This Private Placement Memorandum is a document that provides information on a new
issue of securities to potential investors. A private placement is a funding round of
securities which are not sold through a public offering, but rather through a private
offering to a small number of investors. The memorandum contains relevant
disclosures so that the investor can weigh the risk involved and make a fully informed
decision with respect to the investment. This document contains numerous standard
provisions as well as opportunities for customization to address the specific needs of the
company. It should be used by companies when offering a private placement.
Confidential Memorandum Copy No: _____Recipient: _________________
____________Shares of Common Stock
Minimum Purchase: ______ Shares ($__________)
This memorandum pertains to an offering of common stock (the “Shares”) of
_____________________________(the Company) to Accredited Investors and a
maximum of thirty-five (35) “Sophisticated” Investors.
THE SECURITIES BEING OFFERED HEREBY INVOLVE A HIGH
DEGREE OF RISK AND SHOULD BE PURCHASED BY INVESTORS
WHO CAN AFFORD TO LOSE THEIR ENTIRE INVESTMENT.
PROSPECTIVE INVESTORS SHOULD CAREFULLY REVIEW AND
CONSIDER THE DISCUSSION UNDER "RISK AND OTHER
Price to Proceeds to
Investors Commissions Company
Per Share $______ $______ $.____per share
Total Minimum $______ $______ $_________
Per Share $______ $_____ $___ per share
Total Maximum $________ $_____ $________
The date of this Memorandum is________________.
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CONFIDENTIAL PRIVATE PLACEMENT MEMORANDUM
__________ Shares of Common Stock at $________ per Share
THIS MEMORANDUM HAS BEEN PREPARED SOLELY FOR THE BENEFIT OF
ACCREDITED INVESTORS AND A MAXIMUM OF THIRTY-FIVE(35)
“SOPHISTICATED” INVESTORS INTERESTED IN THE PURCHASE OF THE
SECURITIES OFFERED IN CONNECTION WITH THE FINANCING DESCRIBED
HEREIN. THIS OFFERING INVOLVES A HIGH DEGREE OF RISK AND SHOULD
BE PURCHASED BY INVESTORS WHO CAN AFFORD TO LOSE THEIR ENTIRE
INVESTMENT. PROSPECTIVE INVESTORS SHOULD CAREFULLY REVIEW AND
CONSIDER THE DISCUSSION UNDER "RISK AND OTHER IMPORTANT
THE SHARES OFFERED HEREBY HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS
THE SECURITIES COMMISSIONER OF ANY STATE OR OTHER JURISDICTION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PRIVATE PLACEMENT
MEMORANDUM OR ENDORSED THE MERITS OF THIS OFFERING. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE SHARES
OF COMMON STOCK SOLD HEREBY WILL BE "RESTRICTED SECURITIES" FOR
PURPOSES OF FEDERAL AND STATE SECURITIES LAWS AND INVESTORS MUST
PURCHASE THESE SECURITIES FOR THEIR OWN ACCOUNT AND FOR
INVESTMENT. SEE "RESTRICTIONS ON TRANSFERABILITY OF SHARES."
THE SHARES OFFERED HEREUNDER HAVE NOT BEEN REGISTERED WITH THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION AND ARE BEING OFFERED PURSUANT TO EXEMPTIONS FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“ACT”). THE SHARES MAY NOT BE TRANSFERRED IN ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR AN OPINION OF
COUNSEL THAT AN EXEMPTION FROM REGISTRATION IS AVAILABLE.
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THESE SECURITIES INVOLVE A SUBSTANTIAL DEGREE OF RISK AND ARE
SUITABLE ONLY FOR INVESTORS OF SUBSTANTIAL MEANS WHO HAVE NO
NEED FOR LIQUIDITY IN THEIR INVESTMENT. THERE IS NO PUBLIC MARKET
FOR THE SHARES AND NONE IS LIKELY TO DEVELOP. ACCORDINGLY,
INVESTORS MAY NOT BE ABLE TO LIQUIDATE THEIR INVESTMENT AND
MUST CONTINUE TO BEAR THE ECONOMIC RISK OF THE INVESTMENT AND
SHOULD BE PREPARED TO HOLD THEIR INVESTMENT INDEFINITELY.
