Learn the pros and cons of debt financing, equity financing, and hybrid financing to discover how an acquisition should be financed. Discover securities law issues in equity financing under Federal regulations and Louisiana law.

1. Phone: (504) 568-1990 Address:
Fax: (504) 310-9195 601 Poydras Street, Suite 2775
Website: www.lawla.com New Orleans, LA 70130
Financing Debt and Equity:
Overcoming Obstacles
Presented by:
Stewart Peck and Benjamin Kadden
Partners
Lugenbuhl, Wheaton, Peck, Rankin & Hubbard
Buying and Selling a Business: Start to Finish
New Orleans, LA, December 9, 2016

2. How should the acquisition be financed? Debt or Equity?
• What is being financed?
Is this a start-up, an acquisition of a settled business, acquisition of a new type of
business, acquisition of business in same field, one buyer and one seller or different
structure?
• How much capital is needed?
A traditional small business may opt for debt financing if less capital is needed,
but a high-risk venture with potential for bigger return may be better suited for
equity financing if cash flow is a concern.
• Small business or big business?
Small business may be better suited to debt, it won’t require as much so it will
be shorter payoff while maintaining control; big business may have assets and
stability that invites big investors with equity financing.
• Low risk or high risk?
Low risk may be better suited for debt financing because it will be more able to pay
back steady interest payment, but high risk may be better suited for investors who
float or sink with the business if a loan might not be able to get repaid.

3. Pros and Cons of Debt Financing
PROS CONS
Doesn’t dilute ownership interest in the
business
Too much debt may damage credit
rating and hinder future investment or
equity financing
Doesn’t relinquish operating control of
business
Money must be paid back within a
certain amount of time
Doesn’t relinquish shares in future profits May be limited by lender covenants and
restrictions
May be more available or accessible Acquisition may be too large to borrow
enough money
Interest on loan is tax-deductible Constraint on cash flow with required
monthly payment
Easier to plan a budget because
principal and interest are set amounts
May have to personally guarantee a loan
or secure with assets

4. Pros and Cons of Equity Financing
PROS CONS
No mandatory interest payments Dilution of ownership interest
No principal to repay by set date Dilution of ownership interest
May have more cash on hand to grow
business
Relinquish operating control
No requirement to pay back investment
if business fails
Potential conflict with investors who want
control
No impact on company’s credit rating Volatility of share price may cause
uncertainty
Time required to find investors
Potential security law issues

5. Hybrid Financing
• Royalties
Investors provide capital in exchange for a percentage of cash receipts. Like
equity because doesn’t require set payments, doesn’t require collateral to secure
a loan, but like debt because it doesn’t require sharing control of company with
investor.
• Selling Marketing Rights or Licenses
Terms of the agreement can provide for up front payment, periodic payment, of
payment based on sales, in exchange for marketing rights now or later.
• Preselling Products or Services
Payment for product or service prior to production.
• Crowdfunding
Fundraising campaigns that allow investors to provide capital in exchange
for non-monetary returns and that allow the company to maintain full
ownership. Examples are Indiegogo, Kickstarter, Peerbackers LLC, and
RocketHub, Inc.
• Combination of Debt and Equity
A smaller loan combined with a few equity investors means smaller
monthly payments and less relinquishment of control.

6. Securities Law Issues in Equity Financing
The Federal Securities Act and the Louisiana Securities Law
regulate the offer and sale of “securities,” which may apply to
equity financing.
Applicable Federal and State Statutes:
• Section 5 of the Securities Act of 1933, as amended (the
“Securities Act”)
• Section 10 of the Securities Act
• Section 4 of the Securities Act – exemptions from registration
• 17 CFR Part 240 – General Rules and Regulations
• National Securities Markets Improvement Act of 1996 (“NSMIA”)
• Louisiana Securities Law, LA R.S. 51:701, et seq.
• Louisiana Administrative Code, Title 10, Part XIII

