# Appendix — A.D.M. Corp. v. Thomson > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385011_0419%3A2 ## Record - **Collection:** Supreme Court brief - **Document type:** Appendix - **Published:** January 1, 1983 - **Citation:** 464 U.S. 938 ## Text Iu the Supreme Court of the United States OCTOBER TERM, 1983 A.D.M. CORP. Petitioner against ARTHUR J. THOM SON and FROST CONTROLS, INC. Rest ongents UNITED ELECTRONICS COMPANY Petitioner against ARTHUR J. THOM SON and FROST CONTROLS, INC. Respondents APPENDIX TO PETITION FOR A WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE FIRST CIRCUIT ANGELO M. TORRISI Attorney for Petitioners 123 Main Street P.O. Box 395 Tuckahoe, New York 10707 (914) 779-1404 APPENDIX TABLE OF CONTENTS Page Opinion - Court of Appeals, First Circuit: entered May 24, 1983 A-1 Judgment - Court of Appeals entered May 24, 1983 A-9 Petition for Rehearing In Banc A-10 In Re: A.D.M. Corp., Petitioner A-1i11 In Re: United Electronics Ce. ¢(Del?d, Petitioner A-22 Order - Court of Appeals denying Petition for Rehearing In Banc: entered June 17, 1983 A-24 Opinion - USDC Mass. (Zobel, D.J.): entered July 4, 1982 A-25 I! Judgment - USDC Mass entered July 7, 1982 Complaint Complaint - Addition of Sixth Cause of Action PART 230 - GENERAL RULES AND REGULATIONS SECURITIES ACT OF 1933 PART 239 - FORMS PRESCRIBED UNDER THE SECURITIES ACT OF 1933 Definition of Terms "Underwriter" nd "Brokers' Transactions" Background and Purpose Synopsis of the Rule OPERATION OF THE RULE Page A-60 A-64 A-71 Page Related Rules and Other Amendments A-84 SECTION 230 144 PERSONS DEEMED NOT TO BE ENGAGED IN A DISTRIBUTION AND THEREFORE NOT UNDER- WRITERS : A-&9 SECTION 239.144 FORM 144 FOR NOTICE OF PROPOSED SALE OF RESTRICTED SECURITIES PURSUANT TO SECTION 230.144 OF THIS CHAPTER A-10¢4 FRCP - Rule §2 A-i06& S$ U.S.C. $81 Definitions A-1C09 $ U.S.C. $53 Rule Making A-1i11 253 U.8.2 Section 77a Short Title A-1 - ww 15 15 15 +) IV uU.$.¢ Section 7756 Definitions U.S.C. Section 774 Exempted Transactions y.§.¢ Section 77e Prohibitions relating to interstate commerce and the mails y.§$.C Section 77s Special powers of Commission Proposed Findings of Fact Page A-112 A-116 A-119 A-120 A-122 UNITED STATES COURT OF APPEALS For the First Circuit No. 82-1618 Plaintiff, Appellant, . 3 ‘ NC ARTHUR J THOMSO FROST CONTROLS I Defendants, Appellees, GENERAL ELECTRONICS, INC., ET AL, Third-Party Defendants, Appellees No 82-1619 UNITED ELECTRONI*®S COMPANY, Plaintiff’, Appeilant, ARTHUR J. THOMSON, FROST CONTROLS, INC, Defendants, Appellees, CENERAL ELECTRONICS, INC., ET AL, Third-Party Defendants, Appellees. APPEALS FROM THE UNITED STATES DISTRICT COVART FOR THE DISTRICT OF MASSACHUSETTS Ciion. Rya W. Zotel ys Drstrict Judge) Before Coffin, Chief Judge Breyer, Gircuit Judge and Maletz,* Senior Jucge Angelo M. Torrisi, for A.D.M. Cocp.., United Electronics Company, and General Electronics, Inc Mishael 3 Cacsdene:. with whom Mintz, Levin, Conn, Ferris, Gisvaky& Popeo, P © was on brief, for Arthur J Thomson and Frost Controls, inc BREYER, Crrocuit Judge The plaintifts im this case include a firm known as United Electronics Co of Delaware (‘VUED), which swned the stock of cy company ssiginally called Frost Controls cCocp (Prost) VED pledged its Frost stock to a lender called Factors and Note Buyers (Factors) When the loan went into default, Factors fore- closed on the collateral, offering it for sale publicly and then buying it itself Thomson, Frost's president, then e Of the United States Court of International Trade, sitting by designation. formed a@ new company anc Bought Frost's assets on behalf of that corporation VED and Frest's Successcer have sued Thomson and his new company They claiz that title to Frost's assets did not pass to Theazson's company and that Thomson breached a fiduciary duty to thez wher he formed the new company and bought the Frost assets 1. Whatever plaintiffs’ theory, it is clear that they cannot prevail unless VED, not Factors, owned the Frost stock at the time of the saie of Frost's assets Thus, they have tried to show that Factors's foreclosure sale (to itself) ef the Frest stecck was invalid To deo this, they argue on appeal that Factors, in offering the Frost stock for sale, was an “underwriter within the meaning of the Securities Act of 1533 iS U.S C. Section 77a et geg Section 2¢11) of the Act defines “underwriter” broadly to include one who has purchased from an issuer Cor from one who controls an issuer) with a view to the Gistribution of any security as well as cne who "sells for an issuer Cor for one who controls am issuer)." J]¢ at Section 77b(11) Factors, they claizn, is one who took fron, or sold for, persons (namely, VED) who controlled the “assuer"™ (Frost) Since the Frost stock was unregistered, they argue that the public foreclesure sale viclated Section S of the Act, gd at Section 77e, and thus the courts should set it aside The district court, believing that Factors was met an underwriter and that Section 4¢(1) of the Securities Act, jd, at Section 77d(1), therefore exexpted the sale, found for defendants Plaintiffs appeal There is considerable Support for the district court's view that Ps good faith piedcgee who gseiis snregisterced shares at a foreciscsure saie is not aa snderwriter The Securities 4 Exchange Commi ton itself aould not racommend enforcement proceedings in the cirscumstan.es present here se22 ~ohSumercs rw Co.» 193i Fed Sec L Rep Paragrap! 76,709 (Oct é, 1780), American Securit k, 1980 Fed Sec L Rep Farcagrcaph 76,407 (May 2? 1930), Coventry Cate. [ne No-Action Letter (June 14 Pave Azt£r9 Manufasct yeti n Te No-Action Letter Sec 14 19786); Iotecnational Electronics ose... No-AStion Letter Sept 22 1978), YVoited Prosecties of America, 1978_ Fed Sec L Rep Paragraph 81,4627 June 9, 1978), Yock Terrase Lessee Venture, No-Action Letters (Nov ii, 29793); Banees Pubiishers ins... No-Action Letter Oct 14, 1975), Hi-Poct Industries. inc... No Action Letter (Oc a 1975); Elijwall Deveizsment Ltd. No-Action Letter (July is. 1974), Nacda Mictogwave Fore... No-Action Letter ‘(Dec is, 1972), Nagrda Mictswave Porn., No-Action Letter (Jan 24, Bea tH Vogue Instrument 252. : No-Action Letter (Dec 7. 1771) Nonetheless, our research indicates circuit court dicta to the contrary See SEC v. Guild Films Co... 379. F.38 = 435, 487-99 (2d Ci¢.d, seers d E - & ,_ 4" w ee) u wv wv ~ a i~ an Sowards, YSiT i ns, Section 4.910316) 4 Cel, has been frequently repeated, se@, 2 G.. McCiuce v. Eiszst A-5 National Bank of Lubbock 4°97 F.2¢4 4390, 493 (Sth Cie eae bP cert denied, 426 Us 930 (1975), SEC v. Nationaj Bankers Lite Insurance €o., 334 F Supp. 444, 456 (N.D. Tex Iv7id,. afe'a, 477 F.2¢é 920 (Sth Cir. 1973); §£C v National Bankers Life Insurance €co., 324 F. Supp 1869, 194 (N.DB Tex.), aft'd, 446 F.2d 652 (Sth Gig .2971); in re Franchard Corp... 42 S 2. 263; ita B25; Ci-964> ; In re Associated I[rvestors Securities, ins... 43 6.8:.¢ 160, i165 (1962), In ge Skiatron Electronics 6 Television Gores ., 40 $§.E.C 236, 245 (1960) We need not decide this controverted and potentially far-reaching issue regarding the coverage of the Securities Act, however, for plaintiffs lose even if Section $ of the Act applies The Securities Act does mot by its terms automatically invalidate sales of unregistered securities im violation of Section 5 Rather, when unregistered securities are sold illegally, the Act Simply grants the buyer 2 remecy in Section 12¢1) is VW.8s.¢ Section ae SS Morecver, the courts have consistently held that a geiler Gannct set aside his own unlawful contract where the contract's enforcement does mot threaten public ¢ cy as manifested in the Act itself A Frost é Co v Coeur d'Alene Mines Core.,., 312 US 36, 44 (1941) (where "3t definitely appears that enforcement of a contract Cviolating Section §] will not be followed by injurious results, generally, at least, what the parties have agreed to ought mot to be struck down") Compare Kaiser-Frazer Core - Otis § Co, 195 F.2d 838, 843 (24 Cir.) (A. Hand, J.), gert. denied, 344 U.S 8$6 (1952), with Judson *. Buckley, 130 F.2d 174, 179-80 (2d C¢ J. 3 San5 denied, 317 U.S S22 a1l32 Syrcnes ¥ Faulk awkins §& (24 Cir Missourct ¢ v. 8h , $46 F.2d ( h Cie 1976), Henderson ¥ Hayden, Stone Inc., 461 F.2d 1069, 1072 (Sth Cire 972) As Judge Augustus Hand pointed out, whether or not a court inv t: 774, 734 should rcetuse to enforce “contracts made in viclation ) the Securities Aet” depends upon whether ‘they are culated to damage the investing public,” and “each case sust be judged upon 3tS own elias facts - on v aus i d6 at 189 sverwhelmingly treating the he district court t Factors did not dge arcangement with Ling the Frost shares d * o ~~ ef 7 jo w& rd ce ; the shares ended actors’ own hands The contract is not executory, the sale is complete, all parties have celied spon its Lidity, and no investor has been injured by th lack of a registration statement If there is a public policy good faith piledgees offering atercal (consisting of unregistered ata foreciosure sale to the t is not a strong one As noted above, the SEC presently allows such public sales under similar circum- stances, and the Uniform Commercial Code encourages public sales, s2e2, y:c.c. Section 7-$94(3) Under these circum- stances, whether or not the pledgee's sale was illegal under Section § of the rt should not void z request | ~ £E d'Alene Mines Securities act, aco the sale at pledgor' Erost é -t-) v Cce Corp, supra 2. The defendant Thomson appeals the district court's decision that he is not entitled tc indemnificaticn by the corporation formerly controliing Frost Cincluding A plaintiff corporation) for his ezpenses in this suit Thomson introduced evidence that on of these corporations has a@ by-law which provides for indemnification of “any person who mey have served at this corporation's request ac a director or officer of another corporation in which thi ‘ corporation owns shares © stock if that individual incurred expenses by reascn of being cr having beer Can] officer of such other corporation, "™ as long as he was not adjudged to have been negiigent or to have engaged in misconduct The other corporaticn apparentiy has 2 Similar by-law In our view the corporations by-laws must be read in light of the relevant law of the states in which the corpecrations were incorporated See. ie. if ] her Cyc] i f th Law ¢ nh Sections 6045 1-6045.3 (1960) New Jersey, one of those states, specifically requires any of its corporations tc "indemnify a corporate agent againget expenses tc the extent that such corporate agent has been successfu! im any proceeding” involving his “by reason of his being or having been such a corporate agent," so long as the agent “acted in good faith and in a Banner he reasonably believed to be in or not opposed ¢ the corporation Section 14A 3-5 ‘corporate agent one who setves a employee or enterprise, secv request of corporation 14A:3-S(1)¢a) relevant incorpo similar statute. Fh: 8, Secti Delawacte Zeneral & tr A-8 of Ann o the " N.J interest Stat is an agent ing as the 3 any other such at the indemnifying pT at Section Delaware, th eather rating state, very See Del Ann 145, E The 98-9? has a Code Folk, Law on (1972), Mereitt-¢ - Corsocation haoman § Scott tore. v Wolfson, 321 A 1774) ‘Cpresident to emnificats9o KRomson fits tatutes H oY -~se wie o- breach of ai expens ing" an oh te of LaA chagman Fe 3-5 3 the ling corpor ‘o 24 138, i141 (Del of subsidiary pacent) within the was asxed from scope of to manage arcesident of both tions He was sued ary duty; thus “by reason of employee Stat. Ann (4), ass v Wolfson, - ~~ e ficer, N ) to Oro. J ¢ Wie oe E's pee Sy merits findings to that ie hit? or mterests tat Ann Sonsequenti reversed in indemnification, remanced for a amount of an appt In light unnecessary work in a manner Se was successful the district legitimacy of preclude the n acted in bad “opposed to the of the corporation.” Section 14 A 3-5(2) 4 y: the judgment below so far as it disallows and the case is determination of the opriate award of the additional to which defendants - ’ 7 the and have been put by plaintiffs ' brief on appeal, dcuble costs are awarded to defendants with respect to the plaintiffs’ appeal Ordinary costs are awarded to Thomson with respect to his Own appeal See Fed. R. App. Proe 3€, GCrevicck Glen Corp v unit v Bank, 636 F.2¢6 1, $ (ist Cig oe fe Be The jiudgsent of the district court is affirmed, except that the portion of the judseent dealing with the appeal of Arthur J Thenmson is reversed and remanded CCOURT OF APFEALE - CAFTION) These causes came on to be heard on oral argument from the United States District Ccurt fer the District of Massachusetts and was argued by counsel Upon consideration wherecf, It is row here erdered, adjudged, and decreed lows The judgment of the District Court firmec except that portion of the judgment Gealing with the appeal of Arthur J. Thomason is reversed and that part of the judgment is remanded to the District Court for further proceedings consistent with the opinion filed this day Double costs are awarded to defendants with respect to the plaintiffs appeal Ordinary costs are awarded to Thorsen with respect to his Own appeal Ey the Court Francis FP Scigliano Clerk A-190 CCOURT OF APPEALS - CAPTICNI FETITION FOR REHEARING IN GANS BY PLALLIiTIEFF-APFPELLANTS A.D if - RP AND UNITED ELECTRONICS COMPANY, SY THIRD PARTY CEFENDANT-APPELLEE SENERAL ELECTRONICS, INC IN BANS REQUEST The appeliants A.DM CORP and UNITED ELECTRONICS COMPANY and appellee GENERAL ELECTRONICS, INC respectiully request this Court, under Ruie 35 of the Federal Ruies of Appellate Proecedure, a) nhearc his Petition foc Reheacing Sy tie Court sf Appeals in Gane it is celieved that this request should be acceded ts foc the reasons that in the matter aft the appeal by A.O.M. Corp. (#82-1618) several questions of unusual importance ar2 involved Is the public offer tor sale by a good faith piedgee in foreclosuce of collateral of inregisterced shaces af an issuer an illegal offer to sell said shaces in violation of Sectisn Sic) of the Securities Act ef 1933, 13 V.$.¢G Section 77¢e? Does such public offer for sale by a pledgee to sell publicly the unregistered shares of an issuer without either compli- ance or an @kemption from the disclosure requircements of Section $ contravene the public policy cf the Securities Act of 1933? A-i1 Is a good faith pledgee who offers to seil publicly the unregistered shares of an issuer an underwriter within the meaning of Section 2¢(11) of the Securities Act Of. i73e5 42 V.8.