Foley Hoag LLP

SUMMARY

The Office of Chief Counsel, Division of Investment Management of the Securities and Exchange Commission (the “SEC”) has issued an Interpretative Letter (the “Interpretative Letter”) dated July 15, 2008, clarifying its position concerning the applicability of Rule 206(4)-3 under the Investment Advisers Act of 1940 (the “Advisers Act”) in the context of a fund or other investment pool. In the Interpretative Letter, the SEC indicated that it believes Rule 206(4)-3 does not generally apply to a registered investment adviser’s cash payment to a person for soliciting or referring investors for an investment pool managed by that adviser since these investors are not “clients” of the investment adviser.

SUMMARY

On July 15, 2008, the Securities and Exchange Commission (“SEC” or the “Commission”) issued an emergency order (the “Order”) to enhance investor protections against “naked” short selling in the securities of Fannie Mae, Freddie Mac and primary dealers at commercial and investment banks (the “Securities”), which are identified in Exhibit A (.pdf). The Order was issued pursuant to the Commission’s authority under Section 12(k)(2) of the Securities Exchange Act of 1934. In addition, the SEC will undertake rulemaking to address these issues across the entire market.

Under the Order, anyone effecting a short sale in the Securities must arrange beforehand to borrow the Securities and deliver them at settlement. The Order took effect at 12:01 a.m. ET on Monday, July 21, 2008 and will terminate at 11:59 p.m. ET on Tuesday, July 29, 2008. The SEC may extend the Order if the SEC determines that the continuation of the Order is necessary in the public interest and for the protection of investors, but not for more than 30 calendar days in total duration.

SUMMARY

The Securities and Exchange Commission (“SEC”), Financial Industry Regulatory Authority (“FINRA”) and New York Stock Exchange Regulation, Inc. (“NYSE Regulation”) have taken unprecedented steps in response to the concern that the stock collapse of Bear Stearns and Lehman Brothers resulted from the spread of false and misleading rumors, and that the rumors may have been linked to “naked” short selling.  

SUMMARY

By a vote of 233 – 189, the House of Representatives approved on June 25 amendments to the Internal Revenue Code that would tax carried interests at ordinary income rates. This change was one of several “offsets” included in the Alternative Minimum Tax Relief Act of 2008 (H.R. 6275). Other offsets include curbing the Code section 199 deduction for oil and gas companies and requiring information reporting for credit card reimbursements.

SUMMARY

Every U.S. person with a financial interest in, or signature or other authority over, any financial account outside the U.S. must file an annual report on Treasury Form TD F 90-22.1 (Report of Foreign Bank and Financial Accounts) if the aggregate value of all such accounts exceeds 10,000 USD at any time during the calendar year. Form TD F 90-22.1 must be filed on or before June 30^th each year.

SUMMARY

Established in December 1980 by the partners of law firm Foley Hoag, The Foley Hoag Foundation is a private foundation that seeks to combat racism, especially among youth, in the City of Boston. The Foundation awards grants to organizations working to improve the racial climate in Boston by addressing issues of diversity and racism. Grantee organizations achieve their goals through a variety of means, including arts and cultural activities, youth leadership and recreational programs. Other grantees provide advocacy assistance, enabling individuals to confront racism through legal or political action. Some grantee organizations work to prepare young children to live in the reality of a multicultural society, others engage teens, and a few target a primarily adult constituency.

The Foley Hoag Foundation was the first—and remains the only— foundation to focus exclusively on the improvement of race relations in Boston. The trustees are fortunate to have the unqualified endorsement of Foley Hoag, which has provided an enormous amount of financial, administrative and moral support.

SUMMARY

This article was originally published in the ACEF Newsletter.

A good term sheet sets up the business for success. While we do include a variety of terms that may be useful at various times, everyone needs to recognize that the principal reason for a term sheet is to outline the participants’ understanding, not necessarily to set up a plan to enforce in court every right at every time.

