Series 22 Exam Lesson 12 Fixed-Price Offerings:

Lesson 12 Fixed-Price Offerings:

Fixed-Price Offerings
No FINA member firm that is participating in a fixed-price offering is allowed to sell the securities to anyone else at a discount from this fixed price. You cannot offer other services at a reduced price in exchange for the purchase of these securities as well. This applies to both registered and unregistered securities, but not to exempt securities.

Installment Procedures
Some private offerings come with the requirements that purchases make installment payments/assessments as a condition of ownership. If these payments are mandatory, the total sum of these payments must be included in the offering price. If they are not mandatory, they do not have to be included.

Escrow
During a private placement, the purchaser’s funds are usually put into an escrow account before being released to the issuer. This is especially true when there is some sort of contingency that has to be met or it is a min/max or all-or-none offering.
No payments are allowed to be made to underwriters for their commissions out of these funds.
If the funds are there as part of a blank-check offering, there is an 18 month time limit to meet the requirements before everything must be returned to the investors.

Prospectuses for Oil and Gas Programs

In a prospectus for an oil or gas program, certain things have to be included:
The terms of the offering, such as the title and kind of securities being offered, the minimum and maximum amounts that can be reached, the refund procedures for if the minimum is not reached, the minimum subscription price, and the distribution method.
You can to disclose potential risks, and provide a general description of all the cash/property that will be paid as compensation, including any commissions, a general description of the use of the proceeds from the program, a description of the proposed activities of the program, the cost/revenue sharing arrangement, any potential conflicts of interest that may arise, a rundown of the tax implications of the program, detailed performance history of how relevant programs have performed in the last 10 years, etc.

Registration Statement for Real Estate Limited Partnerships

When preparing this statement for real estate limited partnerships, you must disclose the following:
Information about the general partner/sponsor and any affiliates,
The termination date of the offering
The minimum required purchase
Any escrow or trust arrangements
The minimum and maximum size of the offering.
The price to the public, the commissions and the proceeds.
The tax aspects/risks of the offering
Any other risks that might arise through participation.
Any known conflicts of interest.
Any suitability requirements and how these requirements will be assessed.
The name, address, and contact information of the general partner.
The estimated time between the closing of the offering and the distribution of funds.
A descriptions of intended properties to be purchased.
A description of the depreciation method that the partnership will use.
A cross reference and a glossary.

Use of Proceeds
When talking about the use of the partnership’s proceeds, the following must be disclosed:
An estimate of the public offering expenses.
The amount available to invest.
Non-recurring initial fees
The size of cash downpayments
The financing fees
The amount held in reserve
The size of acquisition fees
The estimated sum to be paid by the general partner and any affiliates.

This summary should include both dollar amounts and the percentages of the proceeds of the minimum and maximum amount of the offering.

Compensation/Fees to the General Partner and Affiliates

When disclosing these amounts, the following things should be included:
Payments made in conjunction with the purchase or sale of limited partnership interest.
Finder’s fees for property acquisitions, managing properties, marketing or leasing properties, etc.
Commissions/fees paid upon the sale of partnership-owned properties.
Any capital losses or gains that occurred from selling property
Any fees or build profits/overhead

Conflicts of Interest
The following things must be disclosed as a conflict of interest:
The general partner/affiliate is also acting in this role, or as an underwriter, for a similar investment program, either public or private
The general partner has the authority to invest partnership funds in other partnerships where he or she holds an interest.
If the general partner/affiliate has interest in the properties sold by the partnership or any properties adjacent to them.
If the compensation plan for the general partner can create conflicts of interest between the limited partners and the general partner.
If there are complex relationships between the members of the partnership, a visual aid can be included in the prospectus.
If an appraiser is used in a partnership’s transaction, the general partner must disclose the appraised value and say that is merely an estimate of value and not the final assessment.