¢ Section 77b(i1)? and for the further reasons that in the matter of the appeal by United Electronics Company (#62-1619) consideration by the full court is necessary to secure or maintain uniformity of its decisions as to Fed R Civ ?.32; that Getermination of findings cf fact are the function of the tribunal court, if the findings are inadequate or insufficient, the Appellate Court will remand for further findings See United Shoe Machinery Corporation v. Kamborian et al, 160 F.2d 613 C€Cist Gist 1947) IN THE MATTER OF A.D.M. CORP PLAINTIFF-APPELLANT, (62-1618) POINT t FNE'S PUBLIC OFFER FOR SALE OF FROST CORP.'S SECURITIES ON OCTOBER 21, 1973 WAS A PRIMA FACIE VIOLATION OF SECTION Sic) In June 1973 VU E Co (Del) pledged its wholly owned Frost Corp securities with FNB, a commercial lender In Octcber 1973 4FNB, upon default, sought to foreclose upon the collateral held by it and on October 21, 1973, FNE publicly offered for sale the unregistered shares of plaintiff ADM Corp (Frost Corp ) A-12 h C ’ 3 I I ni 3 i ly ated essential elements of the Section Ss violation as f{sllcws a ae In order to establish a i prima facie case for a Section 5 violation, a plaintiff? must prove three elements First, it must be shown that no registration statement was in effect as to the securities Second, it must be established that the defendant sold or offered to sell these securities, and finally, the use of interstate trans- portation or communication or of the mails m connection with the sale must be proved See Lennerth v Mendenhall, 234 F. Supp $7 (N.D Ohio 1964); It! Loss, Securities Regulation 1473 24d ed hve. POINT if THE FACT THAT FNB WAS A BONA FIDE PLEDCEE SCES NOT RELIEVE IT FROM COMPLIANCE WITH REGVUIREMENTS OF SECTION § The District Court found that in June 17973 FNB accepted in good faith the pledge of the Frost Corp unregistered securities, which appellants do not dispute Appellants contend that the bona tide role of FNB as of June 1973, when it accepted the pledge, is not controlling noe is at an important A-13 consideration determinative of the legality of its public offer to sel! the pledged shares on October 21, 1973 In the Guild Filgs ge 4 the pledgee banks strongly urged their role as good faith pledgees as determinative of their rights to sell the piedged securities free of the registration requirements. The 2d Cireuit Court succinctly disposed of this by stating at page 490. "C€4] The banks have contended that they were “bona fide pledgees" and therefore “entitled upon default to seil the stock free of restric- tions." They assume that “good faith" in accepting the stock is a sufficient defense See Loss, Securities Regulation, 346 (1981) But the statute dces not impose such a "good faith' criterion. The exemp- tion in Secticn (1) was intended to permit private sales of unregistered securities to investors who are likely toc have, or who are likely to obtain, such information as is ordinarily disclosed in registration statements See S.8.¢ v Ralston Purina Co, 1953, 346 vu §s 139, 73 #$.Ct 981i, 97 L.Ed. 1494 The “good faith" of the banks is irrelevant to "SEC wv. Guild Files Co., 279 F.2¢ 465, 469-90 (2d Cit)», gest denied Sub nom Santa Monica Esrk v SEC, 3464 U S&S B19 (1966) this pucpsose it would be of lattie solase 2 gurchasercs of thiess stock to learn that the seiiecs Rad acted “in good faith Regardless 3 g20d faith, the banks engaged in steps necessary to this public saie and cannot be exempted Also in the Guild Films Co at page 489 the Court noted that Congress had proposed originally a provision which would have given bona fide pledgees such cights, but said provision was not included in the Securities Act of 1933 as adopted THERE EXISTS A STRONG PUBLIC POLICY TO PROHIBIT A PLEDOCEE FROM OFFERING TO SELL PUBLICLY UNREGISTERED SHARES OF AN [ISSVER, UNLESS THERE [8S EITHER COMPLIANCE WITH SECTION $ OR AN EXEMPTION ) ? At? : i=] £ SR head Py * Strength of the underlying public policy of the Securities Act celated to public sale by bona fide pledgees has been challenged sericusly by this Court In this connection at page 7 of its decision, it concluded ~EE there is a public policy against good faith pledgees offering collateral (consisting of unregistered shares) at a foreclosure sale to the public, it is not a strong one.” The Circuit Court recites a series of 13 No-Action Letters by the S.E.C to A-15 selling pledgees as suggestive of a possibly ‘sympathetic’ or a possibly ‘condoning public policy attitute' by the S E Cc towards public sales by bona fide pledgees. The public policy of the $.£.C. is strong. and very clear, at substantial administrative effort it established Rule 144, which permits a procedure for public sale of securities by pledgees under rigidly controlled conditions protective of the public interest and its need for adequate information. However, $.£.¢ Rule 144 is not the exclusive means of public sale and the $.£&.C continues, now as before, to provide advisory services through its No-Action letters in appropriate instances not covered by Rule 144 The very existence of the need by selling pledgees for these 13 No-Action letters confirms public recognition by the securities industry at large of the need to assure itself against possible prosecution by the $.&.C. in support of its avowed positive public policy The No-Action letters are conditioned upon assurance that the proposed sales be made as private sales to either the selling pledgee or to financially sophisticated members of the public, either of whom would acquire same for investment use and not to be resold, except upon compliance with the provisions of the Securities Act of 1933 as amended Contrawise, the §.EvCc. has affirnm- atively expressed its public policy by aggressive litigation seeking injunctive relief in Section S(c) violations. In Guild Films Co. (supra) the bona fide A-16 bank pledgees were enjoined from future public offer for sale of their pledged shares unless auch sales be in compliance with the provisions of Section 5 of the Securities Act or exempted therefrom To the same effect the §.&.C vigorously prosecuted to injunction an offer for sale by an issuer in violation of Section S$(¢) in Ss £_S v. ruch $ w 8 Enforcement efforts of the S§.E.C. have been vigorous and of long standing, gt is cespectfully ucged that unless is court affirms that a strong public policy does in fact exist to require stciet sompliance with Securities Act disclosure reguirements oY seirting pliedgees, the floodgates to distriSution of unregistered securities would be spened and the pudlic offer for sale by bona fide pledgees “would afford a ceady method of thwarting the policy of the law and evading its provisions.” See | ee 5 Chinese Senevolent Agsosi ation POINT IV ON OCTCBER 21,1773 FNB OFFERED TO SELL FUBLICLY THE UNREGISTERED FROST CORP SECURITIES FOR U.E.CO. (DEL), ISSUER BY THIS ACT FNB WAS AN UNDERWRITER WITHIN THE MEANING OF SECTION 2(11) OF THE SECURITIES ACT OF _ 1933 As to the definition of the tern “underwriter” the District Court focuses c; 187 Fed Sup 824 Cusoc ($.90.¢.D Cale 1937332. . €ie., £961 ,- 486 8.236 736; certiorari denied, 1942, 314 _ as8 62 8. 6¢. 066, O64 1: GR. BP. wa A-17 its definition of attention solely "Section 2 “underwriter” who has issuer with distribution security. rs Section 2¢11) to that part of the which reads (11) The term means any person a view to the of any (Underscoring supplied.) and this court has supported this narrow, restricted interpretation of Section 2(¢11) Firstly, it must be noted that this portion of Section 2¢1i1i> is subjective and was intended to protect from the role of “underwriter” an innocent purchaser from an issuer, it was never the intent of Congress to penalize an innocent purchaser Secondly, this nacrow interpretation of Section 2¢11) is imapplicable to the facts at bar and in conflict with the District Court's own affirmative findings that the FNB was 9 2 purshaserc, the District Court found that FNB was merely a good faith pledgee who did not take "with aview to distribu- Tien” . The District Court should have applied the other portion of Section 2¢11) which reads: "Section 2¢11) The term “underwriter” means any person who.. offers of sells for an issuer in connection with the distribution of any seeesity...* supplied.) (Underscoring A-18 This portion of the definition is unequivocal and clearly defines the role of FNEB as an “underwriter” On October 21, 1973 FNB offered ‘for sale’ for the account of U.E.Co (Del), issuer, in connection “with the distribution of...C€the Frost Corp } - securities". This portion of the definition is clear, unambiguous, and not subjective; it was intended to apply to just such an offerer as FNE under the circumstances Further, the scope of Section 2411) of the Securities Act is better understood when cone notes that the words “offers or “did not appear in the Securities Act of 1933 as originally enacted Congress in its wisdom expanded the definition of underwriter to include one who “offers or" before the word “seils” by the enactment of Public Law $77, 63rd Congress. sme. 603-8. 8.6 has expended great administrative efforts to develop the definition of “underwriter” and its has embodied the results of its extensive efforts in S.8.6. Rule 144. Unequivocally, the §.E.C. reiterates many times throughout the rule that the definitions above noted must be read disjunctively. Prior to this amendment me 8.8.¢. could not act in enforcement of the public policy until after occurrence of illegal Sales of securities; subsequent to the amendment the §.E.C. could avoid injuries to the public and enforce public policy by enjoining the preliminary illegal offers necessary to final sales. A-19 UNDER APPLICABLE NEW JERSEY LAW, FNB'S PURPORTED SALE TO ITSELF WAS INEFFECTIVE AND DID NOT SERVE TO TRANSFER TITLE TO FNB OF THE FROST CORP SECVURITIES On October 21, 1973, FNB publicly offered for sale many items of collateral which included machinery, inventory, tangible property, and also the Frost Corp unregistered securities. The validity of the offer for sale and subsequent sale of the machinery, inventory, equipment, and other tangible property is not challenged, the validity of the public offer for sale of the unregistered Frost Corp securities is challenged as being in violation of Section Se) On October 24, 1973, FNB conducted the propcsed sale and at that time it presented a successful bulk Bid for all items offered There is no dispute that title to the machinery, inventory, 2qu:pment, and other tangisle property passed to FNB at the making of its bulk Sid Appellants dispute the transfer of title to the Frost Corp. securities As to the Frost Corp. securities, NE's act of cfifer for sale on October 1, 1773 was illegal, im violation of ection S(c)d; having initiated the sale y its own illegal offer to sell the Courts of Equity of New Jersey would not allow FNB to take advantage of its illegal act, nor would they permit FNB to compound its prior illegal act by commission of a further illegal act, crMmMunns A-20 namely, the purportes sale to itself in violation of Section Sa) See Whitney v Lett ArT"? ,? FO ih? VI THE PURFORTED SALE ON OCTOEER 72¢, 1973 BY FNBE TO ITSELF OF THE FROST CORP SECURITIES WAS ILLEGAL, EXECUTORY, AND INCOMPLETE; IT DID NOT SERVE TO TRANSFER TITLE OF THE FROST CORP SECURITIES TO FNE SIMILARLY, THE S.E.C IN GUILD FILMS CO. STRUCK DOWN BY INJUNCTION AND PREVENTED TRANSFER OF TITLE TO THE GUILD FILMS CO SECURITIES PURSUANT TO THE OUTSTANDING, ILLEGAL EXECUTORY, INCOMPLETE SALES ACREEME! The Frost Corp certificate by its own terms and by Massachusetts Law was transferable only on the books of Frost Corp... which at all times were in the possession of VE Ce (Del) The evidence at trial established clearly that following the purported sale of October 26, 1973, FNB never sought nor did it obtain transfer of title to its name of the Frost Corp securities The purported sale of October 26, 1973 continued as executory and incomplete from that date to June 1975, at which time it was annulled ab initio upon consent of all parties and the possession of Frost corp securities which were returned to its rightful ane T3134 N.J. Eq. $86, 36A 24 888. A-21 ? record owner, J.E.Co ‘Del) The putported executory agreement of sale was annulled by the parties themselves in ,973, long before commencement of piaintiff{'s action From the evidence at trial it is clear that if FN had sought to obtain transfer of title of the Frost Corp. securities to itself, this effort would have been opposed vigorously by U.E.Co (Del) and transfer would have been refused The Securities Act and the courts have consistently supported imnocent purchasers a5 to consensual contracts made with sellers acting in viclation of Section § , ilg Films Co., in 5? the Santa Monica Bank f Guild Films Co . ci ms l Septenmter sold 9,300 shares securities and in aptember 24, 1959 sold 19,50 shares Neither of the sales were completed by transfer of the steek; the $.8.¢C commenced its action an sStained a permanent injunction 4 against transfer whereupon the executory neomplete sales were by said injunction 4, y There is nothing inconQquous or inconsistent between the foregoing and the court's reference to A.C. Frost § - ‘ , Ma Co. ¥ 22) M : The Securities Act of 1933 and the courts have consistently supported imnocent purchasers of securities sold by sellers acting in violation of Section 5, holding that a violating seller cannot 312 U.S. 38, 44 (1941). seek avoidance of its own illegal sale as against an innocent purchaser In the case at bar, FNB was not an innocent purchaser, But was in fact perpetrator of the illegal act There was no arms ' length nor consensual relationship between FNEB, purchaser, and VU.E.Co (Del), seller, in fact, as stated above, as of the commencement of this action, there was no contract between the parties, executory or otherwise, that would require avoidance of same by the District Court POINT Vil AT TRIAL, BY UNDISPUTED EXHIBITS, U.E.CO. (DEL) ESTABLISHED A PRIMA FACIE CASE OF BREACH OF FIDUCIARY DUTIES OWED IT BY THOMSON, THE BURDEN TO SHOW FAIRNESS SHIFTED TO THOMSON, WHICH HE DID NOT ATTEMPT TO SUSTAIN THE DISTRICT COURT FAILED OR OMITTED TO MAKE ANY FINDINGS OF FACT ESSENTIAL TO V.E.CO. (DEL)'S CLAIMS AS REQUIRED BY F.R. CIV. P. $2 THIS CIRCUIT COURT HAS FAILED TO REMAND TO THE DISTRICT COURT FOR ESSENTIAL AND SUBSTANTIAL FINDINGS As of November 1973 plaintiff U.E.Co (Del) commenced efforts to regain control of the Frost Corp. securities to itself As of October 26, Be gb ie Thomson began an entire course of action, secretive, concealed, hostile, and inimicable to the interests of his principal, V.E.Co (Del), whereby he A-23 sought to acquire Frost Corp.'s assets to hiaself,; also, Thomson engaged in self dealing acts, took advantage of corporate opportunities, used and diverted corporate assets to his own selfish purposes and use The District Court's Opinion fails to disclose any findings whatsoever as to amy of the foregoing This Court in compliance with Rule $2 was obliged to cemand for essential findings, but failed to do so in breach of its obligations under Rule $2 DATED Tuckahoe, New York June 6, 17833 ANGELO M. TORRIS! . See United Shoe Machinery Corporation vy Kamborian et al, 160 F.2d 461 Cist Cie. 1947), See SA Moore's Federal Practice Paragraph $2.96013,€23; See State Comm'rs v. Jackson €1931)> 283 WE $237. $4 8 Ct $70, 75 L ed 1248. A-24 CCOURT OF APPEALS - CAFTION) ORDER OF COURT Entered June 17, 1983 Upen consideration of “Petition for Rehearing In Banc" by plaintiff appellants, A DOM Corp and United Electronics Company, and by Third Party defendant appellee, General Electronics, Inc., which document was submitted to the wembers of the panel and to the judges of the Court who are in regular active service, and no judge who was a member of the panel nor any judge in regular active service having requested a vote on the suggestion for rehearing en banc, it is ordered that the suggestion for rehearing en banc is hereby denied By the Court Francis FPF. Scigliano Clerk COISTRICT COURT CAPTION - 76-41502] ZOBEL, D.J. This ts an action to set aside the sale of the assets of Frost Controls Corp. ("Frost Cese."