When it comes time to negotiate terms, I encourage angel investors and entrepreneurs to keep these points in mind:

• How is everyone going to make money from the deal?
• How do you want to do the next round of financing because there will almost certainly be another round?
• What is your exit strategy?

Success and prosperity is a good theme; there are ways to draft the documents along those lines.

For purposes of this discussion, I will exclude valuation as a separate topic, recognizing its extreme importance and complexity and that it is more a business than legal issue.

SUMMARY

On February 19, 2008, the Internal Revenue Service issued Revenue Ruling 2008-12, clarifying the tax treatment of interest expense incurred by a securities-trading partnership. The Service ruled that the interest expense is not "business interest" (generally fully deductible), but rather is "investment interest," deductible by each partner only to the extent of the partner's net investment income for the year in question. This will be true whether or not the partnership elects to be treated as a "trading" partnership so that its other expenses are treated as business expenses. The ruling will apply to limited partners of a limited partnership as well as “members” of a limited liability company, other than corporations, who do not “materially participate” in the trading activity. Partners or members that are corporations, or that materially participate in the trading activity, will not be subject to the ruling.

SUMMARY

• In Stoneridge, the Supreme Court ruled that businesses may not be sued in private securities fraud lawsuits unless they themselves make deceptive statements or acts directly relied on by investors.

• The Court sought to shield parties in "the realm of ordinary business operations" who do not attempt to "affect securities markets" from the risks and costs associated with private shareholder litigation.

• The SEC and Justice Department may still proceed against businesses that participate in fraudulent schemes or otherwise "aid and abet" fraud.

SUMMARY

Massachusetts has long recognized that it is a violation of the covenant of good faith and fair dealing for an employer to terminate an at-will employee in order to deprive the employee of earned compensation, such as commissions. However, courts have struggled with the application of this rule to other aspects of the employment relationship. Recently, in Eigerman v. Putnam Investments, Inc., the Supreme Judicial Court (SJC) addressed whether the covenant of good faith and fair dealing applies to employer stock plans. It held that employers do not breach the covenant if they exercise their discretion to administer such plans, even if they do so to the employer’s advantage and employees’ disadvantage.

SUMMARY

To succeed in today’s technology-driven world, every companymust maximize the strategic value of its intellectual property.At Foley Hoag, we use our technical expertise and deepexperience to enhance the power of your technology globally.Claims to exclusive ownership of a process, design or productraise complex issues. In today’s global marketplace, conflictshave increased—making intellectual property managementa top priority for successful companies. We will help you:

• Implement a strategy to protect and expand your intellectual property assets
• Proactively protect your assets to keep your success on track
• Evaluate the validity of conflicting claims, and if necessary, take action to defeat those claims
• Resolve conflicts through commercial agreements

We can help you manage your current intellectual property assetsand build value for your new technologies or other inventions.Our intellectual property lawyers have earned a reputation forcreatively handling the full range of intellectual property, includingpatent, trademark, copyright, trade secrets, due diligence, andlitigation throughout the United States and internationally for largeand small businesses, universities, individuals, venture capitalfirms and institutional investors.

SUMMARY

Excerpt:

Corporate globalization presents companies with unanticipated risks and challenges. Businesses are held to higher standards of accountability with respect to social, environmental and ethical practices. Companies unresponsive to these demands risk damage to their reputations, brand image and competitiveness. We help savvy business leaders limit their companies’ risk by incorporating internationally recognized standards into their strategic planning, crisis response strategies and relationships with stakeholders.

