Section 5 Registration

Tuesday, June 26, 2018 1:08 AM

General
• Regarding Section 5 of the Securities Act.
• A well drafted registration statement should enable investors to properly evaluate the merits of
the offered securities by providing accurate and complete information.
• Underwriting Agreement is between underwriter, company, and any selling stockholders and
outlines each party's rights and obligations.
Registration Periods
• Pre-Filing Period
○ Begins when company reaches an agreement with a managing underwriter.
○ Ends when the company files a registration statement with the SEC
○ Restrictions (exceptions for Emerging Growth Companies):
▪ No offers can be made;
▪ Prospective purchasers cannot be contracted; and
▪ Underwriters cannot be disclosed.
• Waiting Period
○ Begins when issuer files registration statement with SEC.
○ Ends when registration statement is declared effective.
○ Conditions:
▪ Offers are permitted when made orally or by using a preliminary prospectus.
▪ Issuer can use a free writing prospectus, subject to certain conditions.
▪ Indications of interest are permitted.
▪ Sales are prohibited
• Post-Effective Period
○ Begins when statement is declared effective.
○ Ends when broker-dealers are no longer required to deliver a prospectus by Securities Act.
○ Conditions:
▪ Sales are permitted.
▪ Certain communications (such as free writing prospectuses) are permitted.
▪ Free writing prospectus of an IPO or unseasoned issuer must be accompanied or
preceded by a final prospectus.
Registration: Overview
• Framework
○ Is the transaction a security within the meaning of the act?
○ If so, is there an exemption to registration?
• Components of Registration
○ Forms: SEC has detailed "forms" for various types of securities offerings.
○ Disclosure: level of disclosure varies depending on type of offering or issuer.
▪ Type of issuer varies between seasoned and inexperienced issuers.
• Typical Disclosures in Registration Process
○ Description of risk factors in the investment
○ Description of company's property and business
○ Description of the security offered
▪ Relationship to other securities of the company
▪ Method of distribution of the security
▪ Planned use of proceeds from sale
Information related to management of the company

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 ○ Information related to management of the company
○ Company's financial statements, certified by a public accountant.
Registration: Exemptions
○ Section 3 Securities
▪ US government obligations;
▪ Municipal obligations;
▪ Bank securities;
▪ Commercial paper;
▪ Exchanges with existing security holders; and
▪ Court or government approved exchanges.
○ Section 4 Transactions
▪ Transactions by any person other than an issuer, dealer or underwriter, 4(a)(1);
▪ Transactions by an issuer not involving a public offering, 4(a)(2);
▪ A.k.a., Private Placement Exemption
▪ Doran v. Petroleum Management Corp., 545 F.2d 893 (1977)
□ Four-factor balancing test for applicability:
 The number of offerees and their relationship to each other and the
issuer;
 The number of units offered;
 The size of the offering; and
 The manner of the offering
□ Sophistication is not a substitute for access to the information that registration
would disclose
□ Availability to information means access or disclosure.
 Everything that would be disclosed in the registration statement must be
made available for access.
▪ Transactions by a dealer that is no longer acting as an underwriter in an offering a specified
number of days after a public offering is completed, 4(a)(3);
▪ Brokers' transactions that are executed on a customer's order on any exchange or in OTC
market, 4(a)(4);
▪ Transactions made only to accredited investors, 4(a)(5), IF:
□ Aggregate offering <$5m;
□ No advertising or general solicitation; AND
□ Issuer files Form D with SEC with 15 days of sale of first security.
▪ "Crowdfunding" exemption, where securities sold over 12 months <$1m, 4(a)(6); AND
□ See Form C.
▪ Transactions exempted under other conditions, 4(a)(7).
□ E.g., each purchaser is an accredited investor.
○ Other Exemptions
▪ Regulation S - Sales outside US to non-US persons.
▪ Rule 144A - Sale to qualified institutional buyers.
▪ Regulation D
▪ Rule 144 - Resales of restricted securities by both affiliates and non-affiliates of an issuer
under specific circumstances.
▪ Rule 701 - Permits non-reporting issuers to issue securities under compensatory employee
benefit and similar plans.
▪ Section 28 - SEC discretion to exempt where it is in the public interest and consistent with
the protection of investors.

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