Private Placements

1. Private Placements Larry C. Tomlin, Krieg DeVault LLP Jarod Brown, Attorney at Law

2. 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.

3. 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)

4. Introduction, cont’d • Considerationsforchoosinganappropriateexemption • 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

5. 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

6. 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

7. 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

8. Mid Offering Issues • Structuring the offering • All accredited vs. non-accredited • Min/Max • Rule 15c2-4 • Rule 10b-9

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

10. 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.

11. 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)

12. 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…