Securities Mosaic® Blogwatch
April 29, 2012
First Annual IMN CLO and Leveraged Loan Conference Update
by Matthew Ginsburg

Seven of our colleagues in Dechert's active CLO group represented the firm at the first annual IMN CLO and Leveraged Loan Conference in New York a few weeks ago. Strong interest in the collateralized loan obligation technology meant a capacity crowd of more than 750 managers, arrangers and investors, often leaving panel discussions with standing room only.

As participants reviewed CLO performance over the past five years, the theme emerged that CLOs weathered the crisis well compared to other structured finance vehicles. The CLO technology performed as advertised: protecting senior investors and amortizing senior notes during periods when coverage tests triggered.

Dechert Partner John Timperio moderated a panel on legal and structural considerations covering improvements in CLO 2.0 as compared to CLO 1.0 of the pre-crisis 2007 vintage. The consensus was that refinements to the CLO 1.0 technology (already proven during the crisis) will mean a CLO 2.0 that is even more resistant to stress featuring more conservative capital structures, cleaner commercial loan portfolios, stricter collateral quality tests and shorter reinvestment periods. Hand in hand with the technological refinements, greater collateral manager transparency and investor engagement are increasingly important.

CLO 2.0 has been going great guns with north of $5 billion issued in the first quarter of 2012. All this good news is of course tempered by the challenges posed by Dodd-Frank and its progeny, notably the Volker Rule (discussed here), the risk retention rule (discussed in this Dechert OnPoint) and the conflict of interest rule (discussed in this Dechert OnPoint). As regulators struggle to formulate appropriate rules and market participants struggle to educate the regulators, we hope that the baby isn't thrown out with the bathwater.

Still, the mood was optimism that issuance in 2012 at least will continue apace, which confidence looks well placed as, since the conference, total CLOs pricing for the year has hit $9.78 billion, as counted by the LSTA.

This is great news for 2012, but as the various rules come online, where will the baby be next year (or the year after)?

April 30, 2012
Egan-Jones: Misrepresentations Or Undefined Standards?
by Tom Gorman

Credit rating agencies can have a significant impact on the on the market place. The rating assigned by the agencies to securities can impact things such as the price, interest rate and marketability. Yet the inner workings of these agencies have traditionally been shielded from view and little understood. Many thought that the agencies were central to the recent market crisis. Congress confirmed that view by including extensive provisions regarding the operations of rating agencies into Dodd-Frank.

As Dodd-Frank was signed into law, and the SEC struggled to retool its Enforcement program, the Commission considered the results of an enforcement investigation into one of the best know and most powerful rating agencies, Moody's Analytics. Ultimately, the Commission chose to issue an Exchange Act Section 21(a) Report on the matter rather than bring an enforcement action. Report of Investigation Pursuant to Section 21(a) of the Securities Exchange Act of 1934: Moody's Investors Service, Inc., Exchange Act Rel. 34-62802 (Aug. 31, 2010). The matter centered on an error in the rating process discovered by the firm in its European operations. It significantly impacted ratings and was covered-up. There was also a claim that an application filed with the Commission was incorrect. The Commission chose not to bring an enforcement action, citing jurisdictional concerns but emphasizing that in the future it might chose a different course of action.

Just weeks before the Moody's Report, the Supreme Court handed down its decision in Morrison v. National Australia Bank Ltd., 130 S.Ct. 2869 (2010). That decision limited the reach of Exchange Act Section 10(b) to the shores of the U.S. Weeks later the President signed Dodd-Frank into law giving the SEC and DOJ a purported legislative fix for Morrison. While the Report did not cite Morrison, it seems clear that the decision influenced the Commission, although it would not impact filings made with the SEC.

