General Solicitation Becomes Legal on September 23
Beginning September 23, 2013, companies selling securities will be allowed to make general solicitations (public offerings) for the sale of securities under Rule 506(c) (see related blog posts New SEC Rules Allow General Solicitation and What is a General Solicitation?). Companies raising capital will have to choose whether they want to solicit potential investors for the sale of securities by the traditional “private placement” rules without making a general solicitation (Securities Act Section 4(a)(2) and Rule 506(b)), or solicit investors by means of a general solicitation (Rule 506(c)). Either way, companies will need to follow the new general solicitation rules carefully and give assurances to its investors that the offer, sale and issuance of the securities in its financing transactions are compliant with the new general solicitation laws. In addition, both issuers of securities and investors will need to give assurances that the “Bad Boy” provisions of Rule 506(d) will not invalidate the offer, sale and issuance of the securities to be sold in financing transactions involving a general solicitation and those not involving a general solicitation.
Companies and Investors Need to Give Assurances of Compliance with General Solicitation Laws.
In this post we propose representations and warranties for our Preferred Stock Purchase Agreement for the companies issuing shares of preferred stock and the investors purchasing them in transactions that will involve a general solicitation. Our Convertible Note Purchase Agreements and Common Stock Purchase Agreements will contain similar representations and warranties for transactions involving a general solicitation. For our proposed representations and warranties for transactions not involving a general solicitation, see our related blog post Proposed Representations and Warranties for 506(b) Transactions Not Involving a General Solicitation).
[ISSUER REPRESENTATIONS AND WARRANTIES]
___. Securities Law Compliance.
(a) Basic Compliance. Based in part on the accuracy of the representations of the Purchasers in Section 4 of this Agreement, and subject to timely applicable Form D filings pursuant to Regulation D of the Securities Act of 1933, as amended (the “Securities Act”), with the Securities and Exchange Commission and pursuant to applicable state securities laws, the offer, sale and issuance of the Shares to be issued pursuant to and in conformity with the terms of this Agreement, and the issuance of the Conversion Shares pursuant to the terms of the Restated Certificate, will be issued in compliance with all applicable federal and state securities laws.
(b) General Solicitation. In connection with the offering of Shares made pursuant to this Agreement, the Company has made or intends to make a general solicitation within the meaning of Rule 502 under the Securities Act (“General Solicitation”). The offer, sale and issuance of the Shares is being made in reliance on Rule 506(c) under the Securities Act. The Company represents, warrants, covenants and agrees that all sales of Shares shall be made only to “accredited investors” (as such term is defined in Rule 501 of Regulation D under the Securities Act), and that it has taken or will take reasonable steps to verify that such purchasers are accredited investors, which reasonable steps may include but are not limited to the methods identified in Rule 506(c). The Company has made all filings, including applicable Form D filings, with the Securities and Exchange Commission relating to the offer, sale and issuance of the Shares required to be made prior to the date hereof, and the Company covenants and agrees it shall make all additional required filings, including applicable Form D filings, with the Securities and Exchange commission following the offer, sale and issuance of the Shares pursuant to this Agreement.
(c) Subsequent Closings/No Integration. The Company has not made any prior offering nor sold any securities in any prior offering that would be integrated pursuant to Rule 502(a) with the sale of the Shares and the transactions contemplated by this Agreement in which the Company has not taken reasonable steps to verify that the purchasers of such securities were accredited investors. Further, the Company covenants and agrees it shall take reasonable steps to verify that all investors are accredited investors in connection with (i) the offer, sale and issuance of the Shares pursuant to this Agreement in any Subsequent Closing and (ii) pursuant to any other future securities offering that would be integrated with the transactions contemplated by this Agreement.
(d) No Disqualification Events. None of the Company, any of its predecessors, any affiliated issuer, any director, executive officer, other officer of the Company participating in the offering, any beneficial owner of 20% or more of the Company’s outstanding voting equity securities, calculated on the basis of voting power, nor any promoter (as that term is defined in Rule 405 under the Securities Act) connected with the Company in any capacity at the time of sale (each, an “Issuer Covered Person” and, together, “Issuer Covered Persons”) is subject to any of the “Bad Actor” disqualifications described in Rule 506(d)(1)(i) to (viii) under the Securities Act (a “Disqualification Event”), except for a Disqualification Event covered by Rule 506(d)(2) or (d)(3). The Company has exercised reasonable care to determine whether any Issuer Covered Person is subject to a Disqualification Event.
[INVESTOR REPRESENTATIONS AND WARRANTIES]
___ No Disqualification Events. Neither the Investor nor, to the extent it has them, any of its shareholders, members, managers, general or limited partners, directors, affiliates or executive officers (collectively with the Investor, the “Investor Covered Persons”), are subject to any Disqualification Event, except for a Disqualification Event covered by Rule 506(d)(2) or (d)(3). The Investor has exercised reasonable care to determine whether any Investor Covered Person is subject to a Disqualification Event. The purchase of the Shares by the Investor will not subject the Company to any Disqualification Event.
Where to Get Legal Documents with General Solicitation Representations and Warranties
Get a term sheet for a preferred stock, convertible note, or common stock financing and the full set of closing documents for a preferred stock, convertible note, or common stock financing at VentureDocs. Beginning September 23, 2013 (the effective date of Rule 506(c) allowing general solicitation), our term sheets and purchase agreements for the purchase of securities in reliance on Rule 506(c) transactions involving a general solicitation will contain appropriate legends and representations and warranties for Rule 506(c) securities law compliance.