Benefits of our counsel include:

• Reduction of threat to corporate reputation
• Reduction of legal risks associated with the uncertainties of globalization
• Enhanced brand image
• Increased customer and employee loyalty and retention Improved relationships with external stakeholders and public opinion leaders

Download the Foley Hoag Corporate Social Responsibility Brochure (.pdf)

SUMMARY

Maintaining a leadership position in competitive, dynamic industries like software and technology is always challenging. At Foley Hoag, our lawyers are dedicated to helping you meet this challenge. Our goal is to become an essential partner to our clients in the software and technology industries. We understand your business, and we’ve been involved in many important industry milestones. For example, we assisted our clients in the:

• Initial public offering of Cullinet Software, which became the first software company listed on the New York Stock Exchange
• Merger of Powersoft with Sybase, which was the largest merger in the software industry
• Merger of PRI Automation and Brooks Automation, creating the  largest automation company in the semiconductor industry
• Acquisition of the defense and intelligence group of American Management Systems by CACI International, creating the largest publicly traded company devoted to providing information technology services to the United States Government

SUMMARY

The goal of the private equity fund practice is to provide our clients with superior expertise, problem solving, and service.

Our clients include both traditional and SBIC venture capital, buy-out, mezzanine and other private equity funds, both domestic and international, for whom we provide a full range of services, including fund formation, management organization, and portfolio transactions. The firm has represented SBICs for 30 years. We have the requisite depth of experience, both SBIC and non-SBIC, to be closely familiar with market and regulatory norms and trends.

Although most fund terms are necessarily guided by market and regulatory conditions, we believe that a “one size fits all” approach does a disservice to clients that may be facing unique circumstances. Our experience is that sophisticated investors, including institutional investors, are typically more open to well crafted solutions to understandable problems than they are typically given credit for. Although our clients closely follow “market” in the vast majority of cases, some have found ample room for creativity when necessary, such as the creation of multiple investor classes, the re-opening of a fund’s fundraising, the opening of offices in more than one country, resolving conflicts to mutual benefit, and the in-house “incubation” of start-up portfolio companies, to name just a few examples.

We seek to distinguish ourselves in a highly competitive legal service industry by offering a superior level of service. Appreciating that this is easier said than done, we take pride in the fact that most new clients are referred to us by existing clients. When this is not the case, we encourage reference checks to back our claim of service that is available, responsive and timely.

SUMMARY

This guide is intended to provide foreign businesspeople with an introduction to the basic kinds of laws and regulations that affect the conduct of business in the United States, and particularly in the Commonwealth of Massachusetts. The level of detail is varied, reflecting the nature of the legal areas discussed. For example, environmental law and taxation are subjects of detailed and technical regulation, while labor relations are governed as much by custom and practice as by direct regulation.

SUMMARY

Chambers and Partners, a leading U.K.-based research and publishing company, has again included Foley Hoag and its individual lawyers in its popular Chambers USA: The Client's Guide. This year, eleven practice areas and 22 lawyers are represented.

A digital reprint is avalable for download (.pdf).

SUMMARY

Private investment funds do not follow any fixed structural or organizational pattern. Their structure varies according to the business purposes and requirements of their participants.

The primary defining characteristic of private investment funds located in the United States is their tax treatment: the funds are structured so that no tax is payable at the fund level. The funds are “pass through entities”, and all items of income, deduction, gain and credit are recognized by the holders of fund equity directly in accordance with the formula set forth in the fund documents. The fund, itself, is ordinarily a limited partnership or limited liability company organized solely for this purpose.

SUMMARY

For years, Foley Hoag has served the entrepreneurial and venture communities in Greater Boston and beyond. Our depth of experience allows us to handle the broad range of issues these organizations face with efficiency and skill. The Emerging Enterprise Center at Foley Hoag is the next logical step in our partnership with emerging markets, reinforcing our committment to providing strategic legal advice and business insight.

SUMMARY

Since implementation in 1994 of a substantially improved small business investment company program, the number of privately-managed small business investment companies receiving reasonably-prices, government-backed financing has increased rapidly.  In the federal fiscal year ended Sept. 30, 2000 alone, SBICs invested nearly $5.5 billion in over 3,000 businesses.  This represents an increase of 30% over the prior year, due primarily to the growing popularity of the Small Business Administration's equity leverage program.  Not only have the levels of government-backed funding for program participants increased dramatically, but at the same time those funding levels have become more reliable by becoming less dependent on Congressional budget appropriations.