|
Now that
you have made the decision to use a Private
Placement Memorandum, what goes in it? The main
concern of State and Federal securities laws
are the protection of the investor. In this
context, there is one cardinal rule – tell the
truth, the whole truth and nothing but the
truth. This means do not misrepresent material
facts, and do not omit material facts where the
inclusion of such facts would lead the
prospective investor to a different
conclusion.
Aside from being
truthful and factual, your PPM should
provide your prospective investor with all the
information necessary to make an intelligent
investment decision. It is common sense – put
yourself in the investor’s shoes and think
about what information you would like to
have.
And, while the required
disclosure will vary depending on various
factors, such as size of the offering and
whether there are non-accredited investors, I
recommend erring on the side of caution. You
may run afoul of securities laws by not having
the right disclosure, but there is no harm if
you “over-disclose”.
The following includes some
of the sections that should be included in your
Private Placement Memorandum:
• Notices to Investors:
The Notice to Investors section includes
federal and state disclosure legends, providing
certain notices to prospective investors
informing them that the securities described in
the PPM are not registered. Additionally,
some states have specific disclosure language
they will require over and above the federal
disclosures.
• Summary of Terms: The Summary
of Terms provides a summary of the “deal”; i.e.
purpose of the transaction, who the issuer is,
what type of security is being issued, specific
terms of the security being issued (dividends
or interest; current pay or accrued; warrants;
collateral), affirmative and negative
covenants, conditions precedent,
etc.
• Risk Factors: This section
sets forth the risks specific to the issuer and
the risks of investing in the type of
securities being issued. Some examples include
reliance on customer concentration,
cyclicality, inability to achieve projections,
changes in regulations, etc.
• Conflicts of Interest: The
conflict of interest section identifies and
describes potential conflicts of interest of
the issuer, and its principals or affiliates.
As an example, one of the principles may
provide accounting services for the issuer, or
one of the principles may be a significant
customer of the issuer.
• Description of the Issuer, its
Business and the Business Plan:
Describes the business of the issuer including
its products, strategy, customers, sales and
marketing, operations, industry and competitive
analysis, and discussion of
management.
• Transaction Description: The
transaction section describes the transaction,
including a schematic of the deal, sources and
uses table and capitalization.
• Financial Information: This
section includes presentation of historical
financial performance as well as discussion and
analysis of the results. The financial
information section will also include
management forecasts and relevant assumptions
behind the forecast.
• Misc Sections: These
sections will typically comprise of tax
matters, and a description of the capital stock
of the issuer.
• Subscription Section: This
section provides the prospective investor with
the instructions on how to participate in the
offering.
• Appendices: The appendices
will vary from deal to deal, and should consist
of supplemental information and documents that
may be material to an investor's investment
decision. Items that may be part of the
appendices include the letter of intent,
audited financial statements, shareholder’s
agreement, etc.
While all of this seems complicated, you can
make it easy on yourself by using a Private
Placement Memorandum template. Using a PPM
template will ensure that you end up with a
professional-looking offering memorandum, while
easily saving thousands of
dollars.
|
