Under Regualtion D--- Rule501
Rule 501 sets forth a number of definitions used in Regulation D. One of the more important
definitions is one for accredited investor, which is defined as any person within one of the following catagories:
* Certain institutional investoes, such as many banks, insurance companies, investment companies, broker/dealers, thrift
instatutions, business development companies,Small business Investment Companies (SBIC's), certain employee benefit plans
and certain 501(c)(3) charitable corporations
*Certain insiders,including directors, executive officers and general partners of the issuer
* Natural persons whose net worth (or joint worth with his or her spouse) at the time of purchase exceede $1million or
whose individgual income was more than $200,000 ($300,000 joint income with spouse) for each of the two more recent years,
coupled with a reasonable expectation of maintaning that income level during the current year.
*Any corporation, business trust, or partnership with total assets in excess of $% million that--- was not organized
for the purpose of making the investment, plus any trust with assets in excess of $5 million that was not organized for the
purpose of making the investment and is directed by a sophisticated person ( someone with the experiance and knowledge required
to adequately judge the merits and risks of an investment and to safeguard his or her interests).
*Aggregates of the previous four definitions, including any entitiy whose equity owners all are accredited investors
under any catagory
* Another key definition in Rule 501 relates to the calculation of the number of purchasers allowed to participate in
a Regulation D offering. Acredited investors are excluded from that count.
(Tinkerbell has also read that besides Rule 501 there are also
Rule 502
Rule 503
Rule 504
Rule 505
Rule 506
Rule 507 and
Rule 508 in Regualtion D about private equity offerings !)
Ok so on to more about understanding Mergers and what they can be a about in the contex of what we might see on the TV
....... If the price of the acquiring company shares move significantly in one direction or
another , the deal can potentially fall apart. In other words, stock-for stock transactions (stock-for-stock,being the underlying
fundamental of a tax-postphoned transaction) pose the risks one can expect to attend on any tranaction that stretches the
time between arguement and closing .
One way to reduce risk is using a collar, a common method by which publicly traded companies
establish a means of averageing the acquirer's (and the target's) stock over a (negotiated period of time with a ceiling and
floor (high and low share prices negotiated in advance ), with the right of either party to walk away or renegotiated when
the other party's stock falls below the collar limits or the lucky party's stock rises above the collar. This device helps
mitagate price contingencies but not unforseen problems that can arise while a transaction is in process ----- the little
things like strikes, natural disasters, customer and employee issues, and the like.... .
Acquisitions not involving mergers; Asset versus stock purchase:
Acquisitions other than statutory mergers may involve either stock or asset purchases, entailing
differing consequences (tax and nontax), Planning opportunities and pitfalls are more sharply drawn when the choice is between
taxable asset purchase and a taxable stock purchase. The buyer offers cash or stock and the target sells its assets, or the
shareholders sell their stock, for the offered consideration.
Taxable asset purchases were severely affected by the Tax reform ACt of 1986, when congress curtailed
the ability to step up the buyer's tax basis in the assets being acquired at the cost of a single tax.
The election to purchase a target's assets rather than its stock may, however be driven by business
rather than tax considerations. And, the more requently encountered business factor is the disire to leave certain shakey
or otherwise unwanted assets and/or liabilities behind. A stock purchase generally means that the corporate enterprise,
warts and all is inherited in an asset purchase, on the otherhand, paves the way for selectivity to pick and choose at least
in theory.
Thus , for example, contingent liabilities, or unknown amounts that may result from underfunded
pension plans, pending lawsuits, or the like, may pose risks that a buyer is unwilling to assume. Similarly, certain assets
may be unassignable without first procuring difficult-to-obtain consents --- leases and stock in foreign subsidaries. Consents
from exsiting lenders may also be required. Thus, the consent factor may indeed , cut both ways, if the assets can't
be assigned either by direct sale or by a change in control of the corporate owner, then perhaps they must be carved out of
the transaction in a selected asset sale. If a direct assignment is prohibited, but not a change in control, a
stock purchase may be in order.
State transfer charges also can be an issue in the equation--- chargeable in the couse of asset transactions, but
not on stock sales. The law of the home state may attach differant consequences and formalities to asset sales followed by
liquidation versus stock sales followed by a merger.
Depending on the circumstances, of course, the acquiring company may affirmatively desire to continue
the target in business,warts and all if the target owns a valuable franchise that won't that won't withstand a transfer outside
of corporate solution to the acquiring company.