The JOBS Act of 2012 Weintraub Law Group PC

The JOBS Act of 2012 Weintraub Law Group PC Boutique law firm specializing in corporate and securities law. Mergers and acquisitions in the lower middle market and middle market Public and private offerings

The JOBS Act of 2012 Title II Regulation D General solicitation and advertising Platforms Title III Crowdfunding of securities Effective May 16, 2016 Title IV Regulation A+ Small public offerings up to $50 million Modernization of securities offering to use the Internet Slower than anticipated usage to date Investor confidence Akin to acceptance of Internet commerce

Regulation Crowdfunding Raise $1.0 million in a 12-month period Simultaneous Regulation D offerings permitted with qualifications concurrent with Section 506(b) offerings Concurrent with Section 506(c) offerings Investors in 12-month period Less than $100,000 of net worth or income (greater of $2,000 or 5% of the lesser) $100,000 or more of both net worth or income (10% of the lesser, not to exceed an investment of $100,000) Lesser of net worth or income computed under Regulation D guidelines Self accreditation by investors to the intermediary and issuer when register, subscribe and close

Regulation Crowdfunding Transaction must be conducted through an intermediary who is either a broker/dealer or funding portal that complies with Section 4(A)(a) Issuer complies with Section 4(A)(b)

Regulation Crowdfunding Section 4(A)(a) Funding portal definition Educate investors: upon opening account; video or Q&A on risks, illiquidity, resale restrictions & cancellation Upon sign-up on platform, intermediary and promoters’ fees must be disclosed Fraud (bad actor) check by intermediary (intermediary liability)

Regulation Crowdfunding File with SEC and provide to investors: 21-day cooling off period but may receive money, but not close Minimum (target)/Maximum offerings permitted Green-shoes permitted/Oversubscription Compliance with investor limitation rules Privacy rights protection Prohibition on payment for leads – can pay flat fee for leads to intermediary’s platforms, however, no identifiable information No financial interest rule – except transaction based fees, same as investor No fidelity bond required

Regulation Crowdfunding Funding Portal Safe Harbor Activities Limited Offerings Highlighting Issuers and Offerings Search Functions (may be emailed) All communications must be online (no seminar or meetings offline) Issuer must have a website May generally advertise existence of intermediary through multiple medias

Regulation Crowdfunding Communications Channels (blog) Required Funding portal cannot participate Advising Issuers Advice on Form C Structure and content permitted Compensation Arrangements Contract with BD in either direction for payment of fees for sale of services Must be in written agreement Advertising (Telemarketers) (Reg. D also) Advertise existence of funding portal May identify broad spectrum of issuers Objective only

Regulation Crowdfunding Section 4(A)(b) for Issuers Offering Memorandum on Form C Advertising on Internet and social media: tombstone format No blank check companies, SPVs, investment companies (including exemptions), SPVs or hedge funds Compensation rules for promoters, officials, directors, etc. (disclosure) – must be through intermediary after offering is made on the blog Annual filings (not audited) within 120 days of FYE may be on platform or website of issuer or email to investors Financial Statement Requirements

Regulation Crowdfunding Types of offerings for Regulation Crowdfunding: Emerging growth businesses Specific real estate investments Community restaurant expansion Specific medical device or drug

Regulation Crowdfunding Legal Fees Form C: $5,000 Corporate Services: vary Formation of entity: Up to $3,500 Voting trust: Up to $2,500 Accounting Fees (No PCAOB) Audit: $2,500-$25,000 Review: $2,500-$10,000 Intermediary Commissions: up to 10% $500-$3,500 (BD v. FP) Marketing-Videographer: $2,500-$10,000

Title II Traditional Syndication “Herding Cats” ecosystem No general solicitation or advertising Pre-existing relationships only (Citizen X No-action letter) Rule 506(b) Non-specified funds Inefficiencies

Title II Internet meets offer and sale of securities Use of social media and the Internet Use of portals General Solicitation and Advertising

Title II General solicitation and advertising Accredited investors only No self accreditation Non-Exclusive safe harbors Verify Investor, Inc.

Title II How does it work? Teaser Ad in email blast, LinkedIn, Facebook, etc. Rule 134 Proposed Rule 509 page Sold only to accredited investors Securities offered pursuant to an exemption and not registered SEC not passed on the merits Restrictions on transfer Substantial risk of loss Tombstone on steroids Section 4(c) Portal Online ecosystem: SaaS provider

Title II Marketplace Portal Section 4(c) of the Securities Act of 1933 Applies to only Regulation D offerings and Rule 506 Exemption from registering as a broker dealer Maintains a platform for the offer and sale of securities through general solicitation May co-invest in securities. May provide ancillary services (due diligence fees and document preparation fees) May not: Receive any compensation unless for ancillary services. Cannot possess customer funds or securities Not a bad actor

Title II Fees and the Marketplace Portal No fees except ancillary services fees Reasonableness of the ancillary fees and disguised placement fees SPVs and carried interests SPVs and management fees Legal Fees: PPM: $20,000-$35,000

Title II Proprietary Portal Issuer exemption Transaction based fees 3a4-1 Associated persons non-exclusive safe harbor No direct or indirect compensation rule Sales broker rule-one offering in 12 month period Administrative rule

The JOBS Act of 2012 Regulation A+ Tier 1 Tier 2 12 month period: up to $20.0 million Selling affiliated shareholders: 30% up to $6.0 million Non-affiliates: no limitation Tier 2 12 month period: up to $50.0 million Selling affiliated shareholders: 30% up to $15.0 million

The JOBS Act of 2012 Regulation A+ Tier 1: Raise $20 million in a transaction Tier 2: Raise $50.0 million in a transaction Public Registration Financial Statements (non-PCAOB) Audit (Tier 2) v. Review (Tier 1) Investment in a transaction 10% of the greater of income or net worth Greater of net worth or income computed under Regulation D guidelines Self accreditation by investors No state blue sky (Tier 2); NAASA Blue Sky (Tier 1) Publicly tradable (venture exchanges) Real estate non-specified if have a business plan Investment Company Act of 1940: Section 3(c)(5)(C) (Real Estate) Investment Advisors Act of 1940

The JOBS Act of 2012 Weintraub Law Group PC 10085 Carroll Canyon Road Suite 230 San Diego, CA 92131 858-566-7010 rick@weintraublawgroup.com