There are several other sources for a business to obtain financing. They include:

• Mergers & Acquisitions (M&A) is teaming up with another company and its resources
• Capital Markets (IPOs, Secondary Offerings) raise money from investors based on required prospectus documents which you file as an accurate representation of the status of your company
• Private Equity & Venture Capital receives money from specialized investors who take stock in your company and demand certain voting rights so they can have a say in the operations of the company. Their goal is to help your company grow fast so they can sell their stock and make a healthy profit
• Equity Financing involves selling shares of stock in your company and diluting your share of the ownership and control of your company
• Hybrid Securities start as a loan but can convert into equity
• Derivatives are hedges against market fluctuations in interest rates or commodity prices, including futures, options, and swaps
• Government Grants do not require repayment but they come with strict compliance requirements and usage limitations

All these alternative forms of business financing deal with money from other parties and carry significant risks. They are strictly governed by statutes relating to securities, taxes, contracts, and corporate governance. Violation of these laws takes the forms of debt default, breach of contract, misrepresentation, and regulatory non-compliance. Violations result in various consequences, including:

• Acceleration of Debt and Penalties
• Seizure of Collateral
• Personal Liability for Debts
• Lawsuits and Judgments
• Forced Bankruptcy
• Loss of Equity and Control
• Regulatory Fines
• Contractual Disputes

Why Legal Expertise Matters

The legal complexities of business financing can be overwhelming to anyone who does not fully understand the risks associated with the different types of financing. Missteps can create severe financial consequences, legal disputes, or loss of business control. Risks can be mitigated in a variety of ways that are sound and legal. The experienced business finance lawyers at Corporate Securities Legal LLP specialize in business finance law and can assist you in securing and managing your business finances effectively.

It involves vetting issues that affect the business by being proactive, rather than reactive, in response to problems. It can reveal opportunities, uncover hidden risks, and go beyond the basics, evaluating context, culture, long-term risks, and whether the pursuit aligns with the organization’s values.

Key Aspects of Due Diligence

• Risk Mitigation: Identifying issues early and establishing solutions to avoid lawsuits, regulatory fines, or reputation damage
• Verification: Confirming the accuracy of reported income, assets, and liabilities
• Strategic Alignment: Evaluating if the proposed deal aligns with long-term business goals

Due Diligence Can Focus on a Variety of Business Issues

• Technology development
• Cyber networks
• Supply chain
• Financial reports
• Regulatory compliance
• Environmental, social, and governance issues
• Legal status
• Real estate claims
• IT licensing
• Market position
• Customer database

Common Procedures to Conduct the Due Diligence Process

• Define goals for the relationship
• Set roles and responsibilities
• Develop a questionnaire
• Audit company documents and/or processes
• Assess risk management policy
• Report on findings
• Monitor and mitigate risk

Why Due Diligence Is Important

• It verifies the accuracy of seller representations
• It uncovers undisclosed liabilities such as:

    ◦ Pending lawsuits

    ◦ Tax liens

    ◦ Environmental violations

    ◦ Contract breaches

• It provides a basis for future planning by:

    ◦ Revealing operational issues

    ◦ Key customer dependencies

    ◦ Employee concerns requiring attention

How Lawyers Can Help

Due diligence is always enhanced by obtaining outside expertise from lawyers with professional experience. The business lawyers at Corporate Securities Legal LLP, with their experience and comprehensive knowledge of business operations, can identify and resolve red flags in financial, legal, contractual, operational, and tax compliance issues. They will help you define what you need to know, why it matters, and how the findings will influence your business decisions. The process involves:

• Setting clear workflows for collecting and analyzing information
• Integrating technology and automation to streamline the collection of information
• Organizing findings by risk level — low, moderate, and high — and assessing both likelihood and impact under various scenarios
• Keeping a clear audit trail by documenting key findings and any unresolved questions in a final report for executive decisions and post-deal action plans
• Continuing to monitor by establishing procedures to ensure compliance, performance, and alignment with your values and goals

Now you are ready to expand your business to serve more customers and increase your profits. You are now an experienced businessman so you should be able to do it yourself by just working harder. You won’t need your lawyer this time, right? Hold on. Not so fast. There are four different ways to expand your business, and each one has its own challenges and legal risks. They focus on increasing existing market share, entering new markets, developing new products, or expanding into entirely new business areas.

