Security Campaign Builder - 11 - Offering Statement - Capital Structure


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Security Campaign Builder - 11 - Offering Statement - Capital Structure


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Capital Structure – The Capital Structure tab is to assist you in disclosing to potential investors what the rights and details are for the securities you’re offering, and what other securities your business is currently connected to through previous funding activities.

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Describe the terms of the securities being offered – Potential investors should be able to clearly understand the type and class of the securities they are being offered. If the securities convert or have other rights attached to them such as discount rates, rights to purchase other securities, the right to specific interest or royalty payments etc., these things should be described here. If payments are associated with the securities, include details about how they will be calculated and distributed.

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Do the securities offered have voting rights? – If the securities offered in the campaign give investors the right to vote on company elections and matters of corporate policy, please disclose and describe these rights.

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How may the terms of the securities being offered be modified – If the terms of the securities being offered can be changed from the way they are described to investors in the offering information, any change that could be made must be disclosed to investors, as well as the procedure of how the change could happen. If the terms cannot be modified, a statement should be made that attests to it.

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Transfer of the securities being offered – This field is prepopulated based on existing securities regulations. For most offerings, it is unlikely that anything in this field will need to be changed. If conditions exist where this field would require changes, contact a Umergence representative through support@umergence.com and we will help adjust the field as needed.

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Description of Issuer’s Securities – Securities that have already been authorized or issued should be listed in this section and broken into each individual class of security and series.

  • Preferred stock should be listed first and should bear any unique label given to it when it was issued – for example “Series Seed Preferred Stock”. There may be multiple Series’ of Preferred stock. Additional lines can be added by clicking “Add One More” below the row of fields.
  • Securities Authorized refers to how many shares of this class of stock was authorized by the company on its company charter/articles of incorporation etc. This will often be a large number, with shares authorized at a par value of a very small price such as $.0001. Authorized shares are the total amount of shares a company is allowed to issue. It is may not be the same number as the amount of shares the company has actually issued and has outstanding. The security will be listed as a quantity by checking the box labeled Show as securities amount (otherwise it will display as a $ value).
  • Securities Outstanding refers to the amount of the authorized securities that were issued as of the present. The security will be listed as a quantity by checking the box labeled Show as securities amount (otherwise it will display as a $ value).
  • Voting rights and Other Rights – mark “yes” or “no” for each class of security to disclose what rights each has. These fields cannot be left blank if the other fields in the row were completed.

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  • Common stock should be listed and should bear any unique label given to it when it was issued – for example “Class A Common Stock”. There may be multiple Classes of Common Stock. Additional lines can be added by clicking “Add One More” below the row of fields.

  • Securities Authorized refers to how many shares of this class of stock was authorized by the company on its company charter/articles of incorporation etc. This will often be a large number, with shares authorized at a par value of a very small price such as $.0001. Authorized shares are the total amount of shares a company is allowed to issue. It is may not be the same number as the amount of shares the company has actually issued and has outstanding. The security will be listed as a quantity by checking the box labeled Show as securities amount (otherwise it will display as a $ value).

  • Securities Outstanding refers to the amount of the authorized securities that were issued as of the present. The security will be listed as a quantity by checking the box labeled Show as securities amount (otherwise it will display as a $ value).

  • Voting rights and Other Rights – mark “yes” or “no” for each class of security to disclose what rights each has. These fields cannot be left blank if the other fields in the row have been completed.

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  • Debt should be listed and should bear any unique label given to it when it was issued. There may be multiple Series’ of debt. Additional lines can be added by clicking “Add One More” below the row of fields.

  • Securities Authorized refers to how many units were authorized by the company. It is may not be the same number as the units of debt the company has actually issued and has outstanding. The security will be listed as a $ value by default, this can be changed by checking the box labeled Show as securities amount to make the fields appear as quantities of units.

  • Securities Outstanding refers to the amount of the authorized securities that were issued as of the present. The security will be listed as a $ value by default, this can be changed by checking the box labeled Show as securities amount to make the fields appear as quantities of units.

  • Voting rights and Other Rights – mark “yes” or “no” for each class of security to disclose what rights each has. These fields cannot be left blank if the other fields in the row have been completed.

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  • Other securities not covered in the previous sections should be listed and bear any unique label given when issued. Additional lines can be added by clicking “Add One More” below the row of fields.
  • Securities Authorized refers to how many units/shares were authorized by the company. It is may not be the same number as the units/shares the company has actually issued and has outstanding. The security will be listed as a $ value by default, this can be changed by checking the box labeled Show as securities amount to make the fields appear as quantities of units.
  • Securities Outstanding refers to the amount of the authorized securities that were issued as of the present. The security will be listed as a $ value by default, this can be changed by checking the box labeled Show as securities amount to make the fields appear as quantities of units.
  • Voting rights and Other Rights – mark “yes” or “no” for each class of security to disclose what rights each has. These fields cannot be left blank if the other fields in the row have been completed.