Now however the Commission seems poised to follow through on the warning in the Moody's Report. Last week the agency issued an Order for Proceedings naming as Respondents rating agency Egan-Jones Company and its co-founder Sean Egan. In the Matter of Egan-Jones Co., Adm. Proc. File No. 3-14856 (April 24, 2012)(discussed here). The firm is not as well known as the two industry giants, Moody's and S&P. Egan-Jones traces its roots to 1995 when it was formed by Mr. Egan, who had worked in various capacities in the industry for years, and Bruce Jones, formerly of Moody's. It has been an NRSRO since December 2007. The firm has "developed and continues to enjoy an impeccable record and reputation as an issuer of credit ratings The accuracy and predictive nature of Egan-Jones' ratings consistently surpass and continue to surpass those of Moody's Investors Services, Inc. and Standard & Poor's Financial Services LLP . " according to papers the firm has furnished the Commission.

The crux of the Order is a claim by the Enforcement Division that the representations made by the firm regarding its prior experience with two classes of issuers in July 2008 on Form NRSRO are false and misleading. The firm initially represented that it had 150 outstanding credit ratings on issuers of ABA and 50 on government securities. Later it revised the numbers down to, respectively, 14, and 9. Egan-Jones claimed to have issued ratings on both classes since 2005. These statements are false, according to the Order, because "at the time of its July 2008 application, EJR had not issued- that is, made available on the Internet or through another readily accessible means-any ABS or government issuer ratings." Later the Order does note that Mr. Egan had "asked a member of his staff to post ABS and government issuer ratings on its website " in January 2010. These claim is bolstered by the assertion that "EJR does not have reports, work papers, or other contemporaneous reports showing that it had issued fourteen ABS issuer ratings or nine government issuer ratings at the time of its 2008 Annual Certification."

Egan Jones disputes the staff's claims, arguing that it does in fact have experience with these two classes of issuers. According to the firm the dispute centers not on a lack of experience but standards. First, the Firm notes in its Wells Submission that the "Commission, through its Staff, has not issued any guidance whatsoever to define with greater clarity the words credit ratings,' or how an applicant or an NRSRO should count to determine the approximate number currently outstanding' within the meaning of Form NRSRO." When the application was filed the firm tabulated its numbers by counting each tranche rated, a fact Mr. Egan explained during his investigative testimony. Later the firm revised the application and reduced the numbers by counting the number of issuers, a methodology it believed to be more conservative. Electing to use an alternative method in the absence of specific guidance and on a voluntary basis is "neither incorrect nor suggestive of anything untoward " the Wells asserts.

Second, the statute does not require that the rating c lasses be "readily accessible" as claimed by the Oder, according to the firm. The Wells goes on to note that "The definition of whether ratings are readily accessible' is also open to interpretation. Section 15E, enacted in 2006, defines a CRA [credit rating agency] as a firm which issues ratings which are readily accessible. Aside from internet access, 15E does not further define what readily accessible" means We recognize that the Instructions to and Form NRSRO requests that information. We do not see that statutory requirement in the 2006 Act or in Section 15E."

The dispute here is significant. Egan Jones is perhaps the most significant proceeding involving a rating agency since the Moody's Report and the market crisis. Previously, the Division was unable to sustain its claims in a significant market crisis administrative proceeding. In the Matter of John P. Flannery, Adm. Proc. File No. 3-1408 (Initial Decision Oct. 28, 2011), appeal pending.

Here the Division's allegations go to the core of the rating process. At the same time Egan Jones is tying its carefully built reputation to the assertion that it accurately summarized its experience in the area, told the staff during the investigation and is now the victim of undefined or what might be viewed as shifting requirements and perhaps inconsistent prosecution standards which allows giants such as Moody's escape liability as illustrated by the Section 21(a) Report while relative new comers are prosecuted. These issues will be vetted at a hearing later this year.