Deciding which type of expansion is right for you is critical. The best strategy is the one that aligns with your company’s current position, long-term vision, resources, goals, financial standing, and appetite for risk.

Here are the four key directions for business expansion:

Market Penetration

This option involves increasing sales of your current products or services in your existing market. This involves:

• Sharpening your marketing by targeting the demographics who are most likely to choose your products
• Enhancing customer service through customer feedback
• Adjusting pricing to boost market share
• Studying your customers’ loyalty and purchasing behavior

Market Development

This option involves entering new markets with your existing products or services. This involves:

• Opening a new location
• Targeting new demographics
• Evaluating your competitors’ strengths and weaknesses

Product Development

This option involves developing new products or services to reach new or existing markets. It involves:

• New products or services to sell to your existing customer base
• Creating add-ons
• Innovating to solve different customer needs

Diversification

This option involves offering new products or services in a new market that complement your existing offerings. It involves:

• Entering a new market with a new product, which is the highest-risk strategy but offers the highest potential reward
• Entering new industries or business lines unrelated to your current products

Supporting Expansion With Help From Others

• Partner with other businesses to expand your reach or product range
• Purchase or merge with another business to rapidly expand market share or capabilities
• License your business model to others to expand to new locations without high capital investment
• Expand by taking control of your supply chain (moving backward) or distribution (moving forward)

You Don’t Have to Do It Alone

Expanding your business can be a lot like when you started the business. Even the best-laid plans can sometimes fail. Before making any business decision, you should consult a business lawyer who can advise you, based on your individual situation. He will identify financial, operational, and regulatory risks early to find ways to mitigate them and protect your business as it expands. The business lawyers at Corporate Securities Legal LLP have successfully helped clients expand their business for many years.

The second reason one comprehensive contract is a bad idea is that if there is a breach of even a minor part of the contract it could void the entire contract and put you back to square one. The solution is one principal contract giving general provisions, then several ancillary documents that cover all the necessary details.

Ancillary legal documents are supplementary agreements, certificates, or instruments that support and accompany a primary legal document to ensure all details of a transaction or plan are fully executed. They are subordinate to the main contract and are designed to fill in gaps, address specific “what if” scenarios, or facilitate the transfer of assets.

There are different types of ancillary documents to cover multiple categories necessary to complete the purchase or merger transaction.

Post-Closing Commercial Arrangements:

• Supply agreements assure the dependability of supply chain arrangements
• Distribution agreements assure the reliability of customer dependence
• Service agreements mitigate transition risks and define post-closing obligations
• Disclosure schedules provide specific exceptions to the general representations and warranties made in the main agreement
• Settlement statements summarize the financial transactions, including the final purchase price, adjustments, and prorated costs
• Secretary’s certificate certifies that the board of directors and shareholders have authorized the transaction and all conditions have been met

Restrictive Covenants:

• Non-competition, non-solicitation of employees or clients to protect the buyer from the seller starting a competing business
• Non-Disclosure Agreements (NDAs) protect confidential information before and after closing by either party
• Resignation letters from the target company’s current directors and officers

Asset/IP Transfers:

• Bills of sale transfer title to tangible personal property like equipment or furniture
• Intellectual property assignments transfer rights to trademarks, patents, copyrights, and domain names
• Real property leases, quitclaim deeds, deeds of trust, promissory notes, and title insurance policies
• Assignment and assumption agreement transfers specific contracts, leases, and licenses from the seller to the buyer

Employment & Transition:

• Consulting agreements contract key employees or former owner to stay on for a period
• Escrow agreements govern a portion of the purchase price funds set aside by a third party to satisfy post-closing indemnification claims

Operational Support:

• Transition Services Agreements require the seller to provide temporary support (like IT or accounting) to ensure the business stays operational after the sale
• Lien Releases confirm that secured debts are paid off at closing

Avoiding costly court intervention or litigation is the work of the lawyers at Corporate Securities Legal LLP by drafting all necessary and appropriate ancillary documents, and watching out for potential red flags in a proposed merger or acquisition.

The Foreign Corrupt Practices Act of 1977 (FCPA) prohibits U.S. companies and individuals from offering or paying bribes to foreign officials in order to obtain or retain business advantages. The law applies to conduct occurring both outside and within the United States and broadly covers the use of mail or any means of interstate commerce in furtherance of improper payments.

