The document provides an overview of securities laws and regulations. It defines what constitutes a security, outlines various federal and state securities laws, and discusses why compliance is important to avoid penalties for fraud or failing to register securities. Exemptions from registration are described for different types of offerings. General rules around advertising, restricted securities, and required filings are also summarized. The presentation concludes with contact information for questions.

1. Business Law & Order: Financing I
Securities Law Basics
Ann Arbor SPARK
SPARK Central
Ann Arbor, Michigan
February 21, 2011
UNITED STATES FLORIDA
MICHIGAN CANADA ILLINOIS
MEXICO NEW YORK
POLAND CANADA
CHINA CHINA
millercanfield.com
POLAND
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2. Agenda
 What is a Security?
 What are Securities Laws?
 Why should I care about Securities Laws
 Exemptions
 General Rules
 Filings
 Questions & Discussion
 Contact Information
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3. What is a Security
Definition of “security”
“a note; stock; treasury stock; security future; bond; debenture; evidence of
indebtedness; certificate of interest or participation in a profit-sharing agreement;
collateral trust certificate; preorganization certificate or subscription; transferable
share; investment contract; voting trust certificate; certificate of deposit for a
security; fractional undivided interest in oil, gas, or other mineral rights; put, call,
straddle, option, or privilege on a security, certificate of deposit, or group or
index of securities, including an interest in or based on the value of that put, call,
straddle, option, or privilege on that security, certificate of deposit, or group or
index of securities; put, call, straddle, option, or privilege entered into on a
national securities exchange relating to foreign currency; an investment in a
viatical or life settlement agreement; or, in general, an interest or instrument
commonly known as a "security"; or a certificate of interest or participation in,
temporary or interim certificate for, receipt for, guarantee of, or warrant or right to
subscribe to or purchase, any of the foregoing.
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4. What is a Security
Howey Definition of “Investment Contract”
• Investment of money in a
• common enterprise with an
• expectation of profits
• solely from the efforts of others
Efforts of others:
-
 Howey uses “Solely”
most courts more
Money = flexible:
Consideration  Whether efforts of
se:
Common Enterpri persons other than
ant”
 horizontal commo
nality: Is there a investor are “signific
or profits among to the “failure or
pooling of revenues
investors success of the
enterprise
ity: Are the
 vertical commonal
ndent upon the
inve stor’s fortunes depe
of the promoter
efforts and success
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5. What are Securities Laws?
“Patchwork” of Federal and State laws designed to regulate the sale of securities in
the United States generally and each state specifically
Federal Law State Law
Securities Act of 1933 Each State has its own state specific
Securities Exchange Act of 1934 securities laws:
Dodd – Frank Act
► Uniform Securities Act of 2002 -
Michigan
Public Utility Holding Company Act of 1935
► Uniform Securities Act of 1956
Trust Indenture Act of 1939
► Martin Act – New York
Investment Company Act of 1940
Investment Advisors Act of 1940
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6. Why Should I Care about Securities Laws - Registration
CAVEAT VENDITOR!
Must meet requirements before offering or selling a security
Federal Law Michigan Law
“Unless a registration statement is in  A person shall not offer or sell a
effect . . . it shall be unlawful…to security in Michigan unless 1 or more of
sell [a] security.” Sec. 5(a)(1) the following are met:
– The security is a “federal
“It shall be unlawful…to offer to sell or covered security”
offer to buy…any security, unless a
– The security, transaction, or offer
registration statement has been
filed as to such security.” Sec. 5(c) is exempted from registration under
sections 201 to 203
– The security is registered under
the act
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7. Why Should I Care about Securities Laws - Anti-Fraud Provisions
Federal Law State Law
 Securities Act of 1933 §12(2)  Uniform Securities Act of 2002 §501
 Securities Act of 1933 §17(a)
 Securities Exchange Act of 1934  Uniform Securities Act of 1956 §101
§10(b)
 Securities Exchange Act of 1934  Martin Act §352
§15(c)(1)
 Exchange Act Rule 10b-5
 Exchange Act Rule 15C1-2
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8. Why Should I Care about Securities Laws - Anti-Fraud Provisions
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“All that is necessary is that the facts withheld be material in the
Material Information sense that a reasonable investor might have considered them
important in making his decision“
2
Affirmative Fraud “Employ a device, scheme or artifice to defraud”
3
Sins of Omission “Make an untrue statement of a material fact or omit to state a fact necessary in
order to make the statements made, in light of the circumstance under which
they were made, not misleading”
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9. Why Should I Care about Securities Laws - Penalties
CAVEAT VENDITOR!