April 30, 2012
Key Delaware Corporate and Commercial Decisions in First 4 Months of 2012
by Francis Pileggi

The following key Delaware corporate and commercial decisions from the first four months of 2012 are a follow-up to our summary of the key decisions that we featured from 2011. We highlight on these pages all the corporate and commercial opinions from Delaware's Supreme Court and Court of Chancery, and we have chosen the following 2012 rulings as being especially noteworthy, as the month of April comes to a close. Comments are welcome if readers think we missed a decision that should be included in this list.
Supreme Court Decisions

EMAK Worldwide, Inc. v. Kurz, No. 512, 2011 (Del. Supr., April 17, 2012). Issue Addressed: Whether the Court of Chancery properly granted an interim fee award in a shareholders' suit which did not produce an immediate monetary benefit. Short Answer: Yes. Summary available here. (The Supreme Court's stately building in Dover is featured at right.)

Cambium Ltd. v. Trilantic Capital Partners, No. 363, 2011 (Del. Supr., Jan. 20, 2012), read Order here. This Order of the Delaware Supreme Court applied the recent decision of Delaware's High Court in the Central Mortgage case in which it clarified that Delaware has not adopted the federal standard for motions to dismiss under Rule of Civil Procedure 12(b)(6) as described in the U.S. Supreme Court's Twombly and Iqbal decisions, despite the truism that the Delaware Rules of Civil Procedure are generally based on the Federal Rules of Civil Procedure. A fuller overview is available here. The recent Delaware Supreme Court decision in Central Mortgage taking this position was highlighted here.

Court of Chancery Rulings

Shocking Technologies, Inc. v. Michael, C. A. No. 7164-VCN (Del. Ch. April 10, 2012). Issue Addressed: Whether the Court of Chancery has the inherent authority to remove a director for breach of fiduciary duty, other than via DGCL Section 225? Short answer: The issue was not directly decided, but based on the facts of this case, the Court was not inclined to exercise such an inherent power, if such a power exists, prior to the expedited trial. Summary available here.

In Re K-Sea Transportation Partners LP Unitholders Litigation, C.A. No. 6301-VCP (Del. Ch. April 4, 2012). The prior Chancery decision in this case was highlighted on these pages here. Issues Addressed: The issues addressed by the Court of Chancery in this matter were whether the fiduciary duty claims and the contractual claims were barred by the provisions in the limited partnership agreement, including whether a provision in the agreement that established a presumption of good faith barred claims for breach of the implied covenant of good faith and fair dealing. Summary available here.

Manning v. Vellardita, C.A. No. 6812-VCG (Del. Ch. March 28, 2012), is an important decision of the Delaware Court of Chancery on legal ethics as applied to non-Delaware attorneys who appear before the Court pro hac vice. Issues Addressed: Whether lack of complete candor to the Court in a Motion for Admission Pro Hac Vice is a basis to either: (i) disqualify counsel, and/or (ii) revoke the admission pro hac vice. The Court also addressed standards (articulated in this context for the first time), of candor and full disclosure, regarding potential conflicts, that those seeking admission pro hac vice must now follow. Summary available here.

Badii v. Metropolitan Hospice Inc., C.A. No. 6192-VCP (March 12, 2012), involves a post-trial decision on an action under 8 Del. C. 291 for the appointment of a receiver for an insolvent, closely held corporation, Metropolitan Hospice, Inc. ("MHI") which owed, among other things, approximately $2 million to the IRS for back taxes, penalties, and interest. Summary available here.

In re Delphi Financial Group Shareholder Litigation, Cons. C.A. No. 7144-VCG (Del. Ch. Mar. 6, 2012). This is the third Delaware Court of Chancery decision in as many weeks that denied injunctive relief, in an expedited opinion, in response to a challenged transaction-despite criticism in two of the cases, of the process and the players, but ultimately leaving it up to the shareholders to decide whether to accept offers of a substantial premium to sell their shares. Summary available here. See In Re El Paso, summarized here, and In Re Micromet, summarized here.