THE CONTENTS OF THIS CONFIDENTIAL PRIVATE PLACEMENT
MEMORANDUM AND ASSOCIATED SUPPLEMENTAL MATERIAL, INCLUDING
ALL FINANCIAL DATA, HAVE BEEN SUPPLIED BY, AND ARE THE
RESPONSIBILITY OF THE COMPANY. THE PROJECTED FINANCIAL
STATEMENTS CONTAINED IN THIS MEMORANDUM ARE NOT TO BE
CONSTRUED AS A REPRESENTATION OR WARRANTY OF FUTURE
PERFORMANCE OR RESULTS OF ECONOMIC RETURN WHICH MAY ACCRUE
TO INVESTORS. NO PERSON OTHER THAN OFFICERS OF THE COMPANY HAS
BEEN AUTHORIZED TO GIVE INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN WHAT IS CONTAINED OR INCORPORATED
BY REFERENCE IN THIS CONFIDENTIAL PRIVATE PLACEMENT
MEMORANDUM, AND, IF GIVEN OR MADE, SUCH INFORMATION AND
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY.
THIS MEMORANDUM CONSTITUTES AN OFFER ONLY TO THE PROSPECTIVE
INVESTORS TO WHOM THIS MEMORANDUM IS DELIVERED. THE DELIVERY
OF THIS MEMORANDUM TO ANYONE OTHER THAN SUCH PROSPECTIVE
INVESTOR IS UNAUTHORIZED AND ANY REPRODUCTION OF THIS
MEMORANDUM, IN WHOLE OR IN PART, OR ANY DIVULGENCE OF ITS
CONTENTS, IN WHOLE OR IN PART, WITHOUT THE PRIOR WRITTEN CONSENT
OF THE COMPANY IS PROHIBITED. EACH PERSON, BY ACCEPTING DELIVERY
OF THIS MEMORANDUM, AGREES TO RETURN THIS MEMORANDUM AND ALL
ENCLOSED DOCUMENTS TO THE COMPANY, IF HE OR SHE DOES NOT
PURCHASE ANY OF THE SECURITIES OFFERED HEREBY.
OFFERS MAY BE MADE ONLY TO PERSONS DEEMED SUITABLE FOR AN
INVESTMENT IN THE COMPANY UNDER THE CRITERIA SET FORTH IN THIS
MEMORANDUM. THE COMPANY RESERVES THE RIGHT, NOTWITHSTANDING
ANY SUCH OFFER, TO WITHDRAW OR MODIFY THIS OFFERING AND TO
REJECT ANY SUBSCRIPTIONS FOR SHARES IN WHOLE OR IN PART. THIS
MEMORANDUM DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY, NOR SHALL THERE BE ANY SALE OF
THESE SHARES BY ANY PERSON IN ANY STATE IN WHICH IT IS UNLAWFUL
FOR SUCH PERSON TO MAKE SUCH OFFER, SOLICITATION OR SALE.
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NEITHER THE DELIVERY OF THIS MEMORANDUM NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE MATTERS SET
FORTH HEREIN SINCE THE DATE OF THIS MEMORANDUM.
THIS MEMORANDUM INCLUDES SUMMARIES OF AND REFERENCES TO
VARIOUS DOCUMENTS PERTAINING TO THE BUSINESS OF THE COMPANY.
SUCH SUMMARIES DO NOT PURPORT TO BE COMPLETE AND ARE QUALIFIED
IN THEIR ENTIRETY BY REFERENCE TO THE ORIGINAL DOCUMENTS. ALL
SUCH DOCUMENTS ARE AVAILABLE FOR INSPECTION AND COPYING AND
COMPLETE ACCESS WILL BE GIVEN UPON REQUEST TO THE COMPANY.
