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Often, executives of private companies have certain rights and benefits that are triggered upon a change in control, such as accelerated vesting of equity awards and payments under a management carve-out plan. These payments may result in significant tax penalties under Section 280G of the Internal Revenue Code, or the “Golden Parachute Rules”, unless appropriate action is taken by the company.
Read the article in this month’s M&A Today Newsletter to learn more about Section 280G.
Selling a business can be a once-in-a-lifetime opportunity to reap the rewards for years of efforts spent successfully growing a company, but it is critically important that the business is positioned to achieve a successful exit and there are a number of initial steps to be taken to prepare for a successful exit.
Learn more in this month’s M&A Today Newsletter.
Selling a company can be a long and winding road with an inevitable exchange of confidential information between presumptive buyers and the selling company occurring throughout the course of a M&A transaction. Typically, the first document signed between a buyer and seller is a non-disclosure agreement (a “NDA”) which is designed to place restrictions on what each party may do with confidential information shared by the other party during the course of the buyer’s due diligence review of the seller.
For more information on NDAs, read the full article in our M&A Today Newsletter.
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Back by popular demand, corporate partner Mary Beth Kerrigan was a panelist at an encore panel of this year’s ABA Business Law Annual Meeting in Boston. Mary Beth discussed complex issues that arise in acquisitions of venture-backed companies.
The webinar included varying topics, including disproportionate allocation of indemnity risk among stockholders/stakeholders, complex waterfalls, and much more. Congratulations to Mary Beth on another job well done!
To learn more about the conference, visit the ABA’s event page.
MBBP Corporate Partner Scott Bleier will participate in two separate sessions during this year’s ABA Business Law Annual Meeting in Boston. Scott will be discussing the recent Sun Capital Partners III v. New England Teamsters & Trucking Industry Pension Fund (D. Mass. March 28, 2016) court case at the Private Equity and Venture Capital Jurisprudence meeting on Friday, September 9th. Additionally, later that day he will be leading a presentation of the Venture Capital Transactional Documents and Issues Subcommittee regarding various alternative approaches to financing start-up companies, including SAFEs and KISSs.
This year’s meeting includes panels with diverse subject matters, as well as numerous networking opportunities. In addition to Scott’s role, Corporate Partners Mary Beth Kerrigan and Jon Gworek will also take part in the conference. Mary Beth will be a panelist on the panel “Venture-Backed M&A: Special Considerations“, while Jon Gworek will conclude his tenure as Chair of the Private Equity and Venture Capital Committee.
To learn more about the conference, view the ABA’s event page.
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Massachusetts Wage and Hour Laws: Legal Risks for Businesses in Transition – Scott J. Connolly
The laws governing payment of wages, overtime pay, and commissions have become a leading source of employee claims and employer liability. Mistakes in this area can be costly and penalties in Massachusetts include treble damages and individual liability against certain individual corporate officers. Buyers and sellers in corporate transactions must pay close attention to these risks where the transaction may result in termination of employees’ employment.
Read more about wage and hour laws legal risks.
SEC to Funds: Watch the Broker-Dealer Activities – Mark J. Tarallo
On June 1, 2016, the United States Securities and Exchange Commission (the “SEC”) announced and issued an enforcement action (the “Enforcement Action”) against Blackstreet Capital Management, LLC (“BCM”), and its founder, Murry Gunty (“Gunty”). The Enforcement Action arose out of actions taken by funds advised by Blackstreet that the SEC alleges required registration by Blackstreet as a broker-dealer
Read more about unregistered broker-dealer activity.
Importance of Closing Conditions in Mergers – Williams Companies, Inc. v Energy Transfer Equity, L.P. – Court of Chancery of the State of Delaware – Matthew R. Loecker
On June 24, 2016 the Delaware Court of Chancery ruled on a dispute with implications for lawyers and companies negotiating closing conditions in a merger agreement. The dispute in Williams Companies, Inc. v Energy Transfer Equity, L.P. centered on a legal opinion to be delivered by the purchaser’s tax counsel prior to closing. The purchasers were able to terminate the merger agreement when their counsel refused to deliver the opinion. Practitioners negotiating merger agreements will want to pay special attention to the lessons of Williams before agreeing to any closing conditions or committing to use “commercially reasonable” efforts to meet pre-closing obligations.
Read more about M&A closing conditions.
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By: Joe Marrow
Continuing a recent trend, a Delaware Chancery Court judge recently denied a request for an award of attorneys’ fees and expenses in connection with the Keurig Green Mountain Inc. shareholder litigation. On July 22, 2016, in the case In Re: Keurig Green Mountain Inc. Shareholders Litigation, case number 11815, Chancellor Andre G. Bouchard considered a petition seeking an award of attorneys’ fees and expenses to the attorneys representing shareholders that had challenged the acquisition of Keurig.
On behalf of the shareholders, the lawyers had questioned the deal disclosures that had been made by Keurig in its proxy statement. As a result of the action, Keurig made certain supplemental disclosures to the shareholders. The attorneys representing the shareholders then sought an award of $300,000 of fees and expenses from Keurig. Keurig’s attorneys opposed the petition arguing that the supplement disclosures merely confirmed information that had previously been provided in the proxy statement. Chancellor Bouchard agreed and denied the petition on the basis that disclosures in question were not beneficial to the shareholders. Chancellor Bouchard has taken a strong position against granting significant fee awards in the context of disclosure-only settlements in shareholder litigation.
For more information, please contact corporate attorney Joe Marrow.
