Helping Clients Access the Capital Markets and Stay Apprised of Regulatory Developments

Further Update on Validating Defective Corporate Actions

Following our February 24 post, we learned that representatives of accounting firms sought advice from the SEC on whether they can rely solely on Section 205 Orders to confirm valid issuance of outstanding shares as to which there is uncertainty. We understand that they were informed by the SEC Chief Accountant that a Section 205 Order would not be sufficient and that they should request an opinion of counsel as to the shares being valid as of the time of their issuance.

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Update on Validating Defective Corporate Action

On February 14, we reported that a number of Delaware corporations, mostly those resulting from deSPAC transactions, have petitioned the Court of Chancery to validate their increases in authorized shares and other corporate actions due to their failure to seek, and in many cases to obtain, the class vote that the Court of Chancery held in Garfield v. Boxed, Inc.[1] was required by DGCL section 242(b)(2).

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Defective Corporate Action by Delaware Corporations ‎ with Multiple Classes of Common Stock

A number of Delaware corporations with two or more classes of common stock, especially SPACs (special purpose acquisition companies) that have completed deSPAC transactions, are discovering that they may not have properly approved charter amendments that increased their authorized shares of common stock. In Garfield v. Boxed, Inc. (Del. Ch. Dec. 22, 2022), the Delaware Court of Chancery ruled that under section 242(b)(2) of the Delaware General Corporation Law (DGCL) a SPAC with Class A and Class B Common Stock needed to have a separate Class A vote on a charter amendment that increased its authorized shares of Class A Common Stock. A Class A stockholder raised the issue before the stockholder vote and in response the company added a separate Class A vote.  The court decided that the stockholder added a substantial benefit by raising the issue, so its attorney was entitled to a fee award.

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Electronic Form 144 Filings: Reminder of April 13th Deadline

As April 13th approaches, in-house counsel at public companies should prepare for the electronic Form 144 filing requirement beginning on that date.  Form 144 is the filing that officers and directors of public companies file under Rule 144 when they sell shares of their company’s stock (other than pursuant to a resale registration statement or for sales at or under 5,000 shares and $50,000 in value).

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SEC Turns Workplace Misconduct into Disclosure Controls Violation; ‎ Clarifies Protection for Whistleblowers

The SEC announced on February 3, 2023 a settled enforcement action against Activision Blizzard, Inc. finding that it failed to have adequate controls for reporting widespread workplace misconduct to management and used separation agreements for employees that impeded whistleblowing in violation of SEC rules.

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SEC Adopts New Restrictions on 10b5-1 Plans,‎ Related Disclosure Requirements and Section 16 Filing Changes

On December 14, 2022, the SEC unanimously adopted cooling-off periods and other changes to how plans adopted under Rule 10b5-1 (“10b5-1 Plans”) will work going forward.  Executive officers and directors of public companies frequently use 10b5-1 Plans to conduct sales of their company’s stock at a time when they have material non-public information (“MNPI”) about the company or its securities, which is permitted if they entered into the plan at a time that they did not have MNPI and gave up control over the sales.

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Recent Delaware and Other Decisions Relevant to the MBCA

This article describes two recent Delaware decisions relevant to the Model Business Corporation Act (the “MBCA”). One of those decisions relates to a board’s determination of the availability of surplus to support distributions to stockholders, and the other upholds, at the motion to dismiss stage, a claim that the directors breached their fiduciary duty by not taking action in response to a stockholder’s demand. In addition, this article describes recent decisions in MBCA states addressing the meaning of “fair value” and the application of director liability shields to exculpate directors from monetary liability. The MBCA is the basis for the corporation statute of at least 36 states.

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