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Legal Developments

DOJ Seeks to Reward Due Diligence and Timely Self-Disclosures in M&A

The United States Department of Justice (DOJ) recently announced a new department-wide Mergers & Acquisitions Safe Harbor Policy that protects acquiring companies that self-disclose criminal misconduct discovered at an acquired company. For acquiring companies that promptly and voluntarily disclose criminal misconduct, fully cooperate in the government’s investigation, and provide timely remediation, restitution, and disgorgement of ill-gotten gains, DOJ will presumptively decline to prosecute. More information is available in this e-update.

Cross Border

Eight New Bases Officially Added to CFIUS’s Real Estate Jurisdiction

As we have discussed previously, proximity to sensitive U.S. Department of Defense military bases and operations, such as testing ranges, is an important element of many reviews by the Committee on Foreign Investment in the United States (“CFIUS”, or the “Committee”). Perhaps the most famous example being President Obama’s 2012 Executive Order directing the Ralls Corporation to divest its interest in an Oregon wind farm operation near a U.S. Navy restricted airspace and bombing zone. Today during a CFIUS review,...

Cross Border

Outbound Investment Screening Becomes a Reality

On August 9, after months of deliberations, President Biden issued a new Executive Order on Addressing United States Investments in Certain National Security Technologies and Products in Countries of Concern (the “EO”). Simultaneously, the Department of the Treasury issued a draft advance notice of proposed rulemaking seeking public comment on the Executive Order’s implementing regulations. This EO is focused on preventing China, including the Special Administrative Regions of Hong Kong and Macau, from developing national security technologies and products. National...

Legal Developments

Recent Changes in the CFIUS Evaluation Process

Recently the Committee on Foreign Investment in the United States (“CFIUS”, or the “Committee”) announced three changes that impact how the Committee evaluates foreign investments in U.S. businesses. While the changes appear minor, the modifications provide CFIUS with even greater capabilities to ensure protection of U.S. national security. “Springing Rights” are No Longer an Option. Following the passage of the Foreign Investment Risk Review Modernization Act (“FIRRMA”), certain transactions involving TID U.S. businesses[1] that afford foreign investors control or certain...

Cross Border

Outbound Investment Screening Executive Order

On December 29, 2022, President Biden signed into law the Consolidated Appropriations Act, 2023. The law directs the Department of the Treasury, in coordination with the Department of Commerce and other Federal partners, “to consider establishing a program to address the national security threats emanating from outbound investments from the United States in certain sectors that are critical for U.S. national security.” The law also provides funding for multiple departments and agencies and includes specific explanatory statements. Further, the law...

Cross Border

Foreign-Owned U.S. Companies Must Soon Respond to Federal Survey

The Bureau of Economic Analysis is required to conduct a national survey of foreign direct investment in the United States every five years, and all U.S. companies with non-US persons owning or controlling, directly or indirectly, 10% or more of the voting equity that company are required to complete a Benchmark Report in 2023. This requirement exists for all U.S. companies with such foreign ownership, even if they have not been individually contacted by BEA to ask for such a...

Practice Pointers

The Locked Box – Unlocked

By now, probably everyone that works in M&A or private equity has heard of the concept of a locked box as an alternative to completion accounts (or, in the U.S., “closing accounts”) on a deal. The locked box structure replaces the traditional “completion accounts” mechanism, with its cumbersome process of preparing and agreeing accounts as at the actual completion date and making consideration adjustment payments to reflect any surplus or deficit in the chosen financial metrics, with one where the...

Practice Pointers

January 2023 Semi-Annual M&A Update

On January 25, Dorsey attorneys, Brian Burke, Amelia Messa and Jonathan Van Horn presented a review of corporate, alternative entity and antitrust law developments of interest to the M&A practitioner, including the latest Delaware court decisions. Highlights from this presentation include discussion on appraisal rights, fraud, SPACs, non-competition agreements, choice of law, change in control provisions and personal jurisdiction. Watch the presentation here.

Legal Developments

Increase in HSR Reportability Thresholds and Other HSR Developments

In January 2023, the Federal Trade Commission (FTC) made three important announcements for M&A practitioners. First, on January 23, the FTC announced the annual adjustment of the thresholds that trigger premerger reporting obligations under the Hart-Scott-Rodino (HSR) Act. The new thresholds will apply to transactions closing thirty days after publication of the announcement in the Federal Register (that is, not earlier than February 24, 2023). Second, the FTC announced the annual adjustment for maximum daily civil penalties for noncompliance with...

Practice Pointers

2023 Private Funds Compliance Calendar

Dorsey has recently published a 2023 Private Funds Compliance Calendar. The calendar includes obligations and deadlines that could potentially apply to an SEC-registered investment adviser, or CFTC-registered commodity pool operator, or a commodity trading advisor that advises private funds. The calendar is available here.

