Decoding Title III - EarlyShares Crowdcheck webinar nov. 5. 13

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Decoding Title III: A Closer Look at the Proposed SEC

Rules

November 2013

confidentialwww.EarlyShares.com | 786 565 3344

1200 Brickell Ave Suite 510, MIAMI, FL 33131

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Disclaimer

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• The information that is being shared with you today seeks and may answer some questions of yours related to Title III and the developments that are being observed within the online funding platform industry, but is not intended as a comprehensive analysis of the topic or situations directly impacting you and any of your existing operations.

• In addition, this information should not be relied upon as legal advice – these are only general observations. You are encouraged to speak with your own securities counsel. Your counsel may analyze the same facts and rules differently and come to dramatically different conclusions and recommendations for you.

• This information is supplied from sources we believe to be reliable but we cannot guarantee its accuracy.

• This presentation is made solely for the interest of the participants on this call and should in no way be relied upon or construed as legal advice. For specific information on particular factual situations, an opinion of your legal counsel should be sought.

• Visit www.SEC.gov

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Joanna SchwartzCEO, EarlyShares

@EarlySharesCEO

Sara HanksCEO, CrowdCheck

@SaraCrowdCheck

Please submit your questions in the chat window or email [email protected]

Speakers

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• Statutory constraints that the SEC cannot change

• Exemption from registration with SEC for offerings of securities

meeting following conditions:• $1 million p.a. limit

• Limits on amounts investors can invest

• Need to go through “crowdfunding portal” or broker-dealer

• Disclosure and filing requirements

Please submit your questions in the chat window or email [email protected]

The JOBS Act Title III

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• Already permitted: Rule 506 offerings to accredited investors• Accredited investors have $200k income or $1 million net worth

• Can be “generally solicited” or “quiet”

• Various types: direct investment or “VC funds”

• Not yet legal: offerings to everyone under Regulation CF

Please submit your questions in the chat window or email [email protected]

The Current State of Online Offerings

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• Calculated on a rolling annual basis

• SEC will permit other offerings to be made side-by-side with

crowdfunding raise• For example, unlimited offerings to accredited investors

• Do not do this without experienced securities lawyer or experienced online

platform

$1 Million Limit

Please submit your questions in the chat window or email [email protected]

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The Investor Limits

• If income or net worth below $100k, 5% of income or net worth

• If income or net worth above $100k, 10%

• Floor of $2k, cap of $100k

• Do not include residence in net worth

• If in both categories, can choose higher limit

• Can include spouse’s income

• Essentially self-certifying

Please submit your questions in the chat window or email [email protected]

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Must Use Intermediary

• Everything online

• Intermediary is someone who links buyers and sellers of securities

on “platform”

• Must be SEC-registered broker-dealer or new “crowdfunding portal”

• Different from rules relating to online 506 offerings

• Objective: all information, including crowd input, in one place

• Can’t use multiple platforms

Please submit your questions in the chat window or email [email protected]

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Disclosure by Issuer

• Incorporation information

• Officers and directors; 20% shareholders

• Business and future plans

• Risk factors

• Target and plans for oversubscriptions

• Use of proceeds

• Offering process

• Pricing information

• Capital structure

Please submit your questions in the chat window or email [email protected]

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Financial Disclosure

• Financial condition

• Previous capital-raising

• Indebtedness

• Financial statements• Under $100k, certified and tax returns

• $100k-500k, reviewed by CPA

• Over $500k, audited

• Even if newly-formed

Please submit your questions in the chat window or email [email protected]

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Offering Information

• Mandated disclosure must be filed on Form C• No format dictated for most information

• Other offering information may be used• Any format

• Must be on funding portal only

• Issuer liable for misleading statements

• No SEC “review”

Please submit your questions in the chat window or email [email protected]

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Ongoing Filing Requirements

• Annual filing of same information• Same level of financial review

• Obligation continues until all CF securities acquired by

company or third party

Please submit your questions in the chat window or email [email protected]

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Publicity and Advertisement

• No advertising except notices that:• Identify issuer and its business

• State that issuer is raising funds

• Summarize terms of offering

• Direct investors to funding portal

• Purpose is concentration of offering materials in one place

• No other publicity or use of social media

Please submit your questions in the chat window or email [email protected]

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“Bad Actor” Checks

• Disqualification for offerings involving bad actors

• Rules cover officers, directors, 20% shareholders, promoters

• Bad acts include eight categories of financial fraud and

regulatory violations

• Intermediary must run background checks for bad actor violations

Please submit your questions in the chat window or email [email protected]

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If Conditions of CF Not Met

• Relief for “insignificant violations”

• Otherwise no exemption from registration

• Rescission; effectively a permanent “put”

Please submit your questions in the chat window or email [email protected]

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Resale Restrictions on Securities

• For one year, can only be resold• To issuer

• To accredited investor

• In offering registered with SEC

• To family member or trust or in connection with divorce or death

• Even after one year, illiquid; state resale restrictions

Please submit your questions in the chat window or email [email protected]

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Liability for Misleading Statements

• Untrue statement of material fact or omission of material fact

• Officers, directors, company all liable

• Have burden of proof; “exercise of reasonable care”

• Due diligence protects all parties

• Other forms of liability

Please submit your questions in the chat window or email [email protected]

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Please submit your questions in the chat window or email

[email protected]

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Thank you.

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Contact InfoJoanna Schwartz, CEO of EarlyShares

[email protected]

Sara Hanks, CEO of [email protected]

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