private placements larry c. tomlin, krieg devault llp jarod brown, attorney at law
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PRIVATE PLACEMENTSLarry C. Tomlin, Krieg DeVault LLPJarod Brown, Attorney at Law
Introduction
Three truths about every offering: the offering is registered; the offering, the security or the issuer is
exempt from registration; or the offering is illegal.
Introduction, cont’d
Overview of Common Exemptions Section 4(2) of the Securities Act of 1933
Rule 506 (Safe Harbor) Section 3(b) of the Securities Act of 1933
Rule 504 Rule 505 Regulation A Rule 701
Section 4(5) of the Securities Act of 1933 Section 3(a)(11) of the Securities Act of 1933
Rule 147 (Safe Harbor)
Introduction, cont’d
Considerations for choosing an appropriate exemption
Threshold question – Public or Private Amount to be raised Nature of offerees
Accredited Resident in one state Existing shareholders Employees of issuer
Nature of Issuer Development stage company Serial issuer
Regulation D – Brief Overview Exemptions
Rule 504 Up to $1,000,000 No “Blank Check” Companies Generally Restricted Securities, unless:
Registered State Exemptions
General Solicitations Permitted to Accredited Investors Rule 505
Up to $5,000,000 Unlimited accredited, up to 35 non-accredited Restricted Securities, must inform (6 months) No General Solicitation Differing Disclosure Standards
Regulation D – Brief Overview, cont’d Exemptions
Rule 506 “Safe Harbor” Unlimited Amount Unlimited accredited, up to 35 non-accredited
Non-accredited must be “sophisticated” Differing Disclosure Standards Company must be available to answer
questions Financial Statements Restricted Securities, 1 year
Practice Point – Small Business Startups
Early Offering Issues
Finders Don’t use them
Engagement Letters with Placement Agent Best Efforts Fees Services
Due Diligence Blue Sky
To file, or not to file
Mid Offering Issues
Structuring the offering All accredited vs. non-accredited Min/Max
Rule 15c2-4 Rule 10b-9
Mid Offering Issues , cont’d
Use of a private placement memorandum Accredited vs. non-accredited Anti-fraud
Contents of a private placement memorandum Accredited vs. non-accredited
Rule 502
Mid Offering Issues , cont’d
Issues for consideration A securities disclosure document, not a sales document Risk factors Bespeaks Caution Doctrine
A judicially created doctrine that renders forward-looking statements non-actionable under the securities laws if such statements are accompanied by sufficient cautionary language
Private Securities Litigation Reform Act of 1995 an issuer that, at the time that the statement is made, is
subject to the reporting requirements of section 13(a) or section 15(d) of the Securities Exchange Act of 1934;
a person acting on behalf of such issuer; an outside reviewer retained by such issuer making a
statement on behalf of such issuer; o an underwriter, with respect to information provided by
such issuer or information derived from information provided by the issuer.
Post Offering Issues
Form D EDGAR Access Codes Rule 503
No later than 15 calendar days after the first sale of securities in the offering
State Requirements Resale Restrictions
Rule 144 Rule 4(1-1/2)
Regulatory Updates
JOBS Act Regulation A
Increased from $5 Million to $50 Million General Solicitation
Mandates SEC revise Rule 506 to permit general solicitation for “accredited only” private offerings
Crowdfunding Many restrictions No regulations yet, stay tuned…
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