Raising Capital: Securities Law Compliance Related to Private and Public Offerings and Resales of Shares Stephanie L. Chandler, Esq. Texas Advanced Paralegal Seminar (TAPS) Wednesday, September 17th San Antonio, Texas. Stephanie L. Chandler.
Texas Advanced Paralegal Seminar (TAPS)
Wednesday, September 17th San Antonio, Texas
University of Nebraska
B.S.B.A. in Finance
University of Virginia
Sale of Company
Transfers to Family/ Estate Planning
Must not involve any general solicitation or general advertising
Section 4(2)* - the private-offering exemption - “transactions by an issuer not involving any public offering”
* Securities Act of 1933(the “Securities Act”)Private Offerings = Exempt
The purchasers of the securities must:
Exempts public offerings not exceeding $5 million in any 12-month period
must file an offering statement (called a “Form 1-A) with the SEC for review
Safe harbor promulgated by the SEC under Section 4(2)
Most common and today’s focusDesire Definition
Shareholders resolutions if stock not authorized
Stock purchase agreement or subscription agreement
Accredited investor questionnaire
Certificate of Designations/ Amended and Restated Articles of Incorporation or Certificate of FormationParalegal’s Role:Other Documents
Note: Back of Presentation is Overview of Deal Terms
Invest in Growing Operations and Revenue
Alternative Public Offering (APO) which is the combination of a reverse merger with a simultaneous Private Investment of Public Equity (PIPE).
It allows companies an alternative to the IPO as a means of going public while raising capital.
In the reverse merger, the private company becomes public by merging with or being acquired by a public “shell” company.IPO vs. APO
112 E. Pecan Street, Ste. 2400
San Antonio, Texas 78205
Alternative 1 (non-participating Preferred Stock): First pay [one] times the Original Purchase Price [plus accrued dividends] [plus declared and unpaid dividends] on each share of Series A Preferred. The balance of any proceeds shall be distributed to holders of Common Stock.
Alternative 2 (full participating Preferred Stock): First pay [one] times the Original Purchase Price [plus accrued dividends] [plus declared and unpaid dividends] on each share of Series A Preferred. Thereafter, the Series A Preferred participates with the Common Stock on an as-converted basis.
Alternative 3 (cap on Preferred Stock participation rights): First pay one times the Original Purchase Price plus accrued dividends and unpaid dividends on each share of Series A Preferred. Thereafter, Series A Preferred participates with Common Stock on an as-converted basis until the holders of Series A Preferred receive an aggregate of 5 times the Original Purchase Price.
(i) liquidate, dissolve or wind-up the affairs of the Company, or effect any Deemed Liquidation Event;
(ii) amend, alter, or repeal any provision of the Certificate of Incorporation or Bylaws;
(iii) create or authorize the creation of or issue any other security having rights, preferences or privileges senior to or on parity with the Series A Preferred, or increase the authorized number of shares of Series A Preferred;
(iv) purchase or redeem or pay any dividend on any capital stock prior to the Series A Preferred, other than stock repurchased from former employees or consultants in connection with the cessation of their employment/services, at the lower of fair market value or cost; or
(v) increase or decrease the size of the Board of Directors.
The Series A Preferred initially converts 1:1 to Common Stock at any time at option of holder, subject to adjustments for stock dividends, splits, combinations and similar events and as described below under “Anti-dilution Provisions.”
CP2 = CP1 * (A+B) / (A+C)
CP2 = $1.00 * (10,000,000 + ($500,000/$1.00)
10,000,000 + 1,000,000
CP2 = $1.00 * 10,500,000
CP2 = $1.00 * .95
CP2 = $0.95
Each share of Series A Preferred will automatically be converted into Common Stock at the then applicable conversion rate in the event of the closing of a firm commitment underwritten public offering with a price of five times the Original Purchase Price (subject to adjustments for stock dividends, splits, combinations and similar events) and net proceeds to the Company of not less than $30,000,000 (a “QPO”), or (ii) upon the written consent of the holders of 66 2/3% of the Series A Preferred.
Demand Registrations of a reverse merger with a simultaneous Private Investment of Public Equity (PIPE).
Form S-3 Registrations
Management andInformation Rights
Right to Participate in Future Rounds (Pre-Emptive Rights)
Matters Requiring Investor Director Approval
Non-Competition and Non-Solicitation Agreements
Non-Disclosure and Development Agreements
Employee Stock Options
IPO Directed Shares
TerminationInvestor Rights Agreement
(i) make any loan or advance to, or own any stock or other securities of, any subsidiary or other corporation, partnership, or other entity unless it is wholly owned by the Company;
(ii) make any loan or advance to any person, including, any employee or director, except advances and similar expenditures in the ordinary course of business or under the terms of a employee stock or option plan approved by the Board of Directors; or
(iii) incur any aggregate indebtedness in excess of $1,000,000 that is not already included in a Board-approved budget, other than trade credit incurred in the ordinary course of business;
(iv) change the principal business of the Company, enter new lines of business, or exit the current line of business.