’WPC! ńHį¶ ¾‹t’żą’żeC›4Dūó*ā„t~/3ŠĒ“ÖW¢¤Ļ³ 9ST‹-tŚč[Ćt’E)`v™ģ^ŚÆ7ō•Ņ82wŚWćć0†Ÿ†²‚B²Ųp‹³¾Z8pc{ ģŲ(`ĮpüųY‘ĄņķųżŅ].°Ćyšķ¬Ńeē„ŹP6 ڼh#Dźh^•A:”zJ½ŗ żMŁ‹™ŖFoUMD,‘ań ųćņ&üćĆśžŒĆĆńŁT+Œ’ZW&ŋO¢˜c7O£Æ"żŸ×PēW…A6)‡rŪ£­‰t2ĘOkÄ8 Ēń|rtĪM #ƒWµų]~č„µÕ9˜cræb–3ј#¢<€źŲc/i€Żeć%ą:”!iKs>&|ökH]ĆE~‚ĒēĮµ‡|;üQ×L® ¶Č¤ƒœĖNM’„Ōö@Ł„żŹ\$ß„«mU÷yÆĄuŪü Łõ†D)g q‚s˜éf!x6µ«^÷^83–'®’‹Ļ”½Š«›ŠU3GŅÆœ>B¤›)ļŸĄŃSvRśa{G " ¼G ķ‚bÅ Ś>„mxHSדš{ģŪDX`S“’±Ÿ,l0śNŽōų2:-ÄĀhXōĘ ±‚%ļχéńNr³JlU.č  %n­" 0xĻ G BM #!j ^ ‹ UN—  å ń  d÷ "ģ[ UG T_ ³ ! Ć )cNi kw@q4±Å mĒU NŽ 0•,¢Į cccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccc AQiĘŗ 0•€ 0• 0DŖŖ D3īH Œ 9`(CourierČĢX«H Œ 9`(Courierōōx Œ @ɧĶĒ;ō@(P/ó$””Ó  ÓŃ7€ģßōXdČ7ŃŃ € ŃČĢ d˜HP DeskJet 820C Series Printer,(,,,,,(0–“˜(c(ÖĆ9 Z‹6Times New Roman RegularąŻ0”ČĢ< Œ 9p`(<žž9p`+†2Courier 10RomanSpeedo’’zNxxx,,XxU^’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’Ō3s4ddd,,ōdŠšž’ž’ž’ž’ž’ž’ž’’’ž’’’’’’’ž’’’’’ž’’’’’ž’’’ž’ž’’’ž’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’ž’ž’ž’ž’ž’ž’’’’’’’’’< Œ 9p`(’MCI’’Tojama’’Prez’’Konfusion’#|xYuž’"BIP[rƒ’’’’’’’’’’’’ń÷Ćó’’’’’’ż’’’’’?’’÷’’’Ļ’’Ļ’ü=Ą//’’’’’N·’’ń’Ź£ü«żššhłŸž &@€ģFRŃĄ@FL .ČĢ PQERSDTUŹVŹWXŹYŹó€4(ƃ‚ ĢO„’U‹’ĄĄĄ(ÖĆ9 Z‹6Times New Roman Regular(m3Kœ$¦¦Ż ƒ/ó!ŻÓ  ÓŃ8€ «ōõd“dŌ8ŃŃ € ŃŻ  Ż Riker WorfKlingonLangevoort YallChokaBridgwareMacrohardHĢfghikCž’<<C’’ƒLevel 1Level 2Level 3Level 4Level 5(m3Kœ$¢¢Ż ƒ/ó!ŻÓ  ÓŃ8€ «ōõd“dŌ8ŃŃ € ŃŻ  Ż(m3Kœ$££Ż ƒ/ó!ŻÓ  ÓŃ8€ «ōõd“dŌ8ŃŃ € ŃŻ  Ż($$””ņ ņŚ  Ś1Ś  Śó ó'’’dxdŻ ƒ/ó!ŻÓ  ÓŃ8€`ōõd“dČ8ŃŃ € ŃŻ  ŻŌ_ŌŌ€XvXXXŌŃ8€vXXdģōõd“8ŃŌ_ŌŌ_ŌŌ_ŌŌ_ŌńYńŌ% € ŌńYńŌ_Ōą@< < ģąņ ņŌ‡„£¬„XXvŌSECURITIES€REGULATIONŌ#†XvX„„£¬O#ԈŠ ° Šó óą@šš!ģąProfessor€BradfordˆŠ ` ŠĢą@ģąSaturday,€April€22,€2000ˆĢą@vv&ģą9:00€a.m.ˆĢą@‚‚#ģąņ ņ3€Hours€(3:00)ó óˆŠ Ą  ŠĢą@$ģąņņINSTRUCTIONSóóˆŠ ˜ č Šą@` ` ģą(ņ ņPLEASE€READ€BEFORE€PROCEEDING!ó ó)ˆŠ „ Ō ŠĢą  ą1.€€This€is€a€partially€open€book€exam.€€You€may€use€the€Cox,€Ō_ŌHillmanŌ_Ō,€&€LangevoortĻcasebook€and€1999€Supplement€and€the€statutory€supplement€required€for€this€course.Ō‡ XvXXXvŌ€€ThoseŠ Lœ  Šbooks€and€materials€may€contain€any€handwritten€annotations€you€want,€but€may€not€contain€anyĻadditional€printed€or€typed€materials.Ō#†XvXX XvÜ#ŌŌ‡ XvXXXvŌ€€Ō#†XvXX Xv¾#Ōņ ņYou€may€not€use€any€other€materialsó ó€and€you€may€notŠ $t  Šconsult€with€or€communicate€with€any€other€person€during€this€exam.€€If€you€have€any€otherĻbooks,€notes,€briefcases,€book€bags,€or€other€items,€you€must€bring€them€to€the€front€of€this€room.€ĻYou€may€not€take€any€of€these€additional€items€to€the€special€purpose€rooms.€ĢĢą  ą2.€€You€have€ņ ņthree€hours€(3:00)ó ó€to€complete€the€exam.€€The€time€at€which€the€exam€endsŠ Ä Šwill€be€posted€on€the€blackboard.