What You Need to Know About Mergers and Acquisitions Involving Government Contractors and Their Suppliers

Volume VIII – Foreign Buyers Do Make a Difference

Not every potential buyer is a U.S. corporation controlled by U.S. interests.  It is important, both for the buyer and the seller, to understand the implications of foreign ownership, control, or influence (“FOCI”) on the feasibility of a sale to foreign interests and the processes that apply to such sales.  As the title of this posting makes clear, foreign buyers do, in fact, make a difference.

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Seventh Circuit Criticizes Disclosure-Only M&A Litigation Settlements, Holding That Supplemental Proxy Disclosures Must Address and Correct a Plainly Material Misrepresentation or Omission

In In re Walgreen Co. Stockholder Litigation, No. 14 C 9786, 2016 WL 4207962 (7th Cir. Aug. 10, 2016) (Posner, J.), the United States Court of Appeals for the Seventh Circuit issued a highly charged opinion critical of an unopposed settlement of a stockholder class action “strike suit” which provided “nonexistent” benefits to class members yet “sweet fees for class counsel.”  In this case, a putative stockholder class action was filed immediately after Walgreen Co. (“Walgreens”) issued a proxy statement seeking approval of its reorganization as a new Delaware corporation to be called Walgreens Boots Alliance, Inc.  (As the Seventh Circuit noted, this was hardly unusual, as an astounding 94.9% of public company strategic transactions involving $100 million or more in recent years have triggered “strike suits” or “deal litigation.”)  Echoing criticisms of similar types of disclosure-only settlements by the Delaware Court of Chancery (see In re Trulia, Inc. Stockholder Litigation, 129 A.3d 884 (Del. Ch. 2016); blog article here], the Seventh Circuit reversed the district court’s approval of the settlement.  This decision from an influential federal jurist will put additional pressure on plaintiffs in these types of cases to forego or abandon litigation over public company strategic transactions (or, perhaps ironically, to litigate these cases more aggressively).

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12 Common 10-K Mistakes — And How To Find Them

So, fortune has smiled upon you. A partner has handed you a draft Form 10-K for a client and asked you to do a “rule check” or “form check” to confirm that no required disclosures are missing.

Most often, the Form 10-K template for a reporting company has evolved over a number of years, with significant input from the company’s accounting and legal professionals, and is generally in pretty good shape.

However, mistakes get made — and it’s your job to find them!

Here is a list of 12 items that even seasoned reporting clients frequently omit or prepare incorrectly when drafting the Form 10-K.

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How to Write Bad MD&A

There are plenty of articles about how to write good MD&A – referring of course to the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of your company’s Form 10-K, Form 10-Q or Securities Act registration statement.

The purpose of this article is to give you concrete tips on how to write bad MD&A, section by section.

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SEC Approves Nasdaq’s Proposed Rule on Third Party Payments to Directors and Director-Nominees – The “Golden Leash” Disclosure

On July 1, 2016, the Securities and Exchange Commission (the “SEC”) approved, on an accelerated basis, proposed amendments to the listing rules of The Nasdaq Stock Market LLC (“Nasdaq”) to require Nasdaq-listed companies to disclose annually any “compensation” or “other payment” provided by third parties to directors or director-nominees in connection with their candidacy or service on the company’s board of directors. These arrangements are referred to as “golden leash” arrangements and commonly occur when an activist stockholder compensates its nominee for service on the company’s board of directors based on achieving certain criteria that are important to the activist stockholder. The new rule, Nasdaq Rule 5250(b)(3) (the “Rule”), became effective July 31, 2016.

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What You Need to Know About Mergers and Acquisitions Involving Government Contractors and Their Suppliers

Volume VII—Investing in Small Businesses

Numerous government contracts programs support small businesses.  There are prime contracts set aside for various categories of small business entities.  Agencies have small business contracting goals and take them very seriously.  Prime contractors often are incentivized, through evaluation factors, to propose significant small business participation.  They can also face liquidated damages for failing to make good faith efforts to comply with their small business subcontracting plans.  These programs promote economic growth by incentivizing investment in small business entities.

The primary obstacle to investing in small businesses, from a government contracts perspective, is that it is quite easy to lose small business size status as the result of a corporate transaction.  The difficulties arise from the doctrine of “affiliation.”

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SEC Proposes Amendments to Update and Simplify Disclosure Requirements as Part of Overall Disclosure Effectiveness Review

On July 13, 2016, the Securities and Exchange Commission (the “SEC”) announced proposed amendments in order to update and simplify its disclosure requirements.  The SEC’s proposed rule (the “Proposed Rule”) can be found here.

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SEC Steps Up Cybersecurity Enforcement with $1 Million Fine Against Morgan Stanley

The Securities and Exchange Commission’s (“SEC”) recent $1 million settlement with Morgan Stanley Smith Barney LLC (“MSSB”) marked a turning point in the agency’s focus on cybersecurity issues, an area that the agency has proclaimed a top enforcement priority in recent years.  The MSSB settlement addressed various cybersecurity deficiencies that led to the misappropriation of sensitive data for approximately 730,000 customer accounts.

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Tenth Circuit Upholds Nevada Law By Denying Stockholders Standing to Bring Claims on Behalf of Nevada Corporation

In In re Zagg Inc. Shareholder Derivative Action, No. 15-4001, 2016 U.S. App. LEXIS 11095 (10th Cir. June 20, 2016), the United States Court of Appeals for the Tenth Circuit held that stockholders of a Utah-based, Nevada corporation, who failed to make pre-suit demand that the corporation’s board of directors cause the corporation to file claims against past and present directors (including one-half of the corporation’s board of directors), could not litigate those claims derivatively.  The Court rested its decision on Nevada’s exculpation statute, Nev. Rev. Stat. § 78.138(7), which protects directors and officers of Nevada corporations from personal liability to the corporation when the statute’s requirements are met.  According to the Court, the complaint did not plead a non-exculpated claim, and so did not show that the current directors faced a risk of liability sufficient to render them self-interested such that a pre-suit demand on the board would have been futile.  Hence, the lack of pre-suit demand required dismissal.  The decision confirms the extensive personal liability protection Nevada affords officers and directors of Nevada corporations.  It also illustrates how, by broadly limiting director and officer liability, Nevada further allocates to boards of directors (as opposed to stockholders) the power to control the corporation’s decision to litigate.

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Maximum Civil Penalties for HSR Violations to Increase to $40,000 per Day

For parties considering a merger or other transaction, the civil penalties for failing to comply with the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (“HSR Act”) are about to increase significantly.

On June 29, 2016, the Federal Trade Commission announced that the maximum civil penalty for noncompliance with the premerger filing requirements of the HSR Act will increase from $16,000 per day to $40,000 per day, effective August 1, 2016.  The current maximum penalty of $16,000 per day has been in place since 2009.  Prior to 2009, the maximum penalty was $11,000 per day.

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