Corporate Finance & Securities

GoPro—An Illustration of the Importance of Investor Lockup Provisions

Here’s an example of a commonly overlooked provision in a term sheet coming into play. Recently, news broke that there was a “loophole” in GoPro’s lockup provision, and the company’s shares subsequently tumbled almost 13%.

What is a lockup provision? A lockup provision is an agreement that the shareholders will not sell their shares for a specified period of time—often 180 days—following a company’s initial public offering. The point of the lockup provision is to keep existing shareholders from flooding the market and depressing prices in the company’s offering. There are two primary types of lockup agreements. The first is an agreement between the investors and the company during a private offering.

A standard industry term sheet has the following lockup provision:

Investors shall...

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Business Startup

The Executive Effect: How a Successful Executive’s Exit Impacts a Company

I recently read a New York Times article that discussed investor reactions to a successful chief executive deciding to exit a company. The article discussed how Manchester United’s coach, Alex Ferguson, announced Wednesday that he will retire at the end of the season. As a result, Manchester United’s shares fell nearly five percent Wednesday morning. Today’s post explores the impact of Ferguson’s exit, as well as the general impact of exiting executives.

A Brief Background Manchester United, the English soccer club, raised $232 million in its IPO last year. During the IPO process, there were serious concerns about the club’s financial projections once Ferguson retired. Many believed that the club’s success over the prior two decades was attributable in large part to...

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Business Startup

iVLG News Roundup Weeks 38 & 39: Securities Regulation, Mergers & Acquisitions, and IPOs

Securities Regulation

Consumer advocacy group urges SEC to reconsider rules lifting ban on general solicitation Consumer Federation of America submitted a comment letter to the SEC expressing its, “strong opposition to the Commission’s proposed rule to lift the ban on general solicitation and advertising in private offerings.” On August 29th, the SEC issued proposed rules which would implement Title II of the JOBS Act, allowing companies issuing securities pursuant to Rule 506 to utilize general solicitation under certain conditions. The Consumer Federation of America identified a number of substantive and procedural concerns, including:

That the standard for “reasonable steps to verify” was too broad to allow for protection of consumers; That the accredited investor standard doesn’t capture investor sophistication–basically the concern is that accredited...

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Business Startup

iVLG News Roundup Week 37: Mergers & Acquisitions, IPOs, Preferred Stock

Mergers and Acquisitions

Yahoo and Alibaba Close Deal Yahoo has agreed to sell back half of its interest in the Chinese Internet company Alibaba. In 2005 Yahoo acquired a 40% interest in the company, but since then relations between the two companies have become strained, especially as Yahoo failed to meet investors’ expectations. As part of an agreement reached earlier this year, Yahoo will sell another 10% of its Alibaba holdings back to the company when the company files an IPO, and the rest of its Alibaba holdings after the IPO. Yahoo’s remaining interest in Alibaba is valued at just over $8 billion, which accounts for more than 40% of Yahoo’s market value.

IPOs

Fall IPO Calendar Filling Up Take a look at iposcoop.com’s IPO...

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Business Startup

iVLG News Roundup Week 27: Corporate Finance; Public Offerings; Contracts; Etc.

Securities Regulation & Corporate Finance

JOBS Act Deadline Comes & Goes without SEC Action Congress imposed upon the SEC a July 4th deadline to implement rules under Title II of the JOBS Act that would enable companies to engage in general solicitation under Rule 506 of Regulation D. But on June 29th SEC Chair(wo)man Mary Schapiro testified before Congress that the SEC would not be able to enact rules within the 90 period proscribed by Congress. Ms. Schapiro did state that the SEC anticipates having a vote on a draft rule later this summer:

“The Securities and Exchange Commission will miss its first rulemaking deadline to lift the general solicitation ban as mandated by the Jumpstart Our Business Startups Act, but a draft...

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Business Startup

iVLG News Roundup Week 25: Securities Regulation; Mergers and Acquisitions; Local News; Etc.

Securities Regulation

Congress Examining IPO Process in Wake of Facebook Offering A bipartisan group of congressional members are calling for an overhaul of the initial public offering process after Facebook’s stock dropped precipitously after it became listed on a public exchange. In a June 19, 2012 letter to Mary Schapiro chairman of the SEC, Rep Darrell Issa chairman of the Committee on Oversight and Government Reform, expressed concern that under existing securities laws:

“underwriters have discretion to determine the price of an IPO, while subject to conflicts of interest stemming from economic relationships with those institutional clients that ultimately will purchase the bulk of an issuance. In conjunction with this discretion, communications restrictions and legal liability enable underwriters to provide information to institutional...

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Intellectual Property

News Roundup 2012 Week 21: Microsoft battles Google, Facebook IPO Flops, Amazon Shareholder Meeting, SpaceX

International News

Microsoft wins Patent Battle with Google In a battle between two of the largest US companies, round one goes to Microsoft. A German court ruled that Motorola, which was recently taken over by Google, infringed one of Microsoft’s patents which allows long text messages to be divided into smaller parts and reassembled by the receiving mobile phone.

Microsoft can now demand that a German sales ban on Motorola products if it chooses, or it may demand a license fee to be paid by Google for the rights to use the Microsoft patent. Google says it may appeal the decision.

National News

Facebook IPO Flops; Morgan Stanley Hit Hard Facebook’s epic IPO flop has hurt more than the social media giant. Morgan Stanley,...

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Business Startup

iVLG News Roundup 2012 Weeks 19 & 20: Corporate Governance; IPO’s; Arbitration Clauses; Venture Capital

Corporate Governance

CEO Resigns After Erroneous Academic Credentials Discovered Yahoo CEO Scott Thompson stepped down after admitting that he misstated his academic credentials. His resume reported that he had degrees in both accounting and computer science, however he has no degree in computer sciences. The misstated credentials were discovered by Dan Loeb, a manager of Third Point, a New York hedge fund that owns 6% of Yahoo’s outstanding stock. Third Point, had been contending that Yahoo was being mismanaged, and was attempting to get three of its nominees elected to the Yahoo board of directors. Apparently Yahoo did not use a background checking firm in its process of appointing a new executive officer. In the fallout from Mr. Thompson’s resignation, the board...

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Business Startup

News Roundup 2012 Week 18: CEO salaries, Slow U.S. job growth, Facebook IPO valuation, United-Boeing deal

Executive Pay Packages Soar

GMI Ratings’ recent report details second consecutive year of double digit pay increases GMI Ratings released their 2012 Preliminary CEO Pay Survey that examines pay changes in the Russell Index and the S&P Index. The survey provides a look into the ten highest paid CEOs of 2012 and examines the executive pay packages. Some important highlights from the survey include a second consecutive year of double digit compensation increases at both the median and average level for the Russell 3000, with a median increase of about 15%. Three of the ten highest paid CEOs in 2012 are from the software industry. The highest paid CEO so far is Herbalife CEO Michael Johnson, earning nearly $90 million thus far....

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Business Startup

News Roundup Week 13: The JOBS Bill, Securities Law, Employment Law, Social Media Law, etc.

The JOBS Bill & Securities Laws

Senate and House Approve Major Overhauls of Federal Securities Law This week the house and senate JOBS bills were reconciled and H.R. 3606 was sent to the president to be signed into law. The White House has publicly supported the bill, and is expected to sign the bill soon. The 22 page bill has seven different titles, each of which is intended to make it easier for companies to raise money.

Title I “Reopening American Capital Markets to Emerging Growth Companies” creates reduced reporting obligations for “emerging growth companies,” a newly defined classification of businesses. These reduced filing and reporting obligations mean that only the largest companies will have to fully comply with the burdensome filing and...

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