D&O Insurance Implications of the JOBS Act

1. D&O Insurance Implications of the JOBS Act LLC AUGUST 3, 2012 Granof International Group, LLC

2. Jumpstart Our Business Startups Act - JOBS Act: In a Nutshell • The JOBS Act is intended to: • Reduce Disclosure and reporting requirements for Emerging Growth Companies (EGC) • Give startups and other private companies new opportunities to raise funds and stay private longer: • Allow for Crowd Funding • Expand Scope of Private Placements under 144A • Increase shareholder registration threshold for private companies

3. JOBS Act: “Emerging Growth Company (EGC)” • An EGC is any issuer that had total annual gross revenues of less than $1 billion during its most recently completed fiscal year, Provided that: It completed its IPO after December 9, 2011. • EGCs have up to five years following their IPO to achieve full compliance during which time they can enjoy certain reduced public company disclosures, accounting and auditing requirements.

4. JOBS Act: EGC “IPO On-Ramp” Reduced Disclosure Requirements • The company need not present more than 2 years of audited financial statements in order for its registration statement to be effective. • IPO registration statement can enjoy Prior Non-Public SEC Review. However such statements must be made public 21 days before an IPO Road show. • EGCs can Test the Waters for prospective IPO’s by meeting qualified institutional buyers or accredited investors before or after a filing, to gauge their interests.

5. JOBS Act: Examples of EGC Ongoing Disclosure Exemptions • Section 102 amends SEA and Dodd-Frank to exempt an EGC from requiring separate shareholder approval of executive compensation. • Section 103 exempts an EGC from Section 404(b) of the Sarbanes-Oxley Act requiring an outside auditor’s attestation on a company’s assessment of its internal controls. • Section 104 allows an EGC to defer compliance with “new or revised” GAAP accounting requirements for public companies until they are applicable to private companies.

6. JOBS Act: Crowdfunding • Crowdfunding is a method of raising capital in which groups of people pool money, typically small contributions, often through on-line portals via the internet. • Under the JOBS Act, Crowdfunding is expressly permitted for small start- up businesses. They are exempt from certain registration requirements, but restricted to transactions of $1 million or less.

7. JOBS Act: Crowdfunding Financial Disclosure Requirements • For companies seeking to raise less that $100,000, the CEO must certify the accuracy of the financial statements; • For companies seeking to raise between $100,000 and $500,000, an accountant must verify the accuracy of the companies’ financials; • Companies seeking to raise over $500,000 are required to file fully audited financial statements.

8. JOBS Act: Crowdfunding Investment Restrictions on Raising Capital • If either the annual income or the net worth of an investor is less than $100,000, one can invest up to $2,000 or five percent of ones annual income or net worth. • If an investor’s income or net worth tops $100,000, one can invest up to 10 percent of one’s annual income or net worth, up to $100,000 maximum.

9. JOBS Act: Potential Liability • Potential Disclosure/Liability issues for EGC may not come into fruition until the end of the 5 year status period, or until a company’s EGC status terminates. • The Act imposes liability on Crowdfunding issuers for misrepresentations and omissions in the offerings, similar to Section 12 of the Securities Act of 1933.