PRIVATE PLACEMENTS: From Term Sheets to Offering Materials to Closing

1. PRIVATE PLACEMENTS:From Term Sheets to Offering Materials to Closing Leslie A. Drockton, Partner Benesch, Friedlander, Coplan & Aronoff LLP

2. Overview • Capital Commitments are on a pace to surpass $220 billion this year, approximately half of which are committed to mega-funds (more than $5 billion in commitments).Through the first half of the year investors committed $113.35 billion to 117 funds. • US EBITDA multiples have fallen from 10.7x in 2016 to 10.5x through the second quarter. • Deal flow in U.S. through the second quarter: 866 deals ($151.1 billion, estimated). Slightly below 2016 levels.

3. Overview (cont.) • Exits decreased to 474 deals ($102.3 billion). • Firms are raising capital faster in 2017. Buy-out funds that closed in 2017 spent an average of 8 months between launch and first close (12 months in 2016 and 13 months in 2015). Time between launch and initial close is down to 6 months (7 months in 2015).

4. Overview (cont.) • Average buy-out fund closed with an average of 120% of its target commitments. • Buy-out funds currently have $540 billion to deploy, which will provide challenges for the industry. • Both family offices and institutional investors are allocating more resources to private equity.

5. Planning • Assemble the Team • Accountants • Lawyers • Financial Intermediaries • Bankers/Lenders • Consultants • Know your limitations • Existing agreements • Non-Disclosure agreements • Regulatory restrictions

6. Planning (cont.) • Self-Evaluation • Understand the market and terms • Develop your business plan or investment thesis • Develop an investor profile and target list • Research your potential investors • Set up an electronic data room • Develop your time-line and process • Consider warehousing of deals • Check references on advisors

7. Structure • Entity Structure • Limited Partnership (traditional PE fund structure) • Limited Liability Company • C-Corporation • Tax Considerations • Limited Offering Exemption • General Solicitation (Jobs Act) • Pre-existing Relationships • Use of intermediaries to establish pre-existing relationship

8. Structure (cont.) • Terms • Understand what is market • Consideration of regulatory pressures on your terms and documents • Vet the key terms with advisors • Co-investments • Revisit your prior agreements • ILPA (Institutional Limited Partners Association) Standards • Guiding principles alignment of interest, governance and transparency • Announced at the beginning of the year Phase II of its Private Equity Transparency initiative which is focused on increasing global adoption of its reporting templates

9. Regulatory Considerations • Securities Laws • the Securities Act of 1933, as amended (Section 3(b) or 4(2)) • Regulation D Safe Harbor/State Law Preemption • State Securities Laws (Blue Sky Laws) • Accredited Investor • Bad Actors • 10b-5 • Investment Advisers Act of 1940, as amended • Investment Advisers have a fiduciary duty to act in the best interests of their clients • Qualified Client • Attribution Rules • Family Office Exemption • Venture Capital Exemption • Private Fund Exemption

10. Regulatory Considerations (cont.) • Investment Company Act of 1940, as amended • Qualified Purchasers • 100 Beneficial Owners (3(C)(1)) • Attribution Rules (formed for the purpose of investing in the fund, 10% holder and vehicles where the holders can self direct)

11. Regulatory Considerations (cont.) • SEC Enforcement and Exam Trends • Valuations • Undisclosed fees • Trade allocations • Insider trading • Conflicts • Securities Act of 1934, as amended • Compensating fund employees for fund raising and M & A activity • Use of Placement Agents

12. Regulatory Considerations (cont.) • Commodity Exchange Act • Rescission of a central regulatory exemption for private fund advisers. If you engage in interest hedging activities registration as a commodity pool operator may be required. • ERISA • Heightened fiduciary obligations for funds who are considered to hold plan assets. • Significant participation test (25%). • VCOC and REOC exemption

13. Regulatory Considerations (cont.) • Other • AML Policies • OFAC

14. Documentation • Term Sheet/Executive Summary • Opportunity • Principals • Performance • Economics • Disclaimers • Use it as an opportunity to test the waters • Use charts and graphs • Be strategic with disclosure; keep it brief

15. Documentation (cont.) • Confidential Offering Memorandum • Dual Purpose: Compliance and Marketing • Style and substance varies depending on the target audience, deal structure, distribution channels and securities law exemption • Primary goal is to satisfy disclosure obligations • Disclosure regarding the nature, character and risk factors relating to your offering

16. Documentation (cont.) • Governing Documents • Limited Partnership Agreement • General Partner organization documents • Other Materials • Side Letters • Subscription Documents/Questionnaires • If you are engaged in a general solicitation under the safe harbor you have heightened obligations with respect to verifying “accredited investor” stratus

17. Documentation (cont.) • Non-Disclosure Agreements • Management Agreements • Custody Agreements • Privacy Policy • Co-Investment Policies • Allocation Policy • Compliance Program • Purchase Agreement • Direct Participation Programs

18. 10351191v1 Closing • Finalize Negotiations • Multiple Closings • Manage Expectations/Communication with Investors is key • Confirm completion of subscription materials • Qualify investors • Escrow • Log/Document receipt of subscription materials and funds from investors • Preparation of securities filings

19. Practical Advice • Be patient; spend the time in the planning stage • Understand the market • Know your investors • You have to build relationships before you need them • Communicate • Focus on the opportunity • Don’t ever fake an answer • Don’t overpromise on delivery of materials • Be consistent with your message • Avoid blind solicitations