The statute makes it unlawful to offer, promise, authorize, or provide money or anything of value while knowing that such benefits may be directed—either directly or indirectly—to a foreign official for the purpose of influencing official actions, securing improper advantages, or directing business opportunities.

Importantly, the FCPA also applies to foreign companies and individuals whose actions further corrupt payments within the United States.

Accounting and Internal Control Requirements

Companies subject to the FCPA must maintain strong internal accounting controls designed to ensure transparency and accurate financial reporting. Public companies whose securities trade in the United States are required to:

• Maintain books and records that accurately reflect corporate transactions;
• Implement internal accounting controls sufficient to prevent and detect improper payments;
• Ensure financial reporting systems properly account for corporate expenditures.

The U.S. Securities and Exchange Commission (SEC) and the Department of Justice (DOJ) jointly enforce FCPA provisions. Violations may result in severe penalties, including:

• Civil and criminal enforcement actions;
• Monetary fines reaching up to twice the anticipated benefit obtained through misconduct;
• Individual criminal liability;
• Imprisonment of up to five years.

Increased Enforcement and National Security Concerns

Federal regulators have expanded FCPA enforcement efforts in response to growing concerns that corporate misconduct may impact national security. Enforcement priorities now include risks associated with:

• Sanctions evasion and export control violations;
• Cybercrime and cryptocurrency-related misconduct;
• Intellectual property theft;
• Disruption of critical supply chains and emerging technologies.

Companies are increasingly expected to implement sophisticated compliance programs and exit business relationships or markets presenting unacceptable regulatory risks.

DOJ Safe Harbor Policy for Mergers and Acquisitions

In October 2025, Deputy Attorney General Lisa O. Monaco announced a department-wide Safe Harbor Policy encouraging voluntary self-disclosure of misconduct discovered during mergers and acquisitions transactions.

Under this policy, acquiring companies that:

• Promptly and voluntarily disclose criminal misconduct;
• Fully cooperate with government investigations;
• Implement timely remediation measures;
• Provide restitution and disgorgement where appropriate

may receive a presumption of declination, meaning the DOJ may decline prosecution despite otherwise prosecutable conduct.

Significantly, misconduct discovered at an acquired company—including aggravating factors—will not automatically prevent the acquiring company from qualifying for Safe Harbor protection.

According to the DOJ’s FCPA Corporate Enforcement Policy, a declination applies where prosecution would otherwise occur but is avoided due to voluntary disclosure, cooperation, remediation, and financial restitution.

The Importance of Compliance Planning

Modern enforcement policy reflects a shift in regulatory expectations. Corporate compliance programs are no longer viewed merely as operational costs but as essential safeguards against substantial financial and reputational exposure.

Companies engaged in cross-border transactions or acquisition activity should evaluate compliance risks early in the transaction process to preserve eligibility under Safe Harbor protections.

For questions regarding FCPA compliance or voluntary self-disclosure obligations, consultation with experienced securities counsel is critical. The attorneys at Corporate Securities Legal LLP assist companies in meeting regulatory deadlines, conducting internal investigations, and navigating Safe Harbor requirements during mergers and acquisitions transactions.

Contact Corporate Securities Legal LLP to discuss strategies for maintaining compliance and minimizing enforcement risk under the Foreign Corrupt Practices Act.

After a few years of declining merger and acquisition (M&A) activity, transaction volume is beginning to rise again, making this an important time for companies to prepare for potential deal opportunities. Whether a company intends to expand through acquiring additional products or services or seeks to combine with a complementary business, preparation is essential to successfully execute a transaction when opportunities arise.

Advance preparation positions a company as a viable and attractive candidate for merger and acquisition activity.

Increased Capital Driving M&A Activity

Recent dry powder surveys demonstrate that significant funding remains available for mid-market and smaller M&A transactions. “Dry powder” refers to uninvested cash or liquid assets held by investors—particularly private equity and venture capital firms—for future deployment.

These funds are maintained to allow investors to:

• Quickly pursue acquisition opportunities;
• Respond to favorable market conditions;
• Navigate economic downturns without liquidating existing investments;
• Compete effectively for strategic transactions.

Current estimates place available dry powder at approximately $1.3 trillion, with nearly 24% held for four years or longer. This prolonged capital reserve creates mounting pressure on private equity firms to deploy funds efficiently in an increasingly competitive marketplace.

