In March 2013, the Delaware Corporation Law Section announced that it would consider significant amendments to the Delaware General Corporation Law (DGCL). The primary amendment, aimed at easing the process for M&A deals in the state, would eliminate the need for stockholder approval for second-step mergers once a majority of shares have been acquired in a tender offer. The proposals also suggested amending Delaware's Limited Liability Company Act to clarify that managers of limited liability companies are subject to default fiduciary duties unless otherwise provided in the LLC agreement. These proposals were reported in Legal Update, Proposed Changes to Delaware Law: No More Top-up Options and Default Fiduciary Duties for LLC Managers.

The proposed amendments were eventually passed and signed into law (see Legal Update, Amendments to DGCL and LLC Act Signed into Law.) For an example of a merger agreement for a tender offer that opts into the new Section 251(h) of the DGCL, see Standard Document, Merger Agreement (Tender Offer, Pro-buyer).

In 2011, the Delaware Court of Chancery raised the possibility in its Meso Scale decision that, under certain circumstances, a reverse triangular merger could trigger anti-assignment provisions in contracts with the target company. The court essentially reversed itself in 2013, restoring the common understanding that, under Delaware law, assignment provisions are not triggered by reverse triangular mergers. For more on the 2013 Meso Scale decision, see Legal Update, Delaware Court of Chancery Holds that Reverse Triangular Mergers Do Not Trigger "Assignment by Operation of Law" Provisions.

In a post-trial opinion in In re Trados Incorporated Shareholder Litigation, the Delaware Court of Chancery applied the entire-fairness standard of review to a merger transaction that triggered payments on the preferred stock of venture capital investors while not paying anything to the common stockholders. The Trados decision exploded standard operating assumptions inherent in the venture capital model. The facts of the case did not reveal any behavior on the part of the board of directors that could be characterized as extraordinary or particularly underhanded, yet the court identified several areas of conflicts of interest and unfair dealing. For more on the decision and its implications, see Legal Update, In re Trados: Delaware Court of Chancery Reviews Venture Capital Exit Under Entire Fairness, Faults Board on Process.

In a case that underlined the necessity for a board of directors to strongly push back against lenders when negotiating a "proxy put" covenant, the Delaware Court of Chancery enjoined the board of SandRidge Energy, Inc. from further soliciting or relying on any consent revocations received in its proxy contest with stockholder TPG-Axon until the board approved TPG-Axon's slate of board nominees. The decision in Kallick v. SandRidge Energy found that the board of SandRidge had likely committed a breach of its fiduciary duties when it refused without reasonable justification to approve the dissident slate for the narrow purpose of avoiding a trigger of the proxy put in SandRidge's note indentures. For more on the decision, see Legal Update, Kallick v. SandRidge Energy: Delaware Court of Chancery Finds Board Likely Breached Fiduciary Duty by Failing to Approve Dissident Nominees.

In the year's most significant decision on Revlon duties, the Delaware Court of Chancery ruled that the board of target company NetSpend Holdings, Inc. acted unreasonably in its sale process by failing to conduct a market check, agreeing to tight deal protections (including enforcement of "Don't Ask, Don't Waive" standstill agreements) and relying on a weak fairness opinion. For more on the decision, see Legal Update, Koehler v. NetSpend: Chancery Court Finds Board Acted Unreasonably in Sale Process. For more on standstills and the "Don't Ask, Don't Waive" cases, see Practice Note, Standstill Agreements in Public M&A Deals.

In a recent postscript to the NetSpend decision, the Delaware Court of Chancery clarified that the "bare allegation" of the board's reliance on a weak fairness opinion in an otherwise well-conducted process will not support a finding of a breach of fiduciary duties. Rather, it is only one factor in the total analysis of the board's conduct. See In re BioClinica, Inc. Shareholder Litigation, Consol. C.A. No. 8272–VCG, (Del. Ch. Oct. 16, 2013).

Practical Law reported on many other significant Delaware decisions in 2013, including MFW (holding that a board can qualify for the presumptions of the business judgment rule even in a controlling-stockholder transaction), Chevron (establishing the validity of unilaterally adopted forum-selection by-laws) and Puda Coal (describing the efforts required of directors of foreign-based Delaware corporations). All of Practical Law's Corporate and M&A legal updates can be found here.

In January 2013, the SEC approved the NYSE and NASDAQ's listing standards relating to the independence of compensation committees, compensation consultants and other compensation advisers. Recently, the NASDAQ amended its independence standards for compensation committee members to relax the prohibition on compensatory fees from the listed company. For more information about these standards, see these Legal Updates:

For an example of a compensation committee charter that reflects the new standards and can be tailored for use by either a NYSE- or NASDAQ-listed company, see Standard Document, Compensation Committee Charter.

The primary goal of the JOBS Act is to expand and ease methods of capital raising by, and relax the regulatory burden on, smaller companies. To that end, the SEC approved final rules in July to permit general solicitation and general advertising in certain securities offerings under Rule 506 of Regulation D and Rule 144A of the Securities Act, as required by the JOBS Act. The rules became effective on September 23, 2013. For more information about the final general solicitation rules, see Legal Update, SEC Approves Final JOBS Act General Solicitation Rules.

Issuers and placement agents conducting offerings in reliance on Rule 506(c) should consider revising placement agency agreements and other similar agreements for these offerings to add provisions relating to general solicitation and the additional conditions of Rule 506(c). For sample representations, warranties and covenants for this purpose, see Standard Clause, General Solicitation (Rule 506(c)) Representations and Covenants for Placement Agency Agreement.

Section 926 of the Dodd-Frank Act required the SEC to issue rules for disqualifying securities offerings from relying on the safe harbor provided by Rule 506 of Regulation D if any felons or other bad actors are involved in the offering. The SEC approved final rules that define several disqualifying events for issuers and covered persons and that provide an exception from disqualification based on the issuer's actual or constructive knowledge. For more on the bad actor rules, see Legal Update, SEC Approves Final Rules Disqualifying Felons and Bad Actors in Rule 506 Securities Offerings.

The SEC also recently issued new compliance and disclosure interpretations providing guidance on the bad actor disqualification provision. For a summary of the new C&DIs, see Legal Update, SEC Issues New C&DIs on Rule 506(d) "Bad Actor" Disqualification Provisions.

For a standard form questionnaire for obtaining information from persons covered by the bad actor disqualification provision, see Standard Document, Bad Actor Questionnaire.

In late 2012, Netflix, Inc. announced its receipt of so-called Wells Notices warning that the SEC may bring action against the company and its chief executive officer for an alleged Regulation FD violation related to a Facebook posting. In April 2013, the SEC issued a report on its investigation of the matter and provided further guidance on its position on the disclosure of material nonpublic information through social media. For more information about the Netflix report and for links to several Practical Law resources on social media and Regulation FD compliance, see Legal Update, SEC Issues Social Media and Regulation FD Guidance in Netflix Report.

Title III of the JOBS Act creates an exemption from registration under the Securities Act for certain "crowdfunding" securities offerings conducted through "crowdfunding intermediaries" that meet certain conditions, and are offered to a large number of investors (including non-accredited investors), each of whom invests a relatively small amount. The exemption is not available until the SEC adopts implementing rules. On October 23, 2013, the SEC issued proposed rules and forms to implement the JOBS Act crowdfunding provision. For a detailed discussion of the proposal, see Legal Update, SEC Proposes Crowdfunding Rules.

Practical Law's Securities service reported on and analyzed many other legal developments throughout 2013, including conflict minerals and resource extraction rulings, proposed pay ratio disclosure rules and Iran transaction disclosure rules. All of Practical Law's Capital Markets and Securities legal updates can be found here.

Throughout the spring and summer of 2013, the Delaware Supreme Court decided several cases that demonstrate the struggles even sophisticated parties have with synchronizing the various provisions in LLC and partnership agreements that affect the interpretation of the standard of care for managers and general partners. To illustrate this issue, Article, New Guidance for Drafting and Negotiating the Standard of Care in LLC Agreements presented two sets of provisions analyzed in the Gerber and K-Sea decisions, explained where the underlying agreements ran into difficulty and compared them against the approach in Standard Document, LLC Agreement (Multi-Member, Board-Managed) (Private Equity Buyout) to demonstrate how these provisions can be drafted for utmost clarity.

Owing to the popularity of this feature, on October 17, 2013, Practical Law and Richards, Layton & Finger, P.A. presented Webinar: Drafting Contractual Fiduciary Duties in LLC Agreements - New Developments and Best Practices, which reviewed Gerber, K-Sea and other, newer decisions of the Delaware Supreme Court that analyzed contractual fiduciary duties in LLC and partnership agreements.

After disclosing in mid-August that it was formally exploring the possibility of a sale, BlackBerry Limited announced in September that it had entered into a letter of intent with Fairfax Financial Holdings Limited that contemplated a possible deal between BlackBerry and a consortium led by Fairfax (BlackBerry and Fairfax eventually agreed to an equity investment).

Letters of intent are rare in the realm of public M&A and BlackBerry's was particularly noteworthy for several of its uncommon terms. Article, The Letter of Intent for BlackBerry: Desperate Times, Desperate Measures examined the provisions of the BlackBerry LOI, analyzing it based on Practical Law's various resources for drafting and negotiating preliminary agreements and deal-protection measures.

Waterfall provisions (or, as they are called in limited liability company agreements, distribution provisions) are included in LLC agreements to specify how a business distributes cash and other assets to its members. One type of business arrangement in which waterfall provisions are often used is in investment-holding companies created for buyouts.

The specific layering of buyout waterfall provisions among the company members is a matter of negotiation and can be resolved using a wide variety of options, though certain approaches prevail. For an analysis of the main negotiated issues, see Legal Update, Negotiating a Waterfall Provision in an LLC Agreement.

