raising capital through the eb-5 program · raising capital through the eb-5 program 1:00 p.m. –...

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©2010 Foley & Lardner LLP • Attorney Advertising • Prior results do not guarantee a similar outcome • Models used are not clients but may be representative of clients • 321 N. Clark Street, Suite 2800, Chicago, IL 60654 • 312.832.4500

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©2010 Foley & Lardner LLP • Attorney Advertising • Prior results do not guarantee a similar outcome • Models used are not clients but may be representative of clients • 321 N. Clark Street, Suite 2800, Chicago, IL 60654 • 312.832.4500

Raising Capital Through the EB-5 Program

1:00 p.m. – 2:00 Eastern June 23, 2010

Curt P. Creely William C. Guthrie Alan Seagrave Michael N. Kosmas

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©2010 Foley & Lardner LLP

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Today’s Presenters William C. GuthrieFoley & Lardner LLP

Curt P. CreelyFoley & Lardner LLP

Michael N. KosmasEB-5 Investment Strategies

Alan SeagraveFoley & Lardner LLP

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Hospitality Industry

Impacts – economy; tight lending environmentOver 1,400 hotel and resort CMBS loans coming dueDelinquency rates – 16.6% for hospitality


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Hotel Industry

Lack of lendingSubstantial Equity InvestmentDeclines in revenue and profitsLow occupancy ratesLow ARRLow F&B, conferences, and banquets

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Timeshare Industry

Critical Liquidity has vanished due to lack of hypothecation and securitizationHotel brands are attempting to move to fee for servicesLimits re-development of resort condominiums and condotels


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Golf Industry

Difficult to obtain a golf course loanLoan to Value is 40 to 60% with high ratesSome courses barely surviving and causing some closings

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Where do we get Investment Capital?

What is the EB-5 program?


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General EB-5 Overview

Two Pathways to Permanent Residence–Basic Program – Designed For

Individual Investors–Regional Center Pilot Program

Designed For Capital Creation

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EB-5 Viewed As “Win-Win-Win”

Raises capital during a time when capital availability is limitedCreates jobs in period of high unemploymentProvides high net worth individuals with a path to permanent residence when they have no other means available


12Why EB-5 Is An Attractive Immigration Option For High Net Worth Individuals

Results in conditional residence for two yearsResidence becomes permanent if investment continues to meet EB-5 requirements at that timeDerivative status for spouse and childrenNo minimum requirements as to age, employment experience, or education

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13Why EB-5 Is An Attractive Immigration Option For High Net Worth Individuals

Good visa availability, i.e., no wait list– Annual Cap is 10,000, about 5,000 being

used

Approval rate is currently high– 966 of 1028 cases in FY 2009

Individual petitions are processed quickly – Usually 3–5 months, some faster

Investor can apply for citizenship in five years


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But Some Negatives

Some risk that conditional residence will not become permanent–Could happen if business doesn’t

meet EB-5 requirements

Permanent Residence (may) = U.S. Tax Residence

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15Both Programs Share Certain Common Requirements

Investment of $1 million or $500,000 if investment is made in a Targeted Employment Area (TEA)The investor must be an individualForeign national’s investment must be “at risk”Evidence of legal source of funds invested is required


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There Are Major Differences

The Basic Program Requirements:Creation of 10 direct, full-time positions for U.S. workers Foreign investor must have an active management role Investment is normally made in a business the foreign investor has created or acquires– Majority ownership is not required

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In Contrast

Under the Regional Center Pilot Program:The investor’s role may be that of limited partner or LLC memberJob creation may be “indirect”–A huge advantageThe foreign national invests in a “project”in an approved Regional Center


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Other Regional Center Advantages

The foreign investor can work in any business, or not at allThe foreign investor can live anywhere in U.S. Regional Center projects are perceived as less risky

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19Using The Basic EB-5 Program For Capital Generation

Straightforward ProcessForeign investor will make $1 million or $500,000 investment in exchange for ownership interestCompany must show that based on the investment 10 new direct jobs have been createdMultiple foreign investors are permitted, but each investment must create 10 new direct jobsNo loans or redemption


20Using The Regional Center Program For Capital Generation

THREE OPTIONS

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Option One

Create a Regional Center from the ground up


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Option Two

Create an investment project in an industry already approved for an existing Regional Center

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Option Three

Identify a Regional Center in a geographic area of interest and pursue an amendment to designation with the Regional Center management to accommodate the project


24Option One: Regional Center From The Ground Up

Written proposal submitted to USCIS – Review process can be lengthy– Requests for Additional Evidence are

common

Currently no application form or fee but this could change soon

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The proposal must: Identify the geographic areaExplain how economic growth will be promoted Explain how jobs will be createdDescribe the amount and source of capitalDescribe the organizational structureIdentify the target industry clusters or a specific investment project



Typical Required Documentation: Detailed description of geographic areaJob Creation AnalysisEconomic Impact Analysis for each target investment category or specific projectBusiness PlanOperating Agreement or similarSubscription AgreementMarketing Plan

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Geographic description is key: Used to determine if Regional Center is in Targeted Employment AreaEssential to establishing if foreign investor is required to invest $1 million or $500,000

