application of securities act of 1933 aic p a adapted various enterprises corporatio 733782
Application of Securities Act of 1933 [AIC P A Adapted]
Various Enterprises Corporation is a medium size conglomerate listed on the American Stock
Exchange. It is constantly in the process of acquiring small corporations and invariably needs
additional money. Among its diversified holdings is a citrus grove that it purchased eight years
ago as an investment. The grove’s current fair market value is in excess of $2 million. Various
also owns 800,000 shares of Resistance Corporation, which it acquired in the open market over a
period of years. These shares represent a 17 percent minority interest in Resistance and are worth
approximately $2.5 million. Various does its short term financing with a consortium of banking
institutions. Several of these loans are maturing; in addition to renewing these loans, it wishes to
increase its short term debt from $3 to $4 million.
Because of these factors, Various is considering resorting to one or all of the following alterna
tives to raise additional working capital.
1. An offering of 500 citrus grove units at $5,000 per unit. Each unit would give the purchaser a 0.2 percent ownership interest in the citrus grove development. Various would furnish management and operation services for a fee under a management contract, and net pro ceeds would be paid to the unit purchasers. The offering would be confined almost exclu sively to the state in which the groves are located or in the adjacent state in which Various is incorporated.
2. An increase in the short term borrowing by $1 million from the banking institution that cur rently provides short term funds. The existing debt would be consolidated, extended, and increased to $4 million and would mature over a nine month period. This would be evidenced by a short term note.
3. Sale of the 17 percent minority interest in Resistance in the open market through its brokers in an orderly manner in their ordinary course of business over a period of time and in such a way as to avoid decreasing the stock’s value.
In separate paragraphs discuss the impact of the registration requirements of the Securities Act of
1933 on each of the proposed alternatives.