Implications for failure to comply
Federal Law Michigan Law
 Civil Fines  Civil Fines
 Criminal Penalties  Criminal Penalties
 Civil Lawsuits  Rescission Rights
 Civil Lawsuits
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10. How do I sell Securities - Exemptions
1
Exempt ■ Very specialized under State law
Securities ■ Virtually no use to Start-ups
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■ Securities Act of 1933§4(2) “transactions by an issuer not involving
Exempt
Transactions a public offering”
 Regulation D Rules 501-506
■ Uniform Securities Act of 2002 §202
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11. Exempt Transactions - Federal - Rule 504 Regulation D
Manner of No general solicitation or advertising unless registered in a state requiring use of
Offering a substantive disclosure document or sold under state exemption for sales to
accredited investors with general solicitation.
Offeree and No requirements.
Purchaser
Requirements
Information Delivery of substantive disclosure document required for unrestricted securities
Required status. Form U-7 meets requirements.
Filing File Form D with SEC not later than 15 days after first sale. Filing not a
Requirement condition of the exemption.
Blue Sky Need to comply with state blue sky law by registration (Form U-7 may be
available) or state exemption (MUSA §202(1)(n)).
Other Factors Represents substantial federal delegation to states. Adopted under Section
3(b). Safe harbor from integration.
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12. Exempt Transactions - Federal - Rule 505 Regulation D
Manner of No general solicitation or advertising.
Offering
Offeree and No limitation on offerees. Unlimited accredited investors and 35 non-accredited
Purchaser investors. “Accredited investors” include certain institutions; directors, executive
Requirements officers and general partners of issuer; natural persons who with spouse meet $1
million net worth (excluding value of primary residence, net of debt secured by the
residence up to the value of the residence) or $300,000 income test, or alone meet
$200,000 income test; and entities with over $5,000,000 total assets or owned
solely by accredited investors. No qualifications for purchasers under Rule 505.
Information None if all purchasers are accredited investors. For any non-accredited investors,
Required (a) if 1934 Act reporting company, certain reports or filings or (b) if non-reporting,
company, (1) Regulation A narrative information for eligible issuers and otherwise
narrative information required by Part 1of available registration form and (2) the
following audited financials: (i) up to $2,000,000, a current balance sheet, (ii) up to
$7,500,000, the financial information required by Part 1 of Form SB-2 and (iii) over
$7,500,000, the financial information require by the available form (with some relief
possible); also, a description of resale restrictions. Make available certain other
information and opportunity to ask questions.
Filing File Form D with SEC not later than 15 days after first sale. Filing not a condition
Requirement of the exemption.
Blue Sky Coordinates with state Uniform Limited Offering Exemption (ULOE).
Other Factors All conditions must be met but subject to Rule 508 substantial compliance relief.
Adopted as safe harbor under Section 3(b). Safe harbor from integration.
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13. Exempt Transactions - Federal - Rule 506 Regulation D
Manner of No general solicitation or advertising.
Offering
Offeree and No limitation on offerees. Unlimited accredited investors and 35 non-accredited
Purchaser investors. “Accredited investors” include certain institutions; directors, executive
Requirements officers and general partners of issuer; natural persons who with spouse meet $1
million net worth (excluding value of primary residence, net of debt secured by the
residence up to the value of the residence) or $300,000 income test, or alone meet
$200,000 income test; and entities with over $5,000,000 total assets or owned
solely by accredited investors. All non-accredited investors under Rule 506 must be
sophisticated alone or with purchaser representatives.
Information None if all purchasers are accredited investors. For any non-accredited investors,
Required (a) if 1934 Act reporting company, certain reports or filings or (b) if non-reporting,
company, (1) Regulation A narrative information for eligible issuers and otherwise
narrative information required by Part 1of available registration form and (2) the
following audited financials: (i) up to $2,000,000, a current balance sheet, (ii) up to
$7,500,000, the financial information required by Part 1 of Form SB-2 and (iii) over
$7,500,000, the financial information require by the available form (with some relief
possible); also, a description of resale restrictions. Make available certain other
information and opportunity to ask questions.
