This is the price paid for allowing our hopes, rather than established law, to guide public merger agreement drafting for the last 18 years.  Con Edison v Northeast Utilities[1], a 2005 Second Circuit decision regarding a New York law governed merger agreement, found that, absent clear contractual language to the contrary, a target company could not collect lost shareholder premium as damages for the breach of a merger agreement. ConEd caused quite a stir in public M&A circles, with some asserting that it caused every public merger agreement to be converted into a mere option agreement, where, if the buyer did not wish to close, it had only to pay the target’s out-of-pocket costs. This may have been a bit extreme, but given how infrequently specific performance has been ordered to remedy a failure to close, it probably was not far off the mark.

Continue Reading ConEd Is Not Dead In Delaware

Alea iacta est

Boards often settle actual or threatened proxy fights by trading away board seats to activists. Delaware courts will analyze this trade as a defensive device, much like greenmail, where the board trades away something valuable to avoid a battle for corporate control.  It follows that, like greenmail or a poison pill, this defensive device would be subject to scrutiny under the Unocal standard[1].  Yet boards in general seem to be remarkably lax in analyzing whether they have fulfilled their fiduciary duties in making such a trade. Below are questions boards should be able to answer before awarding partial control of their company to an activist.
Continue Reading Activist Settlements: Fiduciary Questions for Boards

On May 12, 2023, the Delaware Court of Chancery reaffirmed a key principle for transactions involving interested directors: process is everything. Vice Chancellor Sam Glasscock III, in his opinion in In re Oracle Corporation Derivative Litigation, provides reassurance that the Court will not rush to second-guess board decisions involving conflicted transactions as long as adequate safeguards are present.

Continue Reading Delaware Chancery Court Finds for Defendant Director, CTO and Founder of Oracle, Larry Ellison, in Derivative Suit Involving Conflicted Transaction

On September 1, 2022, new universal proxy rules adopted by the Securities and Exchange Commission (“the SEC”) formally went into effect. These rules mandatorily apply to public company director elections held after August 31, 2022. This post summarizes the key provisions of Rule 14a-19 of the Securities Exchange Act of 1934, as amended (“Rule 14a-19”), and provides recommendations for potential corporate bylaw amendments.

Continue Reading Bylaw Amendments to Address Universal Proxy Rules

On February 10, 2023, the Securities and Exchange Commission (the “SEC”) Staff issued a series of Compliance & Disclosure Interpretations (CD&Is) relating to the final “pay versus performance” disclosure rules.  These CD&Is cover a range of topics, including use of peer groups, valuation, disclosure of financial performance measures, and presentation of footnotes to the pay versus performance table.  As the 2023 proxy season is fast approaching, and calendar-year companies are preparing to finalize initial disclosures, it is important for issuers to review this guidance to ensure no changes need to be made to its draft disclosures.

Continue Reading SEC Staff Issues Interpretations Relating to the Final “Pay Versus Performance” Disclosure Rules

For the past several years, boards of directors have increasingly faced claims that they have failed in their duty of oversight.  These so-called Caremark claims can arise in a number of contexts involving allegations of systemic failures or intentional wrongdoing.  Recently, the Delaware Court of Chancery held for the first time that officers owe the same duty of oversight as directors, an expansion of Caremark which had previously only been applied to directors.

In In re McDonald’s Corp. Stockholder Derivative Litigation,[1] the Delaware Court of Chancery denied a motion to dismiss a breach of fiduciary duty claim against the former Executive Vice President and Global Chief People Officer of McDonald’s Corporation (“McDonald’s” or the “Company”) relating to alleged sexual misconduct and inadequate oversight.

Continue Reading Recent Delaware Chancery Court Decision Finds That Corporate Officers Owe the Same Caremark Oversight Duties as Directors

The Delaware General Assembly recently adopted amendments to the Delaware General Corporation Law (the “DGCL”), effective as of August 1, 2022.  Among other changes, the amended DGCL provides for exculpation of officers from liability for breaches of the duty of care and also expands the ability of boards to delegate authority to members of management in connection with the issuance of shares of common stock and options.  The change with the most potential for far-reaching impact is with respect to officer exculpation.  For existing corporations, a charter amendment is required to take advantage of the new officer exculpation, and it is an open question as to whether shareholders (and proxy advisory firms) will support extending exculpation to officers.

Continue Reading 2022 Amendments to the Delaware General Corporation Law

On Monday, March 21, 2022, the U.S. Securities and Exchange Commission (“SEC”) released its long-awaited proposed rules on climate-risk disclosures. The proposed rules would amend and build upon existing climate-change disclosure rules and guidance (collectively, the “Proposed Rules”). Under the Proposed Rules, publicly traded companies and other issuers of securities that are required to file a registration statement with the SEC (collectively referred to by the SEC as “Registrants”) would be required to make climate-related disclosures to investors in their registration statements (Forms S-1, S-3, F-1, and F-3) and periodic reports (Forms 10-K, 10-Q, and 20-F).

The Proposed Rules aim to enhance and standardize disclosures on climate-related risks that are likely to have a material impact on a company’s business and financial performance over the short-, medium-, and long-term. The release of the Proposed Rules has triggered impassioned debate, illustrating both strong support for, and fervent opposition to, the proposed climate-related disclosure framework. Thus, any final rules adopted following the comment period could vary significantly from the proposals by the SEC discussed herein.

Continue Reading The SEC Proposes Enhanced Climate Disclosure Rules

Aiding and abetting claims against a buyer for a target’s breach of fiduciary duties are meant to be rare, given the “long-standing rule that arm’s-length bargaining is privileged and does not, absent actual collusion and facilitation of fiduciary wrongdoing, constitute aiding and abetting . . .”[1] (emphasis added). Yet to survive a motion to dismiss, plaintiff must show only that it is “reasonably conceivable” that buyer “knowingly participated” in the breach of fiduciary duties.[2] This may explain why there were at least three cases last year in which aiding and abetting claims against buyer survived a motion to dismiss.[3]

Continue Reading Buyers Beware – Aiding and Abetting Claims Based on Target’s Proxy Disclosure