Modern M&A participants now include:

• Private equity firms;
• Sovereign wealth funds;
• Direct corporate investors;
• Large family offices.

Evolving Deal Structures and Market Confidence

Today’s M&A environment increasingly relies on creative transaction structures designed to allocate risk and preserve financing flexibility. Common approaches include:

• Club deals involving multiple investment partners;
• Private credit financing arrangements;
• Strategic risk-sharing between buyers and sellers;
• Enhanced due diligence practices.

Improved financing conditions, increased corporate confidence, and expectations of a more relaxed regulatory environment have further contributed to renewed acquisition activity.

Programmatic M&A as a Growth Strategy

Research conducted by McKinsey & Company indicates that companies engaging in programmatic M&A strategies consistently outperform competitors. Successful acquirers commonly demonstrate several shared characteristics.

Expansion Beyond Core Markets

Effective acquirers frequently pursue transactions outside their traditional business lines, targeting:

• Adjacent sectors within the same industry;
• Emerging markets offering higher growth potential;
• Strategic expansion opportunities beyond core operations.

By anticipating natural growth slowdowns in established markets, programmatic acquirers position themselves to capture future expansion opportunities.

Strategy-Driven Decision Making

Successful dealmakers remain disciplined in following clearly defined acquisition strategies. Rather than pursuing transactions opportunistically, they evaluate deals based on long-term value creation and competitive positioning.

Prioritizing Value Over Purchase Price

High-performing acquirers focus on whether a transaction creates measurable value rather than whether it offers the lowest acquisition price. Even higher-cost acquisitions may be justified when projected synergies and operational efficiencies exceed total transaction costs.

Active Portfolio Management

Leading acquirers also recognize the importance of divestitures. Strategic capital reallocation—including both acquisitions and dispositions—often distinguishes companies that maximize shareholder value from those focused solely on expansion.

Why Preparation Matters

The manner in which a company approaches merger and acquisition activity can ultimately determine the success or failure of the combined enterprise. Companies that maintain organized financial records, clear strategic objectives, and sound legal structures are better positioned to respond quickly when acquisition opportunities arise.

The securities lawyers at Corporate Securities Legal LLP have extensive experience guiding clients through M&A strategy, transaction structuring, and financing solutions designed to support successful business combinations.

Contact Corporate Securities Legal LLP to discuss how proper preparation can position your company to capitalize on today’s growing M&A opportunities.

When two companies begin exploring a potential merger or acquisition, each must gain access to sensitive information about the other in order to evaluate the proposed transaction. At the same time, both parties must protect their own proprietary information, including operational data, strategic plans, financial records, and confidential information relating to customers, suppliers, and employees.

A properly drafted, legally binding non-disclosure agreement (NDA) allows both objectives to be achieved. By governing how confidential information is shared and used, an NDA enables meaningful due diligence while preserving each company’s competitive position.

Why NDAs Are Essential in the M&A Process

An NDA should be one of the first agreements executed once merger or acquisition discussions begin. It establishes trust between the parties, defines clear rules for handling sensitive information, and ensures that proprietary data is not misused or disclosed prematurely.

The primary purpose of an NDA in the M&A context is to ensure that confidential information exchanged during due diligence:

• Remains protected from disclosure to third parties;
• Is used solely to evaluate the proposed transaction;
• Is not exploited for improper purposes, such as soliciting employees or interfering with customer or supplier relationships.

By addressing these risks early, an NDA helps prevent significant legal and competitive harm.

Defining Confidential Information

To be effective, an NDA must contain a clear and comprehensive definition of what constitutes confidential information. Overly broad or vague language can expose a company to unfavorable interpretations and weaken enforcement.

A well-drafted NDA should specifically identify categories of protected information, including:

• Financial information – Historical financial statements, projections, budgets, cost structures, revenue breakdowns, pricing models, and bidding information.
• Strategic and operational data – Marketing plans, sales data, go-to-market strategies, competitive positioning, market research, and internal processes.
• Products and intellectual property – Current and future products, patents, trade secrets, software, research and development materials, product roadmaps, engineering drawings, and technical specifications.

Careful itemization reduces ambiguity and strengthens the enforceability of the confidentiality obligations.

Exclusions From Confidential Treatment

An NDA should also clearly identify information that is not considered confidential. Typically excluded are:

• Information that is already publicly available or later becomes public through no fault of the receiving party;
• Information the receiving party already possessed prior to disclosure;
• Information independently developed by the receiving party without use of the disclosed materials.