? 5 now named ADM Cortp., te Frost Controls, [ne ("Frost, tne. ”) Plaintiffs also allege that Arthur J. Thomson, while an officer of Frost Cocp., improperly took a Management bonus and that he violated a fiduciary duty by keeping a corporate 2pportunity for himself They 52ek recovery of the bonus and the proceeds decived from the transaction which gave rise to the claim of breach of fiduciary duty Defendants have counterclaimed for damages under Mass. Cen.Laws Chapter 973A and for indemnification. They also assert third-party claims against Factors and Note Buyers, Inc ("FNB"), the sole stockholder of Frost Corp at th time of the sale of assets for breach of contract, against Alexander D Matathias, the principal of FNS, and Marvin Schondort, its counsel, for misrepresentation and negligence, against Ceneral Electronics, Inc. ("G.E inc."), the parent of plaintiff United Electronics Company for indemnification, and against Michael T. Gasparik, the guiding hand of plaintiffs, and GeE Ine for abuse of process and violation cf Chapter 993A The following shall constitute my findings of fact and conclusions of law. A-26 Michael T Casparik, an ngineer and lawyer by training, has been since 19S9 the presidert anc treasurer and 4 Girectcr of GE Iinc., &@ publicly traded conglomerate He has heid the same office in wsost of the wholly-owned subsidiaries of E Inc including United Electronics Company of Delaware C7 we aen. 2 and its sister company, United Electronics Company of New Jersey Bes RS te In February 1971, V.E. Del acquired with a binder bid of $105,000, at a bankruptcy saie, the assets of four subsidiaries of Fairfield Technology Corporation One { these subsidiaries, Frost Electronics, Ine was then being run by defendant Thomson, and Gasparik hig to Frost asked business located in was engaged in electric sensitive relays Gasparik causec Electronics, Ine continue to Bellinghas, mechanisms manage the Electronics, BRE ” and explains the settlement of Litigation with FNB A-31 sect. denied, 344 U.S 419 (3960), and V.E. Del was an “issuer, Sy virtue of its ownership of a controlling interest, FNB ceceived the stock as a bona fide piedge and with the expectation of repayment of the loan V.E NJ undoubtedly had financial problems in June 1973 when it borrowed {com FNB, but there is no evidence to suggest that it did not, at that time, intend to redeem the stock or that FNB accepted the col- lateral with the expectation of selling it On the contrary, the evidence of Gasparik's continued efforts, through July and into August, to borrow oper- ating funds pecmits the inference, which I draw, that he intended all along that the loan from FNB be repaid According- ly, I find that FNB accepted the stock as a bona fide pledge and not "with a view .. to the distribution of Cthat) BeGEEOSEs ese” EF Src. my Guild Filas Co.. guora. FNB was not, therefore, an “underwriter” and the sale was exempt under Section 4(1) of the Act Plaintif{'s third and last conten- tion is that the sale was not commer- cially reasonable, as required by Sec- tion %-$04(3) of the Uniform Commercial Code, N.J. Stat Section 12A.9-504(3) I find that this was a public sale which had been advertised in the Newark Star Ledger The notice of sale included the date, time and place of sale, and it identified the collateral to be sold * "Plaintiffs argue that FNB had ne detailed information as to several of the intangible assets iisted, but it cites no authority for the proposition that such detail is required to be disclosed in the notice of sale A-32 The sale took place at the premises of the debtor and guarantor companies where ail their beoks, tax returns, and financial statements were located Tt was conducted by A.J Willner, an auctioneer of Sixty years’ experience with whom Gasparik was well acquainted The auctioneer at first offered the collateral in bulk and then, in an effort to obtain a better price, in lots Casparik, who was present at the sale, at no time before, during, or after the sale, objected to any of the procedures used Whether the sale was conducted ina commercialiy reasonable manner i. 2 question of fact, gee, @o2@=.¢g., biberty National gank 6 Trust Company of QCkrlahowa City vw Acme Tool Division of Bucske: Company. $40 F.2d 1378, 13861-1382 (10th Cir 1976), and the reasonableness of the sale is deternined not solely by the price obtained But by the smanner in which the sale is conducted Mt. Vernon Bank, 18 Wash.App. $69, $70 P.2d 702 CERF 7 0.2 First National Bank & Trust Co of Enid vw Holston, $59 F.26 440, 464 (Okia 1977), James Talcott, Inc. iv . 165 Mont 404, $29 P.2d 352, 354-355 (1974) Although subsequent events proved the price to be low, I find that the spethod, manner, time, place, and terms of the sale were commercially reasonable Piaintiff{s hawe not challenged FNB's right to fereciose on the collateral pledged as security for FNE's loan. Because I find (1) that the stock of Frost Corp was imciuded in the sale, (2) that the sale of the stock did not A-33 violate the Securities Act of 1933; and (3) that the sale was commercially reasonable, title to the stock passed to FNB upon acceptance of its bulk bid, which was the highest bid FNB, as sole stockholder, had every right thereafter to authorize the corporation to sell its assets. . Plaintiffs assert against Thomson a claim that he, while an officer of Frost Corp., failed to disclose to FNB and wrongfully appropriated to himself, a corporate opportunity which belonged to Frost Corp. At a closing on October 21, 1974, Frost Corp consummated the sale of all of its asset@# to Frost, Ine., a Rhode Island Corporation formed by Thomson for this purpose mn February 3, 1975, Frost, Inc sold to Sigma Industries, Inc ("Sigma") certain of its assets and Thomson entered into a consulting agreement with Sigma The transactions with Sigma constitute the alleged corporate opportunity which plaintiffs contend belongs to ADM, formerly Frost Corp A person in a fiduciary relationship to a corporation may not take advantage of an opportunity for personal gain in derogation of the interests of the corporation, and its shareholders Durfee v. Durfee § Canning Company. 323 Mass 187, 196, 80 N.E.2d $322, $27 (1948). That doctrine is based on standarcds of equity and fairness, and its application depends upon the particularc facts of each case iId.. 323 Mass. at 199, 80 N.E 2d at 52? In this case, resolution of plaintiffs’ charges requires a determination of the nature of the relationship between Thomson on A-34 one hand and Frost Corp and FNE, its scle stockholder, on the other The next question is whether, under all the circumstances, Thomson's failure to disclose the approach by Sigma was unfair and inequitable I find that FNB was in the business of lending and financing Neither Matathias, its principal, nor anyone on his behalf took any interest at any time in the operation of Frost Corp Matathias' object, after the secured party sale, was to liquidate all of the collateral FNEB had purchased Indeed, between October 26, 1973, the date of the acquisition of the stock by FNE, and October 21, 1974, the date of the sale of the assets of Frost Corp., Matathias' conversations with Thomson related almost exclusive to the sale of the corporation or its assets by FNB The parties met on November 20, 1973, and Thomson informed Matathias of his interest im purchasing the company Matathias told hin to continue to operate the company and that Matathias would let him know of FNB's intentions when a decision had been made In May 1974, Matathias requested a review of the books of the company by his accountant Although permission was ultimately given, the accountant never appeared On August 8, 1974, Matathias and FNE's counsel, Marvin Schondorf, met with Thomson and his personal counsel, Ralph P. Semonoff, at the office of Frost Corp. in Bellinghaa, Massachu- setts. They toured the plant to get an A-35 idea of value and then met at a restaurant where Matathias first conducted a stockholder meeting He named himself and one Melvin S Goldberg as directors Schondortf was named secretary-treasurer, and Thomson declined the invitation to be elected president.* Matathias and Thomson then discussed the sale of the assets by Frost Corp. and Matathias told Thomson if the latter was not interested or they could mot agree on a price Matathias would liquidate the assets by auctioning then In fact, the parties did at that meeting agree that Frost Corp would sell the assets to Thomson at a price of $229,009 cash, and that Thomson would assume liabilities in the amount of appromimately $18,000 Thereafter counsel prepared the requisite documentation, and the formal closing took place on October 21, 1974. As a result of earlier inquiries, Thomson did have, at the time of the August meeting, a commitment letter from the Old Stone Bank, Providence, Rhode Island, for such financing as he would need to complete the purchase Plaintiff ceased being a director of Frost Corp. on August 8, 1974 On that day also, Matathias and Thomson had reached a meeting of the minds concerning the sale of the assets. Matathias considered it an excellent deal. Although Thomson continued to manage the business nominally for Frost Corp. until the closing, Matathias, a alt | credit Thomson's testimony in this regard although he is shown as president in the Seller's Certificate. A-36 man experienced in corporate matters and finance, knew that Thomson was, during the interregnum, acting on his own behalf and he no longer regarded Thomson as having any fiduciary duty to Frost Corp. or FNB I find that Thomson, in fact, owed no fiduciary duty to Frost Corp or FNB after August 8, 1974 and that he, therefore, had no obligation to disclose to FNB or Matathias the meetings with officers of Sigma in September and early October, and their inquiries concerning a purchase of some of the assets, even it those initial inquiries were to be deemed a corporate opportunity. * Plaintiffs’ last claim, for recovery of a bonus paid to Thomson in March 1974, is barred by the release given by Frost Corp. at the October 21, 1974 closing. The evidence is undisputed and I find that Matathias knew, as of the August meeting, that Thomson had taken a bonus. It is also undisputed and I find that Matathias, who was duly authorized, did, on behalf of Frost Corp... release Thomson “from any and all claims, demands, actions and causes of action of every kind and nature which Frost now has or might have against Thomson and especially from any claims arising out of compensation, including bonuses, received from Frost by Thomson." Plaintiffs suggest no reason or authority why this explicit release does not determine the issue of the bonus. ®No agreements were reached with Sigma until several weeks after the closing of the sale by =FNB. The sale to Sigma was not closed until February 1975. Since there was full cisciosure and Since Matathias was properly authorized to execute {he release, plaintiffs are Bound thereby That claim for recovery of the bonus paid to Thomson is accordingly denied Defendants have counterclained fer dameges (1) fer alleged violations cf Mass Cen. Laws ch. 93A; (2) for abuse of process, (3) for indemnity, and (4) for Breach cf contract They also clainz against GCasparik for violations of ch 9$3A ané abuse cf process The third and fourth claime are based on the agreenmert cf seie Between Frost Corp and Frost, Inc The 933A and abuse of precess Claits ate premisec on the assertion thet Cesperikb imstituted this lawsuit sclely to buttress his cgefense to an imvestigeticn into his activities By the SEC ; of the Messachusetts Congunes Protection Act, Mass Ger Laws ch $3A, provides that “Cadny persen whe engages in the conduct of any trade of commerce and who suffers any loss as é result of the use by ancther person who engages im any trade cr commerce of an unfair of deceptive act or practice 4 may recover damages Defendants assert that bringing a frivolous lawsuit is such ar. unfair act ot practice Apart {ron the fact that this section cf the statute adctresses unfaic practices in the conduct cf commerce and net any isolated transaction unrelated to the business of the parties, see bantner vv £Caison. 374 Mass 60é, 373 N E£ 26 973 (1978), defendents have not established the of an wnftaie act the statute defendants rely laticns al Trad tion made ofc co wi art - ~ uniawful =tionecrs A-38 mmission by plaintiffs thin the meaning of The 2ases on ahich imappos They ch FIA Section Commissi Act, 43%, repeated : f a i ere th threats ends, la te 34 Ass'n, F : C where cundle chasers is V9 brought against In se Aut respondent repeatedly ss taxpayer suits com its competitors, ting Mashine Coce.. 47 i BS i angaged against foruns, C1931 eaett tde2b oa bh 7 where lenders ce lawsuits tors savenient ) Se $49 ° G on rT ia “7 Be on U ry . - , 374 N.E.24 plaintiffs’ action less, which I do it had been Srought SEC investigation probably one the filiag lawsuit do b a patteca, av. defendants ord sf manufacturing F.2d of and not v i. © ~~ ut sir.gie ’ - , @. Cafendants pro:ess aiso fa 140 of £f the mot proses lawsuit, imacy rc (1 Even wholly ground- mot find, and even if in response to the Gasparik, which was ivatia factors, wtioc of this nal . This is were ate ch 9 no at is Susine ectrcical rela for abuse of sustain a cause =? *Section «2 intent of iatertpretiag the courts be guided given to Section 5¢ 5) the ~ ¢ ~* ch 933A expresses the lagisilature that, in Massachusetts statute, by interpretations adci)d of the Federal Trade Commission Act of action for abuse of process, plaintiffe eust show “that the process was used to accomplish some vuiterior urpose for which it wes net designed cof intended, or which was not the legitinste wurpose cf the particular precess enmplcyec.