Is Delaware Really a ‘Sandbagging State’?

Guest post by Daniel E. Wolf, Partner, Kirkland & Ellis LLP

In the private M&A context, “sandbagging” refers to a buyer, who despite having knowledge of a breach of representation or warranty by a seller at some time before closing, proceeds with the closing and then seeks indemnification from the seller for the breach of representation or warranty of which it had prior knowledge.

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Completing A Name Change Without Shareholder Approval

Guest Post by Laura Anthony, Esq – Legal & Compliance, LLC

Generally a name change is completed through an amendment to a company’s articles of incorporation.  Moreover, amendments to articles of incorporation generally require shareholder consent, which can be time-consuming and expensive and become even more so if the company is subject to the reporting requirements of the Securities Exchange Act of 1934.

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Delaware Domicile

Joseph W. Bartlett

The appropriate legal domicile for the company’s organization and filings. In almost every case, Delaware is the appropriate choice. Despite media insinuations, Delaware is not a tax haven. State income taxes are levied on the basis of factors which are not influenced by a Delaware domicile. The reasons for Delaware are practical: The Delaware Secretary of State’s office is better organized and staffed so that the initial organization of a corporation or limited liability company is a matter of a few minutes. Copies of the organizational documents for due diligence purposes during the capital raising process are ready on demand. The Delaware Corporate and LLC statutes are better drafted and more thoroughly thought through than those in any other State … the legislature advised by expert lawyers and accountants who are in close touch with developments, contingencies and ambiguities as the same arise.

Most importantly, again focused on the inevitable capital raising process, law firms in this country (and, indeed, around the world) are confident of their competence to handle basic questions of Delaware law governing corporations and LLCs. Therefore, the incremental costs of local counsel in, say, California, Texas or indeed New York is avoided except in arcane situations. The literature on Delaware law, including interpretations by theChancery and Supreme Courts, is abundant. Indeed, law firms in, for example, Israel frequently employ lawyers who have served their time on the payroll of U.S. law firms and have kept themselves up to date on Delaware law. The emerging growth company domiciled in Delaware saves time and money … both in short supply … in raising its capital from investors all over the globe.

Delaware Court Finds Financial Advisor Liable for Aiding and Abetting Fiduciary Duty Breaches by Board of Directors

Guest post by Attorneys at  Davis Polk & Wardwell LLP

On March 7, 2014, Vice Chancellor Travis Laster of the Delaware Court of Chancery found a financial advisor liable for aiding and abetting breaches of fiduciary duties by the board of Rural/Metro Corporation in connection with the company’s 2011 sale to an affiliate of Warburg Pincus LLC. In its 91-page, post-trial opinion, the Court concluded that the financial advisor allowed its interests in pursuing buy-side financing roles in both the sales of Rural/Metro and Emergency Medical Services (“EMS”) to negatively affect the timing and structure of the company’s sales process, that the board was not aware of certain of these actual or potential conflicts of interest, and that the valuation analysis provided to the board was flawed in several respects. Both the Rural/Metro board of directors and a second financial advisor to Rural/Metro settled before trial for $6.6 million and $5.0 million, respectively.

This opinion is the latest example of the Court of Chancery’s focus on conflicts of interest involving sell-side financial advisors, as most recently demonstrated in the Del Monte and El Paso decisions. Rural Metro thus underscores the very real and potentially significant liabilities to financial advisors. It also serves as a salient reminder that the actions of advisors, including those carried out unbeknownst to the board, may be imputed to boards that fail to exercise reasonable oversight of their so-called informational “gatekeepers” in a sale process.

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Term Sheets and the “Boilerplate” Fantasy

Joseph W. Bartlett

The classic “boilerplate” in a non-binding term sheet (a/k/a a letter of intent or memorandum of understanding) includes express language that the indicative terms are “non-binding” except for such as the paragraphs on confidentiality, no brokers on either side, and responsibility for expenses. Amongst the provisions ostensibly non-binding one often finds a provision regarding the upcoming definitive agreement(s), which the parties undertake to negotiate in “good faith.” All boilerplate in the eyes of many practitioners.

I am a determined advocate for the proposition that there is no such thing as “boilerplate” if that means language which can be inserted robotically in an agreement, including a term sheet, because the wordsmiths need not waste their time in hyper-analyzing the meaning … just plug in the excerpts from a model form.

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