Publicly traded companies have long been concerned with Internal Revenue Code Section 162(m) in order to maximize the deductibility of compensation paid to certain covered officers. Last year’s tax reform act made significant changes to Code Section 162(m). The IRS also recently published a Notice that explained some of these changes in more detail. To address these issues, public companies may need to review their administrative practices, particularly how they keep track of their covered officers (which now include CFOs) and executive agreements. Also, because there no longer is a performance-based exception, they may want to consider revising their incentive plans to address business goals rather than former 162(m) requirements. Before doing so, however, they will want to make sure they don’t cause exempt agreements to lose their grandfathered status under the prior Code Section 162(m) requirements.
As spring approaches, so do annual shareholder meetings for many public companies. Traditionally, these meetings were held in-person. However, due to fairly recent advances in technology, companies now have the option to hold these meetings exclusively online or by providing for online participation, which both offer advantages and disadvantages to shareholders and company leaders. Furthermore, not all state corporate statutes permit a virtual component, and those that do may impose specific requirements. With an increasing amount of public companies adopting virtual components, key stakeholders in today’s public companies should understand the advantages, disadvantages and any important practical and legal considerations to take into account- before deciding to take the virtual leap.…
Joint ventures should be considered as an alternative to an acquisition if the acquiring party feels it does not have the experience or the business risk appetite to do it individually. They have the benefit of allowing parties to have greater success working together on a specific project than if they did it themselves.Benefits of a joint venture
There are many benefits of entering into a joint venture. Some of them include:…
The term “boilerplate” refers to standardized language in a contract that usually appears at the end of the agreement (often in a section titled “miscellaneous” or “general terms”). While boilerplate provisions are common clauses in a contract, they should always be checked carefully and tailored to the particulars of the situation as they will address important issues that will be determinative of the parties’ rights with respect to the business contract. You should remember that every clause in a contract may be negotiated – even the boilerplate provisions.…
Because most indemnification claims are made by a buyer, the seller seeks to limit its indemnification obligations. Some ways in which the indemnification obligations can be limited include:
- Materiality of breach or claim amount
- Caps on indemnification
- Payment adjustments for insurance proceeds or tax benefits
Sellers often like to include materiality qualifiers in the indemnification clause as to the claim amount and the type of claim. These qualifiers serve the purpose of limiting the right of the buyer to indemnification. …
Effective for filings on and after Sept. 1, 2017, registrants will be required to include a hyperlink to each exhibit identified in the exhibit index of periodic reports, current reports and registration statements. For registration statements, the rule applies to the initial registration statement, and to each subsequent pre-effective amendment.
The SEC adopted the final rules on March 1, 2017. According to the SEC’s adopting release, the rules are intended to address the inefficient and time-consuming search required to locate exhibits that have been incorporated by reference into reports and registration statements.
These rules apply to the following types of filings:
- Form 8-K
- Form 10-Q
- Form 10-K
- Form 10
- Form 10-D
- Registration statements:
- Forms S-1, S-3, S-4, S-8, S-11, F-1, F-3, F-4, SF-1, SF-3, SF-3, F-10 and 20-F
Imagine identifying an acquisition target that looks great on paper: strong earnings, efficient operations and good workplace environment. But after acquiring the target, a key employee leaves, taking with him or her key customers and suppliers. From day one, the newly acquired business is treading water due to the lack of business continuity after the acquisition.
Even though an acquisition might look good in theory, the reality of its execution poses multiple threats that could disrupt the business after the transaction, including employees who view the change in ownership as a threat or a risk, customers who feel the change in ownership might be a good time to shop around and suppliers wanting to perhaps renegotiate contracts. In order to alleviate some of these risks, potential buyers need to address these considerations head-on during the due diligence and negotiation process.…
A non-competition agreement raises state-law public policy concerns. As a result, states often restrict the scope of non-competition agreements before they will enforce them. The protectable interests that states will recognize, the rules of construction that states will apply and the required elements of a non-competition agreement will vary from state to state. You may adhere to general guidelines in drafting non-competition agreements, but you should always consult local law.
Most jurisdictions disfavor non-competition agreements as a matter of public policy because they view such agreements as a restraint of trade. Broader language places a heavier burden on the employer to justify the restrictions whereas narrowly tailoring the language of a non-competition agreement reduces the risk that a court will construe the agreement to unnecessarily restrain trade.…
One of the most important things lawyers and clients should do in every merger & acquisition transaction is to read the documents, and be clear on the central facts of their transaction. This seems so profoundly simple and obvious that it seems that it would not need to be repeated. But a recent U.S. Tax Court case highlights the implications of not doing so.