These exclusions help ensure that confidentiality obligations are fair and legally defensible.

Use Limitations and Duration of the NDA

An NDA should narrowly limit the use of disclosed information to evaluating the potential merger or acquisition. Confidential information may not be shared simply to educate the receiving party about the disclosing party’s operations or for any unrelated business purpose.

The duration of the NDA depends on the outcome of the negotiations:

• If the transaction closes
  The NDA is typically replaced by new confidentiality provisions governing officers and employees of the combined entity.
• If negotiations fail
  Confidentiality obligations generally continue indefinitely.

In the event of unsuccessful negotiations, the NDA should also require:

• The return or destruction of all confidential materials;
• Continued non-disclosure to third parties, except where disclosure is legally required or expressly authorized;
• Recognition that disclosure does not transfer ownership or diminish the disclosing party’s rights in the information.

Why Careful Drafting Matters

A well-drafted NDA signals that both parties are serious, prepared, and professionally advised. It sets the tone for negotiations and provides essential legal protection throughout the M&A process.

The securities attorneys at Corporate Securities Legal LLP bring decades of experience advising clients on NDAs and complex M&A transactions. Their disciplined approach and industry knowledge help clients protect their interests while advancing deals efficiently and strategically.

Contact Corporate Securities Legal LLP to ensure your NDA is carefully structured, enforceable, and aligned with your broader transaction goals.

When companies decide to merge, one of the most critical—and often contentious—issues is determining the value being exchanged. While it may seem like a straightforward financial exercise, company valuation is rarely simple. Multiple valuation methodologies exist, and parties often disagree over which factors deserve the greatest weight.

Differences in assumptions, strategic objectives, and risk tolerance frequently lead to divergent views of value.

Identifying Valuable Company Assets

Tangible assets are generally the easiest to value. These assets are often assessed based on purchase price, adjusted for depreciation. However, a company’s true value extends well beyond its physical assets.

Intangible Assets and Internal Value Drivers

Key non-tangible components that significantly affect valuation include:

• Intangible assets
• Customer relationships
• Intellectual property
• Brand reputation
• Pending litigation
• Contingent liabilities

External Factors Affecting Valuation

A company’s value is also influenced by conditions outside the organization, including:

• Broader market conditions
• Regulatory changes
• Industry trends
• Macroeconomic factors

Common Valuation Methods in Mergers

Disputes often arise not because one party is “wrong,” but because different valuation methods reflect different strategic priorities. Common approaches and points of disagreement include:

• Overstating projected cost savings from combining operations
• Valuing intellectual property, patents, and brand equity
• Selecting accounting models such as comparable transaction analysis versus discounted cash flow analysis
• Assessing the negative impact of legal disputes, environmental exposure, or pension liabilities
• Valuing the company based solely on total assets minus liabilities
• Relying on valuations from comparable mergers within the same industry

Each approach can produce materially different outcomes.

Why Buyers and Sellers Value Companies Differently

Understanding valuation disagreements requires examining each party’s objectives.

Seller Perspectives

Sellers often emphasize future growth and recent performance trends. Their valuation typically reflects optimism about continued expansion and the realization of projected synergies.

Buyer Perspectives

Buyers, lacking deep historical insight into the target company, tend to adopt a more conservative posture. They focus on:

• Market volatility
• Competitive pressures
• Downside risk
• Integration challenges

Additional Factors Driving Divergent Valuations

Several structural issues also contribute to valuation differences:

• Discount rates: Higher perceived risk leads to higher discount rates and lower valuations
• Standalone vs. combined value: Determining a company’s standalone value is usually easier than estimating post-merger synergies
• Lack of perfect comparables: No two transactions are identical, and differing interpretations of market data often yield different results
• Tax treatment: Tax consequences vary depending on deal structure
– Earn-out payments are generally treated as ordinary income
– Asset purchases may qualify for capital gains treatment
– Buyers and sellers often benefit differently from each structure

Maximizing Value in a Merger

The ultimate goal of a merger is to create greater value than either company could achieve independently. Achieving that outcome requires realistic assumptions, disciplined analysis, and careful planning.

