    Reports on Form 6-K: A foreign private issuer subject to reporting obligations under the Exchange Act is required periodically to submit reports on Form 6-K to the SEC upon the occurrence of certain events. Foreign private issuers are not subject to precise deadlines by which Form 6-Ks must be filed; rather they must “promptly” file information that has already been made public. A Form 6-K report consists of a cover page, a signature page and a copy of certain reports or documents that are:
  • required to be made public by the issuer in its home country;
  • filed with and made public by any foreign securities exchange; or
  • distributed to security holders.
    Other selected areas governed by the Exchange Act
    Rule 10b-5: Rule 10b-5 is the general anti-fraud rule promulgated under Section 10(b) of the Exchange Act. Rule 10b-5 makes it unlawful for any person, in connection with the purchase and sale of any security, to (i) employ any device, scheme or artifice to defraud; (ii) make any untrue statement of a material fact or omit to state a material fact necessary to make any statements made not misleading; or (ii) engage in any act, practice or course of business that would operate as a fraud or deceit upon any person.
    Exhibit
    Exhibit A
    Securities Act Form Types for Foreign Private Issuers
    1.  Registration Statement on Form F 1: Form F 1 is used where no other form of registra-tion statement is authorized for the particular issuer and transaction. No disclosure may be incorporated by reference to any other document. This is the form used for an is-suer’s initial public offering.
    2. Registration Statement on Form F 2: Form F 2 is available to only those registrants that have been subject to the periodic reporting requirements of the Exchange Act for at least three years and have timely complied with those requirements during the 12 months preceding the filing of the registration statement. Disclosures about the particular trans-action must be included in the registration statement. In addition, the issuer must either (i) include streamlined information about the company (comparable to that contained in its annual report to securityholders) in the prospectus; or (ii) incorporate the information about the company by reference to the annual report to securityholders and deliver a copy of that annual report (and certain other documents) along with the prospectus. In-corporation by reference of more complete information in the company’s annual report on Form 20-F and other Exchange Act reports is required in either case.
    3. Registration Statement on Form F 3: Those issuers that are most widely followed may use Form F-3 and incorporate significant portions of the required disclosure by reference to documents filed under the Exchange Act without delivering the incorporated docu-ments to investors. Form F-3 is available to only those registrants that have been subject to the periodic reporting requirements of the Exchange Act for at least 12 months and have timely complied with those requirements during the 12 months preceding the filing of the registration statement. In addition to these issuer requirements, the form imposes certain transaction requirements, which vary depending on the type of transaction for which the registration statement is being used. Form F-3 allows maximum incorporation by reference and permits a prospectus that contains a description of the proposed offer-ing but incorporates almost all other information (e.g., information about the issuer’s business) by reference to Exchange Act filings. The Exchange Act filings that are incor-porated by reference must be made available to recipients of the prospectus, but need not be delivered with the prospectus.
    4. Registration Statement on Form F-4: Form F-4 is used to register securities being issued in connection with business combinations. It requires disclosure about the securities be-ing issued and the companies being combined. Whether this information must be pre-sented in full or may be incorporated by reference depends on the nature of the compa-nies. That is, is a company eligible to use Form F-3 or F-2 if it were conducting a pri-mary offering of its securities? If the answer is “yes,” then the company can disclose re-quired information in the Form F-4 as if it were using a Form F-3 or F-2. For example, if the acquirer is a company eligible to use Form F-3, it may incorporate the disclosure about itself by reference to its Exchange Act filings. However, if the target company is not eligible to use Form F-2 or F-3, the target would need to give disclosure about itself in full in the Form F-4. 5. Registration Statement on Form S 8: Form S-8 is only available to issuers that are sub-ject to the periodic reporting obligations of the Exchange Act and is used to register se-curities to be offered to the issuer’s employees, or to employees of the issuer’s subsidi-aries or parents, pursuant to any employee benefit plan.
