• A New Way to Raise Funds–Rule 506(c) and General Solicitation

    by  • October 8, 2013 • 0 Comments

    If your company is looking to raise funds, you might want to consider new Rule 506(c), which allows companies to generally solicit investment in securities offerings. Even hedge funds and other pooled funds can take advantage of the opportunity to advertise their funds to investors.

    The JOBS Act created the opportunity to generally solicit investment, but it also created some new obligations for those looking to take advantage of the chance to get in front of a greater number investors. The primary new burden is the requirement that securities issuers “take reasonable steps to verify” that an investor qualifies as an accredited investor. This heightened verification requirement means that the standard self certification letters will not suffice. Instead, investors will have to provide documentation proving that they qualify as accredited investors.

    Many commentators think this verification requirement will prevent Rule 506(c) from being widely used. We disagree. One of the safe harbors to the verification requirement carved out by the SEC is an opinion letter from an attorney, CPA, or Broker-Dealer stating that they took reasonable steps to verify the investor, and determined that the investor qualifies as an accredited investor. iVLG is offering flat rate investor verification services for $50-$100 depending on whether it’s a net worth or income based verification.

    If you can acquire funding without utilizing general solicitation, that may be the best course for you. But, for the vast majority of companies that expend great resources trying to secure capital, general solicitation may be an attractive option.

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    Board Considerations in the Context of a Business Combination Transaction

    by  • August 21, 2012 • 0 Comments

    When contemplating a merger, sale, or acquisition, there are a number of matters for directors to consider. From a legal perspective, one of the primary concerns with pre-combination actions taken by the board is ensuring that the transaction will receive the benefit of the business judgment rule.

    A Quick Review of the Business Judgment Rule

    The business judgment rule is a principle which, absent special circumstances, such as a conflict of interest, provides that courts will presume the propriety of directors’ decisions.

    Delaware’s business judgment rule creates a presumption that directors’ decisions were made by disinterested and independent directors who acted in subjective good faith, and employed a reasonable decision making process. Under those circumstances, the directors’ decisions are reviewed not for reasonableness, but for rationality: a director will not be held liable for unreasonable decisions so long as the decision is rational.

    In order to overcome the business judgment rule presumption, a plaintiff must effectively demonstrate that the board of directors, in reaching its challenged decision, breached any one of its triad of fiduciary duties, loyalty, good faith, due care.

    Important Considerations

    Directors that contemplate the following issues will be more likely to secure the protection of the business judgment rule:

    1. Do any of the parties involved have personal relationships or other conflicts which would give rise to questioning the duty of loyalty?
    2. Do the directors have as much information regarding the transaction as is reasonably available?
    3. Have the directors thoroughly reviewed the information collected?
    4. Have the directors sought expert advice from lawyers, bankers, and accountants to ensure they have a firm grasp of the transaction?
    5. Have the directors contemplated the merits of alternative options, including the option of completely walking away from the transaction and not seeking alternative deals?
    6. Have the directors openly debated the merits of the transaction amongst themselves?
    7. Do the directors understand all the material terms of the agreement and alternative terms that might be included in the agreement, including pricing terms, conditions to closing, restrictions prior to closing, “no shop” provisions, and “break up” provisions?
    8. Do the directors understand the tax consequences of the transaction?
    9. Are the directors aware of all the relevant regulatory restrictions?
    10. Do the shareholders have a right to vote on the transaction?
    11. Do the directors understand the confidentiality terms of the transaction negotiations?
    12. Are appropriate measures in place to protect the confidential nature of the negotiations?
    13. How is the company going to explain the transaction to the press?
    14. What is the structure of the corporation’s governance following the transaction?
    15. Is any corporate stock subject to accelerated vesting upon completion of the transaction?

     

    If you have any questions about fiduciary duties, or board obligations in the context of mergers, acquisitions, or sales, please feel free to post a comment below or contact inVigor Law Group.
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    The Cost of Combined CEO/Chairman

    by  • July 2, 2012 • 0 Comments

    GMI Ratings recently published a study on the cost of having a dual CEO/Chairman rather than having separate individuals for the two positions. The problem of having one person for both positions is fairly straightforward, as GMI Ratings’ study puts it: If the CEO is responsible for running the company, and the board is tasked […]

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    Share Buybacks

    by  • June 25, 2012 • 0 Comments

    Michael Mauboussin of Legg Mason Capital Management recently published a great finance piece on share buybacks. Officers and directors of successful corporations must decide what to do with excess cash. This is an issue for many officers and directors today, as nonfinancial companies are sitting on $1.7 trillion in liquid assets. What are share buybacks? A […]

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    Executive Pay in the News

    by  • June 17, 2012 • 0 Comments

    Executive pay continues to grab headlines. This last week two articles in particular caught my attention. NY Times: Executive Pay Continues to Increase The NY Times is reporting that executive pay is still increasing despite declining wealth among the middle class. CEO pay increased 5% and the median pay for a top 200 CEO was […]

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    In Unusual Move, CVR Investors Seek Poison Pill

    by  • June 10, 2012 • 0 Comments

    Potential acquirers offer target shareholders a premium on the market rate for their shares. Because acquirers offer this premium, and because investors have the right to refuse the acquirer’s bid, shareholders generally do not seek poison pills to protect against takeovers. However, investors in CVR Energy recently filed a lawsuit seeking a court order which […]

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