In re Universal Camera Corp.
Securities and Exchange Commission
19 S.E.C. 648 (1945)
Universal Camera Corporation (defendant) made binoculars for the military during World War II but planned to return to its prewar photography business. Universal sought to reorganize its capital structure, whereby its existing shareholders would exchange their shares (for which they had paid $30,000) for a majority of newly created nonvoting Class A shares, all of newly created voting Class B shares, and warrants to buy additional Class A shares. The shareholders would then sell most of their Class A shares (with a per-share book value of $1.21) via a public offering at $5 per share. After these transactions, the existing shareholders would net over $2 million, hold exclusive voting power, and own 1,500 Class A shares and warrants to buy additional Class A shares. Universal issued a prospectus and filed a registration statement for the Class A shares. The prospectus stated that the Class A shares were being offered as a speculation but predicted that Universal would be in a strong competitive position in the postwar market due to its design and improvement of certain photography products, its successful competition in the wartime binoculars business, and its mass-production methods. However, the prospectus did not disclose that Universal’s manufacturing methods generally were not protected by patents, that Universal would need to obtain patent licenses, or how long Universal would need to develop certain products. Nor did it explain that the warrants could make it difficult for Universal to raise additional capital or that Universal likely could obtain capital on better terms than the warrants provided. The Securities and Exchange Commission (SEC) (plaintiff) initiated a stop-order proceeding, alleging that the registration statement and prospectus contained material omissions and misstatements. Universal indicated its intent to modify the offering and moved to dismiss the stop-order proceeding.
Rule of Law
Holding and Reasoning ()
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