Legal Developments

FinCEN Regulations: BSA’s Revised Beneficial Ownership Requirements

The Financial Crimes Enforcement Network (“FinCEN”) issued final regulations in 2022 to implement the revised “beneficial ownership information” disclosure rules for legal entities (the “Final Rule”) under the Corporate Transparency Act (“CTA”), which is part of the comprehensive revisions to U.S. anti-money laundering statutes included in the Defense Appropriations Act of 2021. Specifically, the Final Rule implements Section 6403 of the CTA and requires reporting companies, including a range of U.S. legal entities and non-U.S. legal entities registered to do...

Legal Developments

Heard at the IBA 2022 Annual Conference

Maintaining international connections, and building new ones, Dorsey attended the recent International Bar Association Annual Conference in Miami. Some of the key themes, from both the hallways and the many seminars and formal events, are published here.

Practice Pointers

Transition Service Agreements (TSA): Understanding the Key Considerations

Often, when a buyer purchases a specific business unit of a company, complexities arise for both buyer and seller as the business unit being sold frequently depends upon several services provided by the seller. At the time of closing, the buyer may not have the infrastructure, resources, or functionality to initially support these services. Transition services agreements (“TSAs”, for short) are effective tools in addressing these issues and can help ensure a smooth transition during the divestiture. A TSA is...

Practice Pointers

Hell-or-High-Water Clauses in Uncertain Regulatory Times

In a deal market as uncertain as this one, we have seen transactional lawyers more frequently resorting to pushing what are known as “hell or high water” clauses—clauses that obligate parties to take “any and all actions necessary” to achieve some stated goal. Most frequently these clauses are seen in the context of complying with antitrust laws and obtaining necessary regulatory approvals. As antitrust matters take the spotlight in a number of cases, especially given the Department of Justice’s and...

Legal Developments

Consideration of Evolving National Security Risks by CFIUS

On September 15, 2022, President Biden issued Executive Order 14083 (“EO 14083”) which the White House describes as a “first-ever presidential directive defining additional national security factors for CFIUS to consider in evaluating transactions.” Rumors of its publication have been circulating in Washington, D.C. for months, and for those that follow foreign investment activity in the United States, it is revealing any time the Executive Branch speaks publicly about CFIUS. Click here for a few insights into how EO 14083...

Delaware Law

2022 Delaware Entity Statutory Amendments

On August 1, 2022, the 2022 amendments to Delaware’s entity statutes went into effect. These included amendments to the Delaware General Corporation Law (the “DGCL”), the Delaware Limited Liability Company Act (the “LLC Act”), the Delaware Revised Uniform Limited Partnership Act (the “DRULPA”), the Delaware Revised Uniform Partnership Act (the “DRUPA” and together with the LLC Act and the DRULPA, the “Alt Entity Acts”) and the Delaware Statutory Trust Act (the “DSTA”). Descriptions of some of the more notable amendments...

Practice Pointers

Middle Market M&A Key Deal Terms

A major law firm has completed a survey on trends and deal points in the M&A industry. The survey contains data and trends on many key points the M&A legal practitioner should be aware of as they negotiate M&A transactions, and the findings in the summary mirror our own experience in the market. In general in more recent transactions we have seen a continuing trend lower escrowed indemnity amounts, higher usage of representation and warranty (“R&W”) insurance, and generally more...

Delaware Law

Proposed Statutory Officer Exculpation in Delaware

As we transition into spring, the minds of many corporate attorneys return to the annual updates proposed to the Delaware General Corporate Law (DGCL). If the changes proposed by the Council of Corporation Law Section of the Delaware State Bar Association are adopted (as they usually are), they will become effective on August 1, 2022. A few of this year’s proposed changes are of particular significance to officers of Delaware corporations. As currently enacted, Section 102(b)(7) of the DGCL allows...

Delaware Law

Delaware is a “Pro-Sandbagging” State

While M&A practitioners have long taken the view that Delaware is a “pro-sandbagging” state, a recent case in the Delaware Court of Chancery has added concrete authority to that position. In Arwood v. AW Site Services (March 9, 2022), the Court found that a buyer was entitled to indemnification stemming from the breaches of certain representations, despite that buyer having effectively prepared the financials and other information that were covered by the reps. “Sandbagging” is the buyer-favorable concept that preserves...

Legal Developments

“Everything zen? Everything zen? I don’t think so. . .”¹ – MAE Clauses in the Time of COVID

On March 1, 2022, the Delaware Court of Chancery delivered a memorandum opinion ordering a yoga franchisor to complete the acquisition of its franchisee’s chain of yoga studios. The case arose out of the parties’ pre-COVID asset purchase agreement (“APA”) through which the defendant, CorePower Yoga LLC, was set to acquire various yoga studios owned by the plaintiff, Level 4 Yoga, LLC, for nearly $30 million. Level 4 claimed that CorePower breached the parties’ APA in the early months of...