Argument in support of distribution before registration:
77. At present, CDEX stock is unregistered. Under the circumstances of this settlement, Loch Harris’s shares of CDEX fall within an exemption to the registration requirements of the Securities Act of 1933. The relevant exemption is contained in
§ 3(a)(10) of that Act, which reads as follows:
(a) Exempted securities. ... [T]he provisions of this title [15 U.S.C. §§ 77a et seq.] shall not apply to any of the following classes of securities:
(10) ... [A]ny security which is issued in exchange for one or more bona fide outstanding securities, claims or property interests, or partly in such exchange and partly for cash, where the terms and conditions of such issuance and exchange are approved, after a hearing upon the fairness of such terms and conditions at which all persons to whom it is
proposed to issue securities in such exchange shall have the right to appear, by any court ....
The Court clearly states that, under the circumstances of the Settlement, the distribution must fall within the Exemption, that is, the distribution must be performed before the registration. If CDEX submits the registration before the distribution is complete, the Exemption does not apply anymore, and it is placed on hold, until the distribution is done. If the registration is submitted before the distribution, the distribution must be delayed until the registration is approved, and the aforementioned paragraph must be changed to reflect the new situation. Any opinions?