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Interesting Reads of the Week

Some interesting legal reads for the week of February 10, 2014:

Interesting Reads of the Week

Some interesting legal reads for the week of February 3, 2014:

  • The SEC issued transitional guidance for Rule 506 offerings commenced before the effective date of the new rules permitting general solicitation.  Here is a summary from Securities News Watch.

Developments in Form Agreements

My clients are often under the impression that I have at the ready a library of forms such that drafting an agreement for a particular deal is pretty much a matter of filling in the client’s name and the date of the agreement.  In reality, while in most cases the drafting of an agreement means using one or more existing agreements or forms as a starting point, there is usually too much factual variation between different deals to avoid having to engage in some active, brain-taxing drafting.

Interesting Reads of the Week

Starting now, I’m introducing a new (hopefully weekly) feature of this blog, where I provide a few links to some outside articles and blog posts that I found interesting.  Here goes:

  • Announcements of acquisitions of public companies lead to near-automatic shareholder lawsuits.
  • An account of (apparently) the first Regulation D offering using general solicitation under the new rules.
  • The SEC issued a report mandated by the JOBS Act on disclosure requirements under Regulation S-K, which applies to public company filings under the Securities Act of 1933 and Securities Exchange Act of 1934.
  • A useful reminder that Form Ds, the form filed to report private offerings conducted under Regulation D, are publicly available when filed with the SEC.

The Evolution of Closings

Since I started practicing law in 1997, the manner in which closings of corporate deals are conducted has been completely transformed.  In the old days, a typical closing would be conducted in a conference room in a law office, and the various documents that needed to be executed would be organized in manila file folders arrayed in a scary-looking retractable metal contraption that kept the folders separated.  All attorneys and principals would be in the room, except that junior attorneys and paralegals would occasionally go scurrying off to make copies.

The Evolution of Closing Corporate Deals | Andrew Abramowitz, PLLC

Further Thoughts on JOBS Act and Investor Fraud

Over the New Year, I saw the new Leonardo DiCaprio/Martin Scorsese film, “The Wolf of Wall Street,” which told the apparently mostly-not-embellished true story of boiler room scammer Jordan Belfort.  In addition to setting a record for use of the f-word in a film, this movie was the most relevant to what I do for a living since “The Social Network” improbably addressed the issue of dilution of startup founders.

JOBS Acts and Crowdfunding

Regulation A+ Proposed Rules

Continuing its implementation of rules mandated by the JOBS Act, the SEC has proposed rules for the expansion of offerings under Regulation A.  Here is the SEC’s handy press release and fact sheet.  Commentators have dubbed the new rules “Regulation A+” because of the greatly increased maximum offering amount under the new rules (and not as a reference to the average grade at Harvard).  As with the recent crowdfunding proposal, these rules are not effective until after the SEC issues final rules following a comment period. …

New York’s LLC Publication Requirement

I don’t often get emotional one way or the other about corporate laws, but one requirement that truly irritates me is New York’s “publication” requirement for limited liability companies.  LLCs that are formed in New York, or LLCs formed elsewhere that are qualifying to do business in New York, are required to publish an advertisement in the county where the LLC is located for a period of time.  Depending on the county, this can be an expensive undertaking, and it exceeds the state filing fees associated with the formation itself.  The requirement does not apply to corporations.

LLC Publication Requirements NYS | Andrew Abramowitz, PLLC

Seeking Tax Legal Advice

Attorneys are often mocked for what seems to outsiders as excessive caution in making definitive statements.  A typical legal opinion rendered by a corporate attorney is approximately 10% opinion and 90% caveats, exclusions and limitations.  The one caveat I think I have provided to every single one of my clients at one time or another is “but I’m not a tax attorney and am not providing tax advice.”  Even though I took courses in basic income tax and corporate tax in law school, this area of the law is uniquely complex, and I’ve always been careful to defer to the experts.  My uncle got an LLM degree in tax law and practiced in the areas of tax, corporate, real estate and trusts and estates.  That sort of generalization isn’t really possible anymore, as all of those areas are exponentially more complex today, so most corporate lawyers today are like me very reticent about making grand pronouncements about tax matters.

Bridge Loans

I focused in my last post about breaking up M&A transactions into stages, where a potential acquirer can start by purchasing a minority interest in a company, followed by a purchase of the remainder of the company later.  The same approach of breaking a transaction up into bite-sized pieces can be taken with investments that are never intended to be full acquisitions of a company.  Equity financing transactions can be structured as a multi-stage process, e.g., an investor purchases a 10% interest and then is obligated to purchase another 10% in the future if the company hits a certain milestone.

But I wanted to focus here on the very common “bridge loan” transaction.  The scenario here is that the company wants to (or needs to) put off a significant financing transaction for some period of time – perhaps because it has to develop its business in some manner that would be required to attract the investment – but it needs temporary funds to allow it to do that developing.  Rather than negotiating a full-fledged VC-style equity investment, the solution is to structure a bridge investment as a convertible note.  The note will automatically convert into equity when the company completes its equity offering over a threshold amount.  A selective list of issues to think about in structuring the bridge loan transaction: