Office of the Comptroller of the Currency Affirms Authority of a National Bank to Provide Cryptocurrency Custody Services

The Office of the Comptroller of the Currency (“OCC”) recently signaled its approval for banks to fully wade into the cryptocurrency custodian space.  On in a July 22, 2020 interpretive letter, the OCC concluded that a national bank may provide cryptocurrency custody services on behalf of its customers, including by holding the unique cryptographic keys associated with cryptocurrency, so long as the institution is able to effectively manage the risks and complies with applicable law. Continue Reading

Tax Planning Considerations Raised by Election-related Proposals

November is approaching and in an election year, that means candidates are making plans and promises.  These promises and plans inevitably include something about taxes; and when it comes to taxes, it pays to be prepared.  While we take no position on the candidates or proposals, in the event you are considering the timing of your tax decisions for the balance of the year and 2021, it is important to consider the potential impact of the election.  The following items explain the current status of various tax proposals that might impact your planning. Continue Reading

Board Guidance: Getting To Business Judgment Rule Deference When You Have A Controlling Stockholder

IN RE DELL TECHNOLOGIES INC. CLASS V STOCKHOLDERS LITIGATION

There has been a growing deference in Delaware courts for transactions approved by independent special committees and minority stockholders. In the context of a company with a controlling stockholder, the Delaware Supreme Court has provided guidance in Kahn v. M&F Worldwide Corp.[1] (“MFW”) on how boards can structure special committees and minority stockholder votes to have board decisions adjudicated under the highly deferential protection of the business judgment rule.[2] However, the Delaware Court of Chancery recently found in In re Dell Technologies Inc. Class V Stockholders Litigation[3] (“Dell”) that it was reasonably conceivable that the conditions established in MFW had not been satisfied in the transaction under review resulting in the application of the more onerous entire fairness standard of review.[4] The opinion in Dell provides helpful insight for boards as they navigate transactions involving controlling stockholders.[5] Continue Reading

The Impact of COVID-19 on M&A Transactions — Part II: Deal Terms

The COVID-19 pandemic has caused severe disruption, distress and uncertainty for companies across almost every industry. While this initially resulted in a substantial slow-down in the M&A market, transactional activity is expected to accelerate in certain areas as the economy begins to recover; for example, we expect to see more carveouts by companies that seek to divest non-core assets, acquisitions of distressed companies, financings of independent companies that may have liquidity issues, and divestitures or joint ventures by private equity funds that seek to exit investments or bring in new partners. Prospective sellers and buyers alike should have an increased focus on specific considerations as they evaluate new opportunities during and post-COVID-19.

We anticipate lasting changes to three main categories of deal terms in M&A transactions as companies and the economy begin to recover from the pandemic: execution risk, risk allocation and purchase price. Special considerations that should be taken into account in each of those categories include the following:

Continue Reading

The Impact of COVID-19 on M&A Transactions — Part I: Due Diligence and Operational Issues

The COVID-19 pandemic has caused severe disruption, distress and uncertainty for companies across almost every industry. While this initially resulted in a substantial slow-down in the M&A market, transactional activity is expected to accelerate in certain areas as the economy begins to recover; for example, we expect to see more carveouts by companies that seek to divest non-core assets, acquisitions of distressed companies, financings of independent companies that may have liquidity issues, and divestitures or joint ventures by private equity funds that seek to exit investments or bring in new partners. Prospective sellers and buyers alike should have an increased focus on specific considerations as they evaluate new opportunities during and post-COVID-19. Continue Reading

Delaware Supreme Court Affirms Appraisal Award Using Corporation’s Unaffected Market Price As Fair Value

In Fir Tree Value Master Fund, LP v. Jarden Corp., No. 454-2019, 2020 WL 3885166 (Del. July 9, 2020), the Delaware Supreme Court affirmed a Delaware Court of Chancery (Slights, V.C.) appraisal decision that adopted the respondent corporation’s unaffected market price as fair value, squarely rejecting petitioners’ argument that, as a matter of Delaware law, a corporation’s unaffected stock price can never equate to fair value.  Under the appraisal statute, when determining the fair value of the shares on the closing date of the merger, the trial judge shall take into account “all relevant factors.”  The Delaware Supreme Court’s decision makes clear that a corporation’s unaffected market price alone can be a “relevant factor” indicating fair value in mergers. Continue Reading

Federal Reserve Clarifies that Distributions to Tribal Governments are Permitted Under the Main Street Lending Program

On July 15, 2020, the Federal Reserve Bank of Boston issued new guidance expressly permitting tribal businesses that are borrowers under the Main Street Lending Program (“MSLP”) to pay dividends to their tribal government owners.  In its amended Frequently Asked Questions (the “July 15th FAQs”), available here, the Federal Reserve announced that the Treasury Secretary exercised his authority under the CARES Act to waive the prohibition against the payment of dividends in the MSLP, permitting tribal businesses that are wholly or majority-owned by one or more tribal governments to make distributions to their tribal government owners.  See July 15th FAQ H.15 and H.2.  Tribal businesses and organizations seeking financial relief and Lenders seeking to extend credit under the MSLP have advocated for this important clarification so that tribal businesses may gain access to much-needed capital during the economic strain of the COVID-19 pandemic.  For example, Sheppard Mullin sought this important clarification with respect to tribal distributions in comments it submitted to the Federal Reserve on April 16, 2020. Continue Reading

SEC Issues New MD&A Guidance Regarding COVID-19

Public companies with a December 31 fiscal year end are now in the process of preparing their Form 10-Q reports for the quarter ended June 30, 2020.

When preparing the MD&A section of the Form 10-Q, management should be mindful of the recently released SEC Division of Corporation Finance guidance, “Coronavirus (COVID-10 – Disclosure Considerations Regarding Operations, Liquidity, and Capital Resources”. Continue Reading

Some Strings Attached: Main Street Lending Program And Private Company M&A

The Main Street Lending Program, intended to provide credit support to small and medium sized businesses, became operational on July 6, 2020.[i] It includes many borrower-favorable economic terms, including a 5-year term, a low interest rate (capped at LIBOR + 3%), an interest payment deferral of 1 year and a principal payment deferral of 2 years, and a generally borrower-friendly amortization schedule.[ii] However, the Main Street Lending Program possesses certain characteristics that could negatively affect an acquisition, sale or other strategic transaction.

Since making its initial announcement in March of 2020, the Federal Reserve has released a series of documents and Frequently Asked Questions (“FAQs”) to shape and clarify the program details.  This article discusses several Main Street Loan requirements (around affiliation, dealing with other debt, compensation, dividends/distributions and employee and payroll retention) that require special attention if an M&A transaction of a privately-held company is being conducted or may be on the foreseeable horizon. This article also recommends some basic execution strategies since different approaches to M&A due diligence review and transaction structuring are necessary if the acquiror, the target/seller or both have applied for or received a Main Street Loan. Continue Reading

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