THE COMPANY HAS AGREED TO MAKE AVAILABLE, PRIOR TO THE SALE OF
THE SHARES, TO EACH PROSPECTIVE INVESTOR, HIS REPRESENTATIVE, OR
BOTH, THE OPPORTUNITY TO ASK QUESTIONS OF, AND RECEIVE ANSWERS
FROM, THE OFFICERS OF THE COMPANY OR ANY PERSON ACTING ON THEIR
BEHALF CONCERNING THE TERMS AND CONDITIONS OF THE OFFERING AND
TO OBTAIN ANY ADDITIONAL INFORMATION, TO THE EXTENT THEY POSSESS
SUCH INFORMATION OR CAN ACQUIRE IT WITHOUT UNREASONABLE
EFFORT OR EXPENSE, WHICH IS NECESSARY TO VERIFY THE ACCURACY OF
THE INFORMATION SET FORTH IN THIS MEMORANDUM. THE COMPANY HAS
ALSO AGREED TO PROVIDE TO EACH OFFEREE OR HIS REPRESENTATIVE, OR
BOTH, ANY ADDITIONAL INFORMATION WHICH AN OFFEREE OR HIS
REPRESENTATIVE MIGHT REQUIRE TO MAKE A DECISION CONCERNING THE
PURCHASE BY SUCH OFFEREE OF THE SHARES, TO THE EXTENT THE
COMPANY POSSESSES SUCH INFORMATION OR CAN ACQUIRE IT WITHOUT
UNREASONABLE EFFORT OR EXPENSE. THIS MEMORANDUM CONTAINS
REFERENCES TO EXHIBITS, ALL OF WHICH SHOULD BE READ IN
CONJUNCTION WITH THIS MEMORANDUM. CERTAIN DOCUMENTS RELATING
TO THE SHARES ARE NOT ATTACHED HERETO, INCLUDING MATERIAL
CONTRACTS AND AN OPINION OF COUNSEL REGARDING THE LEGALITY OF
THE SHARES. SUCH DOCUMENTS WILL BE FURNISHED TO THE OFFEREE
HEREOF AND TO HIS ADVISORS UPON HIS REQUEST TO THE COMPANY PRIOR
TO HIS PURCHASE. QUESTIONS, INQUIRIES AND REQUESTS FOR
INFORMATION MAY BE DIRECTED TO THE COMPANY TO THE ATTENTION OF
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THIS MEMORANDUM SHALL BE TREATED AS CONFIDENTIAL. ANY
REPRODUCTION OR DISTRIBUTION OF THIS MEMORANDUM, IN WHOLE OR IN
PART, OR THE DIVULGENCE OF ANY OF ITS CONTENTS TO ANY PERSON
OTHER THAN THE OFFEREE, WITHOUT THE PRIOR WRITTEN CONSENT OF
THE COMPANY, IS PROHIBITED.
PROSPECTIVE INVESTORS ARE NOT TO CONSTRUE THE CONTENTS OF THIS
MEMORANDUM OR ANY PRIOR OR SUBSEQUENT COMMUNICATION FROM
THE COMPANY OR ANY OF ITS OFFICERS OR EMPLOYEES AS LEGAL OR
INVESTMENT ADVICE. EACH INVESTOR SHOULD CONSULT HIS OWN LEGAL
COUNSEL, TAX ADVISORS AND OTHER ADVISORS AS TO LEGAL, TAX AND
RELATED MATTERS CONCERNING HIS OR HER INVESTMENT.
The shares are being offered for sale at $______ per share. A minimum investment of
______________ shares ($_____) is required of each investor, and shares will only be sold in
blocks of __________ shares each, provided that the Company, in its discretion, may reduce the
size of the minimum investment, and may permit the purchase of shares in amounts less than in
blocks of ___________Shares each. Payment in full is due upon subscription. Subscription
funds will initially be held in an interest bearing escrow account
______________________________________________. Funds in escrow may be invested in
highly liquid short-term certificates of deposit, money market funds, United States government
securities or interest bearing accounts. This offering will terminate on or before a date
_____________________________days from the date of this memorandum unless the
maximum amount of shares offered hereby are sold prior to such date, or unless this offering is
otherwise extended in the discretion of the Company. When subscriptions for the minimum
amount of shares have been received and accepted by the Company, such funds will be released
from escrow to the Company, and investors whose subscriptions for Shares have been accepted
by the Company will be issued common stock certificates evidencing the number of shares of the
Company's common stock acquired, and the initial escrow will close. See "TERMS OF THE
OFFERING and ESCROW OF SUBSCRIPTION FUNDS.”
