Earnout Transactions: The Importance of Providing Post Closing Operating Standards for the Acquired Company
September 6, 2016 | Comments Off on Earnout Transactions: The Importance of Providing Post Closing Operating Standards for the Acquired Company
Posted by John A. Aiello
In the world of mergers and acquisitions, so called “earnout” provisions are sometimes utilized to bridge differences between a seller and a purchaser as to the value of the target company. The purchaser may take the view that it will not pay additional consideration for the target unless the target company performs well over a period post-closing, in which case additional consideration is paid referencing the achievement of an agreed upon metric.
Generally, earnout provisions are not readily accepted by a seller because of the myriad of potential issues that affect the calculation of the additional “earnout” consideration. One such issue is how the business of the target company is conducted post-closing. The purchaser will want complete discretion on how to operate the target or acquired company post-closing and will not want to undertake an obligation to maximize the earnout payment. The seller, on the other hand, is usually quite uncomfortable with allowing the purchaser such complete control. After all, the business may have performed very well prior to the sale and the seller will want the acquired company operated in the ordinary course in accordance with past practice. Horizon Holdings, LLC v. Genmar Holdings, Inc., 244 F. Supp. 2d 1250 Kan. 2003 involves a disputed earnout provision.
Failing to be specific in the purchase agreement about how the acquired company should be operated post-closing when an earnout provision applies is fraught with peril and may very well result in litigation. There are several possible ways to address the issue of how the acquired company will be operated post-closing, some of which have been suggested above. The important point is that the purchase agreement should be very clear on this issue of how the acquired company will operate post closing, and parties involved in an acquisition need to pay as much attention to this issue of post-closing operation as they do to any other aspect of the earnout provision.
July 22, 2016 | Comments Off on SEC Proposes to Expand Qualification for Smaller Reporting Companies
Posted by John L. Sikora
The Securities and Exchange Commission has proposed to amend the definition of a smaller reporting company to a registrant with either a public float (i.e. the market value of the registrant’s common equity held by non-affiliates) of less than $250 million, or a public float of zero (meaning that all of the registrant’s common equity is held by affiliates) and revenues of less than $100 million in the prior year. However, if a registrant does not initially qualify as a smaller reporting company, the registrant will not be eligible to qualify as a smaller reporting company unless or until the registrant either has a public float of less than $200 million, or a public float of zero and revenues of less than $80 million in the prior year. Under the current rules, a smaller reporting company is defined as a registrant with either a public float of less than $75 million, or a public float of zero and revenues of less than $50 million in the prior year.
Registrants that qualify as smaller reporting companies are eligible to avail themselves of scaled disclosure obligations for their periodic reports and financial statements filed with the SEC. Smaller reporting companies are also not required to provide an independent registered public accounting firm’s attestation report on their internal controls over financial reporting in their annual reports.
The SEC will be accepting comments on the proposed amendments through August 30, 2016.
July 22, 2016 | Comments Off on IRS Clarifies that Partners are not Employees, even in Holding Company Structure
Posted by John A. Aiello
Co-authored by John L. Sikora
The Internal Revenue Service recently adopted temporary regulations to clarify that a disregarded entity that is owned by a partnership is not treated as a corporation for purposes of employing the individual partners in the partnership, even if the disregarded entity is otherwise treated as a corporation for employment tax purposes. Rather, the disregarded entity is disregarded as an entity separate from the partnership for purposes of employing the individual partners in the partnership. This means that a partner in a partnership that owns a disregarded entity (such as a limited liability company) that employs the partner, is deemed to be self-employed and is subject to self-employment taxes on the net earnings from the disregarded entity’s activities. Consequently, the partner will not be entitled to participate in certain tax-advantaged employee benefit plans that would otherwise be available to the disregarded entity’s other employees. Read more
February 8, 2016 | Comments Off on Three’s A Crowd: Dissociation Under New Jersey’s RULLCA
Posted by Matthew N. Fiorovanti