In Makric Enterprises, Inc. v. Commissioner, TC Memo 2016-44 (Dkt. No. 1017-13, issued 03/9/2016), the taxpayers of Makric Enterprises, Inc. (Makric) sued the IRS to set aside a determination that the they collectively owed the IRS $2,839,780 and an accuracy-related penalty of $567,956 stemming from a relatively simple sale of the common stock of a parent company of its wholly owned subsidiary to a third-party purchaser.
Makric was the parent company, its subsidiary entity was Alpha Circuits, Inc. (Alpha), and the third party purchaser was TS3 Technology, Inc. (TS3).…
Indemnification clauses in purchase and sale agreements are intended to address the obligation of one party to indemnify and hold the other party harmless from direct and third party claims. However, indemnification clauses also allocate the risk of losses between the parties.
An indemnification clause should specify the rights of the parties following a breach of representations, warranties, covenants or the occurrence of a specific liability. On one hand, a buyer will negotiate an indemnification clause to expand the scope or availabilities of other remedies, at law or equity, including adding other persons whom the buyer may otherwise have difficulty recovering from and expanding the types of recoverable losses. On the other hand, a seller will negotiate an indemnification clause to limit indemnification as the exclusive remedy to permit more predictable outcomes and mitigate potential liability.…
Greg Daugherty, our colleague at Employee Benefits Law Report shared a post exploring whether or not the Department of Labor (DOL) under President Trump will continue to make employee stock ownership plans (ESOPs) a compliance priority.
A recently filed case suggests that the DOL may continue to make a priority out of investigating potential abuses in ESOP transactions. As such, employers who are considering the adoption of the ESOP should be mindful of putting together an experienced team to guide them through the fiduciary issues. In particular, it is critical for the trustee of an ESOP to hire an independent appraiser that has not performed a preliminary ESOP feasibility study for the company, and the trustee and other fiduciaries of the ESOP should be engaged with the due diligence process.
The Federal Trade Commission has announced annual filing threshold revisions under the Hart-Scott-Rodino (HSR) Antitrust Improvements Act that set new antitrust reporting standards.
Jay Levine, our colleague at Antitrust Law Source, provides perspective about the updated HSR requirements in his recent blog post. Read the full article here: “FTC revises HSR and interlocking directorate thresholds.”…
Andrew Ross Sorkin wrote an interesting article in Tuesday’s New York Times regarding the practice of private equity firms designating the legal counsel to be used by its lenders in a leveraged buyout financing. In other words, the private equity firms engaging in this practice are hand selecting, and paying the fees of, the lawyers that will be on the other side of the transaction negotiating on behalf of the banks against the private equity sponsored borrowers. This practice constitutes a clear conflict of interest that tilts the negotiations of the financing in favor of the private equity sponsored borrowers.…
Earlier this month, The Wall Street Journal published an article on the ongoing litigation in the wake of the 2014 sale of Tibco Software Inc. to Vista Equity Partners. The Tibco litigation involved an error in the calculation of the number of shares outstanding that resulted in Tibco shareholders receiving approximately $100 million less than the buyer was actually willing to pay. The Tibco litigation illustrates the importance of sound corporate record keeping, particularly with respect to stock issued and outstanding and the capitalization table of a company.…
While the latest happenings in the governing world of soccer are not a typical blog topic for us, the legal issues and impacts are worth considering in a broader context. Soccer fan or not, certainly interesting times.
Late Thursday Attorney General Loretta Lynch announced that 16 additional defendants have been indicted in the on-going probe of FIFA, soccer’s world governing body. The superseding indictment names several high-ranking FIFA officials and charges corruption involving two generations of soccer officials in South and Central America over a 24 year period. The corruption scheme involves more than $200 million in bribes to win media and marketing rights for major tournaments.…
Regulation A+ is a potentially attractive way for real estate developers to raise up to $50 million for specific projects by selling debt or equity to the public without having to meet all of the requirements of a traditional initial public offering.
