Selling New Securities - Blue Sky Registration

The new securities must also be registered in each state in which they will be offered for sale. There are 3 types of state registration: notification, coordination, and qualification.

1. Notification (aka filing) registration is the filing of an offering document with certain disclosures. This is available in most states. However, this filing type is available only to those issuers who have been in continuous operation over the past 3 years with a specified amount of earnings. If there are no problems, then the state registration becomes effective on the effective date of the SEC registration.
2. Coordination registration is the automatic registration in some states on the effective date of the SEC registration.
3. Qualification registration, available in all states, has greater requirements for state registration, and the registration for that state does not become effective until the State Administrator approves it. This method is used only when the other methods are not available, especially when the issuer does not qualify for a notification registration.

Due Diligence Meeting

Before the effective date of registration, the investment bankers meet with the corporate officers. The purpose of this due diligence meeting is to discuss:

• whether all materials facts that have been sent to the SEC are true and remain true since the filing of the registration;
• has there been any other developments since the filing of the registration that would have a material impact upon the corporation;
• any changes to be made in the final prospectus. However, the public offering price is not set—that will occur on the effective date.

The importance of this meeting is underscored by the liability that both corporate officers and investment bankers will be exposed to if there have been any material omissions or errors in the SEC registration, for they will have to sign the final registration before it can become effective.