€€Writing€anything€after€time€is€called€is€an€Honor€CodeĻviolation.€€You€may€not€even€finish€a€word€or€sentence.ĢŌ‡ XvXXXvŌĢą  ą3.€€If€you€finish€the€exam€more€than€five€minutes€early,€you€may€turn€in€your€answers€inĻthe€Dean's€Office.€€Otherwise,€you€must€turn€in€your€answers€in€this€roomš!šregardless€of€whereĻyou€take€the€exam.Ō#†XvXX Xvn#ŌŠ P  ŠĢą  ą4.€€This€exam€has€ņ ņseven€(7)€pagesó ó,€including€the€instructions.€€The€page€numbers€appearŠ (x Šon€the€top€right„hand€corner€of€each€page.€€Please€check€to€be€sure€that€this€copy€has€all€theĻpages.ĢĢą  ą5.€€The€exam€consists€of€ņ ņfour€(4)€questionsó ó.€€The€recommended€time€for€each€question€isŠ Ü , Šas€follows:ĢĢÓ  ÓQuestion€One..........................30€MinutesĢQuestion€Two.........................90€MinutesĢQuestion€Three.......................35€MinutesĢQuestion€Four.........................25€MinutesĢĢÓ ÓEach€question€will€be€weighted€in€accordance€with€its€recommended€time.ĢĢĢą€ąą1(#ąņ ņCONTINUE€TO€THE€NEXT€PAGE.ó óˆŠ  +T&)B ŠŌ‡ XvXXXvŌą  ą6.€€You€may€take€the€exam€in€this€room€or€in€a€designated€special€purpose€room€(typing€orŠ d Šoverflow€room)€posted€on€the€board.€€If€you€decide€to€take€the€exam€in€a€special€purpose€room,Ļremember€that€(1)€time€will€be€called€only€in€this€room,€and€(2)€when€time€is€called,€you€mustĻeither€be€present€in€this€room€or€have€already€turned€in€your€answers.ĢĢŌ#†XvXX Xv„ #Ōą  ą7.€€Be€clear.€€Be€concise.€€Be€organized.€€Use€your€brain€before€you€use€your€pen.Š  œ ŠĢą  ą8.€€Please€write€legibly.€€I€canššt€give€you€credit€for€what€I€canššt€read.ĢĢą  ą9.€€Ō‡ XvXXXvŌThis€exam€will€require€you€to€interpret€and€apply€many€of€the€statutory€provisions€andŠ °L  Šregulations€we€have€examined.€€ņ ņYOU€SHOULD€NOT€JUST€STATE€GENERALŠ œ8  ŠPRINCIPLES,€BUT€SHOULD€CITE€THE€RELEVANT€SECTIONS€AND€SUBSECTIONSĻOF€THE€STATUTES€AND€REGULATIONS€AND€EXPLAIN€HOW€THOSEĻPROVISIONS€APPLY€TO€THE€FACTS€OF€THE€QUESTION.ó óŠ d  ŠŌ#†XvXX Xv'#ŌĢą  ą10.€€If€you€believe€that€additional€facts€are€necessary€to€answer€a€question,€state€exactlyĻwhat€those€facts€are€and€how€they€would€affect€your€answer.€€If€you€believe€that€a€question€isĻambiguous€or€unclear,€note€the€ambiguity€or€lack€of€clarity€and€indicate€how€it€affects€yourĻanswer.ĢĢą  ą11.€€The€questions€should€be€answered€in€blue€books,€or€on€typing€paper€if€you€type€yourĻexam.€€Please€write€or€type€on€only€one€side€of€each€page.€€Double„space€if€you€type.€€ņ ņBE€SUREŠ Ä` ŠTO€WRITE€YOUR€EXAM€IDENTIFICATION€NUMBER€ON€EACH€BLUE€BOOK€ORĻPIECE€OF€TYPING€PAPER€THAT€YOU€USEó ó.€€Do€not€put€your€name€on€any€materials€youŠ  < Šturn€in.ĢĢą  ą12.€€The€Honor€Code€is€in€effect.ĢĢą  ą13.€€Good€luck€and€have€a€great€summer.