“ Cabkrie! x Borowy, 224 Mass 231i, 236, 6S N.£.2¢ 4335, 439 (1949); Quarante v Ei lverseac., 34S Mess 423, 426, 187 W.2£.26 699. 861 C1968);5 Jones ¥ Brockton Public Meskets. Ins... 349 Mass 387, 34G N.E.2¢ 464, 4&5 ¢2973) Although plaintiffs used the precess cf this court tc institute the action, they used it fcr the purpose for which Se is intendec--toe istigate the rights cf the parties to the assets of Frest Corp That plaintiffs may aisc heve been ercouraged tc litigate because cf the SEC investigaticn of Gasparik does not render improper the use of process tc determine rights in cispute Defendants' claigs fer indemnity ageinst piaintitfts reguires considet- ation of several of th cicsing docu- ments executed in connection with the czle cf essets cn Octcber 23, 1974 Frost Cor; (now plaintiff ADM Corp.,.? agreec in & Purchase Agreement tec seli ali cf its assets as cf the close of business that day to Froest, Inc It alse certified that all cf its stock was then ewned by FNE and that FNE. as sole stockhoider, had voted to seli the assets Tt further executed ar.2 deitivered a Eil!l of Cale and Assignuent transferring the assets to Frest., Inc The FPurchise Agreement provides that each cf the parties thereto agrees tc indemn:fy the other for any claims, damages or expenses, including reason- able ettorneys’ fees, sustained by the indeani £ » and/ 4i sseld 2 a © a mn - - ¥ shar lsez ean 2 7 - . - . " efen nein ment i . ‘ c me @e2 n o:e¢e 2 ce wag ~-— «= 6 - a | ‘ a] tions trporati aitlable i “ al uw oo oo ~o. 7 au A-40 pacty. resuiting from "any isleading tcepresentation of de Sy the indemnitzying pacty Sing out sf oc by virtue of tance with or breach of any ments contained herein to Se the tndemnifying Party % ts assert that ADM Corp., by his action, has breached the and warranties contained ad that gefendants are, ntitled t indemnity The the indemnification ciause scetched so far There is no t Feost Corp did caccy out -9n3s undarc the agreenent and ived up t2 the warranties fsund in the first part of dua The Later unsuccessful 7 the corporation that the ider at the time of saie was cannot detract from the fact >| fully complied with the The counterclains for 2 denied the action is not wholly” i or frivolous, defendants’ torcneys fees, pursuant to s ch 231 Section 6éf, is also claims indemnification nses against VU.E Del. and That claim is grounded on the 4 those corporations which indemnification sf officers cs Since Thomson was not son of Being or having Seen” 9¢ discector, But cather for Llegedl, inimical to the indeznification is not A-41 Since defendants prevail with respect to plaintiffs’ claims concerning the sale of assets, the cross-claigs against FNB, Matathias, and Schondorf are mgot. Judgment may be entered for defendants on the complaint and for plaintiffs on the counterclaiz Judgment may also be entered fer GE tue. on the cross-claim by Thomson and for Gasparik on the cross-claim by Thomson and Frost, Inc Defendants’ cross-claims against FNE, Matathias and Schondorf may be dismissed as moot July 6, 1982 Rya W. Zobel DATE DISTRICT JUDGE CDISTRICT COURT - CAPTION 76-41502) NA {ENT ZOBEL, D.J In accordance with the Memoranduz of Decision dated July é, 19682, it is ORDERED that judgment is hereby entered for the defendants on the complaint, and for the plaintiffs on the counterclaiz. Judgment is entered for General Electronics, Inc on the Cross-claim by Arthur J. Thomson, and for Michael ye Gasparik on the cross-claims by Arthur J. Thomson and Frost, Inc Defendants’ cross-claims against Factors and Note Buyers, EMC. » Alexander D Matathias, and Marvin Schondorf are hereby dismissed. By the Court, Nina Singer Deputy Clerk Date: July 7, 1982 A-42 UNITED STATES DISTRICT COURT DISTRICT OF MASSACHUSETTS NO. 76-4150 A.D.M CORP and UNITED ELECTRONICS COMPANY, Plaintiffs, vs COMPLAINT ARTHUR J. T' ‘SON and FROST CONTRe ww, INC., Defendants i i i i i a ee Plaintiffs, complaining of Defendants, allege the following Causes of Action ELRST CAVSE OF ACTION i Jurisdiction is conferred on this Court by the diversity of citizenship between the parties, and an amount in controversy exceeding Ten Thousand ($10,000) Dollars exclusive of interest and costs, v.8.¢ Title 28, Section 1332. Jurisdiction exists within the District of Massachusetts by virtue of the provisions of the Massachusetts Long Arm Statute, Massachusetts General Laws Chapter 223A, Section 3, as amended; more particulacly Massachusetts General Laws Chapter 223A, Section 3 subsections cad, (0), (eo), (d). Jurisdiction is also present with authority for process to issue outside of the district by virtue of the provisions of the Federal Rules of Civil Procedure, Rule 4(4)(7) 2. Plaintiff, A.OM. CORP, is ao A-43 corporation organized and existing under the laws of the Commonwealth of Massachusetts, a citizen and resident thereof, having its principal place of business in the City of Fall River, Commonwealth of Massachusetts e. Plaintiff, UNITED ELECTRONICS COMPANY, is a corporation organised and existing under the laws of the State of Delaware, having its principal place of business in the City of Newark, New Jersey 4 Defendant, ARTHUR J. THOMSON, is a citizen and resident of the State of Rhode Island bs] Defendant, FROST CONTROLS, INC, is &@ corporation organised and existing under the laws of the State of Rhode Island, a citizen and resident thereof, having its principal place of business at One Angell Road, Cumberland, in the State of Rhode Island 6 From the date of its incorpo- ration, March 3, 1971, until October 21, 1974, Plaintiff A O.M CORP. maintained its principal place of business at 26 Pearl Street, Bellinghaw, Massachusetts 02024 where it had its office, manufac- turing plant, equipment, inventory, and other personal property, all subject matter of the acts of conversion, trans- fer, sale or disposition on October 21, 1974 by or to the Defendants as herein- after alleged. oF From inception until October 21, 1974, Plaintiftt was known as Frost Controls Corp at which time Defendants caused its name to be changed to A DM CORP. A-44 8 From the date of incorporation through to the close of the business day on October 2i, 1974, Defendant, ARTHUR J THOMSON, was the President, chief executive and operating officer of Plaintiff A.D.M CORP., and a member of its Board of Directors. 9 On March 1s, 1971, Plaintitt A D.M CORP (at that time Frost Cont ols Corp.) authorized issuance of Certificate 61 for $,000 shares of its common stock to Plaintiff UNITED ELECTRONICS CO., representing all ot Frost Controls (today "A D.M.") Corp.'s issued and outstanding stock This certificate remains in full force and effect, and since said date UNITED -LECTRONICS CO., as reflected upon the nooks and records of Plaintiff A.O.M CORP. , has remained continuously as sole registered stockholder of Plaintiff A.D.M. CORP. 10. On of about June 14, 1973, United Electronics Co. (NJ) borrowed $75,000 from Factors and Note Buyers Inc which it secured by a security agceement covering all of its production machinery, equipment, and inventory, and also the accomodation guarantee of its sistec corporation, Plaintiff United Electronics Co. (Del), and delivery in pledge of Certificate 1 of Frost Controls Corp. for $,000 shares common stock as then owned by Plaintiff United Electronics Co (Del), said shares being all of the outstanding shares of Frost Controls Corp. 11 Factors and Note Buyers Ine. subsequently deciared the loan of United Electronics Co (NJ) to be in default A-45 and as secured party caused a sale to be conducted on October 26, 1973 at which sale Factors and Note Buyers Inc was the successful bidder At this sale, Factors and Note Buyers Inc. purported to buy all the machinery, equipment, and inventory of United Electronics Co (NJ) and the $,000 shares of stock of Frost Controls Corp.; Factors and Note Buyers Inc. thereafter did not cause to be transferred to itself the said $,000 shares of the common stock of Plaintiff A.D.M. CORP. (Frost Controls Corp.) on the books and records of Plaintiff A.D.M. CORP. (Frost Controls Corp ? 12 The sale and all acts thereunder were challenged and were disputed by the Plaintiff UNITED ELECTRONICS CO. and the Plaintiff A.D.M. CORP as to legality, right, and propriety, with notice of challenge and dispute to Defendant ARTHUR J. THOMSON. The illegality and the impropriety of the sale and the acts complained of were well known at all times to the Defendant ARTHUR J THOMSON. 13 Plaintiffs are informed and believe that Factors and Note Buyers Inc. did conspire together with Defendant ARTHUR J. THOMSON and Defendant FROST CONTROLS, INC. in a plan to defraud, despoil and deprive Plaintifts of their assets and to divide same between Factors and Note Buyers Inc. and Defendant FROST CONTROLS, INC. be 14. This plan involved the following actions by the Defendants. a. The Defendant ARTHUR J. THOMSON did cause the Defendant FROST CONTROLS, INC., to be organized as a corporation under the laws of Rhode Island on October 9, 1974, for the purpose of establishing avehicle to purchase and acquire the assets of Frost Controls Corp., the plaintiff now known as A. D.M. CORP, by collusive action with Factors and Note Buyers Inc Plaintiffs believe that this corporation is substantially owned and controlled by the Defendant ARTHUR J THOMSON, who was elected its President, Treasurer and sole Director b The Defendant THOMSON, acting Simultaneously as both the principal executive eftfticer of Frost Controls Corp (the predecessor name of the Plaintiff A O.M CORP.) and as principal executive officer of the newly formed corporation FROST CONTROLS, INC, did in breach of his fiduciary duty to Frost Controls Corp., purport ‘to act for and on behalf of both corsorations in a variety of conflicting matters. These matters involved the purported sale in October, 1974, and distribution of all assets and good will including the name of “Frost Controls” to FROST CONTROLS, INC., the corporation principally owned and operated by the Defendant THOMSON. Defendant FROST CONTROLS, INC. thereby acquired not only the physical assets of Frost Controls Corp., but also all of its good will, contractual rights, corporate opportunities and other property These acts by ODOefendant THOMSON were to his personal advantage and constituted wrongful and willful breaches of his ti®uciary obligations to both ADM CORP. and UNITED ELECTRONICS COMPANY, Pilaintitts c The pian of division and despoliation provided in essence that Factors and Note Suyers Inc. would A-47 receive in cash @ sum equal in substance to the cash balances then existing in Plaintiff A.OM.'s bank accounts plus the valwe of its accounts receivable and ‘other liquid assets Defendant FROST CONTROLS, INC would receive all of the good will, a release of Plaintiff's name -~-FROST CONTROLS--, all the intangibles, all of the inventory, machinery, plant, tooling and equipment, work in process, and all of the cash in bank, accounts receivable, which it would use to raise the moneys to be paid to Factors and Note Buyers Inc d The instrument of fraud as devised and contrived by Defendants and by Factors and Note Buyers Inc was in the form of a sham and fraudulent contract of sale which nominally transferred all of the assets of Plaintiff A.D.M CORP. to Defendant FROST CONTROLS, INC, and nominally provided for payment to Plaintiff A DM CORP. of a stated cash consideration of $220,000. e. On or about October 21, 1974 at a closing, Defendant FROST CONTROLS, INC did issue a check payable to Plaintiff --then named Frost Controls Corp. -- for $218,884. The foregoing sum was raised from Plaintiff ADM. ‘s own assets directly or indirectly, by means devised and contrived by Defendants Con- currently Defendant FROST CONTROLS, INC. received a transfer of all Plaintiff's assets f Plaintiffs believe that immedi- ately following the closing Factors and Note Buyers Inc. reduced to its own pos- session the $218,884 nominally received in the name of Plaintiff A.D.M. CORP. g. At or concurrent with the closing, Defendant ARTHUR J. THOMSON as A-48 President fraudulently and in further- ance of the plan of division and despoliation executed an Article of Amendment to change the name of Plaintift from Frost Controls Corp to A.D.M CORP., which change of name Defendant ARTHUR J. THOMSON did there- upon cause to be filed in the office of the Secretary of the Commonwealth of Massachusetts 15 Following completion of all of the acts necessary and essential to the plan of despoilment and division of the assets of Plaintiff A.D.M CORP ., Defendant ARTHUR J THOMSON resigned as President and Director of Plaintiff A.D.M CORP., effective as of the close of business, October 21, 1974. 16 Subsequent to the aforesaid closing, Plaintiff UNITED ELECTRONICS COMPANY instituted Litigation in the Courts of the State of New Jersey against Factors and Note Buyers Inc. challenging the legality and propriety of the Secured Party Sate of October 26, 1973 and all acts thereunder. Factors and Note Buyers Inc. pursuant to judgment entered therein, among other relief, surrendered to UNITED ELECTRONICS CoO. the Certificate @1 for $3,000 shares of the common stock of Plaintiff and paid to Plaintiff, A.D.M. CORP., the sum of $206,211.05 1? By reason of the foregoing, Plaintiff A.D.M. CORP. was deprived of all of tis assets having a fairc market and reasonable value of at least $750,000. 18. The defrauding of Plaintiffs and \, , " ‘ A-49 the taking from A D.M. CORP all of its goods, wares, and assets was willful, intentional, and wpalicious with gross Gisregard of Plaintiffs’ rights and well being- Piaintiffs are entitled to recover from Defendant FROST CONTROLS, INC $759,000 as damages for the willful, wrongful and illegal acts on the part of Defendant FROST CONTROLS, INC hereinabove referred to. SECOND CAUSE OF ACTION ig’ Plaintiffts repeat and reallege each and every allegation contained in Paragraphs i through 16 of this Complaint as if the same were more fully set forth herein at length, and incorporate the same in this Second Cause of Action 20. The actions of Defendant ARTHUR J. THOMSON were in breach of the fiduci- ary duty which he owed to Frost Controls Corp. (the Plaintiff A.DLM CORP.) as the president of that corporation. In conspiracy with Factors and Note Buyers inc., he and Defendant FROST CONTROLS, INC. acted to his own personal advantage in flagrant abuse of his corporate position and amounted te fraud for which Plaintiffs seek recovery. ae. By reason of the foregoing, Plaintiff A.D.M. CORP. was deprived of all its assets having a fair market and reasonable value of at least $750,000. 