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THEATRE: RAISING MONEY TO PRODUCE A PLAY OR MUSICAL, FEDERAL SECURITIES LAW, CHANGES TO A PRIVATE PLACEMENT MEMORANDUM

Many producers who wish to raise the capital required to mount a production may opt to make a securities offering under Regulation D of the Securities Act of 1933. If the offering is for more than $ 5,000,000, the issuer must make detailed disclosures of the nature, purpose, and risks of the offering (and the production) so that any qualified investor can make an informed decision about the investment. This detailed information is contained in what is commonly known as a “Private Placement Memorandum” (PPM). The information must be accurate and cannot be materially misleading. There are any number of circumstances that may warrant withdrawal of the offering or revision of the information contained in the Private Placement Memorandum. For example, the producer may come to realize that the total capital will never be raised. Perhaps all of the capital cannot be raised in the time allowed, but the producer ultimately concludes that the show can be mounted in a different venue or under different circumstances with the money that has been raised to date. If the producer decides to proceed under different circumstances than those indicated in the PPM, a material change of fact has occurred. The producer will then need to either withdraw the offering and make a new filing or amend the information supplied in the original PPM.

If the producer (typically the issuer) decides that the circumstances are so materially different as to justify a withdrawal of the offering and a new filing, any monies paid by subscribers to date must be refunded. New offering documents will have to be prepared and provided to the offerees. One drawback in rescinding an offering is that market and investor conditions may have changed in the interim. Some offerees may not be so eager to invest their money with a producer who was unable to bring the original deal to fruition.

The amended PPM will highlight the changes to the original PPM and describe those changes in detail. For example, if the theatre where the show will be produced has changed, detailed information about the location and seating capacity of the new theatre should be included. If the profit sharing arrangements or financial plans change, the amended PPM should fully explain the new arrangements or plans. All other information contained in the original PPM, even if it has not changed, is included in the amended PPM. Multiple copies of the amended PPM (with at least one original signature) are filed with the Securities and Exchange Commission. Because many state securities laws require notice filings, it is advisable to check the securities laws in the state(s) where the securities are being offered or sold to determine the requirements for amended filings.

If the producer decides to provide an amended PPM to the offerees, those who have already invested in the show (purchasers or subscribers) will be given an opportunity to take a refund of the money invested or to keep their investment in the production. The subscriber’s decision must be documented. The investment money is returned only if and when the subscriber elects to opt out of the production. The original PPM will have outlined the terms and conditions for using invested money to pay for preproduction expenses. Any money invested that has been spent on preproduction items or activities that were disclosed and budgeted in the PPM are not returned to the subscriber.

Copyright 2012 LexisNexis, a division of Reed Elsevier Inc.

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