March 14, 2005

Congratulations, Your Merger Agreement Just

Check out this controversial tidbit from a recent Broc’s Blog (in , which is still timely if not scary.

Is the SEC trying to tell us to start filing our (otherwise confidential) acquisition agreement disclosure schedules to keep reps from being misleading? Should we start adding disclaimers to the content of exhibits (or items incorporated by reference) to SEC filings? At the very least, Titan’s otherwise well-intentioned and time-honored efforts to be complete turned into a man-bites-dog nightmare. Check out Titan’s Section 21 Report and various law firm memoranda at www.’s practice area “Disclosure.”


Implications of SEC’s Action Against Titan on Mergers

On Wednesday [March 1], the SEC announced a settled enforcement action against Titan Corporation alleging Foreign Corrupt Practices Act violations for funneling approximately $2 million towards the election campaign of Benin’s then-incumbent President. The amount of this settlement – $15.5 million in disgorgement and prejudgment interest and a $13 million penalty – is the highest ever paid for FCPA violations.

However, the most significant aspect of this proceeding is a Section 21(a) Report of Investigation that asserts that representations in an agreement filed as an exhibit can be actionable by the SEC if they are materially false. This assertion relates to a FCPA representation made by Titan in a Merger Agreement with Lockheed Martin (my alma mater!), which was also publicly disclosed in Titan’s proxy statement (since the Merger Agreement was in the proxy statement). It is noteworthy that the Report does not allege a violation by Titan of Sections 10(b) or 14(a) – or Rules 10b-5 and 14a-9 – and that the SEC has not charged Titan with such violations.

The Report recognizes that Titan shareholders were not beneficiaries of the FCPA Representation in the Merger Agreement, but states that the inclusion of the Representation in a disclosure document filed with the SEC, “whether by incorporation by reference or other inclusion, constitutes a disclosure to investors.” The Report goes on to say that disclosures regarding material contractual terms such as representations may be actionable by the Commission. The Commission will consider bringing an enforcement action if it determines that “the subject matter of representations or other contractual provisions is materially misleading to shareholders because material facts necessary to make that disclosure not misleading are omitted.”