Registration By Coordination

Ravelston Dynamics is registering an offering in State S by coordination, having already filed a registration statement with the SEC under the Securities Act of 1933. Its counsel assembles the state filing. Beyond the federal prospectus and a consent to service of process, which of the following does the Uniform Securities Act contemplate being filed with the Administrator?

1. A.A written opinion of the Administrator's staff approving the offering's terms before the filing is acceptedThe Administrator never approves an offering, and no pre-filing opinion exists in this process.
2. B.Audited financial statements for the issuer's last five fiscal years and a list of every shareholder of recordNeither a five-year audited series nor a shareholder list is what the coordination filing calls for.
3. C.Nothing further, because coordination means the state accepts the federal filing package in place of any state documentsCoordination synchronises effectiveness and reuses the federal disclosure. It does not reduce the filing to the prospectus alone.
4. D.The articles of incorporation and bylaws, any underwriting agreement, any governing indenture, and a specimen of the securityCorrect. These are the supporting documents the coordination filing contemplates alongside the federal prospectus.

Why: Coordination is built on the federal filing, but the state filing is not limited to the prospectus. The Act contemplates that the registrant file the prospectus filed under the Securities Act of 1933, together with copies of the articles of incorporation and bylaws or their substantial equivalent, a copy of any agreement with or among underwriters, a copy of any indenture governing the issue, and a specimen or copy of the security itself, along with a consent to service of process. The Administrator may also require the filing of any amendment to the federal prospectus.

Sunrise Foods has operated profitably for eleven consecutive years, has never defaulted on any debt or preferred dividend, and now plans a modest offering that will not be registered with the SEC. Its counsel wants the least burdensome available state registration method. Which method is designed for a seasoned issuer in this position?

1. A.Registration by coordination, filed simultaneously with the state and the SECCoordination requires a registration statement filed with the SEC, and Sunrise is not registering federally.
2. B.Registration by qualification, the method available to any issuer regardless of historyQualification is always available but is the most burdensome method, which is the opposite of what counsel wants.
3. C.A notice filing, the abbreviated procedure used for offerings by established issuersNotice filing applies to federal covered securities, and Sunrise's offering is not federal covered.
4. D.Registration by notification, the abbreviated method available to issuers meeting operating-history and payment-record standardsCorrect. Notification exists precisely for seasoned issuers with a clean record, and it is the least burdensome route.

Why: Registration by notification, also called registration by filing, is the abbreviated method reserved for established issuers that meet operating-history and clean-payment-record standards. Qualification is the most demanding method and coordination is tied to a simultaneous federal registration.

Sedbury Alloys is registering a $6 million offering in State W by qualification. Eleven months before the filing, its two founders bought 900,000 shares from the company for $0.02 a share; the public offering price will be $9.00. The Administrator is concerned that the founders could sell into the public market immediately after effectiveness. Under the Uniform Securities Act, the Administrator may:

1. A.Refuse the registration outright, because an offering price 450 times the founders' cost is unfair on its faceDisparity in price is what the escrow condition manages. It is not itself a statutory ground for refusing to register.
2. B.Require as a condition of registration that the founders' shares be deposited in escrow, since they were issued to promoters within the past three years for a consideration substantially different from the public offering priceCorrect. The escrow condition exists for promoter shares issued cheaply within the three-year look-back.
3. C.Require as a condition of registration that the offering proceeds be impounded until the founders' shares are soldImpounding is a real condition, but it holds the offering proceeds until the issuer raises a specified amount. It does nothing about the founders' shares.
4. D.Require the founders to register as agents of the issuer before the registration becomes effectiveAgent registration turns on soliciting purchases for the issuer, which is a separate question from what happens to the founders' own shares.

Why: The Act lets the Administrator attach conditions to a registration by qualification or coordination. One of them addresses exactly this situation: securities issued within the past three years, or to be issued, to a promoter for a consideration substantially different from the public offering price, or to any person for a consideration other than cash, may be required to be deposited in escrow. A separate condition allows the Administrator to require that the proceeds of the offering be impounded until the issuer receives a specified amount. Both are conditions of registration rather than grounds to refuse it outright.

Kilnwarren Optics is registering an offering in State E by coordination. Its counsel asks what obligation the company takes on with respect to the amendments it will inevitably file to its federal prospectus over the coming weeks. Under the Uniform Securities Act, a coordination registration statement must contain:

1. A.an undertaking to forward future amendments to the federal prospectus, other than a delaying amendment, not later than the first business day after they are forwarded to or filed with the SECCorrect. That undertaking is a required component of a coordination registration statement.
2. B.an undertaking to file a consolidated summary of all amendments within thirty days after the offering closesA post-closing summary would leave the state file stale during the offering, which is what the undertaking prevents.
3. C.an undertaking to obtain the Administrator's written approval before filing any amendment with the SECThe Administrator does not pre-approve federal filings; the issuer forwards them after filing.
4. D.no undertaking regarding amendments, because the Administrator obtains federal filings directly from the SECThe Act places the forwarding obligation on the registrant.

Why: Coordination works only if the Administrator sees what the SEC sees. The registration statement must therefore contain an UNDERTAKING TO FORWARD ALL FUTURE AMENDMENTS to the federal prospectus - other than an amendment that merely delays the effective date - no later than the first business day after they are forwarded to or filed with the SEC, whichever occurs first. That undertaking is what keeps the state file current without the Administrator having to police the federal docket, and failing to honour it undermines the basis on which automatic effectiveness rests.