The attorneys at Corporate Securities Legal, LLP bring financial insight, industry knowledge, and strategic judgment to help clients achieve accurate valuations and informed decision-making. Our team actively identifies and mitigates risks that are frequently overlooked, including:

• Unrealistic cost-saving or revenue assumptions
• Rapid industry shifts
• Competitor responses
• Changing customer expectations
• Inadequate due diligence
• Post-merger operational integration challenges

With experienced legal and strategic guidance, companies can navigate valuation disputes effectively and position themselves for long-term success following a merger.

Mergers and Acquisitions Explained

Mergers and acquisitions are an integral part of how industries are shaped. They can allow smaller companies to better compete with larger established companies or consolidate market share to increase profits. Being acquired can also offer a smaller business a less costly route to become a public company.

The terms, merger and acquisition, are often used interchangeably but they do not mean the same thing.

Mergers often involve two companies reaching an agreement where one merges into the other.

An acquisition is where one larger company acquires the majority stake of a smaller company with either cash, stock or both. In an acquisition, the acquired company retains its name and structure.

In both mergers and acquisitions, the company merging into the other company or the one being acquired is referred to as the “target” company.

What kind of mergers are there?

There are many different types of mergers. No two deals are exactly alike, but there are few common scenarios which dictate what kind of merger is occurring.

Listed are a few types of common mergers.

• Vertical: A merger of two companies in the same industry, but at different stages of the product chain. Think of a retailer buying its supplier, or vice versa. This is one of the two most common types
• Horizontal: This merger involves two companies in direct competition at the same stage of a product chain. A relevant recent example is an in-progress merger between Sprint and T-Mobile. This is the second most common merger.
• Market Extension: This merger is between two companies that sell the same kind of product but in separate markets. For example, an American cable company merging with a Canadian cable company.
• Product Extension: This merger occurs when two companies that sell different but related products merge. For example, a shampoo company buying a conditioner company.
• Congeneric: This merger involves two companies that have the exact same consumer base. An example would be a TV manufacturer and a cable company merging.
• Conglomeration: This merger type occurs when companies merge with no common business area. Berkshire Hathaway has acquired many different businesses in all sorts of markets.

How does an acquisition work?

Acquisitions typically allow for the continued existence of the target company. However, in certain cases, especially with the acquisition of assets the company will only exist on paper. When Company A buys all of Company B’s assets, Company B will only have cash. With everything liquidated and no legitimate business area, the company, if it is public, will become a shell or it will have to enter into another area of business.

What is a shell company?

Lastly, Shell companies offer an interesting type of merger/acquisition. Public shells often exist dormant on OTC markets (Over The Counter Markets). These companies are typically waiting to be acquired by a prospective buyer for the purpose of a Reverse Merger.

What is a reverse merger?

A Reverse Merger allows a private company with the desire to go public to avoid going through the IPO process. What typically happens is the private buyer will purchase the shell and merge the private company into the public shell, becoming a reporting public company.

Does your company need legal counsel?

It’s important to have good legal counsel before your company merges or acquires another company. Wilson Bradshaw LLP, has securities attorneys experienced in all aspects of mergers and acquisition deals. We work with both buyers and sellers. We also understand the importance of fiduciary duty in mergers and acquisitions matters and strive to create the best deals for business founders and shareholders.

On February 14, 1975, Commissioner of Corporations of the State of California, Willie R. Barnes, issued a release on Repurchase Offers that commented on Section 25507 (b) of the Corporate Securities Law of 1968.(link to release)This release also discussed Rule 260.507 of the California Code of Regulations in the context of the rule’s requirements for issuing an offer under Section 25507 (b).

Section 25507 (b) bars suit if the buyer receives a written offer approved by the Commissioner before the suit begins. The written proposal must contain:

• an offer to repurchase the security for cash price (payable on delivery of the security);
• a cash offer to pay the buyer an amount recoverable by him under Section 25503 (link to 25503); or
• an offer to rescind the transaction by putting the parties back in the same position they were in before the transaction.

Rule 260.507 sets forth requirements related to an offer’s content. These requirements include thatan offer mustbe in writing and that an offer mustcontain necessary information about the offeree’s investment decision related to the offer.

Selective Offers

Rule 260.507 details the application requirements when seeking the Commissioner’s approval of an offer. Item 6(a) of the application form requires disclosure of any offer made to less than all investors as to whom liability may exist. Substantial unfairness results when offers are only made to selected shareholders, and there is only sufficient justificationfor partial repurchase offers in unusual circumstances. Lacking sufficient funds to meet offers if all shareholders accept is not a sufficient basis for according preferences to selected investors.