22. The defrauding of Plaintiffs and the taking from A.D.M. CORP. all of its goods, wares, and assets was willful, intentional, and malicious with gross disregard of Plaintiffs’ rights and well being Praintiftts are entitled to recover from Defendant FROST CONTROLS, INC. $750,000 as damages for the willful, wrongful and illegal acts on the part of Defendant FROST CONTROLS, INC hereinabove referred to. THIRO CAVSE OF ACTION 23. Plaintiffs repeat and reallege each and every allegation contained in Paragraphs 1 through 18 of this Complaint as if the same were more fully set fomth herein at length, and incorporate the same in this Third Cause of Action 24. Plaintiffs say that the actions of the Defendant FROST CONTROLS, INC. constituted unfair methods of competition and unfair and deceptive trade practices, such conduct being a violation of Massachusetts General Laws, Chapter 93A, section 2, as amended. a9 . As a direct result of Defendant FROST CONTROLS, [me.°s actions herein complained of, the Plaintiffs have sustained great harm as evidenced by the loss of both money and property, both tangible and intangible, in the form of lost business, damaged good will, misappropriated property consisting of valuable product designs, trade secrets, tools, equipment, and other items of great worth which belonged to Frost Controls Corp. 26. Such conduct on the part of Defendant FROST CONTROLS, INC. was both willful and knowing on its part. The Plaintiffs pray that this Honorable Court award the Plaintiffs three times the mount cf Gazages which they ustained, tegether with rezsonebie attorneys’ fees, costs and smnierest, tec te assesses against the Defencant FROST CONTROLS, INC 2? Fiaintiffs repeat and reallege each and every allegation contained in Peragreshs i threugh rae of this Comsiaint as if the seze wete more fuliy set fort> hereit at length, and ircorpcraete the same in this Fourth zuse cf Astsion c& Pisintift{s sey thet the actions of the Defendant ARTEUR J THOMSON con- stitute unfair metheocs of competition ar.d unfair and deceptive trade prac- tices, such cenduct Leing @ vioiation of Massachusetts General Laws, Chapter 3A, section 2, ss amendec. 29 As a direct resuit of Defendant ARTHUA J THOMSC?!:' s actions herein compiained of, the Plaintiffs have sustained great harm as evidenced by the loss of beth money and property, both tangible and intangible, in the form of lost business, damaged good will, misappropriated property consisting of valuable product designs, trade secrets, tcols, equipment, and other items of great worth which belonged to Frost Controls Corp. 20 Such conduct on the part of De- fendant ARTHUR J. THOMSON was both will- ful and knowing on his part The Plain- tiffs pray that this Honorable Court award the Plaintiffs three times the amount of damages which they sustained, together with reasonable attorneys' fees, cost and interest to be assessed against the Cefendant ARTHUR J. THOMSON. FIFTH matte 0 A =“ 33 Plaintiffs repeat and reallege each and every allegatzyon contained in Paragraphs i through 18 of this Complaint as if the same were more fully set forth herein at length, and incorporate he same in this Fifth Cause of Action 32. At some time during late 1973 or eacly 1773, Defendant ARTHUR J. THOMSON wrongfully took from Plaintiff A.D.M. CORP., and converted to his own use and benefit, the sum of Thirty-two Thousand Two Hundred Eighty-five ($32,285) Dollars which Defendant THOMSON caused to be identified improperly on the books and cecords of Plaintiff A.D.M. CORP. as 2 “management bonus" Said taking of $32,285 by Defendant THOMSON was without the knowledge of the Soard of Directors of Plaintiff A OM CORP , the matter of the alleged ‘Management bonus" having been neither acted upon nor authorized by Plaintiff's Board of Directors 33. The taking ty Defendant THOMSON of the $32,235 from Plaintiff A.D.M. CORP. was without Plaintiff's knowledge and consent, wrongful, willful, in- tentional and malicious with gross disregard to Plaintiff's rights and well being Plaintiff a.0.8. CORP is entitled to recover $32,285 from Defendant ARTHUR J THOMSON as damages for the willful. and malicious acts on the pact of said Defendant A-53 WHEREFORE FLAINTIFFS FRAY that this Honorable Court adjucge, ceclare and decree that os The Defendant FROST . CONTROLS, INC. be held liable to the Plaintiffs for damages sustained because of the Defendant's actions conplained of in the First Cause cf Acticn in the amount cf $750,006 together with interest and costs 2 The Defendant ARTHUR J THOMES?H te heitd liabie to the Piaintifts for damsges sustz2ined because cf the Defendant's actions complained of in the Second Cause of Action in the azcunt of $750,050 togethe: with interest and costs 3 The Deferdant FROET CONTROLS, INC te ‘held liable to the Plaintiffs for treble damages beceuse of the Defendant's actions complained of in the Thire ceuse of Acticn in the amount of $2,250,000, together with reasonabie attorneys fees, interest anc costs 4. The Defendant ARTHUR J. THOMSON be heitd lizetle to the Plaintiffs for treble demeges because of the Defendent's actions complained of in the Fourth Cause cof Action in the amount of 2,250,000, together with reasonable attorneys’ fees, interest and coests. S The Defendant ARTHUR J. THOMSON be held Liable to the Plaintiits for damages because of the Defendant's actions complained of in the Fifth Cause ef Action in the amount of $32,285 together with interest and costs. ‘4 The Plaintiffs be awarded such further relieéf as this Honorable Court may deem proper and necessary ADM. CORP By Mishael 7 Gasparik, PRES UNITED ELECTRONICS COMPANY By Michael T. Gasparcik,. PRES. Suftoix, s5 Boston, Massachusetts November 197, 1976 Thea personally appeared MICHAEL T GASPARIK whe made sath that the fore- going statezents are true cr are made on information and Selief and therefore believed to be true ” if a GBefo «a ) bt Dl ~ fA a] oO 4 + t. 9 it ~~ xn G : a “a “Me ’ ‘ mu . uw ee © . ft ‘ " -* ’ O. 2 ~ “a ‘ ’ . wu ‘a ” . 4 ~* 6 ba ' vw ‘wet " & o mo" we o or er wid it a 88 oo TR wi 4 we tt) ” wu ™ «' a w - te wv a aw 4 te of ‘ ” ti 4 t) “ mom oe n 4 | o W& eo +e 4 s- iS nf " , ty eo ' ° -?* ‘ oe mie ao ey ’ tu > " “4 , ah: ec Oe “ea “ a ‘ W — " we We YP «a 44a om wa he 45 te O oe a] ne) "3 ae Corp 7G Cc ood «a? vw he le “@ n uv O ow vo ° ~ a a! A tw be a) a se uo ‘ “ ve ‘ Vv ed | ” yi 9 ’ .-& pe ‘ ae » e W Pr IT ‘ ‘ de oe 2? ~ ~¢ 7 27, September on te a) (Frost Plaintift us, wu op Ww ow fo 7, wore bh ot | “am UO WD uw 7M g¢ mO UD we mari i e- 4 4 fg mn if - te uu) "1 . re lo ow ar law a] eo ) as seller and defendant ls, ne. as buyer, ne agreement sf Cetcber 21, i i d ted “> «fr 4 ig Hy 0 p » ) te de 4 own oO u or Ov oO ge 3 u & ~ ~ . » * mo oo @® vu © oo o ij 7 m rw Oo > | of - ow oof? 8 a ore a) “ w Im of re “1 ru | nm wv b= 3 ®@ O m- w mo - ’ so 0 aad o 1 ow = | ov th ) + " ow uw oo ~~ » c oo aw a ar an wy ne | r oO “ uw o wv uo oO ~~ © fe =s - * « e © al w - y oO # a . o a u : G wo - ee or OC e- w r 4 —? my " ’ ' —/- ”" o oo ' pat , wv or - Piaant:t £¢ (F . ~ er oo wv Ww " ib . b= | vu » roe. w& no ~ — ese te e u = ) © oe f° -* my pe pe | “er . mn wn uw ow io uw - = | 1g uw uw 2 ow ” 3 -* ¢ ~™ 3 ow " wt tao con o Vv io ie % d n I l and 5 jer = properties and Stt a (Frost Controls mn Ow Corp.) relay business fcr the sux of $290,000 and concurrently Sigma Instruments, Inc. agreed to execute a separate consultant's agreement with Arthur J Thomson for an additional $10,600 for a five month period to follow closing 47 On February 3, 1975 at a closing held at 40 Westminster Street, in Providence, Rhode Island, Frost Controls, Ine purported to sell and Sigma Instruments, Inc. purported to purchase the relay portion of Pracut eet” ss (Frost Controls Corp business and assets which had been acquired by Frost Controls, Inc on October 2i, 1974 2 hereinbefcre alieged a om oO yn Febru , ERPS the Old Stone Eank as agent of Frost Controls, I ceived that portion of the con- sideration then paid by Sigma Instru- n ‘ namely $260,000, which it o Al on oe ae) tely applied to pre-payment in full of the then remaining unpaid principal of $122,250 on the five-year term loan made Ey Old Stone Eank to defendant Frost Controls, Inc. on October y a 1974 and concurrentiy Old Stone Bank released and discharged the security lien which it then held on riatatitc- ss machinery, equipment, inventory, furniture, fixtures and accounts receivable. WHEREFORE, Plaintiffs pray i That defendant Thomson be ordered to give an accounting to the Plaintiffs of all gains, profits and advantages derived by defendant Thomsen in the operation of Frost Controls, Inc. and in the utilization of any cf the assets or corporate opportunities of Frost Controls Corp. (now A.D.M. CORP.) 2. That defendant Thomson be ordered to pay to the Plaintiffs such damages as the Plaintiffs have sustainéd by reason of the wrongful acts of defendant Thomson complained of above including costs and attorneys' fees. 3 For such other and further relief as this Honorable Court may deen mecessary and appropriate Plaintifts, By Michael T. Gasparik President UNITED ELECTRONICS COMPANY By Michael T. Gasparik President ~- PAR ne fee RE wwe we a - « - of @h ge OH eet - ~ - rwe w | 2s i o o- orn c c own na” - . . Relee 158447 and contains background, of the se 3 é (Release No. _ * *. ” ra cas o oe h & O e t? rule ate 4c A-60 (January 14, 1 33-5222 ‘re ~—- ES ACT ‘he! i - 230-GENERAL SECUR) ES A OF ”- as 1933 MS PRESCRIBED TIES ACT OF 1933 OTe f wae = Terms de ke ro ce" Teaneact Exchange adcption the e- Pe 30 O® ra “o o~- cman CO ~ om mf Mm is further ations in received Series" 49°? interpre e comments Ss, the re ct Release 6 Rule 144 (Securities $087 and $186; 35 F.R 1€Sé5S) This notice general discussion of the purpose and general effect to assist in a better tle. ee cme A-61 understanding of ct. A brief analysis of each secticn of the rule is also included However, attention is directed to the rule itself for a more complete undecstanding of its provisions Furthec, the cule has been adopted in the contest of and in conjunction with several, cules and amendments to rules and forms which the Commission has adopted or rescinded including: : Form 144 ¢17 CPR 239.244), Netiece of Proposed Sale of Securities Pursuant to Rule 144; 2 Amendments to Forms !°-K (17? CFR 249 3190) and 10-Q@ (17 CFR 249 .308a) under the Securities Exchange Act of 1934 (Exchange Act) (Exchange Act Releases Nos 9442 and 7443, a7 FR 600.601), 3 Amendments to Regulation A (17 CFR 230.281-230 .263) under Section 3(6b) of the Act (Securities Act Release No $225 a oe ee Se 14. Rule 1Se2-11 (17 CFR 240.iS$c2-11) unde: the Exchange Act (Exchange Act Release No SatS; Se E.R. 366123 5 Rescission of Rule 1355 (17 CEFR 18S) under the Act, 6 Rescission of Rule 234 ¢€i17 CFR 230.1854) under the Act; ? Publication of a celease relating to the applicability of the antifraud provisions of the securities acts to certain practices in connection with transactions by issuers and others not involving any public offering (Securities Act Release No $226 and Exchange Act Release No 9444 coe re ¥ 600); and 8 Rule 237 (17 CFR 230 237)-under section 3(b) of the Act (Securities Act Release No. 522 (37 F.R. $90). A-62 The Comm: ssion is hereby specifically withdrawing its previously proposed "160 Series” of rules (Securities Act Release No. 4997 (35 Pc. “Saeer ih t.. Rule 144 will become {fective on and after April 15, 1972. In brief, the rule provides that any affiliate or other person who sells restricted securities of an issuer for his own account, or any person who sells restricted or any other securities for the account of an ateiiiete of the issuer, is not deemed to be engaged in a distribution of the securities, and therefore is not an underwriter as defined in section 2(11) of the Act, if the securities are sold in accordance with all the terms and conditions of the rule. The rule requires, among other things, that the restricted securities must hseve been beneficially owned for a period of at least 2 years by the person for whose account they are sold; that the amount sold shall not exceed i percent of the class outstanding, or if traced on an exchange, the lesser of that amount or the average weekly volume on all such exchanges during the 4 weeks preceding the sale; and that the securities must be sold in brokers ' transactions. In addition, there must be adequate information available to the public in regard to the issuer of the securities and notice of the sale (Form 144) must be filed with the Commission concurrently with the sale. A number of persons have commented that it is not clear whether the rule,as proposed, was intended to be the exclusive means for selling restricted securities without registration under the Securities Act. In this connection, A-63 certain commentators asserted that the Commission does not have the statutory authority to adopt such an exclusive rule while o\hers stated that the Commission had such power and urged it to adopt an exclusive rule The Commission does not believe it is necessary to reach these ° questions relating to its statutory authority at this time, since the rule as adopted is not exclusive However, persons who offer or sell restricted securities without complying with Rule 144 are hereby put on notice by ‘the Commission that in view of the broad remedial purposes of the Act and of public policy which strongly supports registration, they will have a substantial burden of proof in establishing that an exemption from registration is available for such offers ofr sales and that such persons and the brokers and other persons who pacticipate in the transactions do so at their risk Moreover, with respect to restricted securities acquired after the effective date of the rule, the staff will not issue "“no-action" letters relating to resales of such securities Further, in connection with such resales, the Commission hereby puts all persons including brokers and attorneys on notice that “the change in circusa- stances” concept should no longer be considered as one of the factors in determining whether a person is an underwriter. The Commission recognises that this concept has been in existence in one form or another for a long period of time. However, administrative agencies as well as courts from to time change their interpretation of statutory provisions in the light of new A-64 considerations and changing conditions which indicate that earlier inter- pretations of such provisions are no longer in keeping with the statutory objectives Thus, the “change in circumstances" concept in the Commission's opinion fails to meet the objectives of the Act, since the circumstances of the seller are unrelated to the need of investors for the protections afforded by the regis- tration and other provisions of the Act Further, with respect to restricted securities acquired after the effective date of