In Re El Paso Corporation Shareholder Litigation, Consol. C. A. No. 6949-CS (Del. Ch. Feb. 29, 2012). Chancellor Strine denied the stockholder plaintiffs request for a preliminary injunction to enjoin a merger between El Paso Corporation and Kinder Morgan, Inc. While the Court in a 33-page opinion, severely criticized the actions of a number of the players, in the end the Chancellor decided to give the shareholders of El Paso the opportunity to decide for themselves if they liked the price being offered to them. Summary available here. The Court's opinion in this matter marks the second time in the span of only a few months that the Delaware Court of Chancery has strongly criticized Goldman Sachs for conflict of interest issues in multi-billion dollar transactions. The most recent high-profile criticism was in the Court of Chancery's 100-plus page decision in the Southern Peru Copper case highlighted on these pages here. Our LexisNexis videocast on this opinion is available here.

Danenberg v. Fitracks, C.A. No. 6454-VCL (Del. Ch. Mar. 5, 2012), addressed important issues of advancement and indemnification and established a protocol for resolving the amount of fees payable pursuant to the grant of advancement rights. Summary available here.

Matthew v. Laudamiel, C.A. No. 5957-VCN (Del. Ch. Feb. 21, 2012). Apparently no prior Delaware law directly addressed the issue of whether the dissolution and cancellation of an LLC transformed derivative claims into direct claims held proportionately by the members of the LLC. The Court concluded that, after the filing of the certificate of cancellation, such claims must be brought in the name of the LLC by a trustee or a receiver appointed under 6 Del. C. Section 18-805, or directly by the LLC, or derivatively by its members after reviving the LLC by obtaining a revocation of its certificate of cancellation. Summary available here.

Hermelin v. K-V Pharmaceutical Company, C.A. No. 6936-VCG (Del. Ch., Feb. 7, 2012). Issues Addressed: The Court of Chancery addressed an issue of first impression in Delaware regarding: "what evidence is relevant to an inquiry into whether an indemnitee acted in good faith for the purposes of permissive indemnification" under DGCL 145(a) and (b). The Court also addressed: (1) Whether the former CEO is entitled to mandatory indemnification as a matter of law; (2) Whether additional discovery is required to determine whether the former CEO acted in good faith (in which case he would be entitled to statutorily permissive indemnification pursuant to his rights under an indemnification agreement.) Summary available here.

Auriga Capital Corp. v. Gatz Properties LLC, C.A. No. 4390-CS (Del. Ch., Jan. 27, 2012). What this Case is About and Why it is Important: This case establishes a high-water mark in terms of providing the most comprehensive explanation, based on legislative history and a review of Delaware cases, to explain why the default standard in the LLC context is that fiduciary duty principles will apply to managers of an LLC unless those duties are expressly and clearly limited or eliminated in an LLC agreement. Summary available here.

Dweck v. Nasser, C. A. No. 1353-VCL (Del. Ch. Jan. 18, 2012), found that Dweck, the former CEO, a director and 30% stockholder in Kids International Corporation ("Kids"), and Kevin Taxin, Kids' President, breached their fiduciary duties of loyalty to Kids by establishing competing companies that usurped Kids' corporate opportunities and converted Kids' resources. The Court also imposed liability on an officer of the company for approving the reimbursement with company funds of the personal expenses of his superior. Summary available here.

Steinhardt v. Howard-Anderson, C.A. No. 5878-VCL (Del. Ch. Jan. 6, 2012). Issue Addressed: This opinion addressed the issue of whether representative plaintiffs in a putative class action should be in sanctioned for trading on the basis of confidential information obtained in the litigation. The motion was granted. Summary available here.

Gerber v. Enterprise Products Holdings, LLC, et al., C.A. No. 5989-VCN (Del. Ch., Jan. 6, 2012). Issue Addressed: This decision speaks to the limitations imposed by 6 Del. C. 17-1101 on Delaware courts to address sanctionable conduct by partners and members of alternate entities that have contracted away their fiduciary duties. Summary available here.