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If the company has any Warrants, Options or Other Rights either attached to the securities described in the previous section or independently issued, they should be described here. If the company does not need these fields, type N/A into the fields to signify the fields are not applicable.

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If there are any other details about the company’s securities that need to be disclosed and have not been addressed in the previous sections, add them here in the Additional description of issuer’s securities field.

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How many the rights of the securities being offered be materially limited, diluted or qualified by the rights of any other class of security identified above? – This field is important for potential investors because it discloses if the securities they’re buying could be affected by other securities that the company has either previously issued, or could issue in the future. An example response for this field as a reference is below –

Because the Investor holds no voting rights, the holders of a majority-in-interest of voting rights in the Company could limit the Investor’s rights in a material way. For example, those interest holders could vote to change the terms of the agreements governing the Company’s operations or cause the Company to engage in additional offerings. These changes could result in further limitations on the voting rights the Investor will have as an owner of equity in the Company, for example by diluting those rights or limiting them to certain types of events or consents. To the extent applicable, in cases where the rights of holders of convertible debt, SAFES, or other outstanding options or warrants are exercised, or if new awards are granted under our equity compensation plans, an Investor’s interest in the Company may be diluted. This means that the pro-rata portion of the Company represented by the Investor’s securities will decrease, which could also diminish the Investor’s voting and/or economic rights. In addition, as discussed above, if a majority-in-interest of holders of securities with voting rights cause the Company to issue additional equity, an Investor’s interest will typically also be diluted.

Based on the risk that an investor’s rights could be limited, diluted or otherwise qualified, the Investor could lose all or part of his or her investment in the securities in this offering, and may never see positive returns.

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Are there any differences not reflected above between the securities being offered and each other class of security of the issuer – If the campaign will be selling securities that are of the same nature and rights as those listed in a previous example, this question can be answered as a “no” – otherwise, anything that makes the securities in this campaign different than those previously issued should be described here for investors.

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How could the exercise of rights held by principal shareholders affect the purchasers of the securities being offered – an example response for this field is below:

As holders of a majority-in-interest of voting rights in the Company, the shareholders may make decisions with which the Investor disagrees, or that negatively affect the value of the Investor’s securities in the Company, and the Investor will have no recourse to change these decisions. The Investor’s interests may conflict with those of other investors, and there is no guarantee that the Company will develop in a way that is optimal for or advantageous to the investor.

For example, the shareholders may change the terms of the operating agreement for the company, change the terms of the securities issued by the Company, change the management of the Company, and even force out minority holders of securities. The shareholders may make changes that affect the tax treatment of the Company in ways that are unfavorable to you but favorable to them. They may also vote to engage in new offerings and/or to register certain of the Company’s securities in a way that negatively affects the value of the securities the investor owns. Other holders of securities of the Company may also have access to more information than the Investor, leaving the Investor at a disadvantage with respect to any decisions regarding the securities he or she owns.

The shareholders have the right to redeem their securities at any time. Shareholders could decide to force the Company to redeem their securities at a time that is not favorable to the Investor and is damaging to the Company. Investors’ exit may affect the value of the Company and/or its viability.

In cases where the rights of holders of convertible debt, SAFES, or other outstanding options or warrants are exercised, or if new awards are granted under our equity compensation plans, an Investor’s interest in the Company may be diluted. This means that the pro-rata portion of the Company represented by the Investor’s securities will decrease, which could also diminish the Investor’s voting and/or economic rights. In addition, as discussed above, if a majority-in-interest of holders of securities with voting rights cause the Company to issue additional equity, an Investor’s interest will typically also be diluted.

Based on the risk that an investor’s rights could be limited, diluted or otherwise qualified, the Investor could lose all or part of his or her investment in the securities in this offering, and may never see positive returns.

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How are the securities being offered being valued? – This is very important to investors, and should be described in as much detail as possible. If company is in an early stage and the share price was determined arbitrarily, an example response is included below:

The offering price for the securities offered pursuant to this offering has been determined arbitrarily by the Company, and does not necessarily bear any relationship to the Company’s book value, assets, earning or other generally accepted valuation criteria. In determining the offering price, the Company did not employ investment banking firms or other outside organizations to make an independent appraisal or evaluation. Accordingly, the offering price should not be considered to be indicative of the actual value of the securities offered hereby.