By: Carl F. Barnes
The Federal Trade Commission announced recently that the maximum civil penalty for violations of the premerger notification requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976 have increased from $16,000 to $40,000 per day. The increase was effective this past Monday, August 1, 2016, but will also apply to violations occurring prior to that date. The full text of the revised rules was published in the Federal Register on June 30.
The FTC last increased the maximum civil penalty in 2009, from $11,000 per day to $16,000 per day. The present increase is the result of the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015, which directs federal agencies to implement a “catch-up” inflation adjustment based on a prescribed formula. Starting in January 2017, the FTC will increase its maximum civil penalties annually, just as it adjusts HSR filing thresholds.
A premerger notification gives the FTC and the Department of Justice, which share jurisdiction over HSR, the ability to review a transaction for anti-competitive effects and determine whether to seek injunctive or other relief before it closes. Recent enforcement actions are good reminders of a few fundamental facts:
- Every day of noncompliance with HSR is a separate violation, so fines can mount extraordinarily quickly.
- “Premerger,” though that’s the word used in the title of the Act, is really a misnomer: HSR obviously applies to mergers and acquisitions of entire companies (if the filing thresholds are met), but it also applies to some transfers of assets (including patents and real estate), to some minority investments, and to certain licenses, leases and other transactions that don’t look like mergers at all.
- Finally, the Act and the rules implementing it are highly technical and complex. Although the FTC has a long-standing practice of being lenient on first-time, inadvertent offenders, everyone involved in the purchase, sale or other transfers of business assets or equity interests should pay careful attention to the potential application of HSR and consult with skilled counsel. Now more than ever.
For more information, please contact Carl F. Barnes.
For the third time in four years, MBBP Attorney Carl Barnes will be a panelist on MCLE’s Representations, Warranties, Indemnification and Termination Provisions: Drafting and negotiating to allocate risk in business transactions program. Carl will discuss drafting and negotiating key provisions of M&A agreements, with a focus on drafting considerations arising out of recent Delaware case law.
This year’s program will take place from 2:00 to 5:00 p.m. on June 27th at the MCLE Conference Center in Boston, MA. The conference will also be available by both live and recorded webcast. To attend the program or to participate in the live webcast, register here.
By: Mark J. Tarallo
In a decision issued on January 22, 2016, in In re Trulia, Inc. Stockholder Litig., (“Trulia”), the Delaware Chancery Court struck another blow against “disclosure-only” settlements. In Trulia, Chancellor Andre Bouchard rejected a proposed disclosure-only settlement and in a strongly worded opinion stated that “the Court’s historical predisposition toward approving disclosure settlements needs to be reexamined,” and that the Chancery Court would be “increasingly vigilant in scrutinizing the “give” and the “get” of such settlements to ensure that they are genuinely fair and reasonable to the absent class members.”
Disclosure-only settlements are common in litigation arising out of M&A transactions. As Chancellor Bouchard noted:
“It has become the most common method for quickly resolving stockholder lawsuits that are filed routinely in response to the announcement of virtually every transaction involving the acquisition of a public corporation. In essence, Trulia agreed to supplement the proxy materials disseminated to its stockholders before they voted on the proposed transaction to include some additional information that theoretically would allow the stockholders to be better informed in exercising their franchise rights. In exchange, plaintiffs dropped their motion to preliminarily enjoin the transaction and agreed to provide a release of claims on behalf of a proposed class of Trulia’s stockholders. If approved, the settlement will not provide Trulia stockholders with any economic benefits. The only money that would change hands is the payment of a fee to plaintiffs’ counsel.”
In rejecting the settlement, Chancellor Bouchard ruled that “from the perspective of Trulia’s stockholders, the “get” in the form of the Supplemental Disclosures does not provide adequate consideration to warrant the “give” of providing a release of claims to defendants and their affiliates, in the form submitted or otherwise.” The Trulia ruling may signal the end of such settlements in Delaware. The full text of the opinion can be found here.
For more information, please contact Mark Tarallo.
By Mark Tarallo
The Delaware Supreme Court recently issued a ruling in Siga Technologies, Inc. vs. PharmAthene, Inc., one of the longer-running disputes in the Delaware court system. The case arose out of the failed license agreement and merger between Siga Technologies, Inc. (“SIGA”) and PharmAthene, Inc. (“PharmAthene”) in 2006. SIGA had initially sought the business arrangement in order to survive, and then backed away from the transaction as its prospects began to improve over the course of 2006. After SIGA terminated discussions and refused to enter a license agreement on the terms set forth in a term sheet the parties had agreed to, PharmAthene sued SIGA in the Delaware Chancery Court. The Chancery Court issued an order awarding damages to PharmAthene. Both parties appealed, and on May 24, 2013, the Delaware Supreme Court issued a ruling (referred to as “SIGA I”) remanding the case to the Chancery Court for consideration of certain issues relating to damages. The Chancery Court issued an order on January 15, 2015, awarding PharmAthene approximately $113 million in damages, and to the surprise of absolutely no one, both parties again appealed. On December 23, 2015, the Delaware Supreme Court issued a ruling (likely to be referred to as “SIGA II”) upholding the actions of the Chancery Court.
The basis of the dispute was a detailed license agreement term sheet signed by the parties and referred to throughout the litigation as the “LATS.” The Chancery Court relied on some of the terms set forth in the LATS when calculating damages, despite the claims of SIGA that this was too speculative a measure. The Supreme Court disagreed, and ruled that the Chancery Court could use an estimate of lump sum expectation damages (based on the terms in the LATS), as long as the plaintiff could prove the existence of such damages with reasonable certainty. The Supreme Court agreed with the Chancery Court’s determination that PharmAthene had met that burden, and upheld the Chancery Court’s award of damages. The full text of the opinion can be found at here.