    Exhibit B
    1.  Exempted Transactions Section 4(1) exempts transactions by any person other than an issuer, underwriter or dealer. The term underwriter is broadly defined to include any person who purchases securities from an issuer with a view towards distribution of the securities. As a result, it may be difficult to be sure that this exemption is available since it is often unclear whether a person that desires to resell securities is an underwriter. Rule 144 (discussed below) provides a safe harbor under this vague statutory exemption.
    2. Section 4(2) exempts transactions by an issuer not involving a public offering. Boundaries of this exemption have developed over time through SEC opinions and judicial precedent. Key factors are:
    Manner of Offering: General advertising or soliciting are not permitted.
    Nature of Offerees: Offerees are required to have sufficient experience to evaluate risks and to afford a complete loss of investment.
    Availability of Information: Investors must have information so as to permit an evaluation of the merits and risks of an investment.
    Limitations on Resale: Investors must be purchasing for their own account and not in connection with a distribution.
    Other Factors. Other factors to be considered include the number of offerees, the diversity of the group of offerees, the receipt of material information and the dollar value of the offering.
    3. Section 4(6) exempts certain offers and sales made solely to “accredited investors” (see definition in Exhibit C).
    Exhibit C R egulation D Exemptions
    Rules 504, 505 and 506
    1.  Rule 504.
    Under Rule 504, issuers are permitted to sell up to $1,000,000 of unregistered securities within a 12-month period without violating Section 5.
    Rule 504 is not available to issuers registered under the Exchange Act, investment companies or issuers that do not have a specific business plan or purpose
    Issuers relying on Rule 504 do not need to provide investors with any specific disclosure documents.
    General solicitation and advertising are permitted.
    Rule 504 does not impose any requirements on the number or characteristics of the investors.
    2.  Rule 505.
    Under Rule 505, issuers are permitted to sell up to $5,000,000 of unregistered securities within a 12-month period without violating Section 5.
    Offers and sales can be made to an unlimited number of accredited investors and no more than 35 non-accredited investors. The term “accredited investor” includes institutional investors, directors; executive officers and general partners of the issuer; private business development companies and individuals with $1 million in net worth or $200,000 annual income for each of the most recent two years and the current year ($300,000 when measured jointly with a spouse).
    A disclosure document must be delivered to all non-accredited investors.
    3.  Rule 506. Rule 506 provides a safe harbor exemption under Section 4(2) under the Securities Act – an issuer that complies with Rule 506 is not selling securities in a public offering.
    Under Rule 506, issuers can sell any dollar amount of unregistered securities.
    Offers and sales can be made to an unlimited number of accredited investors and no more than 35 non-accredited investors. However, purchasers that are not accredited investors must meet sophistication standards. Sophistication means knowledge and experience in financial and business matters that can be satisfied by the purchaser itself or through a representative who meets the requirements. A disclosure document must be delivered to all non-accredited investors.
    Exhibit D Resale of Securities
    Rule 144
    1.  Restricted securities. Generally, restricted securities are securities that were acquired from the issuer or an affiliate of the issuer in a transaction other than a registered offering. Anyone who desires to resell restricted securities under Rule 144 may do so if all of the following conditions are satisfied:
    Current public information: The issuer must have been subject to the periodic reporting requirements of the Exchange Act for at least 90 days and have made all required Exchange Act filings during the past 12 months;
    - Holding period: The seller must have held the restricted securities for at least one year from the date of purchase;
    - Volume limitations: The seller can only sell, within any three month period, up to the greater of (i) 1% of the issuer’s outstanding shares of that same class of securities and (ii) the average weekly trading volume of that class of securities of the issuer during the four weeks prior to the filing of a Form 144;
    - Manner of sale: The sale must be made through a broker; and
    - Notice: Unless the number or value of the shares to be sold is de minimis (less than 500 shares in three months and less than $10,000), the seller must file a notice on Form 144 prior to the first sale.
    2. Control Securities: Executive officers, directors of the issuer and individuals holding over 10% or more of the voting securities of the issuer can sell securities of the issuer only pursuant to Rule 144 even if they are not restricted securities. When selling control securities, affiliates must comply with each of the requirements of Rule 144 other than the holding period requirement.