| Break your Private Placement Memorandum into | | | | conditions precedent, etc. |
| sections and your drafting sessions will be easier. | | | | Risk Factors: This is the section where you |
| There are several sections that will be included in | | | | describe all the reason a prospective investor |
| your Private Placement Memorandum. The general | | | | should not invest in your transaction. This is the |
| themes include a disclosure about the security, a | | | | CYA section and should be as comprehensive as |
| summary of the transaction, risks of the | | | | possible. This section sets forth the risks specific |
| transaction, description of the business, how to | | | | to the company and risk of investing in the type |
| participate in the transaction. | | | | of securities being issued. Some examples include |
| The key to writing your private placement | | | | reliance on customer concentration, cyclicality, |
| memorandum is to first and foremost, be honest, | | | | inability to achieve projections, changes in |
| and secondly, tell, don't sell (save your selling for | | | | regulations, etc. Read the prospectus for any |
| your power point presentation). State and federal | | | | public company and you'll get a sense of the |
| securities laws are most interested in protecting | | | | types of risks that you should identify and |
| the investor, so do not commit any lies of | | | | discuss. |
| commission or lies of omission. This means do not | | | | Conflicts of Interests: In this section you'll want to |
| misrepresent any material facts, and do not omit | | | | describe any situation where someone associated |
| any material information, which if included, would | | | | with the transaction may have a conflict of |
| lead the prospective investor to a different | | | | interest with the Issuer. An example might be a |
| conclusion. | | | | director of the Issuer who is also a principal of |
| Put yourself in the shoes of your prospective | | | | the Issuer's major supplier. A good filter for this is |
| investor. What kind of information would you like | | | | if you wonder if it is a conflict of interest, it |
| to see and have if you were on the side of the | | | | probably is. |
| table? The challenge will be one of balancing | | | | Description of the Issuer, its Business and the |
| amount of information. The trick is to present the | | | | Business Plan: this section describes the actual |
| information in a clear and concise way that is | | | | business of the Issuer. You will want to include a |
| easy to understand without cutting any corners, | | | | discussion of the Issuer's products, strategy, |
| but also without diving into too much minutia. | | | | customers, sales and marketing, operations, |
| The scope of the disclosure required would | | | | industry and competitive analysis, and discussion |
| depend on a number of factors, including, the size | | | | of management. |
| of the offering, and whether you are offering the | | | | Transaction Description: While the term sheet |
| investment to non-accredited investors. Try erring | | | | describes the security being issued, this section |
| on the side of caution - not having sufficient | | | | describes how the security being issued fits into |
| disclosures may risk violating securities laws, but | | | | the transaction. This section would include a |
| there is no harm with over-disclosing. | | | | schematic of the transaction, a sources and uses |
| Break your Private Placement Memorandum into | | | | table and a capitalization chart. |
| the following sections when preparing to put a | | | | Financial Information: The financial section would |
| draft together: | | | | include a presentation of the Issuer's historical |
| Notices to Investors: This section will include | | | | financial results with a discussion and analysis of |
| disclosure legends informing prospective investors | | | | the results. This section would also include |
| that the securities described are not registered | | | | management's forecast and a discussion of the |
| with the SEC. this mostly boilerplate and mostly | | | | assumptions behind the forecast. |
| cut and paste. Depending on your offering, you | | | | Subscription Section: the Subscription Section |
| may need some additional state-specific | | | | provides the prospective investor with instructions |
| disclosures. | | | | on how to participate in the offering. |
| Term Sheet: The Term Sheet provides a | | | | Some sections will require more work than others. |
| summary of the security you are seeking to raise | | | | But overall, when you break your PPM down into |
| through your offering document. Some of the | | | | sections, the overall drafting task will be easier. |
| parts included in the term sheet include the | | | | Remember to keep to the facts, put yourself in |
| purpose of the issuance, identification of the | | | | your prospective investors' shoes, tell, don't sell, |
| issuer, the type of security that is being issued | | | | and be straight up in everything that is presented. |
| (debt, preferred stock, common stock), specific | | | | Follow these suggestions and you'll find that your |
| terms of the security being issued (dividends or | | | | drafting sessions will go smoothly and you'll end up |
| interest, current pay or accrued, warrants, | | | | with a document that will do your transaction |
| collateral), affirmative and negative covenants, | | | | justice. |