Private Offering Exemptions and Private Placements (Series: Securities Law Made Simple (Not Really))

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Practical and entertaining education for
attorneys, accountants, business owners
and executives, and investors.
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DISCLAIMER
The material in this webinar is for informational purposes only. It should not be
considered legal, financial or other professional advice. You should consult with an
attorney or other appropriate professional to determine what may be best for your
individual needs. While Financial Poise™ takes reasonable steps to ensure the information
it publishes is accurate, Financial Poise™ makes no guaranty in this regard.
About this PowerPoint: if you are looking at this PowerPoint without the benefit of
listening to the conversation that surrounded it then you are doing yourself a disservice.
This PowerPoint was prepared in contemplation of being viewed in conjunction with
listening to a one hour webinar on the topic.
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MEET THE FACULTY
Moderator:
Vanessa Schoenthaler – Sugar Felsenthal Grais & Helsinger
Panelists:
Michael Gold – Saul, Ewing, Arnstein, & Lehr LLP
Craig Mordock – Sheppard, Mullin, Richter & Hampton LLP
Alissa Parisi – K & L Gates
Julia Vax – Arnold & Porter
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ABOUT THIS WEBINAR:
Private Offering Exemptions and Private
Placements
The private capital markets have become an increasingly important source of funding for
both private and public companies alike. Today total capital raised through private
placements surpasses total capital raised in public offerings. What’s more, in recent years
legislation like the JOBS Act has made a number of significant changes to laws and
regulations governing private capital markets. Consequently, an understanding of the
myriad of private offering exemptions and how to properly conduct a private placement is
crucial not only for lawyers, but also for executives, managers, directors and anyone
involved in corporate finance transactions.
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ABOUT THIS SERIES:
Securities Law Made Simple (Not Really)
The federal securities laws, made up of a interwoven collection of Congressional statutes,
rules and regulations promulgated by the Securities and Exchange Commission and
subject to federal judicial precedent, play a ubiquitous role throughout a company’s life-
cycle, relevant from the first issuance of founder shares at the organization, to the use of
equity compensation to reward and incentivize directors, employees and consultants, to
offerings of equity and debt in corporate finance transactions, to initial, secondary and
alternative public offerings, in mergers and acquisitions, strategic transactions and beyond.
This webinar series of leading securities law experts discusses both the fundamentals of the
federal securities laws and the latest developments in this ever-evolving area of law.
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EPISODES IN THIS SERIES
2/20/19 Episode #1:
Securities Law: An Overview
3/27/19 Episode #2:
Private Offering Exemptions and Private Placements
4/24/19 Episode #3:
Public Company Reporting
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Dates shown are premiere dates.
All webinars will be available
On Demand approximately 4 weeks
after they premiere.

Episode #2:
Private Offering Exemptions and Private
Placements
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WHAT ARE SOME OF THE SECURITIES LAWS
THAT COME INTO PLAY WHEN CONDUCTING A
PRIVATE PLACEMENT?
⚫ Securities Act of 1933, as amended
⚫ Requires that all offers and sales of securities be registered with the Securities and
Exchange Commission or exempt from registration.
⚫ Registration Exemptions
⚫ There are two types of registration exemptions: exempt securities and exempt
transactions.
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PRIVATE PLACEMENT? (cont’d)
⚫ Registration Exemptions
⚫ Exempt securities: government and bank securities; commercial paper; securities
issued in bankruptcy; securities issued in exchange with existing holders; securities
issued pursuant to a fairness hearing; securities issued to persons within a single
state.
⚫ Exempt transactions: transactions by an issuer not involving a public offering or
transactions by persons other than an issuer, underwriter or dealer.
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PRIVATE PLACEMENT? (cont'd)
⚫ Traditional Private Placements
⚫ Transactions by an issuer not involving a public offering - Section 4(a)(2) of the
Securities Act.
⚫ Regulation D - safe harbor under Section 4(a)(2) most commonly used rules for
private placement transactions.