Filing File Form D with SEC not later than 15 days after first sale. Filing not a condition
Requirement of the exemption.
Blue Sky Exempt as “covered security” under NSMIA and Federal Covered Security MUSA
§201(f).
Other Factors All conditions must be met but subject to Rule 508 substantial compliance relief. 13
Adopted as safe harbor under Section 4(2). Safe harbor from integration.

14. Exempt Transactions - Federal - Rule 701
Manner of Pursuant to a written compensatory plan or contract, including stock options.
Offering Not available for non-compensatory (i.e., capital raising) offerings.
Offeree and Employees, directors, officers and employee-type consultants (including family
Purchaser members receiving securities by gift or domestic relations order) providing bona
Requirements fide services other than in connection with a securities offering. Consultants as
defined for Form S-8. No limitation on number.
Information No requirements for sales of less than $5 million, except for delivery of a copy of
Required the written plan or contract. More than $5 million requires specific disclosure,
including risks and financial statements.
Filing None.
Requirement
Blue Sky MUSA §202(1)(u) or state rules may provide an exemption.
Other Factors Exemption adopted under Sections 3(b) and 28 for compensatory plans for
employees and consultants. Exemption remains available for exercise of
options outstanding when issuer becomes reporting company. No integration or
aggregation.
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15. Exempt Transactions – Michigan
Limited Offering Exemption (MUSA 202(1)(n)
If sale or offer to sell securities by or on behalf of issuer is part of a single issue in which there are no more than 25
purchasers (in addition to those purchasers who are institutional investors, federal covered investment advisers or
are otherwise exempted by rule or order under the new act) in Michigan during any 12 consecutive months, so long
as:
(i) no general solicitation or general advertising is used in connection with the offer to sell or sale of the
securities,
(ii) no commission or other remuneration is paid or given, directly or indirectly, to anyone other than a
broker-dealer or agent registered in accordance with the new act, and
(iii) the issuer reasonably believes that all Michigan purchasers (other than those purchasers who are
institutional
investors, federal covered investment advisers or are otherwise exempted by rule or order under the new act)
are
purchasing for investment
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16. General Rules
Advertising Restricted Securities
No general solicitation or advertising Restrictions on transfer required
Includes ads, articles or published notices Shares must be purchased for
and seminars where attendees are invited investment, and not for resale
by general solicitation or advertising Legend on certificate referring to
restrictions on transferability
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17. Filings
- Michigan New Filing Requirement -
- General “Blue Sky Law” Filing Requirement -
e filing of
er may requir
 A rule or ord spect to a
certain items* with re  Requirements:
investment
security issued by an
ral covered  SEC Form D
company that is a fede t
igan and is no of Process
se curity in Mich t.  Consent to Service
under new ac
othe rwise exempt g fee of $100
v e y et been  Non-refundable filin
 No rule s or orders ha ys of first sale of
 To be filed within 15 da
issued rity" in Michigan
the "f ederal covered secu
urrently being
 Pro posed rules c er on the first of:
e seen wheth  First sale occurs up
prep ared - yet to b ted
to rules adop
rules will be similar  (i) receipt of funds,
OR
s
in other state agreement
 (ii) a signed subscription
(or equivalent)
* Items that could be required:
s into an escrow
N ote: receipt of fund
Before initial offer of a federal covered security in Michigan: all ing requirement
records that are part of a federal registration statement filed arra ngement triggers fil
with the SEC and the Securities Act, consent to service of
process signed by issuer, and $500 fee.
After initial offer of a federal covered security in Michigan, all
records part of an amendment to a federal registration 17
statement filed with the SEC under the Securities Act.

18. Questions and Discussion
Open to Questions and Discussion
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19. Jeffrey L. LaBine, Esq.
Miller, Canfield, Paddock and Stone, P.L.C.
101 North Main Street, 7th Floor
Ann Arbor, Michigan 48104
Email: labine@millercanfield.com
Telephone: (734) 668-8801
UNITED STATES FLORIDA
MICHIGAN CANADA ILLINOIS
MEXICO NEW YORK
POLAND CANADA
CHINA CHINA
millercanfield.com
POLAND
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