Corporate Securities Law Blog

In 2007, the SEC adopted amendments to its proxy rules that would require reporting companies and other persons soliciting proxies to post their proxy materials on a publicly accessible Internet website and provide shareholders with a written notice of the Internet availability of the proxy materials, except in connection with a business combination.  Large accelerated filers (other than registered investment companies) were required to comply with the e-proxy rules starting January 1, 2008.  All other reporting companies (including registered investment companies) and other soliciting persons must comply starting January 1, 2009.

(1)  Lifetime Gifts – The annual exclusion amount that you can give to any individual without using your lifetime exemption or paying any gift tax has increased from $12,000 to $13,000.  A married couple, therefore, can give each of their children, grandchildren, or other persons $26,000 free of gift tax.  The gift tax lifetime exemption remains at $1,000,000.

(2)  Death Transfers – The federal estate tax exemption has increased to $3.5 million per person for a person dying in 2009.  A married couple currently can leave $7 million (less any exemption used during the lifetime of either spouse) to their children and other beneficiaries free of federal estate tax.

(3)  Transfers To Grandchildren – The exemption from Generation Skipping Transfer Tax also has increased to $3.5 million per donor.  A married couple can collectively shelter $7 million from death taxes in their children's estates in a long-term dynasty trust.

(4)  Required Minimum Distributions – The requirement that minimum distributions be made from IRAs and other defined contribution retirement plans has been suspended for 2009.  Thus, no 2009 minimum distribution needs to be made from any such retirement account this year.  (A first-time minimum distribution for 2008 that is required to be made by April 1, 2009 must still be withdrawn by that deadline.) 

Employers must furnish employees who exercised incentive stock options ("ISOs") or sold or otherwise transferred shares acquired under an employee stock purchase plan ("ESPP") during 2008 with a detailed information statement by January 31, 2009.

In a much anticipated decision, the California Supreme Court held, in Prospect Medical Group, Inc. v. Northridge Emergency Medical Group, that billing disputes over emergency medical care must be resolved solely between the emergency department physicians and the HMO; emergency department physicians may not bill the HMO enrollee for any disputed amount.  When an emergency physician, who has not contracted with the HMO, provides emergency care to a patient that is enrolled in an HMO, the emergency physician only has recourse against the HMO, and not against the patient.  The decision was filed by the California Supreme Court on January 8, 2008.

On January 6, 2009, the Federal Trade Commission announced revised thresholds for premerger filings under the Hart-Scott-Rodino Antitrust Improvements Act of 1976.  They will be effective thirty days after publication in the Federal Register.  Publication is expected to occur in the next few days.  Thus the new thresholds will most likely become effective mid-February 2009.  Acquisitions that have not closed by the effective date will be subject to the new thresholds.  Filing persons must wait a designated period of time, usually 30 days, before completing their transactions.  The HSR Act imposes premerger notification and waiting period obligations on transactions over a certain size, where the parties are over a certain size, before those transactions may be completed.  Each "person" who is a party to an HSR-reportable deal must file an HSR notification with the Department of Justice Antitrust Division and the Federal Trade Commission.

Picture this:

You and your partner have not been contributing equally to your business or seeing eye to eye for quite some time, but with a good economy and a healthy income from the business you let sleeping dogs lie.  Or, you now see an opportunity to grow your business despite the ongoing uncertainty in the economy, and you can't get your cautious business "partner" to budge.

The world is changing and you and the business cannot sit still.  Gritting your teeth, you tell yourself that if only you had sole control . . . things would change!

If it’s any consolation, you're not alone; difficult times strain even the best business partnerships in many ways, often causing disastrous breakups and business failure.

On the other hand, a bad economy can provide the catalyst for a successful business divorce if it tempts the hesitant partner to get out while the getting is good – and if the remaining partner understands the roadblocks along the way to a breakup.

By a "business divorce," we mean a buy-out of an owner by the other owner or the business itself, whether it be a corporation, partnership, limited liability company or other form of enterprise.  The more owners, the more complicated this process becomes.

Effective December 22, 2008, the U.S. Department of the Treasury (“Treasury”) issued new rules relating to the procedures that the Committee on Foreign Investment in the United States (“CFIUS” or “the Committee”) will use in reviewing foreign investments in U.S. companies.  See 73 Fed. Reg. 70702.  The revised, final rules continue to focus on the potential impact that a particular transaction may have on U.S. national security and retain many of the features of the proposed rules, which we have previously discussed here and here.

A common strategy for acquiring the business of a troubled company is to purchase assets rather than acquire all outstanding capital stock of the target, based on the general principle that a purchaser of assets is not responsible for liabilities of its seller absent an express or implied assumption.  Does the strategy work?  Depending on the liability and circumstances, the answers are "No" and "Maybe," and sometimes a qualified "Yes."  In troubled economic times, buyers may reconsider whether they are willing to rely upon indemnity by the seller or its owners, particularly since doctrines of public policy may render such an indemnity unenforceable in certain situations.

NERA and Cornerstone Research (in cooperation with Stanford Law School’s Securities Class Action Clearinghouse) recently issued their respective assessments of securities litigation for 2008.  Both report that federal securities class action filings increased over 2007, due largely to the economic crisis and the Madoff scandal.  The bulk of class action filings were made in the Second Circuit, and were focused heavily on the financial sector.  In fact, nearly one-third of all large investment banks were hit with securities class actions in 2008.  (We previously reported on mid-year 2008 assessments here.)

For further information, please contact John Stigi at (213) 617-5589.

In In re Digimarc Corporation Derivative Litigation, 2008 WL 5171347 (9th Cir. Dec. 11, 2008), the United States Court of Appeals for the Ninth Circuit held that Section 304 of the Sarbanes-Oxley Act (15 U.S.C. § 7243), which provides for the forfeiture of certain bonuses and profits when corporate officers fail to comply with securities law reporting requirements, does not create a private right of action.  Though several district courts had already arrived at the same conclusion, the issue was one of “first impression” for the Ninth Circuit Court of Appeals.  The ruling thus prevents individual shareholders from pursuing recovery of bonuses and stock sale proceeds from officers in situations where the company is required to issue a restatement of its financials as a result misconduct.