⚫ Regulation S - rules for certain offshore offerings.
⚫ Rule 701 - rules for employee/service provider equity incentive grants.
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PRIVATE PLACEMENT? (cont'd)
⚫ JOBS Act of 2012 - Capital raising rules expansion
⚫ Regulation A+ - an unregistered public offering.
⚫ Crowdfunding - a new exempt transaction - Section 4(a)(6) of Securities Act.
⚫ State (“Blue Sky”) Securities Laws
⚫ National Markets Securities Improvement Act (NSMIA) preempts state law
registration requirements for many, but not all, federally-exempt transactions.
⚫ Notice filings and filing fees may still apply.
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WHAT ARE SOME EXAMPLES OF DIFFERENT
TYPES OF PRIVATE PLACEMENTS?
⚫ Common Types of Private Placements
⚫ Transactions in initial company formation
⚫ “Friends & Family” financings
⚫ Seed financings
⚫ Venture capital financings
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TYPES OF PRIVATE PLACEMENTS? (cont'd)
⚫ Common Types of Private Placements
⚫ Debt transactions
⚫ PIPEs (private investment in public equity)
⚫ 144A offerings (typically offerings of debt securities)
⚫ Stock issuances in acquisitions
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⚫ Common Exemptions for Private Placements
⚫ Section 4(a)(2) of the Securities Act.
⚫ Regulation D safe harbor promulgated under Section 4(a)(2).
⚫ Rule 506 – exclusively (or primarily) accredited investors.
⚫ Rule 504 – up to $5 million in 12 month period.
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⚫ Common Exemptions for Private Placements
⚫ Regulation A and A+ – effectively a “mini” registration.
⚫ Regulation S – offshore offerings to non-US persons.
⚫ Rule 701 – equity compensation plans.
⚫ Section 3(a)(10) – exchanges approved in state fairness hearing.
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WHAT IS THE DIFFERENCE BETWEEN A 506(b)
AND 506(c) OFFERING?
⚫ First Difference – The Type of Investor that Can Purchase Securities
⚫ In Rule 506(b) offerings, up to 35 non-accredited investors can participate.
⚫ Non-accredited investors must be “sophisticated,” either alone, or with a
purchaser representative.
⚫ Any non-accredited investors must receive a substantive disclosure
document that includes financial statements.
⚫ In contrast, in Rule 506(c) offerings, non-accredited investors may not
participate.
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⚫ Second Difference – Standard of Verification Required of Accredited
Investors
⚫ In both Rule 506(b) and Rule 506(c) offerings, the issuer must have a
reasonable belief that the investor is accredited.
⚫ In a Rule 506(c) offerings, the issuer also must take reasonable steps to
verify that all investors are in fact accredited.
⚫ SEC provides a principles-based approach for determining what constitutes
“reasonable steps” as well as certain non-exclusive methods of verifying the
accredited investor status of natural persons.
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AND 506(c) OFFERING? (cont’d)

⚫ Third Difference – Rule 506(c) Allows General Solicitation and
General Advertising
⚫ Rule 506(c) permits issuers to communicate with investors and potential
investors through general solicitation and general advertising.
⚫ In contrast, Rule 506(b) prohibits an issuer (or anyone acting on its behalf)
from offering or selling securities by means of any form of general solicitation
or general advertising.
⚫ Must evaluate whether the benefits of Rule 506(c) -- the ability to engage in
general solicitation and advertising -- outweigh the additional complexities.
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AND 506(c) OFFERING? (cont’d)

WHAT IS A SUBSTANTIVE PRE-EXISTING
RELATIONSHIP?
⚫ One way to demonstrate that the sale of a security is not the result of general
solicitation or general advertising is the existence of a substantive and pre-existing
relationship between the issuer and prospective investor.
⚫ To be substantive, the relationship should involve a discussion of the
prospective investor’s financial goals and objectives, and one should examine
the nature and quality of the relationship.
⚫ To be pre-existing, a relationship should be in place before the terms of the
offering are developed and the offering commences.
