DealLawyers.com Blog

Probably old news for many of you, but Delaware created a free ebook version of its Code last year, which can be very useful. The Code is available in both ePub and MOBI formats, for iPad, Kindle and other ebook readers. You can download each title of the Code separately – or download all of them at once.

Last week, the FTC announced the latest annual revision to the size thresholds governing premerger notification requirements under the HSR Act so that transactions will be reportable only if, as a result of such transaction, the acquiring person will hold voting securities, assets, or non-corporate interests of the acquired person valued above $70.9 million, compared to $68.2 million in 2012. The newly adjusted HSR thresholds will apply to all transactions that close on or after the effective date, which is expected to be in mid-February (the exact date will depend on when the changes are published in the Federal Register). We have posted some of the many memos on this change in our “Antitrust” Practice Area.

Here’s a follow-up from Steven Haas of Hunton & Williams on a new development in standstill agreements (and there are memos posted on this case in our “Standstill Agreements” Practice Area):

Following up on Vice Chancellor Laster’s November ruling in Complete Genomics, Chancellor Strine has now weighed in on the legality of “don’t ask/don’t waive” standstill provisions. In In re Ancestry.com, C.A. No. 7988-CC (Del. Ch. Dec. 17, 2012), Chancellor Strine rejected the notion that “don’t ask/don’t waive” provisions are per se unenforceable under Delaware law. He went on to say that such provisions could be used effectively as a “gavel” in running a sale process. In particular, he stated that a “well-motivated seller” could use a “don’t ask/don’t waive” provision to “impress” upon bidders that the sale process is “meaningful,” that “there is really an end to the auction for those who participate,” and “therefore, you should bid your fullest because if you win, you have the confidence of knowing you actually won that auction at least against the other people in the process.”

Nevertheless, based on the preliminary record before the court, Chancellor Strine indicated that the target company’s board of directors may have breached its duty of care. Among other things, the target company’s directors, senior managers, and investment banker may not have understood the “potency” of the “don’t ask/don’t waive” provisions. In addition, Chancellor Strine indicated that, in the circumstances of the case, the target’s board of directors might have waived the standstill provisions prior to entering into a definitive merger agreement because the buyer had not requested an assignment of the target company’s rights to enforce them. Chancellor Strine also ruled that the plaintiffs had a reasonable probability of success in proving a disclosure violation because the company had not previously disclosed the existence of the “don’t ask/don’t waive” provisions to its stockholders. “[T]he electorate,” he wrote, “should know that with respect to the comfort they should take in the ability to [receive] a superior proposal, they should understand that there is a segment of the market … that… cannot take advantage of that.”

It is important to recognize that, like Complete Genomics, Ancestry.com is a bench ruling that lacks the detail and analysis set forth in memorandum opinions. Thus, further word on “don’t ask/don’t waive” provisions will have to come in the future. Nevertheless, target companies should now be prepared to disclose the existence of “don’t ask/don’t waive” provisions. Targets should also expect increased scrutiny in litigation as to how “don’t ask/don’t waive” provisions were used to induce bids and maximize stockholder value. From a process perspective, furthermore, directors will need to understand how “don’t ask/don’t waive” provisions work.

Here’s something that Keith Bishop recently blogged:

I find that many California mergers and acquisition lawyers are more comfortable dealing with Delaware than California corporate law. However, there are still many thousands of California corporations that may be in the market to acquire or be acquired. Below are three common pitfalls California M&A pitfalls.

1. Failing to recognize that the California General Corporation Law applies. The CGCL will, of course, apply to any corporation organized under the CGCL. It may be a surprise to some, however, that Section 2115 makes numerous M&A related provisions of the CGCL applicable to some foreign corporations. These provisions include Sections 1001(d) (limitations on the sale of assets); 1101 (the provisions following subdivision (e)); Chapter 12 (reorganizations); and Chapter 13 (dissenters’ rights). Although Section 2115 imposes these provisions only on corporations that meet specific ownership and business thresholds (and that are not exempted), the point to remember is that it’s possible that California law will apply to parties incorporated in other states. If your thought is to take refuge in Vantagepoint Venture Partners 1996 v. Examen, Inc., 871 A.2d 1108 ( Del. 2005), you may want to remember that the lawsuit may not be filed in Delaware.