Option One: Regional Center From The Ground Up



Job creation analysis is also vital: –Detailed econometric models are used

to show indirect job creation– The Regional Center’s job creation

analysis is used in foreign investor visa petitions based on “indirect jobs”

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Ongoing Regional Center obligations:– Ensuring that Regional Center meets

EB-5 requirements at all times–Monitoring of investment activities– Filing of regular reports with USCIS – Advising USCIS of material changesChanges in scope of projects requires amendment

Option One: Regional Center From The Ground Up


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Options Two and Three:

Requires negotiation with existing Regional Center management Not possible in every case, depends on Regional Center parameters and interestBoth options usually require detailed documentation including business plan, market analysis, and job creation analysisOption Three requires new USCIS approval

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31Overview of EB-5 Investment Procedure

Foreign investor pays $1 million or $500,000 into investment project within designated Regional CenterForeign investor pays additional fees for administrative costs to Regional Center project managementInvestment funds held in escrow by Regional Center project


32Overview of EB-5 Investment Procedure

Regional Center project provides foreign investor with documents required by USCIS in support of EB-5 petitionForeign investor files EB-5 petition with USCISIf EB-5 petition is approved, funds are transferred to Regional Center projectInvestment funds normally refundable if EB-5 petition is deniedAdministrative fees generally non-refundableAfter EB-5 petition is approved, foreign national applies for permanent residence

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Securities Law Considerations in EB-5 Investment Offerings


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Applicability of Securities Laws

By their very nature, EB-5 investments involve an offer of securities. Therefore, federal and state securities laws must be complied with by everyone involved in the solicitation of an EB-5 investmentCardinal commandment of securities laws: Thou shalt not offer or sell a security unless the offer and sale is registered or falls under a specific exemption from registration

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Principal Securities Law Exemptions for EB-5 Investments at the Federal Level

Rule 506 (which is a part of SEC Regulation D)SEC Regulation S


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Overview of Rule 506

Offering must be limited to “accredited investors” (or up to 35 sophisticated non-accredited investors if an enhanced disclosure document is used)– “accredited investors” are, in the case of

individuals, persons who have greater than $1 million net worth (either individually or jointly with spouse) or who have greater than $200,000 (or $300,000 jointly with spouse) annual income for the past two years and reasonable expectation of having same or greater income level in current year

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Overview of Rule 506 continued

No general solicitation or general advertising is permitted– Can’t engage in media advertising, cold-calling, or e-mail

spamming– Can’t engage in mass mailing– Can’t hold seminars or events open to the public (or promote

the investment at such seminars)– You can’t put anything on a website that directly or indirectly

solicits investors– Must have pre-existing and substantive relationship with

investorsIf Rule 506 isn’t available, the exemption under Section 4(2) of the Securities Act may be available if investors are sophisticated (“can fend for themselves”) and no general solicitation or advertising is used


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Overview of Regulation S

Provides an exemption from registration under the Securities Act for offerings and sales of securities occurring outside of the U.S.Was intended to help U.S. and foreign companies raise capital overseas quickly and inexpensively without having to comply with the expensive, long, and often-difficult SEC registration processRequirements of Regulation S depend on the type of issuer, the jurisdiction of the issuer, and the type of security being sold

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39Regulation S Requirements for Non-Public U.S. Issuer Selling Equity Securities

Offer and sale of securities must take place in an “offshore transaction”– the offer is not made to a “U.S. Person”; and– the buyer is reasonably believed to be outside of the U.S. at the

time of the sale or is actually outside the U.S.No “directed selling efforts” may be made in the U.S. in connection with the transaction– “directed selling efforts” are activities undertaken for the

purpose of conditioning the U.S. market for the relevant securities (for example, advertising the offering in a widely circulated U.S. publication)

Additional requirements (i.e., distribution compliance period; purchaser certifications and covenants; legend requirement)Definition of “U.S. Person” is broad and includes a natural person resident in the U.S. (even if not a U.S. citizen); entities organized in the U.S.; and certain entities, trusts, and accounts with U.S. ties


40Important Considerations for EB-5 Offerings

Regardless of which exemption used (or if both are used in contemporaneous offerings), typical documentation will include a private placement memorandum, investor questionnaire, and subscription agreementUnder Regulation S, no investor sophistication requirement, and no enhanced information requirement for non-accredited investors like in Rule 506Regulation S offering can be done contemporaneously with a Rule 506 offering in U.S.

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41Important Considerations for EB-5 Offerings continued

No prohibition on general solicitation or advertising under Regulation S so long as issuer is careful that general solicitation is not being used in a contemporaneous Rule 506 offering– Need to follow SEC guidance for use of websitesIssues with “referral fees” or “finders fees”Need to comply with foreign securities lawsDon't forget state securities lawsAvoid issues under Investment Advisors Act


42Resort Offering and Marketing Process

Example of successful resort offeringExample of challenged resort offeringOverview of typical oversea marketing process

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Questions and Answers


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Presenter Contacts

William (Bill) Guthrie407.244.3260

[email protected]

Alan Seagrave305.482.8410 [email protected]

Curt P. Creely813.225.4122 [email protected]

Michael N. Kosmas386.690.0080

[email protected]

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Thank You

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