The Delaware General Corporation Law (§ 102(b)(7)) has been amended, effective August 1, 2022, to permit exculpation of corporate officers, but in a more limited way than the exculpation of directors that has long been permitted.
This outline reviews the SEC’s interpretations that relate to the integration of private and public offerings and the challenges they present for the capital formation process. The outline also describes current policies of the SEC staff that affect so-called “PIPE” offerings and “private equity lines.”
Earlier this week, the SEC announced proposed rules (Release No. 33-11042) for new, climate-related disclosures. The proposals dramatically expand the requirements of the SEC’s 2010 guidance on climate-related disclosures. While most large companies have been providing some climate-related information as part of ESG reporting in CSR or Sustainability Reports outside of their SEC filings, these rules, if adopted, will necessitate a significant overhaul of companies’ climate-related analysis, procedures, and reporting and will subject any climate-related disclosure to stricter securities law liability standards.
The SEC has proposed rules (Release No. 33-11038) that would require new cybersecurity disclosures. If adopted the rules would codify and build upon the Commission guidance on cybersecurity risks and incidents.
Last week, the SEC proposed new rules that would shorten the time periods for filing a Schedule 13D or 13G after acquisition of beneficial ownership of 5% or more of the voting stock of a public company from 10 days to 5 days.
In an important decision, the Delaware Court of Chancery, in In re Multiplan Corp. Stockholders Litigation, 2022 WL 24060 (Del. Ch. Jan. 3, 2022), in denying the defendants’ motion to dismiss, addressed claims against the sponsor and other insiders of a special purpose acquisition company or “SPAC” for breach of fiduciary duties in connection with a de-SPAC merger. As we mentioned in our QuickStudy, “SPACs and the Implications for D&O Insurance,” the Multiplan decision was highly anticipated and is significant because it was the first time the Delaware courts had to grapple with the unique structure of SPACs and determine how to apply fundamental principles of Delaware fiduciary duty law to them.
Companies often make distributions to their stockholders as dividends and stock buybacks. For private equity-backed companies, it is not unusual to see leveraged recaps in which the company borrows money and makes distributions to the private equity investors.
Controlling stockholders sometimes seek to limit the ability of new investors in their company to interfere with future exit transactions. They may do this by requiring the new investors to agree to vote in favor of a transaction proposed by the controlling stockholder (a “drag-along agreement”) or to expressly waive any appraisal rights because those rights can create uncertainty for an exit transaction.
Derivative actions play an important role in policing corporate insider conduct and compliance by directors and controlling stockholders with their fiduciary duties. A derivative action enables a stockholder, upon satisfaction of applicable requirements, to bring litigation on behalf of the corporation challenging, for example, conflict of interest transactions, the adequacy of consideration in a merger or the board’s attention to the corporation’s legal compliance.
On September 22, 2021, the SEC released its Sample Letter to Companies Regarding Climate Change Disclosure (“Letter”). The Letter is not only important for what it will seek, but for what it portends. The Letter invokes the 2010 Climate Change Guidance (“Guidance”) which provided an overview of potential disclosure obligations related to climate change, including the impact of climate change legislation and rulemaking, business trends, and physical impacts.