The legalities involved in raising capital for public and private companies

1. Private & Public Company Capital Raisings – Legal Issues Paul Miller Partner, Deutsch Miller Institute of Chartered Accountants Tuesday, 8 June 2010 Disclaimer: This presentation provides a general overview only of the topic materials and should not be treated as or relied upon as professional advice.

3. s706 – an offer of securities for issue needs disclosure to investors under this Part unless section 708 or 708AA says otherwise

5. how much money is being raised?

6. what type of persons will be investing?1

8. restrictions from using disclosure documents

9. must use exemption or raise equity funds from existing shareholders or employees

10. All Public Companies

11. can use disclosure documents

12. can raise equity funds using exemptions

13. Public (Quoted) Companies

14. ASX listing rule 7.1 – restriction on issuing more than 15% of share capital (on a non-pro rata basis) without shareholder approval2

16. Venture capital/private equity

17. IPO

18. Placements

19. Rights issues

20. Share purchase plan – up to $15,000

21. Dividend reinvestment plan3

23. “Sophisticated investors”

24. Large investments - $500,000 minimum

25. Certificated high net worth investor

26. Offers through financial services licensee

27. Professional investor

28. “Rights issues” – note cleansing notice4

30. prepare disclosure document

31. lodge disclosure document with ASIC

32. offer securities using disclosure document

33. hold application money received on trust

34. issue securities in response to valid application form5

36. Offer information statement – a simplified form of disclosure document for fundraisings of up to $10 million

37. Profile statement – allows comparison between similar investment products in managed funds industry

38. Short form prospectus – a prospectus that allows information to be incorporated by reference

39. Prospectus for continuously quoted securities6

42. Financial position and performance

43. Profits and losses; and

44. Prospects

45. Quoted securities – comply with ASX Listing Rule 1.17

47. save for personal offers, any form of advertising is permitted – note liability for misleading and deceptive conduct

48. Where disclosure document required:

49. For unquoted shares - only a very vanilla advertising “tombstone” statement is allowed

50. For quoted securities – due to general regulation of information, limited regulation on advertising – requirement to refer to availability of disclosure document 8

52. ASIC’s view: a meeting or telephone call is “unsolicited” unless it takes place in response to a “positive specific or informed request”9

54. Specific civil and criminal liability under the Corporations Act for defective disclosure documents – Part 6D.3 - fault based liability

55. Key provision is s728 – re disclosure documents - covers misleading/deceptive statements, omissions or new circumstances

56. A contravention may lead to a liability to compensate investors. Contravention may also lead to criminal liability

57. Defences: due diligence (made all enquiries); lack of knowledge; reasonable reliance (expert’s report); and other defences10

59. Covers any misleading conduct in relation to a financial product or financial services. Engaging in conduct includes: dealing in a financial product; and issuing a financial product

60. Overlap with s12DA of the ASIC Act – which applies to conduct in trade or commerce in relation to financial services

61. Operates to exclude s52 of the Trade Practices Act

62. s1041H and s12DA ASIC Act do not apply for conduct that contravenes s72811

64. Specific and general content requirements

65. No limitation on to whom disclosure document can be sent within Australia

66. Restrictions on advertising and hawking – minor restrictions for quoted securities

67. Availability of due diligence defences for mis-statements in or omissions from disclosure document12

69. Shorter form information memorandum

70. Limitations on type of persons who can invest and amount of money that can be invested

71. No restrictions on advertising to “sophisticated persons” – note 20/12 offers are restricted

72. No due diligence defences available for misleading or deceptive conduct13

73. Paul Miller Paul is a Corporate Partner at corporate and commercial boutique Sydney law firm Deutsch Miller, which specialises in transactional, advisory and litigation work. Paul has around 10 years experience as a partner at top firms in both Australia and the UK advising listed and unlisted companies on various fundraising transactions. Paul left Atanaskovic Hartnell, a leading Sydney boutique firm, last year with 2 other partners to set up Deutsch Miller. Paul has significant transactional experience obtained in the Sydney and London markets across the full spectrum of transactional and advisory work, in areas that include capital raisings, flotations, joint ventures, mergers & acquisitions, MBOs, venture capital/private equity and a variety of commercial contracts. Deutsch Miller acts for corporates, boards, individual directors/ officers and high net worth individuals. Contact Details: paul.miller@deutschmiller.com 02 9210 7773 www.deutschmiller.com 14