Valuation of Consideration

Item 6(b) of the application form requires a showing of the basis for the value of the initial consideration paid by the buyers when the initial consideration was not cash, but a cash repurchase offer is anticipated. It is unsatisfactory to consider the valuation of the consideration as merely nominal in particular circumstances. These situations include reorganizations, recapitalizations, or employee stock options.

Rescission

Section 25507 (b) states that when rescission is to be offered, the rescission must put the parties in the same situation they were in before the transaction occurred.Often, an offer will be considered illusory or misleading unless the obligations of the offeror and offeree (and sometimes third parties) are described. The obligations must include specific provisions stipulating the time frame when performance of an offer must be completed.

An offeree can commence an action under the statute if the offeree rejects the offer on the basis that offered damages or rescission are insufficientwhen there is reasonable doubt about the sufficiency of the offer. This condition is only imposed if the consideration paid by the offeree is not monetary, or if rescission is offered.

The Commissioner will generally require that adequate protection is afforded to securities and other transmitted property. The offer must be sent within thirty days after Commissioner approval. The specified time period could be extended if a showing Is made within a reasonable time after Commissioner approval.

Required Warnings in Offers

If all offerees accept and the total assets of the offeror are not enough to meet cash demands, a repurchase offer will generally not be approved. Information furnished to the offeree must include descriptions of situations where possible acceptances may jeopardize the offeror from continuing in business or where possible acceptances may imperil the interests of the offeree. Further, the offer must provide adequate warning to those who reject the offer if they discover that the issuer is finding it difficult or impossible to continue in business after rejection.

The Commissioner may impose a condition that operates to void the offer ifthe issuer is disabled from continuing business because of acceptances. This revives the right of offerees to assert their civil remedies.

Thirty Day Waiting Period

Section 25507 Subdivision (b)(3) provides a statutory “waiting period” of thirty days after the receipt of the offer when the offer cannot be accepted by the buyer. The purpose of the provision is to give the offerees adequate time to think about their interests in the matter whenconsidering potential complexities. This condition does not preclude an offereefrom rejecting the offer prior to the specified time period. The offeree may deem termination to be in his best interests and in this situation, the statutory waiting period does not serve public interest.

Legend Conditions

Subsection 8 D(9) stipulates that the possibility of an imposition of a legend condition must be disclosed in the offer. However, this disclosure is not mandatory where the facts are such that the imposition of a legend condition is a remote possibility.

Forbes Magazine recently published an article about key considerations in completing a merger or acquisition. One of those key points is the absolute necessity of using an attorney that specializes in mergers and acquisitions. That part of the article is worth quoting here.

“It is critically important for a successful M&A process that the selling company hire outside counsel that specializes in mergers and acquisitions. The outside legal team should include not only seasoned M&A attorneys but also experts in appropriate specialty areas (such as tax, compensation and benefits, employee matters, real estate, intellectual property, cybersecurity, data privacy, antitrust, and international trade).

“M&A transactions involve complex, multifaceted agreements and deal structures as well as challenging legal issues. They are typically fast-moving and can be contentious. To be effective, an M&A lawyer must be intimately familiar with both the business realities of M&A deals and the overall structure and inner workings of the acquisition agreement. He or she must have complete command of the applicable substantive law and must be a skilled advisor, negotiator, and draftsperson. A significant M&A deal demands an experienced, focused outside M&A lawyer who has “been there, done that” many times. It is very difficult to be effective as a “part-time” M&A lawyer.

“The same holds true for the legal specialists required in M&A deals. Each specialist should be steeped in the M&A legal considerations relevant to your deal and practice their specialty full time. Although it is tempting to resist bringing on a “large” legal team out of concern that they will generate a large legal bill, experienced specialists will actually save you money by identifying significant risks early in a transaction and working to develop practical solutions. Moreover, a legal specialist M&A team that has worked together on many prior deals likely will be more efficient than a couple of attorneys who together claim to be expert in the many specialty areas that are critical to an M&A deal.”

The legal team at Wilson, Bradshaw & Cao, LLP, is just such a team. With many combined years of experience in mergers and acquisitions, they have developed the expertise and savvy to handle your project with confidence and success. A well-handled deal will be of great benefit to you for many years to come.