7. Securities Law Issues in Equity Financing
Federal Regulations
The Securities Act defines the term “security” broadly to mean “any note, stock, treasury stock, security future,
security-based swap, bond, debenture, evidence of indebtedness, certificate of interest or participation in any
profit-sharing agreement, collateral-trust certificate, preorganization certificate or subscription, transferable
share, investment contract…or, in general, any interest or instrument commonly known as a ‘security’.”
Any sale or offer to sell a security must be registered with the Securities and Exchange Commission, unless it
qualifies for an exemption under Section 4 and the applicable Regulations. Common exemptions include:
- Section 4(a)(2) of the Securities Act: private placement exemption applies to “transactions by an issuer not
involving any public offering”
- Section 4(a)(5) of the Securities Act: accredited investor exemption applies to sales of securities to
“accredited investors” when the total offering price is less than $5 million
- Regulation D: Rules 504, 505, and 506 each offer exemptions
- Regulation A: exemption for public offerings not exceeding $5 million in any 12-month period
- Section 3(1)(11) of the Securities Act: intrastate offering exemption

8. Securities Law Issues in Equity Financing
State Regulations
The Louisiana Securities Law also defines the term “security” broadly to mean “any note, stock,
treasury stock, bond, debenture, evidence of indebtedness, certificate of interest or participation in any
profit-sharing agreement, collateral-trust certificate, preorganization certificate or subscription,
transferable share, investment contract…or, in general, any interest or instrument commonly known as
a ‘security’.”
Any sale or offer to sell a security must be registered with the Securities and Exchange Commission,
unless it qualifies for an exemption, which closely mirror federal exemptions. Common exemptions
include:
- LA R.S. 51:708
- LA R.S. 51:709
- LA. Admin Code tit.10, §§ 701-707: “The exemption contained in §703 of this Chapter is intended
to provide a state safe-harbor exemption for private placements similar to the federal exemption
provided by Rules 501, 502, 503, 505, 506, 507 and 508 promulgated by the Securities and
Exchange Commission under the Securities Act of 1933, as amended. The exemption contained in
§705 of this Chapter is intended to provide a state exemption similar to the federal exemption
provided by §4(2) of the Securities Act of 1933.”

9. Benjamin W. Kadden is a Shareholder in the New Orleans
office of Lugenbuhl, Wheaton, Peck, Rankin & Hubbard. Mr.
Kadden’s practice focuses upon Bankruptcy, Restructuring, &
Creditors’ Rights, Corporate & Commercial Law, Mergers &
Acquisitions, and Commercial Litigation. In connection with
his restructuring practice, Mr. Kadden has experience acting
as lead Debtor’s counsel, counsel for official committees of
unsecured creditors and as counsel for secured lenders. Mr.
Kadden has also actively participated in a number of merger &
acquisition transactions pertaining to numerous businesses
based in the Gulf Coast, with a focus upon representation of
non-public buyers and sellers in equity and asset
sales. Because of his experience in complex Chapter 11
bankruptcy cases, Ben has direct experience and knowledge
regarding the purchase or sale of assets by distressed
companies, including navigating the process while a buyer or
seller is in bankruptcy.
Ben has earned an AV Preeminent Rating by Martindale-
Hubbell, and been recognized as a Super Lawyers Rising Star
(2014-2016) and Top Lawyer by New Orleans Magazine in
Insolvency and Reorganization Law (2014 & 2015).
Stewart F. Peck is a Senior Managing Partner and
founding member of Lugenbuhl, Wheaton, Peck, Rankin &
Hubbard, with offices in Houston, Texas, New Orleans and
Baton Rouge, Louisiana. With 39 years of experience in
multiple legal areas, Mr. Peck has handled over 70
reported cases. He has handled significant, complex
financing and merger and acquisition transactions and
Chapter 11 proceedings. He has been involved with the
purchase and sale of numerous businesses. Mr. Peck
graduated from Tulane Law School in 1977 where he was
elected to the Order of the Coif and was a member of the
Tulane Law Review. Mr. Peck graduated with distinction
from Kenyon College, Magna Cum Laude, in 1974, where
he was a member of Phi Beta Kappa.
Recognized for many accomplishments, Mr. Peck is listed
in Chambers USA, Best Lawyers in America, Best Lawyers
in New Orleans, and Louisiana Super Lawyers. He was
recently named to the 2016 class of New Orleans
CityBusiness Leadership in Law.
This presentation authorship was in
partnership with Lugenbuhl Associate Ms.
Leslie-Johns Ray.

10. Financing Debt and Equity:
Overcoming Obstacles
Stewart Peck and Benjamin Kadden
Partners
Lugenbuhl, Wheaton, Peck, Rankin & Hubbard
601 Poydras Street
Suite 2775
New Orleans, LA 70130
Phone: (504) 568-1990 Fax: (504) 310-9195
Website: www.lawla.com
New Orleans • Houston • Baton Rouge