The shares are being offered on a "best efforts" basis by the Company. The Company does not
intend to engage independent broker-dealers to sell the shares, and therefore does not expect to
pay selling commissions. However, the Company does expect that during the course of this
offering, it will be introduced to certain purchasers of its Shares by broker-dealer individuals or
organizations (hereinafter referred to as "finders"). The Company anticipates that it will pay to
such finders commissions equal to ____________percent (___%) of the purchase price of a share
actually purchased by investors who are introduced to the Company by said finders.
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Table of Contents
I. EXECUTIVE SUMMARY ....................................................................
III. RISK AND OTHER IMPORTANT FACTORS….................................
IV. ESTIMATED USE OF PROCEEDS…………......................................
V. SUMMARY AND TERMS OF OFFERING ………………………….
VI. INVESTOR QUALIFICATIONS…………...........................................
VII. TAX CONSIDERATIONS.………........................................................
VIII. DIVIDEND POLICY....……….............................................................
IX. DESCRIPTION OF CAPITAL STOCK................................................
X. REGISTRATION RIGHTS…………...................................................
XI. RESTRICTIONS ON TRANSFERABILITY OF SHARES..…..........
XII. ESCROW OF SUBSCRIPTION FUNDS........………………….........
1. SUBSCRIPTION AGREEMENT
2. CONFIDENTIAL OFFEREE QUESTIONNAIRE
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I. EXECUTIVE SUMMARY.
The Company. The Company is a __________ Corporation that trades publicly on the
NASDAQ Over the Counter Bulletin Board.
The Product Line. The Company’s product line is made up of the following categories:
Patents and Proprietary Technology.
THE ENCLOSED BUSINESS PLAN PROVIDES FURTHER INFORMATION AND DETAIL
WITH RESPECT TO THE COMPANY, INCLUDING WITHOUT LIMITATION, ITS
BUSINESS, PRODUCT LINE, MARKET ANALYSIS, MARKETING PLANS,
COMPETITION, RISK FACTORS AND MANAGEMENT.
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III. RISK AND OTHER IMPORTANT FACTORS
An investment in the Company's Common Stock involves a high degree of risk and is suitable
only for persons possessing substantial financial means who have no need for liquid investments.
In analyzing this offering, prospective investors should consider, among other things, the
OFFERING PRICE: The per share offering price of $______ has been arbitrarily
set by the Company and is not based on earnings or any
history of operations.
COMPETITION: All areas of business engaged in by the Company are
highly competitive. By virtue of their considerably greater
financial resources, the competing companies will have
been in business for a longer period, will provide a more
diversified line of products and will have a greater number
DIVIDENDS: The management of the Company presently intends to
follow a policy of retaining earnings, if any, for increasing
the capital surplus of the Company during the Company's
initial expansion of operations. Accordingly, no cash
dividends will be declared during the early stages of the
Company's development and no assurance can be given
that the Company's earnings will permit the payments of
dividends of any kind. See "Dividend Policy".
TRADING MARKET: It is not anticipated that an active market will develop in
the near future for the Company’s Common Stock.
Consequently, investors may have difficulty in selling their
PROFITABILITY: It is possible the Company may incur operating losses
during its early years and no assurance can be given as to
the ultimate success of the Company, or as to the return, if
any, that purchasers of the Company common stock will
receive on their investment. Such losses might be
substantial, in which case the investors of the Company
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Common Stock being offered, might sustain a total loss on
KEY PERSONNEL: The Company is greatly dependent on the services of the
essential personnel named in the Business Plan, and the
loss of their services would be extremely detrimental to the
FINANCIAL PROJECTIONS: The operating results contemplated by the financial
projections included in the Business Plan are based on
certain assumptions. Management of the Company
believes such assumptions to be reasonable. Events may
occur, however, that will cause these assumptions to be
incorrect. Because of the risks inherent in projections of
this nature, no assurance is or can be given as to the
accuracy of any such projections.
