Special purpose acquisition companies or “SPACs” are an increasingly popular way for an existing private company to become publicly traded without undergoing a traditional initial public offering, and for investors in public markets to invest in growth-stage companies. There can be generous returns for SPAC sponsors, but they should be aware of the liability risk in connection with their role. Indeed, litigation arising from several recent SPAC acquisitions, most prominently against Nikola Corporation, underscores the risks for SPAC sponsors. They therefore should be mindful of steps they can take to mitigate these risks in the reverse merger process.

Please click here to read the full alert memorandum.

Late last week – for the first time in 40 years – the SEC announced a settlement of an internal controls case against an issuer arising from its repurchase of its own shares. The SEC found that Andeavor bought back $250 million of stock without first engaging in an adequate process to ensure that the company did not have material non-public information (MNPI) related to on-again, off-again takeover negotiations with Marathon Petroleum Company. Andeavor, now a subsidiary of Marathon, was ordered to pay a $20 million penalty and to cease and desist from future violations of the Securities Exchange Act’s internal controls provisions.

This case is a wake-up call – particularly in the current environment where stock buybacks are frequent market occurrences – that the SEC will be monitoring such activity, scrutinizing companies’ controls and decision-making when the buyback coincides with market-moving events, and bringing cases with potentially meaningful penalties even where there is no finding that the company violated the federal securities laws’ antifraud provisions by actually trading on the basis of MNPI.

Please click here to read the full alert memorandum.

Between July 28, 2020 and September 1, 2020, the National Venture Capital Association (NVCA) released updates to its model legal documents for use in venture capital financing transactions. This memorandum will explain the changes to these model forms and some of the reasons for, and implications of, such changes.

As background, the NVCA is an organization based in the U.S. whose members include venture capital firms, investors and professionals involved in investing private capital in early-stage companies. In an effort to promote consistent, transparent investment terms and efficient transaction processes, the NVCA has created model legal documents for venture financing transactions, and these models have been widely used in the U.S.

This update to the model forms has been driven by developments in: (i) CFIUS rules and other applicable laws, (ii) market practice in venture capital financing and (iii) “best practices” in the industry.

Please click here to read the full alert memorandum.

On September 23, the SEC voted 3-2 to amend certain of the procedural requirements for the inclusion of shareholder proposals in a company’s proxy statement under Exchange Act Rule 14a-8. The amendments were adopted substantially as proposed in November 2019, except for the so-called “momentum” provision, which would have permitted companies to exclude shareholder proposals that have decreasing shareholder support.

Please click here to read the full alert memorandum.

On September 15, 2020, the U.S. Department of the Treasury published a final rule (the “Final Rule”) significantly changing the scope of the Committee on Foreign Investment in the United States (“CFIUS”) mandatory notification requirements for foreign investments in U.S. critical technology businesses and expanding it to investments in all industries.  The Final Rule, which is basically the same as (but does resolve some ambiguities in) the May 2020 proposed rule, eliminates the current limitation of mandatory critical technology notifications to targets active in specified industries and instead focuses on whether the target develops, tests, or manufactures technologies that would require a license for export—whether or not the technologies are in fact exported or sold to third parties (e.g., proprietary manufacturing technologies)—to the jurisdiction of the investor and any entity in its chain of ownership, effectively creating different mandatory notification requirements for different countries.  The Final Rule also clarifies the ownership rules used to determine when an investor linked to a foreign government is required to file with CFIUS for an investment in a sensitive U.S. technology, infrastructure, or data business.  The Final Rule applies to all transactions entered into (i.e., binding agreement signed, public offer launched, proxies solicited, or options exercised) after October 15, 2020.

Please click here to read the full alert memorandum.

In a recent decision, the Delaware Court of Chancery found that the board omitted material information from its proxy statement recommending stockholders vote in favor of an all-cash acquisition of the company, and thus “Corwin cleansing”[1] did not apply.  Nonetheless, the court dismissed all claims against the directors because the complaint failed to adequately allege that they acted in bad faith, as required by the company’s Section 102(b)(7) exculpation provision.  See In re USG Corp. S’holder Litig., Consol. C.A. No. 2018-0602-SG (Del. Ch. Aug. 31, 2020).

This decision provides helpful guidance regarding the kind of information that should be included in a merger proxy statement.  It also provides a reminder that Corwin is not the only defense available to directors at the motion to dismiss stage.  In particular, Section 102(b)(7) remains a powerful tool to support dismissal of stockholder claims against directors, even in cases where the proxy omits material information and/or the transaction is subject to “Revlon duties.”[2] Continue Reading Stockholder Claims Dismissed Even After <i>Corwin</i> Defense Fails

On September 3, 2020, the Antitrust Division of the DOJ issued a revised Policy Guide to Merger Remedies, following shortly after it announced a reorganization of its civil enforcement to create an Office of Decree Enforcement and Compliance.

The Policy Guide to Merger Remedies largely codifies a trend towards strengthening of the Division’s preference for structural remedies—such as divestitures—over conduct remedies—such as firewalls. This revision now expressly states that “[s]tructural remedies are strongly preferred in horizontal and vertical merger cases because they are clean and certain, effective, and avoid ongoing government entanglement in the market” (emphasis added), responding to a perception within the bar that vertical mergers (involving firms at different levels of the distribution chain that do not compete directly) are more amenable to conduct-only remedies. The Policy Guide also lays out conditions when the Division may accept a conduct-only remedy: (1) a transaction generates significant efficiencies that cannot be achieved without the merger; (2) a structural remedy is not possible; (3) the conduct remedy will completely cure the anticompetitive harm, and (4) the remedy can be enforced effectively.

Please click here to read the full alert memorandum.

On August 26, the SEC revised several disclosure requirements applicable to reporting companies. The amendments embrace a “principles-based” approach in the hope that it will elicit more focused and useful disclosures.  They will also require issuers to focus on human capital disclosures and on the organization of risk factor disclosures, and some will have to do so quickly because the amendments will take effect 30 days after they appear in the Federal Register.  Two dissenting commissioners objected to the SEC’s unwillingness to adopt specific disclosure requirements on diversity and on climate risk.

Please click here to read the full alert memorandum.

A recent decision of the Delaware Court of Chancery in the ongoing WeWork/SoftBank litigation addressed a previously unresolved question:  can management withhold its communications with company counsel from members of the board of directors on the basis that such communications are privileged?  Building on past Delaware decisions concerning directors’ rights to communications with company counsel, including in the CBS case we previously discussed here, the court clarified that directors are always entitled to communications between management and company counsel unless there is a formal board process to wall off such directors (such as the formation of a special committee) or other actions at the board level demonstrating “manifest adversity” between the company and those directors.  See In re WeWork Litigation, C.A. No. 0258-AGB (Del. Ch. August 21, 2020).  In other words, management cannot unilaterally decide to withhold its communications with company counsel from the board (or specified directors management deems to have a conflict).

Continue Reading Recent Decision Confirms Directors’ Right to Access Privileged Communications Between Management and Company Counsel