Keeping You Apprised of Developments in Deal Making

Third Circuit Clarifies Board Observers Are Not Subject to Section 11 Liability

It is common for investors in venture capital and private equity transactions, and in other ‎investment arrangements, as a condition to their investment, to have rights to appoint board ‎observers when director representation is not available. An unanswered question has been the ‎extent to which a board observer has liability exposure under Section 11 of the Securities Act of ‎‎1933, for example, when a company goes public.‎

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Locke Lord QuickStudy: DOJ Announces New Policy on Credit for Antitrust Compliance Programs

On July 11, 2019, the Antitrust Division of the Department of Justice announced a substantial shift in its policy for incentivizing and rewarding the use of corporate compliance programs. For the first time, the Division will now consider the adequacy and effectiveness of a company’s antitrust compliance program in its charging decision—even when a company loses the race to be first under the Corporate Leniency Policy—and in appropriate cases will permit the use of deferred prosecution agreements instead of indictments or guilty pleas.

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Delaware Recognizes Reality of Merger Negotiations in Upholding Application of Business ‎Judgment Rule

In In re Towers Watson & Co. Stockholders Litigation, 2019 WL 3334521 (Del. Ch. July 25, 2019), the Delaware Court of Chancery applied the business judgment rule to dismiss a stockholder suit challenging the $18 billion merger of equals between Towers Watson & Co. and Willis Group despite allegations of imperfections in the merger negotiations.

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Understanding Delaware Appraisal Risk Today

Exposure to claims for appraisal can be a significant risk in merger and acquisition transactions in ‎which dissenter’s appraisal rights are available. This risk has increased in recent years as ‎aggressive investors realized the opportunities presented by appraisal arbitrage, including the high ‎rate of interest payable on appraisal awards, even for shares purchased after announcement of the ‎transaction.‎

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Texas Supreme Court Confirms that Industry Customs cannot Qualify Unrestricted ‎Consent to Assign Provisions

On June 28, 2019, in Barrow-Shaver Resources Co. v. Carrizo Oil & Gas, Inc.[1], the Texas Supreme Court confirmed that industry customs cannot qualify an unrestricted consent-to-assign provision contained in a farmout agreement, nor is such a provision subject to any implied duty of good faith or fair dealing. The ruling was hotly contested, evidenced by both the 5-4 decision and the multitude of letters received by the court from industry players.

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Delaware Court of Chancery Confirms Ability of Stockholders to Assert Third-Party Beneficiary Claims Under Merger Agreements

A common provision in merger agreements is denial of the right of non-parties to the agreement to assert third-party beneficiary claims.  The use of this provision left open the question whether stockholders of a disappearing target company could enforce contractual undertakings of the acquirer following the closing of the merger.

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