Friends get together to discuss a business idea. The concept sounds great, and everyone anticipates a smooth ride to a successful business and lasting partnership. The friends decide to form an LLC, but do not engage counsel or enter into a specific, detailed operating agreement, instead choosing a “template” after a Google search. The partners do not consider what happens if things do not go as planned, since they are convinced that this will not be the case. Unfortunately, while the business may become successful, the relationship among the partners may change for a host of unanticipated reasons. When things go bad and disputes arise among members of an LLC, the members – quite often friends or even family members – are faced with how to resolve the dispute without destroying the business. Read more
SEC Clarifies Effect of Whistleblower Definitions as New Bill Pushes Extension of Time to Enforce Securities Law Violations
August 24, 2015 | Comments Off on SEC Clarifies Effect of Whistleblower Definitions as New Bill Pushes Extension of Time to Enforce Securities Law Violations
Posted by Patrick Convery
On August 4, 2015, the Securities and Exchange Commission (the SEC) clarified a discrepancy in the interpretation of the securities laws regarding whether an individual who reports securities law violations must report misconduct to the SEC in order to constitute a “whistleblower,” who is entitled to protection under the anti-retaliation provisions in the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act). Lawmakers are also now considering an extension of the time period within which the SEC must enforce violations of securities laws from the occurrence of such violations. Read more
July 22, 2015 | Comments Off on Executive Compensation SEC Proposed Rules
Posted by John A. Aiello
On Tuesday, July 21, 2015, an article appeared in the Wall Street Journal entitled “CFOs Prep for SEC PayRatio Rules.” Among other things, the article focuses on the potential complexities confronted by a public company seeking to comply with the proposed rule which would require the disclosure in the proxy statement and 10-K of the CEO’s annual total compensation in relationship to the median annual compensation of all other employees of the company. Significant resources may be required to comply with these proposed CEO pay ratio rules. Although the Wall Street Journal article focused on CEO pay ratio rules, it is worth noting other rules proposed by the SEC which would require disclosure of how executive compensation actually paid relates to the company’s financial performance. Compensation committees will be inclined to spend greater time and effort in structuring compensation programs centered around performance goals and performance metrics to best assure a reasonable relationship between executive compensation paid and the company’s financial performance.
John A. Aiello Inducted as Honorary Member of The Monmouth University Chapter of Beta Gamma Sigma and Serves As Induction Ceremony Keynote Speaker
May 20, 2015 | Comments Off on John A. Aiello Inducted as Honorary Member of The Monmouth University Chapter of Beta Gamma Sigma and Serves As Induction Ceremony Keynote Speaker
Posted by John A. Aiello
On May 19, 2015, John A. Aiello, Shareholder and Chair of the Corporate & Securities Department at Giordano, Halleran, & Ciesla, was inducted as an honorary member of the Monmouth University Chapter of the Beta Gamma Sigma honor society.
February 25, 2015 | Comments Off on Giordano Attorneys Serve As Counsel To Colonial American Bank in Merger into OceanFirst Bank
Posted by Paul T. Colella
Giordano, Halleran & Ciesla is serving as counsel to Colonial American Bank in merger into OceanFirst Bank. Paul T. Colella is lead attorney on the merger and is being assisted by John L. Sikora. The merger is expected to close before the year-end 2015. To read the full press release, please click here or to view the full OceanFirst press release, please click here.
January 21, 2015 | Comments Off on M&A And The ACA
Posted by Frank Ciesla
Co-Authored By Ari Burd and Patrick Convery
As most employers already know, the Affordable Care Act (a/k/a ObamaCare or the ACA) now imposes health care insurance coverage requirements upon certain employers which have a certain number of full time and full time equivalent employees (“FTEs”). Therefore, it is imperative that consideration be given to whether parties involved in any merger or other acquisition transaction are currently subject to the requirements of the ACA (and if so, whether they are in compliance with such requirements), or will otherwise be subject to the requirements of the ACA following the consummation of the transaction. Read more
Seminar: The Limited Liability Company: The Preferred Entity For Real Estate Acquisitions & Development – October 9, 2014
September 2, 2014 | Comments Off on Seminar: The Limited Liability Company: The Preferred Entity For Real Estate Acquisitions & Development – October 9, 2014
Posted by John A. Aiello
Giordano, Halleran & Ciesla, will be hosting the seminar, “The Limited Liability Company: The Preferred Entity For Real Estate Acquisitions & Development” on Thursday, October 9, 2014 from 5:30-7:30 PM. Presented by the firm’s Corporate and Securities Department, this timely seminar will help you navigate and understand the use of the limited liability company vehicle by developers and funding sources in NJ.
For more information, click here.