ĢĢĢĢĢĢĢĢĢņ ņDO€NOT€TURN€THIS€PAGE€UNTIL€YOU€ARE€GIVEN€THE€SIGNAL€TO€START.ó óŠ  Œ(("% ŠŌ‡ XvXXXvŌą@ģģ$ģąņ ņQUESTION€ONEˆŠ d ŠĢą@ŹŹ$ģą(30€Minutes)ó óˆŠ <Ų ŠĢĢą  ąOn€January€15,€Smash€Corporation€(š šSmashšš)€filed€a€registration€statement€with€the€SECĻto€sell€1,000,000€shares€of€common€stock€in€an€initial€public€offering.€€That€registration€statementĻbecame€effective€on€April€1.€€Daedulus€Corporation€(š šDaedulusšš)€is€a€dealer€participating€in€theĻIssuer€offering.ĢĢą  ą1.€€On€March€15,€Bob€Broker€(š šBrokeršš),€an€employee€of€Daedulus,€phoned€PercivalĻPurchaser€(š šPurchaseršš)€and€asked€if€Purchaser€was€interested€in€purchasing€some€of€the€SmashĻcommon€stock.€€Broker€told€Purchaser€that€the€stock€was€a€good€buy€and€discussed€favorableĻinformation€about€Smash€that€does€not€appear€in€the€registration€statement,€including€sales€andĻrevenue€forecasts€for€the€next€two€years.€€Purchaser€told€Broker€not€to€bother€herš!šthat€she€reallyĻwas€not€interested.ĢĢą  ą2.€€In€spite€of€the€initial€rejection,€Broker€sent€Purchaser€a€copy€of€Smashššs€preliminaryĻprospectus€on€March€25.ĢĢą  ą3.€€On€April€5,€shortly€after€the€Smash€registration€statement€became€effective,€BrokerĻsent€Purchaser€a€letter€essentially€repeating€everything€Broker€had€told€Purchaser€in€the€phone€callĻon€March€15.ĢĢą  ą4.€€On€April€7,€Purchaser€called€Broker€and€said,€š šYouššve€convinced€me.€€Iššll€buy€1,000Ļshares.šš€€Broker€responded,€š šO.K.€We€have€a€deal.ššĢĢą  ąDiscuss€whether€Brokerššs€actions€in€the€four€numbered€paragraphs€violated€section€5€ofĻthe€Securities€Act.€€(You€may€assume€that€none€of€Brokerššs€communications€were€fraudulent€orĻmisleading.)Š   !¼ Šą@ŠŠ$ģąņ ņQUESTION€TWOˆŠ d ŠĢą@ŹŹ$ģą(90€Minutes)ó óˆŠ <Ų ŠĢĢą  ąSeventies€Corporation€(š šSeventiesšš)€is€an€Exchange€Act€reporting€company;€all€its€reportsĻhave€been€filed€on€time€since€it€became€a€reporting€company€several€years€ago.€€Eric€owns€45Ļpercent€of€Seventiesšš€voting€stock.ĢĢą  ąOn€March€15,€1998,€Seventies€sold€100,000€shares€of€non„voting€preferred€stock€in€anĻoffering€that€qualified€for€the€Rule€506€exemption.€€Teen€Partnership€(š šTeenšš),€an€accreditedĻinvestor,€purchased€10,000€shares€of€that€preferred€stock.€€Teen€is€a€general€partnership€withĻthree€general€partners:€Eric,€Donna,€and€Fez.ĢĢą  ąAfter€this€sale,€Seventies€had€outstanding€100,000€shares€of€the€new€preferred€stock€and€2Ļmillion€shares€of€common€stock.€€The€common€stock€is€traded€on€the€New€York€Stock€Exchange.€ĻIts€average€weekly€trading€volume€is€consistently€around€20,000€shares.€€The€preferred€stock€hasĻnot€been€traded€at€all;€it€remains€in€the€hands€of€the€original€Rule€506€purchasers.