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WHAT IS A SUBSTANTIVE PRE-EXISTING
RELATIONSHIP? (cont'd)
⚫ Importance of SEC staff no-action letters and recent guidance.
⚫ Not the exclusive means of demonstrating the absence of general
solicitation or general advertising.
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WHAT IS REGULATION A+?
⚫ Old Regulation A - Allowed exemption from registration for offerings less
than $5 million in any 12-month period, required compliance with state
securities laws.
⚫ New “Regulation A+” - Mandated by the JOBS Act, allows exemption up to
$50 million in any 12-month period; rules for two-tiered offerings became
effective on June 19, 2015.
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WHAT IS REGULATION A+? (cont’d)
⚫ New “Regulation A+”
⚫ Tier 1: offerings up to $20 million, including no more than $6 million of
securities sold by selling shareholders that are affiliates of the issuer, in any
12-month period.
⚫ Tier 2: offerings up to $50 million, including no more than $15 million of
securities sold by selling shareholders that are affiliates of the issuer, in any
12-month period.
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WHAT IS REGULATION A+? (cont'd)
⚫ New “Regulation A+” – Continued:
⚫ Eligible companies: U.S. and Canadian, not publicly reporting.
⚫ Eligible securities: equity securities, including warrants, debt securities, and
securities convertible or exchangeable into equity interests. Asset-backed
securities are excluded.
⚫ Process: file offering statements on Form 1-A via SEC’s EDGAR database;
scaled disclosure, subject to review by the SEC, must be qualified by SEC order
prior to sales.
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⚫ Ongoing reporting for Tier 2: ongoing, publicly filed, disclosures for Tier 2
offerings.
⚫ State (“Blue Sky”) laws preemption: preemption of state securities laws only for
Tier 2 offerings.
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⚫ Integration: Regulation A+ offerings will not be integrated with prior offer
or sales of securities, including any Regulation D offerings. Subsequent
offers and sales of securities will not be integrated if they are (i) registered
under the Securities Act; (ii) made pursuant to an employee benefit plan or
under Rule 701; (iii) made pursuant to Regulation S; (iv) made more than six
months after the Regulation A+ offering; and (v) crowdfunding transactions.
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WHAT IS CROWDFUNDING?
⚫ Crowdfunding – Mandated by the JOBS Act, allows companies to raise capital
through small, individual contributions from a large number of people; final rules
adopted on October 30, 2015:
⚫ Investment limits - companies: a maximum aggregate amount of $1 million in a
12-month period.
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WHAT IS CROWDFUNDING? (cont'd)
⚫ Investment limits - individual investors: in a 12-month period, across all
crowdfunding offerings, up to:
⚫ If either their annual income or net worth is less than $100,000, then the
greater of $2,000 or 5% of the lesser of annual income or net worth.
⚫ If both their annual income and net worth are equal to or more than
$100,000, then 10% of the lesser of the annual income or net worth; and not
to exceed $100,000.
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⚫ Portals: crowdfunding offerings must be made through brokers or funding
portals, which are subject to SEC registration requirements, certain obligations
and prohibitions; must conduct background and securities enforcement history
checks on each issuer, officer, director and 20% owner of the issuer to rule out
any disqualifying event.
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⚫ Resale/holding period: securities purchased in a crowdfunding offering may
not be resold for a period of one year.
⚫ Reporting/disclosure requirements: companies are required to file certain
information with the SEC and provide this information to investors and the
relevant intermediary facilitating the offering: offering documents and annual
reports.
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⚫ Intrastate Crowdfunding – Section 3(a)11 of the Securities Act of
1933 provides a registration exemption for securities sold to persons
within a single state or territory by an issuer incorporated and doing
business within that state or territory.
⚫ Recently amended Rule 147 and new Rule147A provide safe harbors for
qualifying intrastate offerings.
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WHO IS AN ACCREDITED INVESTOR? HOW DOES
HAVING NON-ACCREDITED INVESTOR
PARTICIPATION IMPACT AN OFFERING?
