Ch 2 Deck 12 Flashcards
Used for U.S. or foreign firms that want to do private placements within the U.S.
Regulation D
Regulation D issuers can be either
reporting or non-reporting firms
Regulation D includes restrictions on who
can invest in a private placement. The SEC is worried about non- sophisticated investors being sold shares in a private placement and being taken advantage of.
Regulation D forbids
general solicitation or advertising —this means newspaper, magazines, TV, etc. Again this is to protect the small, unsophisticated investor.
Regulation D integration rules
Offers made before 6 months of the start of the Reg D and 6 months after the completion are NOT integrated.
Regulation D issuers must file with
the SEC on Form D within 15 days of the first sale. they can sell before they file anything in other words.
groups that are Accredited Investors
–Large institutional investor
–Corporations, trusts, partnerships with more than $5 million in assets
–Issuer’s directors, executive officers and general partners
–Any firm where all owners are accredited investors (venture capital firms)
Individuals that are Accredited Investors
–Individuals with net worth more than $1 million, alone or with a spouse, not including home
–Individuals with income of $200,000 within the last 2 years, or $300,000 with spouse
Regulation D rule 504 covers
non reporting issuers for small equity offerings
For Regulation D rule 504 Non-reporting issuers for small equity offerings - small means
under $1 million aggregated over 12 months
For Regulation D rule 504 Non-reporting issuers for small equity offerings restriction on number or type of investors
none
Regulation D, Rule 505 is open to
all issuers (except bad-boys with violations)
Regulation D, Rule 505 issue size is
somewhat small under $5 million aggregated over 12 months
Regulation D, Rule 506 is open to
all issuers (except bad-boys with violations)
Dollar cap on Regulation D Rule 506 offerings
None
Limits on Regulation D, Rule 506 investors
Maximum of 35 non-accredited investors (unlimited accredited!), but all must be sophisticated or represented by a “purchaser representative” which is someone who is sophisticated.
Prior to putting out Private Placement Documents,
–Placement agent agreement will be signed between investment bank and issuer
Most common type of placement agent agreement is
Best-efforts
In a private placement potential investors are first given
teaser
In a private placement serious investors sign
a confidentiality agreement
In a private placement investors receive
Private Placement Memorandum (long detailed document describing private placement)
In a private placement shorter document describing terms
Term Sheet
Safe harbor exemption from registration for off shore transactions
Regulation S, Exemptions for Off-Shore Transactions
Regulation S issuer transactions are open to
both Foreign and U.S. companies.
Under Regulation S an offer cannot be made to a person in the United States –AND one of the following also must be true:
1) Buy order is NOT made in the United States
2) Issuer transaction is made outside the U.S. on a established foreign exchange
3) Resale is made on a designated foreign exchange
Regulation S does not allow directed selling efforts
in the US
Under Regulation S, cannot sell to US residents even if
They are citizens of another country
Regulation D Rule 505 limits on investors
unlimited accredited, maximum of 35 non accredited
A shorter alternative to a PPM is a
term sheet
Under Regulation S, person in the US includes
US resident
Foreign national Living in US
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