Because there will likely be no public market for our securities prior to an initial public offering or similar liquidity event, the price of the Common Stock that Investors will receive, and/or the total value of the Company’s capitalization, will be determined by our board of directors.

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What are the risks to purchasers of the securities relating to minority ownership of the issuer? – Since most potential investors in crowdfunding campaigns will not be purchasing a large enough share of a company to have majority ownership, they need to understand the risks this presents when the majority owners can make decisions effecting all holders. An example response for this question is below:

The marketability and value of the Investor’s interest in the Company will depend upon many factors outside the control of the Investor. The company will be managed by its officers and be governed in accordance with the strategic direction and decision-making of its Board of Directors, and the Investor will have no independent right to name or remove an officer or member of the Board of Directors of the Company.

Following the Investor’s investment in the Company, the Company may sell interests to additional investors, which will dilute the percentage interest of the Investor in the Company. The Investor may have the opportunity to increase its investment in the Company in such a transaction, but such opportunity cannot be assured.

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What are the risks to purchasers associated with corporate actions – companies may make decisions in the future regarding additional securities being issued, previously issued securities being repurchased, assets being sold, or the company itself being sold, among other things. Potential investors should be aware of these risks and how they could affect their investment. An example response for this question is below:

Additional issuances of securities – Following the Investor’s investment in the Company, the Company may sell interests to additional investors, which will dilute the percentage interest of the Investor in the Company. The Investor may have the opportunity to increase its investment in the Company in such a transaction, but such opportunity cannot be assured. The amount of additional financing needed by the Company, if any, will depend upon the maturity and objectives of the Company. The declining of an opportunity or the inability of the Investor to make a follow-on investment, or the lack of an opportunity to make such a follow-on investment, may result in substantial dilution of the Investor’s interest in the Company.

Issuer repurchases of securities – The Company may have authority to repurchase its securities from shareholders, which may serve to decrease any liquidity in the market for such securities, decrease the percentage interests held by other similarly situated investors to the Investor, and create pressure on the Investor to sell its securities to the Company concurrently.

A sale of the issuer or of assets of the issuer – As a minority owner of the Company, the Investor will have limited or no ability to influence a potential sale of the Company or a substantial portion of its assets. Thus, the Investor will rely upon the executive management of the Company and the Board of Directors of the Company to manage the Company so as to maximize value for shareholders. Accordingly, the success of the Investor’s investment in the Company will depend in large part upon the skill and expertise of the executive management of the Company and the Board of Directors of the Company. If the Board of Directors of the Company authorizes a sale of all or part of the Company, or a disposition of a substantial portion of the Company’s assets, there can be no guarantee that the value received by the Investor, together with the fair market value remaining in the Company, will be equal to or exceed the value of the Investor’s initial investment in the Company.

Transactions with related parties – The Investor should be aware that there will be occasions when the Company may encounter potential conflicts of interest in its operations. On any issue involving conflicts of interest, the executive management and Board of Directors of the Company will be guided by their good faith judgement as to the Company’s best interests. The Company may engage in transactions with affiliates, subsidiaries or other related parties, which may be on terms which are not arm’s-length, but will be in all cases consistent with the duties of the management of the Company to its shareholders. By acquiring an interest in the Company, the Investor will be deemed to have acknowledged the existence of any such actual or potential conflicts of interest and to have waived any claim with respect to any liability arising from the existence of any such conflict of interest.

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Is there any indebtedness of the issuer – If the company has any indebtedness, list terms of each here. Additional instances can be added by clicking “Add one More” at the bottom of the section. Only include indebtedness that has not been fully paid back. The Amount Outstanding is the amount remaining to be paid to the creditor, not the amount originally borrowed.

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What other exempt offerings has the issuer conducted within the past three years? – If you sold any securities to investors in the past, you probably used an exemption to do so. List any securities sold in this section. The Exemption field description should be the exemption used, such as Regulation CF, or Regulation D Rule 506(b), for example. Security Type refers to whether the security was, for example, Preferred Stock, Future Equity, etc. Give a brief summary description of what you used the funding for in the Use of Proceeds field.

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Was or is the issuer or any entities controlled by or under common control with the issuer a party to any transaction… - This question is specifically related to offerings conducted with Regulation CF (Form C). It basically asks you to disclose if any parties connected to the company have put in or taken out an amount over 5% of what is being raised in the current offering. For example if you are the owner of the company, you’re doing a 500k campaign using Reg CF (Form C) and you recently granted 50k to the company you would need to disclose that here. If your campaign is raising money through Reg A+ (Form 1-A), or Reg D (Form D), you can select “No” and continue.

This tutorial continues for the next section of the campaign builder here.