REGULATORY MATTERS: The Company may be subject to regulation by various
federal and state agencies and compliance with the
requirements of such regulatory bodies may involve
significant expense and effort. There can be no assurance
that the Company will be able to comply with such
requirements, and, in such event, it may not be able to
follow its proposed plan of business or to commence or
continue operations in a particular jurisdiction.
ADDITIONAL FINANCING: In addition to the proceeds arising from sale of the Shares,
it is possible that additional financing (equity or debt) will
be necessary in the future. There can be no assurance that
such additional financing will be able to be arranged or, if
so, upon what terms and conditions. Failure to arrange
additional financing, if it were needed, would have a
material adverse effect on the Company's ability to operate
according to its plan of business.
OPERATING HISTORY: The Company was formed in _____________and has a
limited operating history.
IV. ESTIMATED USE OF PROCEEDS.
The gross proceeds to be received by the Company from the sale of Shares will be
$____________ if the minimum number of ___________Shares are sold and $__________ if the
maximum number of ___________Shares are sold. The amount of net proceeds, which the
Company may receive more than the minimum amount, if any, is uncertain. The following table
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sets forth the estimated application by the Company of the proceeds to be derived from the sale
of the Shares offered hereby. The figures herein set forth represent the best estimate of the
Company and, consequently, do not purport to be a prediction of the actual use of proceeds.
Minimum Offering Maximum Offering
Working Capital $ ________ $ ________
Development (1) $ ________ $ ________
Finder's Fees (2) $ _________ $ ________
TOTAL $________ $_________
(1) The Company anticipates that a portion of the proceeds of this offering will be
used to enhance the Company’s existing products. No assurance can be given that the
Company’s research and development will result in the development of additional products.
(2) The Company may pay commissions to finders of up to ___ percent (__%) of the
aggregate purchase price of all shares sold. See "Summary and Terms of Offering."
The foregoing allocations are estimates only and are subject to revision from time to time to meet
the Company's requirements. Pending full utilization of the proceeds of this offering, the
Company may invest the net proceeds in insured interest-bearing savings accounts, insured
United States Government obligations, insured certificates of deposit or other insured short-term
investments of similar quality.
The Company will incur significant expenses during the current fiscal year for salaries of
employees and other overhead costs, sales and advertising, and further research and
development. Assuming the maximum number of Shares are sold in this offering and assuming
realization of revenues from sales of the Company's software and products, the Company
believes that the net proceeds of the offering will provide the Company with working capital
sufficient enough to fund the Company's present and future operations. Such belief, however, is
dependent upon assumptions and variables, many of which the Company will be unable to
control. Unless the Company is able to generate sufficient future earnings, it may be required, at
a future date that cannot now be predicted, to obtain additional financing to continue its
operations. There can be no assurance that the Company will be able to obtain such additional
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financing or that, if available, it will be on terms and conditions favorable or acceptable to the
Company. See "Risk And Other Important Factors.”
V. SUMMARY AND TERMS OF OFFERING.
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND MUST
BE READ IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION
APPEARING ELSEWHERE IN THIS CONFIDENTIAL PRIVATE PLACEMENT
Common Stock Offered: __________ shares of Common Stock, at $____ per
Minimum/Maximum Shares The minimum amount of shares to be issued under
this private placement is ________. The maximum
amount of shares to be issued under this private
Finders Fees/Commissions Finders fees or commissions paid, if any, will not
exceed __% of the amount raised by this offering.
Minimum Investment: _____ shares ($_____) unless waived by Company.
Investor Qualifications: With limited exceptions, each purchaser of Shares
will be required to represent that he or she qualifies
as an “accredited” investor as defined in the
Securities and Exchange Commission (SEC) Rule
501(a). In addition, each purchaser will be required
to represent that he or she is acquiring the Shares
for investment and that he or she is capable of
evaluating the merits and risks of this investment.
See "Investor Qualifications."
Transferability: All of the Shares will be restricted securities and
may not be transferred without registration under
the Securities Act of 1933 or unless an exemption
from such registration is available. See
"Restrictions on Transferability."