Several investment platforms for real estate development allow developers to market investment offerings to investors. At least two platforms, Fundrise and Groundfloor, have launched Regulation A+ offerings to raise capital, and the SEC has approved two of the Groundfloor offerings (a third was filed November 19). In fact, the second Groundfloor offering was approved in just 22 days from the date the offering statement was filed. Groundfloor claims to be the first real estate lending marketplace open to non-accredited investors. Fundrise claims to be the first online real estate investment available to anyone in the United States regardless of net worth. Below is a description of Regulation A+ and summaries of the types of real estate development offerings using Regulation A+ to raise capital.
Amended Regulation A, effective June 19, 2015 (Regulation A+) allows issuers to make public offerings up to $50 million in a 12-month period using general solicitation of, and advertising to, accredited and non-accredited investors. The issuer must file an offering statement and the offering circular with the SEC, which the SEC must approve (a “qualification”) before any sales can be made. Issuers are permitted to “test the waters” with potential investors to see if they are interested before filing with the …
The U.S. Department of Justice (DOJ) issued new policies Sept. 9. One requires that companies disclose all facts relating to individual misconduct discovered during internal investigations or be considered uncooperative. This places pressure on corporations to turn over evidence against their own executives. The policy comes after ongoing criticism of the DOJ’s failure to prosecute individuals in the wake of the 2008 financial crisis.
The memorandum, issued by Deputy Attorney General Sally Q. Yates, marked the first major policy announcement of Attorney General Loretta Lynch since she took office in April. The Yates memorandum enumerates six key steps to strengthen prosecutions against individual defendants:…
Opinions in registration statements continue to be one of the most commonly litigated items under Section 11 of the Securities Act of 1933 (“Section 11”). On March 24, 2015, the U.S. Supreme Court in Omnicare, Inc. v. Laborers District Council Construction Industry Pension Fund clarified a lower court split in the application of Section 11 to opinions in registration statements. The court held, in pertinent part:
1. A statement of opinion does not constitute an “untrue statement of … fact” simply because the stated opinion ultimately proves incorrect. Rather, for an opinion to constitute an “untrue statement of … fact” under Section 11, the opinion expressed must not have been sincerely held by the registrant
2. Section 11 liability only attaches to an omission of material fact in a registration statement if both (i) the registration statement omits material facts about the issuer’s inquiry into, or knowledge concerning, a statement of opinion, and (ii) those facts conflict with what a reasonable investor, reading the statement fairly and in context, would take from the statement itself.…
During 2014, Congress has gained momentum toward creating an exemption from federal broker-dealer registration for “M&A brokers” who facilitate mergers, acquisitions, sales and similar transactions involving privately held companies.
H.R. 2274 unanimously passed the U.S. House of Representatives, but the U.S. Senate did act on the bill. If passed, the measure would have permitted M&A brokers to be involved with the sale of certain privately held companies without being registered as a broker-dealer. A number of limitations apply to the type of transaction addressed in the bill, including:
- The size of the privately held company
- Company leadership; the buyer would need to be actively involved, directly or indirectly, in operating the business after closing
- Client funds; the bill forbids the M&A broker to have custody of client funds
Observers expect the bill to be reintroduced in 2015.
Shortly after H.R. 2274 passed the U.S. House, the Securities and Exchange Commission issued the M&A broker no-action letter, which concluded that the staff of the SEC Division of Trading and Markets would not recommend enforcement action if, without registering as a broker-dealer, an M&A broker engaged in M&A activities if all of the no-action letter’s conditions were satisfied. Among those conditions are that the target company must be an operating company that is a “going concern,” the buyer must be involved in operating the business after closing, and an M&A broker cannot bind a party to an M&A transaction or provide financing for an M&A transaction.
State regulators, in collaboration with …
Following the expiration of a public comment period last week, the ink is now dry on the Federal Trade Commission’s consent decree against Made in USA Brand, LLC, settling charges that the Columbus, Ohio-based company sold its “Made in USA” certification label to product-sellers without making any attempt to verify whether the companies’ products were actually made in the USA.
The FTC’s case against Made in USA Brand, LLC seems to present a pretty bright line for what not to do when labeling a product as “Made in USA.” According to the FTC, the company’s certification would have been just as easily obtainable by a computer chip factory in Shenzhen, China as it would have been by a furniture maker in Pennsylvania Dutch country. But determining whether a product is truly “Made in USA” is rarely as obvious as in these extreme examples. In our increasingly globalized economy, even the most seemingly simple products may be assembled in one country from parts manufactured in another country using components made in yet another country. Can any one of these countries really claim to have “made” the product?