ĢĢą  ąIn€1997,€one€of€Teenššs€employees€was€involved€in€an€auto€accident€that€seriously€injuredĻKelso.€€Kelso€is€a€high„school€dropout€who€works€as€an€auto€mechanic.€€Ō_ŌKelsńQńńOńońOńńQńńRńoŌ_ŌńRńńQńńPń€ńPńńQńńSńńOń€ńOńńSńńTń€ńTńńVńńUńŌ% € ŌńUńńVńfiled€a€tort€actionĻagainst€Teen€in€1999.€€Teenššs€lawyer€has€indicated€that€Teen€is€probably€not€liable€to€Kelso;Ļhowever,€there€is€about€a€10€percent€chance€Kelso€could€recover€from€Teen,€and€the€potentialĻdamages€are€enormous.ĢĢą  ąJackie,€who€has€no€relationship€with€either€Teen€or€Seventies,€is€a€friend€of€both€Kelso€andĻDonna.€€Kelso€owes€Jackie€a€substantial€sum€of€money.€€In€late€March€2000,€Jackie,€as€a€favor€toĻher€two€friends,€tried€to€reconcile€Kelso€and€Teen.€€Jackie€told€Kelso€that€Teen€didnššt€have€a€lotĻof€cash,€but€it€did€own€some€Seventies€preferred€stock.€€Jackie€told€Kelso€she€thought€SeventiesĻwas€a€very€good€company€and€the€preferred€stock€was€an€attractive€investment.€€She€asked€ifĻKelso€would€be€willing€to€take€the€preferred€stock€to€settle€his€claim,€and€Kelso€said€yes.€€JackieĻthen€approached€Teen€with€the€same€question€and,€on€April€15,€2000,€Teen€transferred€the€10,000Ļshares€of€Seventies€preferred€stock€to€Kelso€in€return€for€a€release€of€all€claims€arising€out€of€theĻaccident.€€Kelso€never€actually€saw€anyone€representing€Teen;€Jackie€acted€as€the€go„between€inĻgetting€the€deal€done.ĢĢą  ąSince€Kelso€acquired€the€Seventies€preferred€stock,€Seventiesšš€fortunes€have€taken€a€turnĻfor€the€worse.€€The€preferred€stock€is€now€essentially€worthless.ĢĢą  ąYou€are€a€first„year€associate€at€the€law€firm€of€Dewey,€Cheatham,€and€Howe.€€Kelso€isĻone€of€your€firmššs€clients.€€Patricia€Partner€(š šPartneršš),€a€securities€law€partner€in€the€firm,€hasĻasked€you€to€write€an€objective€memo€discussing€the€potential€liability€of€ņ ņņņJackieóóó ó€ńWńto€Ō_ŌKelsoŌ_Ō€Ō_ŌńWńńYńńXńŌ% € ŌńXńńYńunderŌ_ŌŠ 0,Ģ%) Šsection€12(a)(1)€of€the€Securities€Act.€€Partner€has€other€associates€working€on€other€issues€in€theŠ  -¼&* Šcase.€€She€tells€you€to€limit€your€memo€to€liability€under€section€12(a)(1)€only,€not€to€discuss€theĻliability€of€anyone€other€than€Jackie,€and€to€assume€the€preferred€stock€is€a€security.€€However,Ļshe€wants€you€to€discuss€all€the€important€issues€these€facts€raise€with€respect€to€a€sectionĻ12(a)(1)€claim,€even€if€you€think€one€issue€is€Ō_ŌdispositiveŌ_Ō.ĢĢą  ąWrite€the€memo€to€Partner.Ō#†X_tXX X_t.#ŌŠ   œ ŠŌ‡ X_tXXX_tŌą@hh#ģąņ ņQUESTION€THREEˆŠ d Šą  ąą ` ąĢą@ŹŹ$ģą(35€Minutes)ó óˆŠ <Ų ŠĢĢą  ąTrucks€ššRšš€Us€(š šTrucksšš),€a€trucking€company,€is€an€Exchange€Act€reporting€companyĻwhose€stock€is€traded€on€the€New€York€Stock€Exchange.€Trucks€recently€sold€1,000€shares€ofĻcommon€stock€to€Bertha€Buyer€(š šBuyeršš)€in€a€section€4(2)€private€offering.