the rule But not sold pursuant to the provisions of the rule, the Commission hereby gives notice that in deciding whether a person is an under- writer, the length of time the securities have been held will be considered but the fact that securities have been held for a particular period of time does not by itself establieh the availability of an exemption fron registration In order to assist in a better understanding of this rule, the release contains a general discussion of its background, purpose and general effect BACKGROUND AND PURPOSE Congress, in enacting the Federal securities statutes, created A continuous disclosure system designed to protect investors and to assure the maintenance of fair and honest securities markets. The Commission in administering and implementing the objectives of these statutes has sought to coordinate and integrate this disclosure systen, and the rule and other related rules and amendments area further effort in this direction. A-65 Rule 144 is designed to implement the fundamental purposes of the Act as expressed in its preamble “To provide full and fair disclosure of the character of the securities sold in interstate commerce and through the mails, and to prevent fraud in the sale thereof * 2 2 " The rule would also operate to inhibit the creation of public markets in securities of issuers concerning which adequate current information is not available to the public At the same time, where adequate current information concerning an issuer is available to the public, the rule would permit the public sale in ordinary trading transactions of Limited quantities of securities owned by persons controlling, controlled by or under common control with the issuer (hereinafter “affiliate") and by persons who have acquired restricted securities of the issuer This approach is consistent with the philosophy underlying the Act, that a disclosure law would provide the best protection for investors In other words, if the investor had available to him all the material facts concerning «a security, he would then be in a position to make an informed judgment whether or not to buy. In order to provide such information to investors, Congress de- termined that a distribution of securi- ties requires the filing of a registra- tion statement with the Commission and the delivery to investors of a prospec- tus containing accurate and current information concerning the issuer and its securities. A-66 Exemptions from the registration requirements were provided for certain types of securities and securities transactions where there was no practical need for registration or where the benefits of registration were too remote. Among these exemptions is that provided by section 4(2) of the Act for transactions by an issuer not involving any public offering (private place- ments) This exemption was Originally intended to permit an issuer to make a specific or isolated sale of its securi- ties to &@ particular person, such as an insurance company The exemption is available for offerings to persons having access to substantially the same information concerning the issuer which registration would provide gnd who are able to fend for themselves. Resales of securities acquired in private placements are frequently made under claims of an exemption pursuant to section 4(1) of the Act, that is, a transaction by 2 person other than an issuer, underwriter, or dealer This section was intended to exempt only trading transactions between individual investors with respect to securities already issued and not to exempt distributions by issuers or acts of other individuals who engage in steps necessary to such distributions “HH Rep No.85, 73d Cong. first sess, (1933) p.S. 214 at 15-16 Susec v. Ralston Purina Ce..." 346 U.S..119 (1953) Securities and Exchange Commission v. Chinese Consol. Benev. aee*n..* 8423806 F2d 738 (2d Git. 1941), certiorari denied, 314 U.S. 618. A-67 Generally, the majority of questions arising under this Section have dealt with whether the seller is an “underwriter. " The term underwriter is broadly defined in Section 2(11) of the Act to mean any person who has purchased from an issuer with a view to, or offers or sells for an issuer in‘ connection with, the distribution of any security, or participates or has a direct or indirect participation in any such undertaking, or participates or has a participation in the direct or indirect underwriting of any such undertaking The interpretation of this definition has traditionally focused on the words “with a view to" in the phrase “purchased from an issuer with a view to distribution." Thus, an investment banking firm which arranges with an issuer for the public sale of its securities is clearly an “underwriter” under that Section. Not so well understood is the fact that individual investors who are not professionals in the securities business may be “underwriters” within the meaning of that term as used in the Act if they act as links in a chain of transactions through which securities move from an issuer to the public. It is difficult to ascertain the mental state of the purchaser at the time of his acquisi- tion, and the staff has looked to subsequent acts and circumstances to determine whether such person took with a view to distribution at the time of his acquisition. Emphasis has been placed on factors such as the length of time the person has held the securities ("holding period") and whether there has been an unforeseeable change in circua- stances of the holder. Experience has A-68 shown, however, that reliance upon such factors as the above has not assured adequate protection of investors through the Maintenance of informed trading markets and has led to uncertainty in the application of the registration provisions of the Act Moreover, the Commission hereby emphasizes and draws attention to the fact that the statutory language of Sec- s2en 2(23.): i6in the disjunctive. Thus, it is insufficient to conclude that a person is not an underwriter solely because he did not purchase securities from an issuer with a view to their distribution It must also be estab- lished that the person is not offering or selling for an issuer in connection with the distribution of the securities and that the person does not participate or have a participation in any such undertaking, and does not participate or have a participation in the underwriting of any such undertaking. Rule 144, together with the other related rules and amendments, is designed to provide full and fair disclosure of the character of securities sold in trading transactions and to create greater certainty and predictability in the application of the registration provisions of the Act by replacing subjective standards with more objective ones Explanation and Analysis of the Rule. In view of the legislative history statutory language and judicial inter- pretations of Sections 2(11), 441), and 4(2) of the Act, and in light of the many helpful suggestions and comments received on the proposed "160 Series" of A-69 rules and thereafter on proposed Rule 144, the Commission is of the view that "distribution" is the significant concept in interpreting the statutory term “underwriter.” In determining when a person is deemed not to be engaged in adistribution several factors must be considered. : First, the purpose and underlying policy of the Act to protect investors requires, in the Commissions's opinion, that there be adequate current information concerning the issuer, whether the resales of securities by persons result in a distribution or are effected in trading transactions Accordingly, the availability of the rule is conditioned on the existence of adequate current public information Secondly, a holding period prior to resale is essential, among other reason, to assure that those persons who buy under a claim of a Section 4(¢2) exemption have assumed the economic risks of investment, and therefore, are not acting as conduits for sale to the public of unregistered securities, directly or indirectly, on behalf of an issuer. It should be noted that there is nothing in Section 2(11) which places a time limit on a person's status as underwriter The public has the same need for protection afforded by registration whether the securities are distributed shortly after their purchase or after a considerable length of time. Sthe Commission is aware that certain commentators have asserted that the absence of a cut-off period would constitute an unreasonable cestraint on A-70 A third factor, which must be considered in determining what is deemed not to constitute a “distribution, "™ is the impact of the particular transaction or transactions on the trading markets Ss (Cont'd) the alienation of personal property. Generally speaking, the Commission does not concur in this view. As mentioned below, the rule would operate prospective.y and permits limited resales of securities in trading transactions consistent with the purposes of the Act Such limitation is reasonable since the holder of unregistered securities may resell his securities to persons who have access to adequate and current information concerning the issuer, and who do rot need the protection of registration or he may contract for registration or for filing under Regulation A for subsequent resales, if he desires to distribute his restricted securities In addition, as discussed below, the Commission has adopted Rule 237 under Section 3(b) of the Act which permits non-controlling persons who have owned for five years or more securities of an issuer, which is actively engaged in business as a going concern, to make offerings of such securities im amounts not exceeding the lesser of the gross proceeds from the sale of one percent of the securities of the class outstanding or $868,000 in aggregate gross proceeds during any twelve-month period by filing a Simple notification with the approp-iate regional office of the Commission, provided the securities are sold in negotiated rather than trading transactions. A-71 It is consistent with the rationale of the Act that Section 4(1) be interpreted to permit only routine trading trans- actions as distinguished from distri- butions Therefore, a person reselling securities under Section 4¢(1) of the Act must sell the securities in such limited quantities and in such a manner so as mot to disrupt the trading markets. The larger the amount of securities involved, the more likely it is that such resales may involve methods of offering and amounts of compensation usually associated with a distribution rather than routine trading trans- actions Thus, solicitation of buy orders or the payment of extra compen- sation are not permitted by the rule In summary, if the sale in question is made in accordance with all the provisions of the rule, as outlined below, any person who sells restricted securities shall be deemed not to be engaged in a distribution of such securities and therefore not an under- writer thereof The rule also provides that any person who sells restricted or other securities on behalf of a person in. ft control relationship with the issuer shall be deemed not to be engaged in a distribution of such securities and therefore not to be an underwriter thereof, if the sale is made in accordance with all the conditions of the rule SYNOPSIS OF THE RULE Preliminary Note. A preliminary note has been added to the rule in order to provide a convenient reference to assist in A-72 understanding and interpreting its provisions. ini ns The term “restricted security" is defined to mean securities acquired directly or indirectly from an issuer, or from a person in a control relation- ship with such an issuer (an affiliate) in 4 transaction or chain of trans- actions not involving any public offering The definition of the term “person” has been revised in light of comments received on the proposed rule. Broadly speaking, the term "person" is defined to include certain relatives of the seller, certain trusts and estates in which the seller and such relatives collectively own 10 percent or more of the beneficial interest and corporations or other organizations in which the foregoing, collectively, are the beneficial owners of 10 percent or more of any class of the equity securities or 10 percent or more of the equity interest. The specific definition in the rule should be borne in wind in construing the various provisions of the rule and in preparing the required notice on Form 144. vai ili f li nf The rule provides that there shall be available adequate current public information with respect to the issuer of the securities. This provision is deemed satisfied if an issuer has been subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act for a period of at least 90 days A-73 immediately preceding the sale of the securities and has filed all reports ceqguiced by that Act and the cules and cegulations thereunder and in addition has fited the most rcecent annuai report reqguiced to Se filed thereunder Jnder concurrently adopted amend- ments to Forns 10-K and 19-a, issuers arte required to state in their aanual and quacterly reports whether they have filed all the reports reguiced by Section 13 or 134) of the Exchange Act durciag the 99-day period preceding the date of the report ad in addition have filed he most recent annual report taguiced to te filed tn) 6 6lt ght sf comments received, the cule has seen ravized to provide that the pecan picposing to sell securities oc the broker through whoa they are to be sold all be entitled to rely upon the suecr's statement is the latest such report that all required rceporcts have it Li 2 - wo uw been filed of spon a we ten statement com the issuec that a such ceports Rave bean filed, unless & knows of haa reason to Selieve that the issuer has not complied with such requirements The Commission rcecognizes that small panies m3y experience difficuity in ¢on eccazplying with the cegistration cequirte- sants o the Exchange Act, pacticularcly n furnishing audited financial tatements for three fiscal years as q¢9 *. i 3 teguiced by Form 19 CFR 247 . 