Paul v. China MediaExpress Holding, Inc., C.A. No. 6570-VCP (Del. Ch. Jan. 5, 2012). Issues Addressed: (1) Whether a Section 220 case should be stayed pending the outcome of a related federal securities suit; and (2) Whether the shareholder in this case established a proper purpose to inspect books and records under DGCL Section 220. Short Answer: (1) Based on a three-part test as applied to the facts of this case, the Court refused to stay this action in favor of a pending related federal securities suit, even though a motion to stay was also pending in the federal court. (2) In this post-trial opinion, the Court determined that the shareholder established a proper purpose and was entitled to the documents necessary to investigate that proper purpose. Summary available here.

Bonus

An important development during the first 4 months of 2012 was the promulgation by the Court of Chancery of its inaugural Practice Guidelines, highlighted here.

Supplement

The Delaware State Bar Association's annual seminar on Developments in Corporate and Alternative Entity Law will be presented in Wilmington on May 22 as described in more detail on these pages here.

April 30, 2012
Volcker Rule Roundtable
by David Zaring

There's plenty of people at Penn/Wharton who spend plenty of time thinking about Dodd-Frank other than me. There's a wrap of a Volcker Rule roundtable here featuring, in addition to a group of partners from Morrison & Forster, the law school's Jill Fisch, David Skeel, and Cary Coglianese, and Wharton's Dick Herring. It's an overview of the difficulties posed by the implementation of the rule well worth your time.

April 30, 2012
Schulte Roth & Zabel: Private Equity Buyer/Public Target M&A Deal Study 2011 Year-End Review
by Kara OBrien

I've just received a copy of the Schulte Roth & Zabel Private Equity Buyer/Public Target M&A Deal Study 2011 Year-End Review. It discusses the notable trends and themes in mergers and acquisitions involving private equity buyers and public company targets. The Year-End Review examines the transactional landscape in 2011 and analyzes in depth the key deal terms in all private equity buyer/public company target cash merger transactions involving consideration of at least $500 million in enterprise value entered into during 2010 and 2011. The Year-End Review also addresses additional topics, including market activity, deal process and timing, a comparative study of 2011 deal terms versus 2010 deal terms and other selected deal analyses.

Some key observations from the study:

As widely reported, 2011 was a tumultuous year characterized by economic uncertainty. The European sovereign debt crisis and the downgrade to the U.S. credit rating caused significant volatility in the U.S. debt and equity markets. The large private equity buyer/public company segment of the U.S. M&A market was not immune to these factors. Deal activity was down overall relative to 2010 and the deals that were completed in 2011 took longer to complete.

Market Activity and Deal Process Observations:

  • Fewer deals were done in 2011. Deal activity in the segment surveyed in our study decreased 15% in 2011 compared to 2010. This decline in 2011 was driven by the 37.5% drop in deals in the fourth quarter of 2011 compared to the same period in 2010.
  • The technology and healthcare sectors are hot. The technology and healthcare sectors were the most active in 2010 and 2011, representing 29.7% and 21.6%, respectively, of all transactions during the 2-year period. The prevalence of technology-related transactions remained consistent, representing 30% of 2010 Transactions and 29% of 2011 Transactions. Healthcare transactions became more prominent in 2011, representing 35% of 2011 Transactions compared to 10% of 2010 Transactions. Transactions involving the retail or apparel sector, the next most represented sector, were generally flat on a year-on-year basis, amounting to 15% of 2010 Transactions and 12% of 2011 Transactions.
  • Deals are taking longer to get signed up. For 2011 Transactions, the mean time from the start of the target's process to signing a definitive agreement was 9.3 months compared to 8.5 months for 2010 Transactions, an increase of approximately 3 weeks. Similarly, for 2011 Transactions, the mean time from the buyer signing a confidentiality agreement with the target to signing a definitive agreement was 4.1 months, an increase of approximately 2.5 weeks.
  • More targets are engaging in pre-signing market checks leading to fewer "go-shop" provisions. Pre-signing market checks were more common in 2011 Transactions than in 2010 Transactions. Targets undertook pre-signing market checks in 65% of the 2011 Transactions compared to only 45% of the 2010 Transactions. Not surprisingly, "go-shop" provisions were used significantly less in 2011 than 2010 (29% of the 2011 Transactions vs. 60% of the 2010 Transactions). The increase in pre-signing market checks may also explain why 2011 Transactions took longer to sign, as noted above.
  • Tender offers are becoming more prevalent and have shown to be demonstrably faster. The two-step tender offer/back-end merger structure was used slightly more frequently in 2011 Transactions than in 2010 Transactions (18% of the 2011 Transactions vs. 15% of the 2010 Transactions). The mean number of days from signing a definitive agreement to closing the transaction (measured by the closing of the short-form merger in tender offer transactions) was 44 days for tender offers vs. 92 days for one-step mergers.
  • Limited specific performance rights for the target are becoming almost universal. The limited specific performance remedy (where the target's ability to force the buyer to close is dependent on the buyer's debt financing being available at closing) is being used almost exclusively. 88% of the 2011 Transactions provided the target with a limited specific performance right against the buyer, 6% had no specific performance right and 6% provided the target with a full specific performance right. In contrast, 70% of the 2010 Transactions provided the target with a limited specific performance right, 20% provided the target with no specific performance right and 10% provided the target with a full specific performance right (where the target's ability to force the buyer to close was not dependent on the buyer's debt financing being available at closing).