€€The€sales€price€wasĻ$100€a€share,€the€market€price€of€the€stock€at€the€time€of€the€sale.ĢĢą  ąBefore€the€sale,€Trucks€provided€Buyer€with€a€copy€of€a€recent€press€release€reportingĻthat€Acme€Manufacturing€Company€(š šAcmešš),€one€of€the€major€users€of€Trucksšš€truckingĻservices,€was€about€to€expand€its€operations.€€The€press€release€noted€that€the€Acme€expansionĻcould€significantly€increase€Trucksšš€revenues.€€After€looking€at€the€press€release,€Buyer€toldĻTrucks€she€didnššt€care€about€the€Acme€expansion€because€she€though€Trucksšš€stock€was€worthĻ$100€whether€or€not€it€got€any€additional€business€from€Acme.ĢĢą  ąWhen€the€press€release€was€issued,€the€market€price€of€Trucksšš€stock€had€increased€fromĻ$87€to€$100€a€share.€€In€fact,€Acme€had€decided€not€to€expand,€and€Trucks€knew€that€at€the€timeĻof€the€sale€to€Buyer,€but€investors€didńUńńLńŌ% € ŌńLńńUń€not.ĢĢą  ąBefore€buying€the€stock,€Buyer€told€Trucks€that€she€was€vitally€concerned€aboutĻalternative€fuel€sources€and€would€only€invest€in€companies€that€made€significant€use€of€gasohol,€aĻmotor€fuel€made€by€blending€gasoline€and€grain€alcohol.€€Trucks€told€Buyer€that€it€was€a€majorĻuser€of€gasohol.€€In€fact,€Trucks€did€not€use€gasohol€at€all€because€the€cost€of€gasohol€is€higherĻthan€the€cost€of€ordinary€gasoline€and€it€has€no€benefits€over€ordinary€gasoline€as€a€fuel.€€None€ofĻTrucksšš€other€investors€or€customers€has€ever€expressed€any€concern€about€the€gasohol€issue.ĢĢą  ąShortly€after€Buyer€bought€the€Trucks€stock,€Acme€announced€that€it€was€not€expanding,Ļand€the€Trucks€stock€dropped€to€$92€a€share.ĢĢą  ąDiscuss€whether€Trucks€is€€liable€to€Buyer€under€section€12(a)(2)€of€the€Securities€Act€orĻRule€10b„5.Ō#†X_tXX X_tÓ(#ŌŌ‡ X_tXXX_tŌŠ  ä#€  Šą@ŖŖ$ģąņ ņQUESTION€FOURˆŠ d ŠĢą@ŹŹ$ģą(25€Minutes)ó óˆŠ <Ų ŠĢĢą  ąOrion,€Inc.€(š šOrionšš)€is€an€Exchange€Act€reporting€company€that€wants€to€sell€additionalĻcommon€stock.€€It€already€has€one€purchaser€lined€up€who€will€pay€for€her€1,500€shares€byĻtransferring€to€the€Issuer€real€estate€with€a€fair€market€value€of€$150,000€($100€a€share).€€OrionĻwants€to€sell€another€4,000€shares€to€44€non„accredited€investors€for€$200€cash€a€share€(anĻadditional€total€of€$800,000).€€It€will€locate€these€additional€investors€by€publishing€an€ad€in€localĻnewspapers€describing€the€offering.€€The€offering€will€be€registered€in€the€state€of€Kansas€andĻmade€only€to€Kansas€residents.€€As€required€by€Kansas€law,€each€Ō_ŌńXńńVńŌ% € ŌńVńńXńoffereeŌ_Ō€will€receive€a€detailedĻdisclosure€document.€€Discuss€whether€ņņņ ņóóó óthe€Rule€504€exemption€would€be€available€for€thisŠ t  Šoffering.Ō#†X_tXX X_t+1#Ō