On December 19, 2018, the Delaware Court of Chancery issued an opinion holding that Delaware law does not permit corporations to use charter provisions to require stockholders to litigate certain claims brought under the federal securities laws in a specific forum.  In Sciabacucchi v. Salzberg, Vice Chancellor Laster determined that such forum-selection provisions are invalid and unenforceable to the extent that they require any claim under the Securities Act of 1933 (the “1933 Act”) to be filed only in federal court.

The decision built on case law providing that a corporation may include forum-selection clauses in its governing documents where the claims involve intra-corporate disputes stemming from the rights and relationships established under Delaware corporate law (including between corporations and stockholders), but may not do so for claims that are external to the corporate relationship, like those based on tort, contract, labor or environmental law.  The decision may have implications for the use of other forum-selection provisions that mandate arbitration or contain class action waivers.

Please click here to read the full alert memorandum.

As 2019 begins, companies continue to face global uncertainty, marked by volatility in the capital markets and global instability. And while change is inevitable, what has been particularly challenging as we enter this new year is the frenzied pace of change, from societal expectations for how companies should operate, to new regulatory requirements, to the evolving global standards for conducting business.

As companies navigate how to adapt, they are being held to increasingly higher standards in executing a coherent, thoughtful and profitable long-term strategy in this ever-evolving landscape. This memorandum identifies the issues across a number of different areas on which boards of directors, together with management, should be most focused.

We invite you to review these topics by clicking on the links below.

For a PDF of the full memorandum, please click here. Continue Reading Selected Issues for Boards of Directors in 2019

On December 26, 2018, the SEC announced settled charges against ADT Inc. after finding that ADT, in two earnings releases, gave undue emphasis to non-GAAP adjusted EBITDA figures because they identified the relevant GAAP measures only later and much less prominently.

Without admitting or denying the SEC’s factual or legal claims, ADT agreed to an administrative settlement finding violations of Section 13(a) of the Securities Exchange Act of 1934 and Rule 13a-11 thereunder, relating to the requirements of Item 10(e) of Regulation S-K that an issuer present “with equal or greater prominence . . . the most directly comparable financial . . . measures” calculated under GAAP when it includes non-GAAP financial measures in filings and certain other reports to the Commission.

This is just the second enforcement action concerning non-GAAP disclosures that the SEC has brought against an issuer in the two-and-a-half years since the issuance of Staff guidance on non-GAAP disclosure requirements, and it is the first during SEC Chair Jay Clayton’s tenure.  It also is the first action related to non-GAAP disclosures finding a violation of only Section 13(a) of the Exchange Act without an accompanying finding that the disclosure in question constituted a material misstatement or omission.

Please click here to read the full alert memorandum.

ISS recently released updates to its Frequently Asked Questions (“FAQs”) on U.S. Compensation Policies and Equity Compensation Plans.[1]  The FAQs are intended to provide general guidance regarding the way in which ISS will analyze certain issues as it prepares proxy analyses and determines vote recommendations for U.S. public companies.

A summary of updates to the FAQs is provided below.  In addition to the ISS and Glass Lewis proxy voting guidelines that were released in the fall of 2018, U.S. public companies should consider the applicability of the ISS FAQs in light of their individual facts and circumstances.[2] Continue Reading ISS Finalizes Updates to its FAQs on Compensation Policies and Equity Compensation Plans

In late December 2018, the Securities and Exchange Commission adopted a final hedging disclosure rule, as required by Section 955 of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

The Final Rule generally requires U.S. public companies to disclose any company practices or policies regarding the ability of employees, officers, directors or their respective designees to engage in hedging transactions. Although most companies will be required to comply with the Final Rule for proxy and information statements for fiscal years beginning on or after July 1, 2019, companies may wish to begin reviewing their existing hedging policies and practices in light of the new disclosure requirements.

Please click here to read the full alert memorandum, which provides a summary of the Final Rule and relevant changes from the SEC’s 2015 proposed rule.

Earlier this week, the SEC published a release requesting comment on the quarterly reporting system.  The release is thoughtful and concise, but it mostly asks questions, so it provides little indication of what action the agency might consider taking.

Two major flaws are regularly attributed to the reporting practices of public companies: complexity and short-termism.  The release engages with these criticisms, but we doubt this is the start of a process that will eventually result in significant regulatory change.

  • The complexity point has been voiced repeatedly by investors and by reporting companies, although they speak from very different perspectives. It has also been taken up by Congress in the JOBS Act (2012) and the FAST Act (2015).  The SEC has addressed it in a series of initiatives over the last decade, only partly at congressional direction, and these have resulted in salutary but minor tweaks to its reporting requirements.
  • The short-termism point is voiced regularly by business leaders and even, on a few memorable occasions, by the President. It is a recurring theme in battles between management and activist investors, in controversies over management compensation, and in laments over the decline in IPOs and in the number of public companies.

Please click here to read the full alert memorandum.

Major transactions dominate the German M&A market in 2018. While valuations remain at high levels, in the midmarket segment, the number of transactions declined. The big bangs in 2018 include the announced reorganization of RWE and E.ON, which involves a significant asset swap and breaking up of innogy. The construction material group Knauf is taking over its US competitor USG. HSH Nordbank is the first Landesbank to be privatized. SAP manages two US takeovers, acquiring Qualtrics and Callidus, while Merck found a buyer for its OTC business in Procter & Gamble. Signa and Hudson`s Bay agree to merge Karstadt and Kaufhof, and Thor Industries acquires the Hymer RV business. Continue Reading

In In re Xura, Inc. Stockholder Litigation,[1] decided earlier this week, the Delaware Court of Chancery denied the target CEO’s motion to dismiss claims that he breached his fiduciary duties by “steer[ing]” the company into an allegedly unfair acquisition by a private equity firm that promised to retain him post-acquisition, while knowing that his job was in jeopardy if the target remained independent.  This case is yet another example of why disclosures are so important in the post-Corwin[2] era:  Vice Chancellor Slights rejected the CEO’s argument that the claims against him were extinguished by the stockholder vote approving the transaction, finding that a number of material omissions precluded a finding that the stockholders’ vote was fully informed.  The vote was thus ineffective to invoke the business judgment rule at the pleading stage. Continue Reading Claim Against Target CEO Survives Dismissal, While Aiding and Abetting Claim Against Private Equity Buyer is Dismissed

The German Government published a draft legislation which would facilitate the dismissal of so-called “risk takers” in the German financial sector.  This is one of various measures by which the German Government intends to address upcoming Brexit challenges and to increase the attractiveness of Germany as business location for financial institutions currently based in the UK.

Current Legal Situation

German employees are benefitting from extensive protection against dismissal.  Under German labor law, the termination of an employment relationship requires a valid justification (e.g., redundancy or misconduct) for which the German labor courts have set high standards.  Therefore, the affected employee is often in a good position to challenge the validity of the termination and claim the continuation of the employment relationship before court.

Continue Reading German Government Plans to Reduce Dismissal Protection for “Risk Takers” in the Financial Sector