330). The Commission, however, tbelleves that it would be tn the interest of protection of investors for such issuers to)6hOfUéb ee ceporting cczpanies undec the Exchange Act, and therefore, encourages such issuecrs to registes securities voluntarily, if they are in a position t> otherwise comply and continue to A-74 rovisions of the Eu- his regard, Rule 125-21 1) and Instruction i5 Fanancial Statements he Exchange Act permit n information subject ions. anies which are not orting requirements of ») of the Exchange Act, QGuirement is deemed to be & there & publicly available with t pect the issuer, the inforssa on required by clauses (1) to (14), i ve, and clause (16) of parag: f Rule 15¢2-11 (17 CER 246.15 der the Exchange Act (Release No 9319) This information inciud other th.ngs,. the exact name of th the address of its principai ve offices, the exact title and c £ the security, the number of s s or tetal amount of the secur ing. the mature ne exte s s facilities and Service offered, anc erning the ecent balance Ey statenent, ¢ rent In s adcpted, has been Pp e that in the case of mpaenies which are not Os. t Guirezents of (d), the information t © 2 “nm >} -- on On” oF se Sf - or to specifie ¢ In case of cox subject to the re Section 33 ct a the inforsation t ‘ ‘ - @onunwvwvvw ae ww OC La “rr . -e- @ © © ” ov o © u r ©o ” © - @ a) oo oT a5 - ‘+ ~~ ew ween * . ~ne€ pevuwww * - s . - . . . i - ‘ i! uo . a“ ba] m oOo - © met if the ted with the otity of the company's ~- I Securities scold in reliance upon the A-75 rule must have been beneficially owned and fully paid for by the seller for a holding pacsiod af at least two years prior to his sale as specified Selow This condition is designed to assure that the registration provisions of the Act are not circcuavented by persons acting directly or indirectly, as sonduits for an issuer in connection with resales of scestricted securities In order to accomplish this, the rule provides that such persons be subject to the ful aconomic risks of investment during tha holding perio Accordingly. the rule provides that giving the person froa whoa the securities vere purchased aromisarty stes of other oSligations to pay he purchase price, of entering ints an instalimnent purchase contract with g'22h person, will not constitute payszent of the pucchase price unless certain conditions are net hese conditions ace that the promissory note, obligation oc esatrac must provide for full recourse against the purcchasec of the securities, must Se adequately secured by collatecal other than the securities purscshased and must have been discharged Sy payrent in full prior to the saie of the securities There have been various holding perciods provided for in proposed cules and applied over the years by administrative interpretations. After reexamination and reconsideration, the Commission believes, in keeping with the purposes of the Act in preventing the Jistribution of wunregisteced securities to the public, that the holding period should be 2 yeacs in th context of the othec provisions of the rule The Sefinitive holding period provided in the tu te way be relied on only in A-76 connection with sales made pursuant to the rule Fer the purpose of the rule, the doctrine of “fungibility’ wiil not apply. That is, the acquisition during the two-year period of other securities ef the same issuer, whether restricted or nonrestrictedcd, will not start the holding period running anew. However, 4 new provision has been added tc the rule dealing with short sales, puts of other options to seil securities The provision requires that if the securities sold are equity securities there shall Be excluded in ¢determining the holding period any period during which the seller had a short position in, or any put or other option to dispose of, any securities of the sane class or any securities convertible inte securities of such class Tf the securities sold are nonccnvertible debt securities, there must be excluded any period during which the seller hac a4 short position in, of any put or other option to dispose of, any nonconvertibie debt securities of the same issuer Certain securities acquired in connection with, of as a result of, ownership or acquisition of other securities, are deemed to have been acquired when such other securities were acquired These include stock dividends (including stock dividends on securities initially acquired as stock dividends), stock splits, stock acquired in recapitalizations, conversions or contingent issuances of securities The rule, as adopted, includes provision for contingent issuance of securities in @ stock for stock transaction as well as in the stock for assets transaction provided for in the rule as proposed. the of to securities has respect provisions price: with the convertible all acguired for 7 +- , »_w ~i€5 it i. ‘ perta: securi a oF ‘- sin ‘. * ments on exchange, any of traced the amount piece are of one percent of lesser A-78 the class outstanding as shown in the most recent teport 2c statesrent published by the issuer, oc the average weekly reported volume of trading on all such exchanges over the f{sur-week pe. od prior to the date cf the segeirced not ¢ of sale described below The av weekly ported volume standard has seilecte purposes of computing the amount than the 1 t reporte sme during ts & eas + a at wWeencs " f - atnr v ow “a ew ? wv cunt mw -- ® © ” z= . ev b= - ] " , ow a Lg a ‘ or xu re. Pa o- . 0“ 1 - ’ ‘i ue 5 oa » " (rie. th wu we ra & tc a t an c ira o P = Lg & ' - ‘ . - ' wo PF ' ‘ ‘ ‘ ise . - _ . *. Ge « t oa n “ » t . a = a iT) en ‘ ee t * . mS om ih ve a e e i [a] u og }- . e- oO wee n~ o ’ n t . ' v u ‘ . co ‘ , ") we ¥ ww u o ) Any relative or spouse of such person, or any relative of such spouse, any one of whom has the same home as such person; 5-8-7 ny trust or estate in which such person or any of the persons specified in CA) collectively own ten percent or more of the total beneficial interest or of which any of such persons serve as trustee, executor or in any Similar capacity; and Ciiid Any corporation or other organization (Cother than the issuer) in which such person or any of the persons specified in (A) are the beneficial owners collectively of ten percent or more of any class of equity securities or ten percent or more of the equity interest (3) The term “restricted securities" means securities acquired directly or indirectly from the issuer thereof, or from an affiliate of such issuer, in a transaction or chain of transactions not involving any public offering (b>) Conditions to be met Any af- filiate or other person who selis re- stricted securities of an issuer for his own account, or any person who sells re- stricted or any other securities for the account of an affiliate of the issuer of such securities, shall be deemed not to A-95 be engaged in a distribution of such securities and therefore not to be an underwriter thereof within the meaning of Section 2¢11) of the Act if all of the conditions of this rule are met Ce) Current Public Information There shall be available adequate current public information with respect to the issuer of the securities Such information shall be deemed to be avail- able only if either of the following conditions is met: (1) Filing of Reports. The issuer has securities registered pursuant to Section 12 of the Securities Exchange Act of 1934 and has filed the reports required to be filed by Section 13 of that Act for a period of at least 90 days immediately preceding the sale of the securities and in addition has filed the most recent annual report required to be filed thereunder, or has securi- ties registered pursuant to the Securi- ties Act of 1933 and has filed the reports required to be filed by Section 1S¢d) of the Securities Exchange Act of 1934 for a period of at least 90 days immediately preceding the sale of the securities and in addition has filed the most recent annual report required to be filed thereunder The person for whose account the securities are to be sold shall be entitled to rely upon a state- ment in whichever is the most recent report, quarterly or annual, required to be filed and filed by the issuer that such issuer has complied with such requirements, unless he knows or has reason to believe that the issuer has not complied with such requirements Such person shall also be entitled to rely upon a written statement from the A-9%6 issuer that it has complied with such reporting requirements unless he knows or has reason to believe that the issuer has not complied with such requirements (2) Other Public Information If the issuer is not subject to Section 13 or iS¢(d) of the Securities Exchange Act of 1934, there is publicly available the information concerning the issuer specified in subdivision (id to (Criv), inclusive, and subdivision (zvi) of paragraph (a)d(4) of Section 240 15c¢c2-i1 of this chapter or, if the issuer is an insurance company, the information specified in section 12(g)(¢2) (G)¢a) of that Act (dé) Holding Period for Restricted Securities If the securities sold are restricted securities, the following provisions apply (1) General Rule The person for whose account the securities are sold shall have been the beneficial owner of the securities for a period of at least two years prior to the sale and, if the securities were purchased, the full purchase price or other consideration shall have been paid or given at least two years prior to the sale (2) Promissory Notes, Other Obligations or Installment Contracts Giving the person from whom the securi- ties were purchased a promissory note or other obligation to pay the purchase price, or entering into an installment purchase contract with such person, shall not be deemed full payment of the purchase price unless the promissory note, obligation or contract-- C43 Provides for full recourse against the purchaser of the securities; (ii) Is secured by collateral, other A-97 than the securities purchased, having a fair market value at least equal to the purchase price of the securities purchased; and (iirid Shall have been discharged by payment in full prior to the sale of the securities. (3) Short Sales, Puts or Other Options to Sell Securities. In computing the two-year holding period the following periods shall be excluded oe a If the securities sold are equity securities, there shall be excluded any period during which the person for whose account they are sold had a short position in, or any put or other option to dispose of, any equity securities of the same class or any securities convertible into securities of such class; and €tii? F£2 the securities sold are non- convertible debt securities, there shall be excluded any period during which the person for whose account they are sold had a short position in, or any put or other option to dispose of, any non- convertible debt securities of the sane issuer. (4) Determination of Holding Period. The following provisions shail apply for the purpose of determining the period securities have been held: (i>) Sto vidend Li n Recapitalizations. Securities acquired from the issuer as a dividend or pur- suant to a stock split, reverse split or recapitalization shall be deemed to have been acquired at the same time as the securities on which the dividend or, if more than one, the initial dividend was paid, the securities involved in the split or reverse split, or the securi- ties surrendered in connection with the A-98 recapitalization, ese Conversions If the securities sold were acquired from the issuer for a consideration consisting solely of other securities of the same issuer surren- dered for conversion, the securities s0 acquired shall be deemed to have been acquired at the same time as the securities surrendered for conversion, (iii) Contingent Issuance of Securities Securities acquired asa contingent payment of the purchase price of an equity interest in a business, orf the assets of a business, sold to the issuer or an affiliate of the issuer shall be deemed to have been acquired at the time of such sale if the issuer or affiliate was then commited to issue the securities subject only to conditions other than the payment of further con- sideration for such securities An agreement entered into in connection with any such purchase to remain in the employment of, or not to compete with, the issuer or affiliate or the rendering of services pursuant to such agreement shall not be deezed to be the payment of further consideration for such securities (iv) Pledged Securities Securities which are bona fide pledged by any person other than the issuer when sold by the pledgee, or by a purchaser, after a default in the obligation secured by the pledge, shail be deemed to have been acquired when they were acquired by the pledgor, except that if the securities were pledged without recourse they shall be deemed to have been acquired by the pledgee at the time of the pledge or by the purchaser at the time of the purchase. A-99 NOTE Securities sold by the pledgee shall be aggregated with those sold by the pledgor, as provided in paragraph (e)(3)¢ii) of this section (vw) Gifts of Securities Securities acquired from any person, other than the issuer, by gift shall be deemed to have been acquired by the donee when they were acquired by the donor; NOTE Securities sold by the donee shall be aggregated with those sold by the donor, as provided in paragraph (ed)(3)Ctiid of this section (vi? Trusts Securities acquired from the settlor of a trust by the trust or acquired from the trust by the beneficiaries thereof shall be deemed to have been acquired when they were acquired by the settlor,; NOTE Securities sold by the trust shail be aggregated with those sold by the settlior of the trust, as provided in paragraph (ed)(3)Civd of this section (vii) Estates Securities held by the estate of a deceased person or acquired from such an estate by the beneficiaries thereof shall be deemed to have been acquired when they were acquired by the deceased person, except that no holding period is required if the estate is not an affiliate of the issuer or if the securities are sold by a beneficiary of the estate who is not such an affiliate. NOTES: (a) Securities sold by the estate shall be aggregated with those sold by the deceased person, as provided A-100 in paragraph (ed(3d(v> of this section, if the estate is an affiliate of the issuer (b>) While there is no holding period or amount limitation fer estates and beneficiaries thereof which are not affiliates of the issuer, paragraphs Ce), es. (g), (h), and (i) of the section apply to securities sold by such persons in reliance upon the section. Ce) Limitation on Amount of Securities Sold Except as hereinafter provided, the amount of securities which may be sold in reliance upon this rule shall be determined as follows (1) Sales by Affiliates If restricted or other securities are sold for the account of an affiliate of the issuer, the amount of securities sold, together with all sales of restricted and other securities of the same class for the eccount of such person within the preceding Siz months, shall not exceed the following (i) If the securities are admitted to trading on a national securities exchange, the lesser of (a) 1 percent of the shares or other units of the class outstanding as shown by the most recent report or statement published by the issuer, or (Bb) the average weekly reported volume of trading in such securities on all securities exchanges during the 4 calendar weeks preceding the filing of the notice required by paragraph Ch) of this section, or if no