2. Failing to understand California M&A taxonomy. When reading the CGCL, it is important to remember that it uses a large number of defined terms. Unfortunately, the fact that terms have statutory definitions is not readily apparent to the casual reader because those terms are not often capitalized or otherwise identified. For example, the CGCL defines “reorganization” in Section 181 as any of three types of transactions: a merger pursuant to Chapter 11; an exchange reorganization, or a sale-of-assets reorganization. The CGCL applies to other types of M&A transactions but those transactions are not reorganizations as defined by the CGCL. For example, a sale of assets for cash is not a sale-of-assets reorganization as defined Section 181, but it is subject the special approval requirements of Section 1001(d). See When a Sale of Assets is not a “Sale-of-Assets Reorganization” . Also, the CGCL imposes special requirements on “share exchange tender offers” as defined in Section 183.5 even though a “share exchange tender offer” can never be an “exchange reorganization” or even a “reorganization”

3. California law imposes unique approval requirements. Under Section 1001(d), for example, when an acquiring party in a sale-of-assets reorganization or an acquisition of all or substantially all of the assets of a corporation that isn’t a sale-of-assets reorganization is in control of or under common control with the disposing corporation, the principal terms of the transaction must, with certain exceptions, be approved by at least 90% of the voting power of the disposing corporation. See Seeing Red And More Than 50% Ownership May Mean A 90% Vote. A similar limitation on cash-out mergers can be found in Section 1101 (the provisions following subdivision (e)). Section 1201(a) also imposes a class vote with respect to the principal terms of a reorganization. This was, in fact, the issue in the Vantagepoint case.

In a piece entitled “Zipcar Makes S.E.C. Filing After Executive’s Twitter Message,” DealBook provides a reminder that deal lawyers need to remain vigilant in the wake of a deal to monitor what executives might be doing on social media channels – since that activity may require filings to be made with the SEC. There is good analysis in this “100 F Street” blog…

Here’s an interesting piece that Allen Matkin’s Keith Bishop recently blogged:

For several years, I taught a law school class covering sales, personal property leases, and documents of title – Uniform Commercial Code Articles 1, 2, 2A, and 7. At one time, the UCC was the big thing in American law. Now it has become workaday area of the law. Nonetheless, it remains an important, and I fear, often overlooked, subject.

I suspect that many lawyers negotiating asset purchase agreements may fail to recognize and address basic UCC issues. For example, they may spend a great deal of time negotiating express warranties while not recognizing that the UCC will impose (if not properly disclaimed) implied and other warranties. (My former students will recognize that under the UCC, there are three types of warranties – express, implied and warranties that are neither express nor implied.) Similarly, an asset purchase agreement may not take into account the risk of loss rules that apply to the sale of goods under the UCC.

Some questions to consider the next time you negotiate an asset purchase agreement:

– Does my agreement involve a transaction in goods subject to the UCC?
– Do I understand how warranties (express, implied and other) are made and disclaimed under the UCC?
– Do I understand the UCC’s risk of loss rules and are those rules properly addressed in the agreement?
– Do I understand the UCC’s remedy provisions and my client’s rights and obligations in the event of a breach or anticipatory repudiation?

A useful housekeeping task for the summer might be to review your form of asset purchase agreement with the UCC in mind. California, like Rudyard Kipling’s cat, walks alone in many respects. We don’t refer to “articles” of the California UCC, we call them “divisions”. Also, there is no Article 2a in the California UCC, it’s Division 10.

Based on an analysis of all of the transactions supported by Drooms’ virtual data rooms in 2012, the top ten most popular code names used for projects and assets this year were:

1. Phoenix
2. Gold
3. Mars
4. Blue
5. Sky
6. Alpha
7. Pegasus
8. Emerald
9. Platinum
10. Horizon

In this podcast, Gregg Passin of Mercer explains the findings from a recent Mercer survey on retention and success bonuses in M&A transactions, including:

– What were your survey’s main findings?
– Any surprises?
– What should companies do in the wake of the survey

Check out this video by Justin Hamill of Paul Weiss on “Quasi-Appraisal: The Unexplored Frontier of Stockholder Litigation?”

This Davies Ward memo notes how at least three Canadian companies recently have adopted advance notice policies – Mundoro Capital, MAG Silver and most recently Bell Copper. Such a policy, which is effective upon adoption by the board, requires any person proposing to nominate a director for election at a meeting of shareholders to provide the company with advance notice of, and prescribed details concerning, any such proposed nominee. Unless proper notice is given to the company in accordance with the prescribed notice period, any such proposed nominee is ineligible for election at the shareholders meeting. Each of Mundoro Capital and MAG Silver put its advance notice policy to shareholders for approval, on the basis that the policy would terminate on expiry of the shareholders meeting (but after the election of directors) if not approved by shareholders at that meeting. The memo then delves into these policies in detail…