In private acquisition agreements, a seller ideally wants the buyer to disclaim any right it may have to bring a claim on the basis of any extra-contractual statements that the seller may have made during the negotiation and due diligence process. Although a contractual bar of fraud claims is not available in some jurisdictions, many states do allow parties to contract around fraud, under certain conditions.

Practical Law's latest study reviews the conditions for successfully contracting around fraud under the common law of Delaware, New York and Texas. The study also surveys recent market practice in those three jurisdictions, with an emphasis on Delaware practice to assess the reaction to two key decisions issued in May 2013 by the Delaware Court of Chancery. For the full study, see Article, Disclaimers of Reliance in M&A Deals: Judicial Guidance and Market Practice.

As Apollo Tyres Ltd and Cooper Tire & Rubber Company went to trial over several issues arising from their troubled merger agreement, Practical Law analyzed the agreement's Material Adverse Effect provision, in particular its carve-out for work stoppages. In Legal Update, Trends in MAC Definitions and Carve-outs, Practical Law also reviewed 100 public merger agreements and 100 private acquisition agreements summarized in our What's Market database for examples of other agreements that have specifically addressed labor disruptions in the definition of a MAC. The resource also reports on other recent trends in MAC definitions, including the use of dollar and durational thresholds for deeming certain events as MACs, and the negotiation of new carve-outs for events relating to a government shutdown or the "sequester."

The month of November maintained the focus on MAC clauses, with the Osram Sylvania decision indicating that the omission of particular employees from lists of "Key Personnel" or "Key Employees" in the acquisition agreement can be taken as prima facie evidence that those employees are not material enough to the company to cause a MAC if they resign. The decision also provided guidance for when a company's failure to meet sales numbers can trigger a MAC. For more on the decision, see Legal Update, Delaware Court of Chancery Analyzes Failure to Meet Projections and Loss of Key Salespeople as Triggers of MAC.

Ahead of final SEC rulemaking under the JOBS Act that will permit Title III crowdfunding and lift the ban on general solicitation in certain Regulation D offerings, accredited crowdfunding platforms have already begun connecting growth companies with accredited investors. These platforms, also known as online venture capital firms or angel investing platforms, operate within existing securities laws, but have some of the attributes of what is conventionally thought of as crowdfunding. It has been predicted that these platforms will continue to dominate crowdfunding after the SEC's JOBS Act rulemaking is complete.

In Article, Expert Q&A on Accredited Crowdfunding, Practical Law discussed accredited crowdfunding platforms with two Seattle-based experts working with emerging companies in technology and media. The Q&A explored how these platforms are structured, their business models and the exemptions from the securities laws they rely on.

Since Rule 506(c) of Regulation D became effective in September, companies have had the option of marketing Rule 506 securities offerings through general solicitation. Rule 506(c) offerings must comply with additional requirements not applicable to "quiet" offerings in reliance on the traditional Rule 506 safe harbor, Rule 506(b). These requirements may add complexity and cost to the offering process.

To decide if the additional complexity and cost of a generally solicited Rule 506(c) offering are worth it, a company must understand what activities are considered general solicitation and banned in Rule 506(b) offerings but permitted under Rule 506(c). Also, now that Rule 506(c) offers a legitimate path for using general solicitation in Rule 506 offerings, a concern has emerged that long-standing offering practices may become subject to closer regulatory scrutiny.

Practical Law featured Practice Note, General Solicitation and Start-up Capital Raising: Existing Guidance and New Questions, which reviews the statutory language and SEC guidance describing what activities are prohibited by the general solicitation ban and considers how this law and guidance applies to familiar scenarios in the start-up capital-raising process.

Executive pay has been a hot topic of debate in recent years. Shareholders, advisory groups and the media are quick to highlight and criticize executive pay packages that they view as excessive. Although director compensation has received much less attention, a company's director compensation program can say a lot about the company's compensation policy and overall approach to corporate governance.

In Article, The New Director Compensation Paradigm, Practical Law discussed the factors that have influenced director compensation practices in recent years and identifies several design trends and best practices.

Some of the most hotly negotiated representations and warranties in an underwriting agreement are often those certifying the issuer's compliance with:

The key negotiation issues for these representations and warranties are discussed in Legal Update, Negotiating FCPA, OFAC and Anti-money Laundering Representations in Underwriting Agreements. This Update also explains how to instantly retrieve recent precedents and gauge market practice using the What's Market underwriting agreement database.

Updating the risk factors in a Form 10-K filing can be a stress-inducing and time-consuming exercise, as counsel must ensure that they spot and adequately describe every material risk faced by the company. In January of 2013, Practical Law featured a suite of resources that can aid a thorough and efficient review and updating of risk factor disclosure. These resources include:

Legal Update, Updating the Risk Factors in a Form 10-K Filing now becomes relevant again with the new year approaching.