such notice is required the receipt of the order to execute the transaction by the broker; or (iid lf the securities are not traded on a national securities ez- change, 1 percent of the shares or other A-101 units of the class outstanding as shown by the most recent report or statement published by the issuer (2) Sales by Persons other than Affiliates The amount of restricted securities sold for the account of any person other than an affiliate of the issuer, together with all other sales of restricted securities of the same class for the account ef such person within the preceding 6 months, shall not exceed the amount specified in subparagraph (1) (i) or (ii) of this paragraph, whichever is applicable. (3) Determination of Amount. For the purpose of determining the amount of securities specified in subparagraphs (1) and (2) of this paragraph, the following provisions shall apply (i) Where both convertible securities and securities of the class into which they are convertible are sold, the amount of convertible securities sold shall be deemed to be the amount of securities of the class into which they re convertible for the purpose of determining the aggregate amount of securities of both classes sold; (iid The amount of securities sold for the account of a pledgee thereof, or for the account of a purchaser of the pledged securities, during any period of 6 months within 2 vearcs after a default in the obligation secured by the pledge and the amount of securities sold during the same 6-month period for the account of the pledgor shall not exceed, in the aggregate, the amount speci ied in sub- paragraph (1) or (2) of this paragraph, whichever is applicable, (iii) The amount of securities sold for the account of a donee thereof A-102 cguring any period of 6 months within 2 years after the donation, and the amount of securities sold during the same é-month period for the account of the donor, shall not exceed, in the aggregate, the amount specified in sub- paragraph (1) or (2) of this paragraph, whichever is applicable; (iv) Where securities were acquired by a trust from the settlor of the trust, the amount of such securities sold for the account of the trust during any period of 6 months within 2 years after the acquisition of the securities by the trust, and the amount of securities sold ¢Guring the same é-month period for the account of the settlor, shall mot exceed, in the aggregate, the amount specified in subparagraph (1) or ee of this paragraph, whichever is applicable; (v) The amount of securities sold for the account of the estate of a deceased person, or for the account of a beneficiary of such estate, during any period of 6 months and the amount of securities sold during the same period for the account of the deceased person prior to his death, shall not exceed, in the aggregate, the amount specified in subparagraph (1) or (2) of this paragraph, whichever is applicable. Provided, That no limitation on amount shall apply if the estate or beneficiary thereof is not an affiliate of the issuer, (vid) When two or more affiliates or other persons agree to act in concert for the purpose of selling securities of an issuer, all securities of the same class sold for the account of all such persons during any period of 6 months shall be aggregated for the purpose of A-103 determining the Limitation on the amount of securities sold; and (vii) Securities sold pursuant to an effective registration statement under the Act or pursuant to an exemption provided by section 4(2) of the Act or by Regulation A under the Act need not be included in determining the amount of securities sold in reliance upon this section (ff) Manner of Sale The securities shall be sold in “brokers' transactions" within the meaning of Section 4(4) of the Act and the person selling the securities shall not (1) solicit or arrange for the solicitation of orders to buy the securities in anticipation of or in connection with such transactions, or (2) make any payment im connection with the offering or sale of the securities to any person other than the broker who executes the order to sell the securities. (g) Brokers’ Transactions The term "“brokers' transactions" in Section 4(4) of the Act shall for the purpose of this rule be deemed to include transactions by a broker in which such broker-- (1) Does no more than execute the order or orders to sell the securities as agent for the person for whose account the securities are sold; and receives no more than the usual and customary broker's commission, (2) Neither solicits nor arranges for the solicitation of customers' orders to buy the securities in anti- cipation of or in connection with the transaction; provided, that the fore- going shall not preclude inquiries by the broker or other brokers or dealers A-104 who have indicated an interest in the securities within the preceding 60 days; and (3) After reasonable inquiry is not aware of circumstances indicating that the person for whose account the securi- ties are sold is an underwriter with respect to the securities or that the transaction is a part of a distribution of securities of the issuer. Without limiting the foregoing, the broker shall be deemed to be aware of any facts or statements contained in the notice required by paragraph (h) below NOTES (i) The broker, for his own protection, should obtain and retain in his files a copy of the notice required by paragraph (h) (12) The reasonable inquiry required by paragraph (g)¢3) above should include, but not necessarily be limited to, inquiry as to the following matters (a) The length of time the securities have been held by the person for whose account they are to be sold If practicable, the inquiry should include physical inspection of the securities. (b) The nature of the transaction in which the securities were acquired by such person; (ec) The amount of securities of the same class sold during the past Si months by all persons whose sales are required to be taken into consideration pursuant to paragraph (e) above; (ad) Whether such person intends to sell additional securities of the same class through any other means; (e) Whether such person has solic- ited or made any arrangement for the solicitation of buy orders in connection A-105 with the proposed sale of securities, (f) Whether such person has made any payment to any other person in con- nection with the proposed sale of the securities; and (g>) The number of shares or other units of the class outstanding, or the relevant trading volume. (hh) Notice of Proposed Sale. Con- currently with the placing with a broker of an order to execute a sale of any securities in reliance upon this rule, there shall be transmitted to the Commission, at its principal office in Washington, ms wu 0 for filing three copies of a notice on Form 144 (Section 239 #144 of this chapter) which shall be signed by the person for whose account the securities are to be soid: Provided, That such a notice need not be filed if the amount of securities to be sold during any period of siz months does not exceed 500 shares or other units and the aggregate sale price thereof does not exceed $10,000 If all of the securities for which a notice is filed are not sold within 90 days after the filing of such notice, an amended notice shail be transmitted to the Commission concurrently with the commencement of any further sales of such securities. Neither the filing of such notice nor the failure of the Commission to comment thereon shall be deemed to preclude the Commission from taking any action it deems necessary or appropriate with respect to the sale of the securities referred to in such notice. 2 et Bona Fide Intention to Sell. The person filing the notice required by paragraph (h) shall have a bona fide A-106 intention to * sell the securities referred to therein within a reasonable time after the filing of such notice SECTIONS 230.154, 230.155 CRESCINDED) II Part 239 of Chapter I! of Title 17 of the Code of Federal Regulations is amended by adding thereunder a new Section 239.144 reading as follows: SECTION 239.144 FORM 144, FOR NOTICE OF PROPOSED SALE OF RESTRICTED SECURITIES PURSUANT TO SECTION 230.144 OF THIS CHAPTER (a) This form shall be filed in triplicate with the Commission by each person desiring to make an offering of restricted securities in reliance upon Section 230.144 of this chapter at least 10 days prior to the commencement of such otfering. This form shall also be completed and filed by such person, if all such securities are not sold within 90 days after the filing of the initial notice on this forn, as an amended notice of such proposed re-offering at least 10 days prior to any further sales of such securities. An amended Form i144 shall be filed at the expiration of each 90-day period following the prior filing if any unsold securities are to be reoffered thereafter, and at least 10 days prior to the commencement of the reoffering of such securities. (b) The notice on Form 144 is not required to be filed with respect to transactions in which the initial offering of restricted securities involves not more than $00 shares or other units or $10,000, whichever is less. A-107 NOTE Copies of Form i144 have been filed with the Office of Federal Register as pact of this document ditiona copies will Be ava:ilabd! upon guest from the Securities and Exchange maissicn, Washington, D.C. 20849 The adoption of Rule i44 and Fors and the recission of Rul i$4, are 144, effective April iS, 1972 The recission ef Rule i1S$$ is aiso effective April i$, 1972, except that 3 shall rezain in effect with respect to securities acqguiced prior to the effective date of Rule 144 and not solid thereafter in accordance with ail the provisions of Ruie i144 The foregoing sticon was taken dy th Commission purrs net to its authority snder the Secsuritie Act of 1933 pat- ticularly section 19 Cad tM SOAZJUARCLION with sections 2¢%1) a¢3) 4(2), anc 444) Sec. i9 a) 12 Stat 8s; Sec 207, 48 Stat 798 By the Commission CSEALI RONALDO F UNT, Secretary. CFR Doc .72-862 Fited 1-13-72, 89:46 amd A-i108 F.R.C.P. - Rule $2 Rule 52. Findings by the Court. (a) Errect. In all actions tried upon the facts without a jury or with an advisory jury, the court tha ll find the facts specially and state separately its conclusions of law thereon, an de judgment shall] be entered pursuant 0 Rule 58; ; and in granting or sera interlocutory ea nections th court ft ll Milan's set forth the findings of fact and con- clusions of law which constitute the grounds of its action. Requests for findings are n ‘ necessary for purposes of view. Findings of fact sball not be set aside unless , Ve. yr aT : ‘5 ° ‘ , * ~ o early erroneous, and due ae shall he given to the of : } ee a ‘: : I’ ‘ init oF thie trial court t J iuee of the credi bility o2 the witnesses. The findings of @ master, to the extent that aes : , a OF 1. & the court adopts them, shall be consi ‘dered as the Endings of the court. If an opinion or memorandum of decision is }. oe es ‘+ Ry . a? filed, it will be suficient if the fndings of fact and conclu sions of law appear therein. Findings of fact and conclu. . . ? wre m% 94909 P . sere . 9° . ons of law are unnecessary on decisions of m tone nek eelae Ds e e -¢@.- : Rules 12 or 56 or any other motion except as provided in Rule 41 (b). (b) ‘cacuyiaiti Upon motion of a party made not dae : e * } . , later than 10 days after entry of judement the court may a s 3° . . * . only its findings or make additional findings and mar St end the want nt according! ¥. The ae iow may be made with a motion for a new trial pursuant to Rule 59. When fidings of fact are made in actions tried by the court without a jury. the question of the sufficiener of the evidence to support the findings may thereafter he raised wheth ‘yor not the party raising the quest as made in the district court an objection to such fudings or has made a metion to amend them or a motion for judgment. -T . . tea? : sites fe A-i0% 5 §551 Definitions . For the purpose of this subchapter— (1¥ “agenz;"’ means each authority of the Government of the United States, whether or not it is within or subject to review by another agency, but does not include— (A) the Congress; (B) the courts of the United States; (C) the governments of the territories or possessions of the United States; (D) the government of the District of Columbia; or except as to the requirements of section 552 of this title— (E) agencies composed of representatives of the parties or of representatives of organizations of the parties to the disputes determined by them; (F) courts martial and military commissions; (G) military authority exercised in the field in time of war orin occupied ter-itory; or (H) functions conferred by sections 1738, 1739, 1743, and 1744 of title 12; chapter 2 of title 41; or sections 1622, 1884, 1891-1902, and former section 1641(b) (2), of title 50, appendix; (2) “person” includes an individual, partnership, corporation, associ: tion, or public o> private organization other than an agency; (3) “party” includes a person or agency named or admitted as a party, or properly seeking and entitled as of right to be ad- mitted as a party, in an agency proceeding, and a person or agency admitted by an agency as a party for limited purposes; (4) “rule” means the whole or a part of an agency statement of genera] or particular applicability and future effect designed to implement, interpret, or prescribe law or policy or describing the organization, procedure, or practice requirements of an agency and includes the approval or prescription for the future of rates, wages, corporate or financial! structures or reorganiza- tions thereof, prices, facilities, appliances, services or allow- ances therefor or of valuations, costs, or accounting, or prac- tices bearing on any of the foregoing: (5) “rule making’ means agency process for formulating, amending, or repealing a rule; A-110 5 §551 5) “order” means the whole or a part of a final disposition, whether affirmat ve, negative, injunctive, or declaratory in form, of an agency in @ matter other than rule making but in- cluding licensing; (7) “adjudication” means agency process for the formulation of an order; (8) “license” includes the whole or a part of an agency per- mit, certificate, approval, registration, charter, membership, statutory exemption or other form of permission; (9) “licensing” includes agency process respecting the grant, renewal, denial, revocation, suspension, annulment, withdrawal, limitation, amendment, modification, or conditioning of a li- cense; (10) “sanction” includes the whole or a part of an agency— TA) probibition, requirement, limitation, or other condi- tion affecting the freedom of a person; (‘B) wit [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385011_0419%3A2. Public record. Not legal advice.