You are an associate at the law firm of A, M, & Associates, LLP. One of your good clients, Macrotec Computer Corporation has come to your firm with the following scenario: Macrotec Computer Corporation is a successful though small closely held computer manufacturer. Macrotec has been in business just over four years. After a first year of losses, it has increased its annual earnings each year to a current level of $4 million. Macrotec is incorporated in the state of Texas.

Currently, the company is owned 50% each by James Moore and Ann Simpson. Both are convinced that Macrotec could at least double its sales if it increased its production capacity. In addition, each wants to do more software development in-house. All this will require substantial additional capital. To implement the contemplated expansion plan, Macrotec needs to raise $7 million of additional capital. As a result, Macrotec's management team, your supervising partner, and Macrotec's accountants have conferred on the matter and have decided that a private offering would be the best option at this time. Therefore, the partner has assigned you the task of structuring an offering that doesn't require registration. The partner has tasked you to conference with Macrotec's CFO and see what options may be feasible.

Through your meeting, you learn the following: Moore, one of Macrotec's 50% shareholders has an associate, Parcells, who is willing to invest $2.5 million of the $7 million required to implement the expansion plan in exchange for partial ownership in the company. Parcells has been an investor for several years and has invested in ventures of a similar nature. Currently, Parcells' net worth is $900,000. His income for the past two years was $150,000 and $190,000 respectively. Parcells is single. He plans on using borrowed funds to invest in Macrotec stock should the deal move forward. Simpson, the other 50% shareholder has "friends of means" as well. Simpson has been recently contacted by Marva Stepford, an overnight millionaire courtesy of the New York State lottery who currently resides in New York. Although Marva's net-worth exceeds several million dollars, she has very little expertise in investing. She prefers to leave those "pesky details" to others. But she is willing to invest $2 million into the venture. Presently, Marva will be investing without seeking any advice or counsel from a knowledgeable financial advisor. Finally, there are approximately 40 other potential investors (potential meaning it is not necessarily required that all of them be included in the offering) willing to invest various amounts, ranging from $2,000 to $200,000. None of these 40 potential individual investors have a net-worth exceeding $1 million, nor have any of them had income either individually or with their respective spouses in excess of $200,000 for the past two years. Because some of the investors may have trouble coming up with the money all at once, Macrotec wants to do the offering at two different times; the first offering to be on May 1, 2016 and the second offering to occur September 1, 2016. "That way" the CFO explains, "we can best take advantage of all the individuals who may want to invest in the Company, and no one will be left out." (but again as the attorney on the deal your job is to make sure you can put a workable deal together. You are not required to include every investor.) YOUR TASK: You are the associate assigned to make sure, given the scenario as outlined above, the deal is structured such that it comports with an applicable Section, Rule, or Regulation of the Federal Securities Laws. In that regard, you are to draft a memo outlining all the relevant issues that the firm needs to consider given the information as set-forth above.

In your memo, you should make sure to discuss and explain the following:

a. Cite the applicable Section, Rule, or Regulation under which this offering may be made, explaining the reasoning for your choice.

b. Discuss all the conditions that will have to be met to comply with the applicable Section, Rule, or Regulation you cited in item "a." In this regard you should discuss whether Macrotec's contemplated offering, given the dollar amount, its time frames, and its potential investors, would meet the required conditions. Assume that for practical purposes the deal must involve Macrotec offering the securities on both May 1st and September 1st of 2016. In your explanation, be sure to discuss all relevant requirements that must be met with respect to the contemplated investors and any potential problems that may be evident with respect to the offering in general or the contemplated investor(s) in particular and what steps or measures that can be taken to address. You may organize and draft your memo in any way you deem appropriate provided you address the inquiries above. Macrotec did not use any forms of general solicitation regarding its pool of potential investors.

https://www.findknowdo.com/content/regulation-s-k-items-507-508-509-510-and-511-%28disclosures-regarding-distribution%29