The New Paradigm for Raising Capital the Sec's New Jobs Act Rules

Presenters:

Alexander B. Kasdan, Managing Director

Mark T. Hiraide, Partner

The New Paradigm for Raising Capital: The SEC’s New JOBS Act Rules

August 22, 2013

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Alexander B. Kasdan is a Managing Director at DelMorgan & Co. He has more than twenty years of investment banking, real estate, corporate law and corporate strategy experience. Alex has executed over 100 domestic and cross-border transactions totaling more than $10 billion in overall volume in a variety of industries. Prior to joining DelMorgan, Alex founded Convergence Capital Partners, LLC, a boutique investment banking advisory and real estate investment firm and was an investment banker at Barrington Associates, Peter J. Solomon Company, Credit Suisse First Boston and Merrill Lynch. Alex practiced law with O’Melveny & Myers LLP (formerly O’Sullivan Graev & Karabell LLP) and Paul, Hastings, Janofsky & Walker LLP (formerly Battle Fowler LLP), where he specialized in mergers and acquisitions, private equity and corporate finance transactions. In addition, Alex served as Corporate Counsel in charge of business development at Schlumberger Ltd., a global oilfield and information services company. Alex graduated magna cum laude from Middlebury College with a B.A. degree in Economics and Italian and was elected to Phi Beta Kappa during his junior year. In addition, he holds a J.D. degree from Columbia University Law School and has studied at the University of Florence in Italy. Alex is admitted to the Bar in the State of New York. Alex is a Senior Advisor to Governance and Transactions LLC, an advisory firm established in 2003 by Mr. James L. Gunderson, former Secretary and General Counsel of Schlumberger Limited, to assist boards, management and owners with corporate governance, compliance, structuring and strategic transactions.

100 Wilshire Blvd. Suite 750 Santa Monica, CA 90401 (310) 980-1718 www.delmorganco.com [email protected]

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Mark T. Hiraide is a Partner at Petillon Hiraide & Loomis LLP. He assists entrepreneurs raising capital in private and public securities markets. He defends directors, officers and auditors in civil litigation and in regulatory investigations before the SEC, FINRA and PCAOB. He prosecutes securities cases on behalf of investors and counsels companies listed on the NASDAQ, AMEX and OTCBB stock markets, privately held businesses and individual officers and directors in corporate finance and mergers and acquisition transactions and in litigation relating to liabilities under federal and state securities laws. Most recently, Mark was invited by the Securities Subcommittee of the U.S. Senate Banking Committee to testify about Crowdfunding, Regulation A, Regulation D, SOX 404, IPOs and other securities law issues relating to the JOBS Act. Prior to entering private practice, Mark was an attorney for the U.S. Securities and Exchange Commission. He was as an Attorney-Advisor with the SEC in the Division of Corporation Finance in Washington, D.C. and a Chief of one of the Enforcement Branches in the Los Angeles Regional Office. While at the Commission, he was also appointed as a Special Assistant United States Attorney to prosecute a major criminal securities fraud case. Mark received his B.A. (with honors) in 1981 from the University of California at Berkeley and his law degree in 1984 from the University of Southern California. In law school, he received a Merit Scholarship and served as a judicial extern to Justice Cruz Reynoso of the California Supreme Court and to the Honorable Robert M. Takasugi of the United States District Court, Central District of California.

21515 Hawthorne Blvd. Suite 1260 Torrance, California 90503 (310) 543-0500 www.phlcorplaw.com [email protected]

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ROLE OF AN INVESTMENT BANKER   Articulate the investment proposition   Provide third-party validation of investment thesis   Advise company on adequate capitalization: short- and long-term

  Prepare marketing materials and financial model   Run an organized process / investor discussions   Interact with management and board of directors /advisors   Organize due diligence and management presentations   Work with company to confirm accredited investor status   Evaluate investment alternatives   Negotiate best possible transaction   Close the transaction

Mark T. Hiraide Petillon Hiraide & Loomis LLP Alex Kasdan, DelMorgan & Co.

Mark T. Hiraide Petillon Hiraide & Loomis LLP




  Title I: Reopening American Capital Markets to Emerging Growth Companies

  Title II: Access to Capital for Job Creators   Title III: Capital Raising Online While

Deterring Fraud and Unethical Non-Disclosure Act of 2012

  Title IV: Small Company Formation   Title V: Private Company Flexibility and

Growth   Title VI: Capital Expansion   Title VII: Outreach on Changes to the Law


  IPO OnRamp   Reg D Rule 506: General Solicitation   Regulation A  Crowdfunding   Section 12(g) (“Facebook Issue”)


  “Emerging Growth Company”   Two Years Audited Financial Statements  Draft IPO Submissions   Testing-the-Waters  Analyst Reports


  SOX 404(b)   Executive Compensation Disclosure   Say-On-Pay Disclosure  New Accounting Standards  Auditor Rotation


$5M to $50M




• Issuer: •  $1M every 12

mo.s

• Investor: •  <$100K: 5%/$2K •  >$100K: 10% up

to $100K

• BD or “Funding Portal”



Other Issuer Requirements

• Disclosure Document

• Target Offering and Deadlines

• No Advertising

• No Compensation for Promoting Offering

MAY NOT:   (A) offer investment advice or recommendations;   (B) solicit purchases, sales, or offers to buy the securities

offered or displayed on its website or portal;   (C) compensate employees, agents, or other persons for

such solicitation or based on the sale of securities displayed or referenced on its website or portal;

  (D) hold, manage, possess, or otherwise handle investor

funds or securities; or   (E) engage in such other activities as the Commission, by

rule, determines appropriate.



Section 12(a)(2) Liability


Title II Reg D Rule 506 and Rule 144 Reform


 Non-Financial Information ›  Accredited Investors ›  Non-accredited Investors

  Financial Statement Information ›  < $2M: Audited balance sheet w/in 120 days ›  >$2M and <$7.5M: S-1 for smaller reporting

co.s ›  >$7M: registration statement


  “Offers and sales [of securities] exempt under [Rule 506 of Regulation D] shall not be deemed public offerings under the Federal securities laws as a result of general advertising or general solicitation . . . provided that all purchasers of the securities are accredited investors.”

  and provided "the issuer [of the securities] take[s] reasonable steps to verify that purchasers of the securities are accredited investors, using such methods as determined by the Commission."


  SEC’s Non-Exclusive List ›  Income: Tax Returns

›  Net Worth: Statements   dated within the prior three months   written representation that all liabilities

necessary to make a determination of net worth have been disclosed.

  For liabilities a credit report from at least one of the nationwide consumer reporting agencies.


 Obtaining a written confirmation from a registered broker-dealer, an SEC-registered investment adviser, a licensed attorney, or a certified public accountant that such person has taken reasonable steps to verify that the purchaser is an accredited investor within the prior three months will satisfy the verification requirement.


  Principles-Based Methods of Verifying Accredited Status

  Nature of Purchaser and Type of Investor   Amount and Type of Information About the

Purchaser   Nature of Offering, such as manner of

solicitation


Economy & Finance

The New Paradigm for Raising Capital the Sec's New Jobs Act Rules