⚫ Rule 501(a) definition – key categories:
⚫ Directors, executive officers and general partners of issuer.
⚫ Individuals with a net worth in excess of $1 million (excluding their primary
residence).
⚫ Individuals with income of $200k or more in last 2 years and with a
reasonable expectation of such income in the current year ($300k or more
with their spouse).
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WHO IS AN ACCREDITED INVESTOR? HOW DOES
HAVING NON-ACCREDITED INVESTOR
PARTICIPATION IMPACT AN OFFERING? (cont’d)
⚫ Rule 501(a) definition – key categories:
⚫ Entities formed for purpose of investing – you must “look through” to the
status of the beneficial owners.
⚫ “Reasonable belief” standard for issuers (but note difference in 506(c)
offerings; verification required).
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WHAT IS A PRIVATE PLACEMENT MEMORANDUM? WHAT
OTHER DOCUMENTS AND MATERIALS MIGHT REQUIRED OR
REQUESTED BY INVESTORS WHEN CONDUCTING A PRIVATE
PLACEMENTS?
⚫ Private Placement Memorandum
⚫ Antifraud provisions of the federal securities laws require issuers to provide investors
with full, fair and complete disclosure of all material facts about the issuer, its
management, business, operations and finances.
⚫ If an issuer’s offering will be sold to any non-accredited investors under Rule 506(b),
the issuer must provide the narrative and financial disclosures required by Rule
502(b)(2).
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PLACEMENTS? (cont’d)
⚫ A private placement memorandum (“PPM”) is designed to fulfill the disclosure
requirements of Rule 502(b)(2).
⚫ PPM can also serve as a shield against any future charges of violating the antifraud
provisions of the federal securities laws.
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⚫ The value of the PPM can be destroyed if the issuer, its placement agent or a broker
makes oral or written representations that are different from or inconsistent with
those in the PPM.
⚫ Extent of disclosures in PPM will depend on the size of the offering.
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⚫ Typical for PPM to include financial statements, description of the issuer’s business,
terms of the offering, risk factors that may affect the investment, description of
management, description of use of proceeds from the offering and subscription
procedures for the offering.
⚫ While information delivery requirements are not required for accredited investors, best
practice is to provide the same information to both accredited and non-accredited
investors.
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⚫ Other Documents
⚫ The two key documents are:
⚫ Investor Questionnaire. Developed to obtain certain information from
prospective investors and then serves as evidence of their required
sophistication level.
⚫ Subscription Agreement. Contract between the investor and the issuer for
the purchase of the securities.
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ABOUT THE FACULTY
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VANESSA SCHOENTHALER – vschoenthaler@sfgh.com
Vanessa J. Schoenthaler is a partner in the New York office of Sugar Felsenthal Grais & Helsinger. She focuses
her practice on corporate and securities matters with an emphasis on private and public securities transactions,
compliance and disclosure obligations and corporate governance matters. Her clients rely on her deep
experience navigating the complexities of both the public and private securities regulatory environment. She
frequently contributes to publications such as IR Web Report, The Corporate Counselor, Buyouts and
Transactional Advisors.
Vanessa’s corporate finance experience ranges from advising investors and development stage companies in
early round financings to representing issuers and intermediaries in registered and exempt offerings of equity
and debt securities. She has worked with foreign and domestic issuers on matters such as periodic and ongoing
disclosure obligations, corporate governance practices, exchange listing standards, joint ventures, equity
compensation arrangements, ESOP transactions and mergers, acquisitions and dispositions.
To read more, go to https://www.financialpoise.com/financialpoisewebinars/faculty/vanessa-schoenthaler/
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MICHAEL GOLD – michael.gold@saul.com
Michael Gold is a partner at Saul Ewing Arnstein & Lehr LLP where he also serves as co-chair of the Corporate
Practice. For more than 20 years, Michael has helped clients in a wide variety of industries with public and
private securities transactions, stock and asset acquisitions, mergers and joint venture arrangements. He also
advises boards of directors and outside shareholders regarding corporate governance practices, proxy
solicitations and tender offers.
