lendit reg a korn

8/18/2019 LendIT Reg a Korn

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April 12, 2016

Brian S. Korn

Regulation A+: Capital Raise of the Future?

LendIT 2016


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2Structure of US Securities Laws

" Securities Act of 1933

"

Securities Exchange Act of 1934" Trust Indenture Act of 1939

" Investment Company Act of 1940

" Investment Advisers Act of 1940

"

Private Securities Litigation Reform Act of 1995" Sarbanes Oxley Act of 2002

" Jumpstart Our Business Startups Act of 2012

" FAST Act of 2015


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3No Offerings Unless Registered or Exempt

" Exempt Securities (Section 3)

– Government bonds

– Commercial paper

– Issued by bank

– Charitable purpose and not for profit

– Exchange Securities

– Intrastate

" Exempt Offerings (Section 4)

– Not involving an issuer, underwriter or dealer

– Not involving a public offering

– Broker’s transactions acting on customer orders

– Crowdfunding

– *New* Section 4(a)(7) – private transfers among accredited investors


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4 April 5, 2012 – President signs the JOBS Act


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5JOBS Act Overview

" IPO On-Ramp and Emerging Growth Companies – effective immediately

" Private Placement Reforms – effective September 23, 2013

– General Solicitation relaxed

– Enhanced verification of Accredited Investors if Soliciting

" Crowdfunding – national online fundraising – effective May 2016

" Regulation A+ - from $5mm to $50 mm – effective June 19, 2015

" “Go Public” Shareholder Thresholds Increased

" Relaxation on Research Restrictions

" Decimalization – possible move to $.09 tick increments

" Prospective Issuer Outreach

" Signed into law April 5, 2012

“To increase American job creation and economic growth by improving access tothe public capital markets for emerging growth companies.”


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Manatt Corporate & Securities Group | Manatt, Phelps & Phillips, LLP

6

TITLE IV: REGULATION A+


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7(Old) Regulation A

" Small offering exemption

" Up to $5 million may be offered to the public regardless of accredited investorstatus

" Offering Circular must be used and filed with the SEC

" SEC must approve OC before offering is priced

" Seldom used because:

– no state securities law preemption

– for nearly the same effort, one can do an IPO and qualify for reduced reporting under theSmaller Reporting Company Rules

" JOBS Act 2012 - Title IV – increased to $50 million and enabled SEC to grant

state law preemption

" Regulation A+: Effective June 19, 2015


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8Unregistered Offering Exemptions

Feature Public Crowdfunding

(Title III)

Regulation A+

(Tier 1)

Regulation A+

(Tier 2)

Private Placements Including

Title II Crowdfunding

(Regulation D Rule 506 (b/c))

Maximum Total

Raised

$1 million per 12 month

period

$20 million per 12

month period; includingup to $6 million for

selling shareholders

$50 million per 12 month period;

including up to $15 million forselling shareholders

Unlimited

!

Number of

Investors

Unlimited but subject to

maximum total raised

Unrestricted

!

Unrestricted

!

Unlimited accredited investors; up

to 35 non-accredited investorsunless soliciting (if soliciting- 0

non-accreds)

!

Investment PerInvestor

Restricted by income/networth

Unrestricted

!

Restricted by income/net worth Unrestricted

!

Investor

Disclosure

Required, must be filed

with SEC

Required, must be filed

with SEC

Required, must be filed with SEC Not required if all accredited

investors; Form D fil ing proposed

!

IntermediaryRequired

Yes – broker/dealer orfunding portal

No

!

No

!

No

!

Subject to

ongoing SEC

reporting

following raise

Yes, at least annually No; as long as exit

report is filed not laterthan 30 calendar days

after termination or

completion

Yes; audited financials filed

annually; annual, semi-annual,current reporting required

May file exit report, so long as

issuer meets certain qualifications

No

!


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9Regulation A+ vs. Other Exemptions

Feature Public Crowdfunding Regulation A+

(Tier 1)

Regulation A+

(Tier 2)

Private Placements

(Regulation D Rule 506 (b/c))

Disclosure Liability Yes, full disclosureliability with a

knowledge exception

Yes, full disclosure liabilitywith a knowledge exception

Yes, full disclosure liability with aknowledge exception

Only anti-fraud liability

!

Shares restricted Yes, for one year No

!

No

!

Yes, for public companies most

can sell under Rule 144 after

six months

State Filing Notice filings Not exempt from state

securities law registration

and qualification

Exempt from state securities law

registration and qualification if

sold to “qualified purchasers,”defined to include all offerees in

a Regulation A offering and all

purchasers in a Tier 2 offering;

notice filings, some in advance

Usually no if only offering to

accredited investors; notice

filings!

Advertising andgeneral solicitation

Not allowed "Testing the waters"permitted before filing;

general solicitationpermitted after qualification

!

"Testing the waters" permittedbefore filing; general solicitation

permitted after qualification

!

Allowed if sales are made onlyto accredited investors and

issuer takes reasonable stepsto verify accredited status

Can public cos.,

foreign issuers,

investment

companies and

exempt inv.companies issue

No No public companies No public companies Yes

!


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11Sample Marketplace Lending Structure

Platform Fund

SidecarInvestors

Borrower Loan

Participations

- Marketing- Origination- Licensing- Loan Custody

Arrangements- Servicing

" Bills Borrower" Pays Investors

- Loan- Collateral

$

Monthly Payments

SPV

- Borrower PaymentDependent Notes

- Investment Agreement- Private Placement

Memorandum

LP Investors

GP LLC

L o a n

P a r t i c i p

a t i o

n

s

L o a n

P a r t i c

i p a t i o

n s

GP

BPDNInvestors


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Impact Investing | Manatt, Phelps & Phillips, LLP

12Regulation A+ and Marketplace Lenders

" Equity or Debt

" Can round out your investor portfolio

" Offering must be Continuous

" Recourse Notes or BPDN

– BPDN have special considerations

" Cost similar to credit facility" Time to qualification – approx. 4 months

" Remember ongoing filing requirements

" Accounting

" Liquidity considerations – OTC or Nasdaq


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Impact Investing| Manatt, Phelps & Phillips, LLP

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ABOUT THE PRESENTER


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14

Brian Korn

Partner• Capital Markets• Peer-to-Peer Lending and

[email protected]

PROFESSIONAL EXPERIENCE

Brian S. Korn is a partner in the Capital Markets practice group and is resident in the New Yorkoffice. His practice focuses on corporate finance transactions, including initial public offerings (IPOs),early-stage and start up venture financings, and mature corporate and high-yield debt finance. Healso advises clients on SEC compliance, broker-dealer compliance and corporate swaptransactions. He is also a recognized thought leader in the marketplace online lending (or peer-to-peer lending) and crowdfinance fields and is a prolific speaker and writer in the field.

Mr. Korn has previously served as head of Equity Capital Markets and Syndicate Compliance atBarclays Capital and as senior vice president and assistant general counsel at Citigroup GlobalMarkets, Inc. He has extensive experience representing issuers and underwriters in investmentbanking and capital markets transactions, including transactions involving equity, debt, hybrid/convertible and preferred securities, derivatives and foreign exchange. He has executed severalIPOs and other equity value monetization transactions, such as spin-offs, split-offs and carveouttransactions. He also has extensive experience in sponsor-leveraged buyouts and bank/bondacquisition financing.

EDUCATION

" Northwestern University School of Law, J.D., 1997.Note and comment editor, Northwestern Journal of International Law & Business.

" University of California, Berkeley, B.A., with honors and distinction, 1993.

Brian Korn

lendit reg a korn

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