Period of Offering: This offering will terminate on or before a date
___________________days from the date of this
Memorandum unless the maximum amount of
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Shares offered hereby are sold prior to such date, or
unless this offering is otherwise extended at the
discretion of the Company.
THE ENCLOSED BUSINESS PLAN, WHICH INCLUDES PROJECTED FINANCIAL INFORMATION,
HAS BEEN PREPARED BY The Company AND IS BASED ON ASSUMPTIONS WHICH
MANAGEMENT BELIEVES TO BE REASONABLE. SOME OR ALL OF THE RESULTS OR EVENTS
CONTEMPLATED BY THE ASSUMPTIONS MAY NOT MATERIALIZE AND UNANTICIPATED
EVENTS MAY OCCUR SUBSEQUENT TO THE DATE OF THIS MEMORANDUM. THEREFORE, THE
ACTUAL RESULTS ACHIEVED DURING THE PROJECTION PERIOD MAY VARY FROM THE
PROJECTIONS AND THE VARIATIONS MAY BE MATERIAL. THE INFORMATION SET FORTH IN
THE BUSINESS PLAN DOES NOT PURPORT TO BE COMPLETE. INVESTORS ARE ADVISED TO
CONSULT WITH THEIR TAX AND BUSINESS ADVISORS CONCERNING THE VALIDITY OF THE
FACTUAL, ACCOUNTING AND BUSINESS ASSUMPTIONS EMPLOYED HEREIN.
Method of Subscribing
Each Subscriber must deliver to the Company (a) a signed and completed Confidential Offeree
Questionnaire, (b) a signed Subscription Agreement and (c) payment of the purchase price of the
Shares subscribed for, to be made by check or wire transfer in accordance with the Subscription
Agreement. Funds received by the Company will be deposited in a segregated interest bearing
escrow account and held by the escrow agent until certain conditions are met. See “Escrow of
Subscription Funds”. The purchase price paid by the Subscriber will be returned if the
subscription is rejected.
The suitability standards referred to below represent minimum suitability requirements for
prospective investors. The satisfaction of such standards by a prospective investor does not
necessarily mean that the Shares are a suitable investment for such prospective investor. The
Company may make or cause to be made such further inquiry and obtain such additional
information as it deem appropriate with regard to the suitability of prospective investors. The
Company may reject subscriptions, in whole or in part, in its absolute discretion.
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The Shares will be offered and sold only to prospective investors who: (a) represent, among
other things, that they are acquiring the Shares for their own account, for investment only and not
with a view toward the resale or distribution thereof, and that they are aware that the Shares have
not been registered under the Act and that their transfer rights are restricted by the Act,
applicable state securities laws, the Subscription Agreement to be entered into in connection with
the purchase of the Shares and the absence of a market for the Shares; (b) The Company
reasonably believes are "accredited” investors, as that term is defined in Regulation D
promulgated under the Act; (c) The Company reasonably believes are “sophisticated” investors,
as described in Rule 506 (b)(2) of Regulation D under the Act; and (d) if not a United States
citizen or resident, represents that the Shares will not be transferred to any citizen, resident or
former citizen of the United States, its territories or possessions, including, but not limited to,
any partnership, corporation, trust or other entity existing in or under the laws of any state,
territory or possession of the United States, or entity controlled or owned by any of the
foregoing. See “Investor Qualifications.”