Fortunately, the FTC has attempted to bring a pragmatic approach to this conundrum by allowing use of a “Made in USA” label as long as “all or virtually all” of a product is made domestically. Problem solved, right? Wrong. Enter California.…
A recent Sixth Circuit case, interpreting Ohio law, found that a merger agreement stating that the representations and warranties “shall survive…the Closing until… the second anniversary date of the Closing…,” without more, was not sufficient to modify the statute of limitations for breach of contract claims related to the merger agreement. Fortunately, this issue can be remedied in merger agreements with the addition of a provision expressly limiting when “actions,” “demands” or “claims” may be brought.
This article describes the Sixth Circuit case in greater detail and provides a sample contract provision that M&A parties can add to their M&A agreements to ensure that courts will respect the parties’ intent to modify the statute of limitations in the survival clause of the agreement.
Background of the Sixth Circuit case
Escue v. Sequent, Inc., 2014 FED App. 0412N (6th Cir. 2014), involved the acquisition of Better Business Solutions of Alabama, Inc. (“Better Business”) by Sequent, Inc. pursuant to a stock for stock merger that closed Jan. 1, 2007. On Dec. 18, 2008, the plaintiff, the sole shareholder of Better Business, sent a letter to the defendant corporation stating that he intended to sue the defendant corporation for breaching its representations and warranties. However, the lawsuit was not filed until September 2009.…
It has been more than two years since the JOBS Act was passed and almost nine months since the SEC proposed crowdfunding rules — but still no final rules. Should entrepreneurs care? Probably not. The proposed SEC rules are burdensome. The rules limit the total amount raised to $1 million in any rolling 12-month period, and moderate-income investors would be limited to a $5,000 investment (at the most). Additional proposed rules require audited financials (for some offerings), limits on advertising, and filings with the SEC, among other requirements. Entrepreneurs with great ideas should not settle for these types of investments.
Crowdfunding for accredited investors already exists, and it may fill an important funding gap for growing businesses that have not attracted angel investors and are not ready for venture capital or private equity. Not all startups are tech based, and not all angel investors in a particular entrepreneur’s community know what a good investment looks like. But a well-curated accredited crowdfunding platform can provide exposure to a lot of potential accredited investors.…
U.S. Attorney General Eric Holder and Citigroup announced today that Citigroup will pay $7 billion to settle a U.S. Department of Justice (DOJ) investigation into allegations that it defrauded investors by selling shoddy mortgages ahead of the financial crisis. The civil settlement does not rule out future criminal charges again Citigroup or individual employees. Citigroup stock rose 1.49% Monday in early trading following the announcements.
Citigroup will pay a $4 billion civil penalty to the DOJ, $500 million to the Federal Deposit Insurance Corp. and will set aside $2.5 billion in “consumer relief” to assist struggling mortgage holders. The settlement covers not only residential mortgage-backed securities but also collateral debt obligations (CDOs) issued between 2003 and 2008. The relief to consumers will include Citigroup receiving credit for modifying mortgages for struggling borrowers. The settlement marks a reversal from mid-June when the DOJ had threatened filing suit unless Citigroup significantly raised its offer.…
In an increasingly global economy, it is becoming more and more common for a product to be sold outside of the U.S., yet find its way back into the states, either as a resale product or as part of a finished downstream product. The question then becomes, does U.S. antitrust law apply to that foreign sale? The answer largely depends on the scope of the Foreign Trade Antitrust Improvements Act (FTAIA), the law that governs such conduct. Not surprisingly, the U.S. Department of Justice (DOJ) and plaintiffs’ bar have been pushing for an expansive reading of the law, so more such sales would be governed by American antitrust law. The 2nd U.S. Circuit Court of Appeals just gave them a boost in a case recently decided — Lotes Co., Ltd. v. Hon Hai Precision Industry, Co., Ltd. A quick background on FTAIA and the Lotes case will help you understand why all of this matters to you.
The FTAIA governs the extraterritorial reach of U.S. antitrust laws. Its original, ostensible purpose was to limit the extraterritorial reach, so the U.S. did not play the role of a global antitrust cop. According to the FTAIA, any non-domestic commerce that is not a direct import to the U.S. is outside the scope of U.S. antitrust laws — unless the foreign sale:
(a) has a “direct, substantial, and reasonably foreseeable effect” on the U.S. domestic market or the U.S. export market and
(b) “gives rise to” an antitrust claim by the plaintiff.…