April 12, 2016

Brian S. Korn

Regulation A+: Capital Raise of the Future?LendIT 2016

!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

!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

!4April 5, 2012 – President signs the JOBS Act

!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 to the public capital markets for emerging growth companies.”

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

!6

TITLE IV: REGULATION A+

!7(Old) Regulation A

▪Small offering exemption

▪Up to $5 million may be offered to the public regardless of accredited investor status

▪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 the Smaller 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

!8Unregistered Offering ExemptionsFeature 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; including up to $6 million for selling shareholders

$50 million per 12 month period; including up to $15 million for selling shareholders

Unlimited

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Number of Investors

Unlimited but subject to maximum total raised

Unrestricted

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Unrestricted

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Unlimited accredited investors; up to 35 non-accredited investors unless soliciting (if soliciting- 0 non-accreds)

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Investment Per Investor

Restricted by income/net worth

Unrestricted

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Restricted by income/net worth Unrestricted

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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 filing proposed

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Intermediary Required

Yes – broker/dealer or funding portal

No

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No

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No

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Subject to ongoing SEC reporting following raise

Yes, at least annually No; as long as exit report is filed not later than 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 ExemptionsFeature Public Crowdfunding Regulation A+

(Tier 1)Regulation A+

(Tier 2)Private Placements

(Regulation D Rule 506 (b/c))

Disclosure Liability Yes, full disclosure liability with a knowledge exception

Yes, full disclosure liability with a knowledge exception

Yes, full disclosure liability with a knowledge exception

Only anti-fraud liability

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Shares restricted Yes, for one year No

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No

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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

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Advertising and general solicitation

Not allowed "Testing the waters" permitted before filing; general solicitation permitted after qualification

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"Testing the waters" permitted before filing; general solicitation permitted after qualification

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Allowed if sales are made only to accredited investors and issuer takes reasonable steps to 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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!10Feature Regulation A+

(Tier 1)Regulation A+

(Tier 2)2,000 Stockholder “Forced Public” Rule (Section 12(g))

•Tier 1 shares count towards forced public cap of 2,000 maximum holders/500 maximum non-accredited (must also have $10 million of total assets to be “forced public”) Tier 2 shares are disregarded provided the issuer: continues to make Tier 2 reports and is current in such reports; •engages a transfer agent; and •has less than $75 million public float at end of last semiannual period, or if no float, revenues below $50 million as of most recently completed fiscal year

•Tier 1 shares count towards forced public cap of 2,000 maximum holders/500 maximum non-accredited (must also have $10 million of total assets to be “forced public”) Tier 2 shares are disregarded provided the issuer: continues to make Tier 2 reports and is current in such reports; •engages a transfer agent; and •has less than $75 million public float at end of last semiannual period, or if no float, revenues below $50 million as of most recently completed fiscal year

Offering Circular Form 1-A, filed publicly on EDGAR at least 21 days prior to solicitation; SEC clearance required before sales can be made

Same at Tier 1

Exit, Annual, Semiannual and Current Event Reports

1-Z exit report 30 days after termination 1-Z – Exit Report 1-K – Annual Report

1-SA – Semiannual Report

1-C – Current Report

Financial Statements Two years, audit not required Two years, audit required

!11Sample Marketplace Lending Structure

Platform Fund

Sidecar Investors

Borrower Loan Participations

- Marketing - Origination - Licensing - Loan Custody

Arrangements - Servicing ▪ Bills Borrower ▪ Pays Investors

- Loan - Collateral

$

Monthly Payments

SPV

- Borrower Payment Dependent Notes

- Investment Agreement - Private Placement

Memorandum

LP Investors

GP LLC

1

2

3

Loan

ParticipationsLo

an

Partic

ipatio

ns

GP

BPDN Investors

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

Impact Investing| Manatt, Phelps & Phillips, LLP

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ABOUT THE PRESENTER

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

Crowdfunding 212.790.4510 bkorn@manatt.com

PROFESSIONAL EXPERIENCE Brian S. Korn is a partner in the Capital Markets practice group and is resident in the New York office. 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. He also advises clients on SEC compliance, broker-dealer compliance and corporate swap transactions. 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 at Barclays Capital and as senior vice president and assistant general counsel at Citigroup Global Markets, Inc. He has extensive experience representing issuers and underwriters in investment banking and capital markets transactions, including transactions involving equity, debt, hybrid/convertible and preferred securities, derivatives and foreign exchange. He has executed several IPOs and other equity value monetization transactions, such as spin-offs, split-offs and carveout transactions. He also has extensive experience in sponsor-leveraged buyouts and bank/bond acquisition 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