VI. INVESTOR QUALIFICATIONS.
The Company will sell Shares only to investors who are "accredited” investors as that term is
defined in Rule 501(a) of Regulation D under the Securities Act of 1933, as amended (the
"Act"), and to a maximum of thirty-five (35) investors who are “sophisticated” as described in
Rule 506(b)(2) of Regulation D under the Act. “Accredited” investors are those investors who
meet at least one of the following standards:
(1) A natural person (not an entity) who individual net worth, or joint net worth with
his or her spouse, at the time of his or her purchase exceeds,
(2) A natural person (not an entity) who had an individual income in excess of
$200,000 in each of the preceding two years or joint income with his or her
spouse in excess of 300,000 in each of those years and has a reasonable
expectation of reaching the same income level in the current year;
(3) An employee benefit plan within the meaning of Title I of the Employee
Retirement Income Security Act of 1974, if the investment decision is made by a
plan fiduciary, as defined in section 3(21) thereof, which is either a bank, savings
and loan association, insurance Company or registered investment adviser, or if
the employee benefit plan has total assets in excess of $5,000.000 or, if a self-
directed plan, with investment decisions made solely by persons that are
(4) A trust, with total assets in excess of $5,000,000 not formed for the specific
purpose of acquiring the securities of the Company being offered, whose purchase
is directed by a person who has such knowledge and experience in financial and
business matters that he or she is capable of evaluating the merits and risks of the
prospective investment in the Company;
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(5) A bank as defined in section 3(a)(2) of the Act, or a savings and loan association
or other institution as defined in section 3(a)(5)(A) of the Act, whether acting in
its individual or fiduciary capacity;
(6) A broker or dealer registered pursuant to section 15 of the Securities Exchange
Act of 1934;
(7) An insurance Company as defined in section 2(13) of the Act;
(8) An investment Company registered under the Investment Company Act of 1940
or a business development Company as defined in section 2(a)(48) of the
Investment Company Act of 1940;
(9) A Small Business Investment Company licensed by the U.S. Small Business
Administration under section 301(c) or (d) of the Small Business Investment Act
(10) A private business development Company as defined in section 202(a)(22) of the
Investment Advisers Act of 1940;
(11) An organization described in section 501(c)(3) of the Internal Revenue Code, a
corporation, a Massachusetts or similar business trust, or a partnership not formed
for the specific purpose of acquiring the securities of the Company being offered,
with total assets in excess of $5,000,000;
(12) A director or executive officer of the Company; or
(13) An entity in which all the equity owners are accredited investors.
“Sophisticated” investors are those investors who do not quality as an “accredited” investor, but
The Company reasonably believes that the investor (either personally or through the investor’s
“personal representative”) has such knowledge and experience in financial and business matters
that the investor is capable of evaluating the merits and risks of the investment. Pursuant to Rule
506(b)(2)(i) of Regulation D under the Act, Securities maybe purchased by a maximum of 35
The Shares offered hereby are suitable only for those investors (a) whose business and
investment experience, either alone or together with a purchaser representative, makes them
capable of evaluating the merits and risks of their prospective investment in the Company and
(b) who can afford to bear the economic risk of their investment for an indefinite period and have
no need for liquidity in this investment. Each investor will be required to represent that (i) he is
acquiring the Shares being purchased by him for his own account as principal, for investment
and not with a view to resale or distribution and (ii) he is aware that his transfer rights are
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restricted by the Securities Act and applicable state securities laws, and of the absence of a
market for the shares.
Each investor must also represent that: (a) his overall commitment to investments that are not
readily marketable is not disproportionate to his net worth, and his acquisition of Shares will not
cause such overall commitment to become excessive; (b) he has adequate net worth and means
of providing for his current needs and personal contingencies to sustain a complete loss of his
investment in the Company and has no need for liquidity in his investment in the Shares; (c) he
has evaluated the risks of investing in the Company, (d) he has substantial experience in making
investment decisions of this type or is relying on his own advisor or other qualified purchase
representative in making this investment decision; and (e) he has been given the opportunity to
ask questions and receive answers concerning the terms and conditions of the offering and to
obtain additional information that the Company possesses.
VII. TAX CONSIDERATIONS.
As the Company is a corporation, there are no individual tax considerations for the Investor as a
result of any profits or losses derived from Company operations. Only upon disposition of the
shares, if possible, or, upon the declaration of a dividend by the Company, if any, would the
investor create or incur any type of tax liability or tax benefit. Prospective investors are not to
construe the contents of this memorandum or any prior or subsequent communication from the
Company or any of its officers or employees as tax advisors concerning his or her investment.
INVESTORS ARE ADVISED TO CONSULT THEIR OWN TAX AND BUSINESS
ADVISORS CONCERNING THE TAX CONSEQUENCES OF THIS INVESTMENT.