Michael has extensive experience with private equity, hedge fund and venture finance transactions,
representing both investors and issuers. He also counsels clients on SEC disclosure requirements and securities
regulatory matters.
In addition, Michael has represented companies and individuals in connection with internal investigations,
corporate crisis situations and enforcement actions brought by the Securities and Exchange Commission, the
NYSE and FINRA (formerly the NASD). He handles issues related to structuring complex securities
transactions, and trading practices and policies within different securities markets and firms.
Prior to law school, Michael was a financial analyst for Goldman, Sachs & Co. in New York City, specializing in
mortgage finance.
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CRAIG MORDOCK – CMordock@sheppardmullin.com
Craig Mordock is a partner at Sheppard Mullin, where he maintains a corporate and securities practice with
special on private and public securities offerings, corporate governance, and mergers and acquisitions. His
corporate finance experience ranges from representing venture capitalists, institutional investors, and start-up
companies in early-stage financings to representing issuers and investment banks in public offerings of equity
and debt securities. He advises purchasers and sellers of companies in a variety of industries, including
software, communications, semiconductors, life sciences, renewable energy, consumer products, and financial
services.
Craig has extensive experience representing public companies in connection with disclosure and compliance
matters under the Securities Act of 1933 and the Securities Exchange Act of 1934 and provides general
corporate and business counseling to several privately held companies. He regularly counsels boards of
directors and board committees in connection with their duties under state and federal law as well as their
compliance with the rules of self-regulatory organizations such as the New York Stock Exchange and NASDAQ.
Craig has been a speaker at numerous conferences on securities and corporate governance matters and has
published articles on various topics in these areas.
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ALISSA PARISI – alissa.parisi@klgates.com
Alissa Parisi is a partner in K&L Gates’s Corporate/M&A practice group and resides in the Washington, DC
office. Ms. Parisi advises clients on a full range of corporate, securities, governance and compliance matters.
Ms. Parisi has significant experience in advising boards and executive management on complex business and
operational matters, including in the areas of risk assessment, implementation of governance initiatives and
alignment of corporate strategy to achieve corporate goals. She also acts as corporate counsel for companies,
advising on a host of general corporate matters, including fiduciary duties, management transitions,
relationships with shareholders and effective approaches to the changing regulatory environment.
Ms. Parisi advises companies on compliance matters relating to the SEC, NYSE, Nasdaq, state regulators and
other authorities. Her compliance experience includes preparing of SEC reports, advising with respect to the
timing and substance of disclosure of material events and counseling with respect to shareholder meetings. She
also represents publicly and privately held entities in merger and acquisition transactions. She has broad
experience in representing clients in the structure, negotiation, diligence and documentation of transactions
ranging from several million dollars to several billion dollars. Ms. Parisi serves as co-chair of the Washington,
DC office Professional Development Committee which oversees attorney training, mentoring and professional
development.
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JULIA VAX – julia.vax@arnoldporter.com
Julia Vax, is a Partner at Arnold & Porter in San Francisco and Silicon Valley. Ms. Vax focuses her
practice on business, corporate, and securities law. Her clients include emerging growth and public
companies primarily in the life sciences and technology sectors. Ms. Vax has represented life
sciences and technology companies at all stages of development, from entrepreneurs to publicly
traded entities. She has advised clients in the biopharmaceutical, genomics, medical device,
diagnostics, Internet and digital media, software, IP telephony, telecommunications and financial
services sectors in all aspects of their corporate development and in connection with a broad range
of financing and strategic transactions.
Ms. Vax has extensive experience in IPOs, 144A debt transactions, shelf registrations, private
placements, including PIPE transactions and venture capital financings, as well as in executive
compensation, corporate governance and SEC reporting and compliance for public companies. She
has been involved in numerous public and private financing transactions representing companies,
investors, underwriters and placement agents.
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