VIII. DIVIDEND POLICY.
The payment of dividends by the Company is contingent upon earnings, if any, and there can be
no assurance that earnings will be such that dividends can or will be paid. In addition, the
payment of dividends is contingent upon the Company's earnings, financial condition, tax and
capital requirements, general business conditions and other factors deemed relevant by the
Company's Board of Directors. It is the Company's intent not to pay dividends until it has
retained earnings in an amount in excess of its reasonable financial needs. The payment of
dividends rest within the discretion of the Board of Directors, so long as dividends are otherwise
payable under applicable law.
IX. DESCRIPTION OF CAPITAL STOCK.
The Company's authorized capital stock consists of ________________ shares of common stock,
$._____ par value per share. As of________________, there are approximately ___________
shares issued and outstanding, including options to purchase _______ shares of common stock.
Holders of shares of common stock are entitled to one vote for each share on matters submitted
to a vote of the stockholders. Such holders do not have preemptive rights or the right of
cumulative voting for directors.
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XI. RESTRICTIONS ON TRANSFERABILITY OF SHARES.
The Company has not registered the Shares under the Securities Act or the securities laws of any
state. The Company is offering the Shares in reliance on certain exemptions from registration
contained in the Securities Act and such laws. Therefore, purchasers may not sell the Shares
offered hereby unless the Shares are subsequently registered under the Securities Act or an
exemption from such registration is available. Accordingly, any purchaser of Shares must bear
the economic risk of such investment for an indefinite period of time.
The Company has taken certain measures to restrict the sale or assignment of the Shares,
including (i) placing a legend on all certificates evidencing Shares stating that the Company has
not registered the common stock evidenced by such certificates and that the holder of such
Shares may not sell or assign the Shares evidenced thereby without registration or an available
exemption therefrom, except in accordance with an opinion of counsel acceptable to the
Company, (ii) instituting stop-transfer procedures to aid in the prevention of transfers of record
without compliance with the foregoing restrictions, and (iii) requiring each purchaser to
represent in writing in its Subscription Agreement that such purchaser is acquiring the Shares for
the purchaser's own account of investment and not for resale, and that the purchaser will not sell
or otherwise dispose of the Shares without registration under the Securities Act or pursuant to an
available exemption therefrom. .
PROSPECTIVE INVESTORS OF SHARES ARE ADVISED TO SEEK INDEPENDENT LEGAL ADVICE
REGARDING THE EFFECT OF THESE RESTRICTIONS AND INVESTMENT REPRESENTATIONS.
XII. ESCROW OF SUBSCRIPTION FUNDS.
Each person who proposes to purchase Shares will be required to execute and deliver to the
Company the Subscription Agreement and the Confidential Offeree Questionnaire in the form
attached hereto, together with payment in full of the price of the Shares being purchased.
Subscription funds will initially be held in an interest bearing escrow account
at______________________________________________. Funds in escrow may be invested in
highly liquid short-term certificates of deposit, money market funds, United States government
securities or interest bearing accounts. This offering will terminate on or before a date one
hundred and twenty (120) days from the date of this Memorandum unless the maximum amount
of Shares offered hereby are sold prior to such date, or unless this offering is otherwise extended
in the discretion of the Company. When subscriptions for the minimum amount of Shares have
been received and accepted by the Company, such funds will be released from escrow to the
Company, and investors whose subscriptions for Shares have been accepted by the Company
will be issued Common Stock certificates evidencing the number of shares of the Company's
Common Stock acquired, and the initial escrow will close.
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No references documents in this Memorandum purport to be complete descriptions thereof and
all such references are qualified in their entirety by references to such instruments or documents,
any or all of which may be reviewed by any prospective purchaser on request.
The Company has agreed to make available to prospective investors, prior to the sale of the
Shares, the opportunity to ask questions of, and receive answers from, officers of the Company
concerning the terms and conditions of the offering and to obtain any additional information, to
the extent the Company possesses such information or can acquire it without unreasonable effort
or expense, that is necessary to verify the accuracy of the information set forth in this
Memorandum. Questions, inquiries and requests for information may be directed to the
Company to the attention of ________________________at (___) ____________.
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