Click here to view the complete SR&Z Private Equity Buyer/Public Target M&A Deal Study 2011 Year-End Review.

April 30, 2012
Our New "Nominating Committee Process/Director Nominee Qualifications Disclosure Handbook"
by Broc Romanek

Our New "Nominating Committee Process/Director Nominee Qualifications Disclosure Handbook"

Spanking brand new. Posted in our "Corporate Governance Committee" Practice Area, this comprehensive "Nominating Committee Process/Director Nominee Qualifications Disclosure Handbook" provides a heap of practical guidance about the disclosure obligations under Item 407(c) of Regulation S-K, with a sample board matrix and other related policies and procedures included in the appendices.

Putting the SEC's Annual Budget in Context

I've often blogged about how the SEC is lacking the resources it needs. This CFA Institute blog does a great job listing all kinds of great facts, of which these are just a few:

- SEC budget of $1.321 billion is 99.99% smaller than the markets it is supposed to protect
- SEC budget is equal to $1 for every $14,329 that it is charged with protecting
- SEC's recent additional budgetary request amounts to an additional $0.13 for every $1,000,000 it supervises
- Citigroup's profits of $11.1 billion, equivalent to 7.4 more SECs.
- Citigroup's total assets of $1,873.9 billion, equivalent to 1,417.5 more SECs.
- Citigroup disposed of assets last year that were worth more than the SEC's entire budget
- Other budget item of "Recreational and sporting services" is $4.2 billion, or 217.9% larger than the SEC budget.
- Other budget item of "Fish and wildlife service" is $1.6 billion, or 21.1% larger than the SEC budget
- Ray Dalio of Bridgewater Associates earned $3.9 billion in 2011, equivalent to 1.9 more SECs
- Carl Icahn of Icahn Capital Management earned $2.5 billion, equivalent to 89% of another SEC
- James Simons of Renaissance Technologies earned $2.0 billion, equivalent to 51.4% of another SEC

Diversity Tone at the Top

In this podcast, Jim Gauss of Witt/Kieffer discusses how senior leaders can encourage diversity in the workplace, including:

- What is the current state of diversity in healthcare organizations?
- Why is diversity in leadership so critical at this stage in healthcare reform?
- How can healthcare organizations' board members play a role in promoting diversity in their institutions?
- What are the best methods for CEOs to approach diversity issues within their organizations?

- Broc Romanek

April 30, 2012
Corporate Governance, the Role of Disclosure and the Myth of Majority Vote Provisions
by J Robert Brown Jr.

A director at NYSE Euronext, Ricardo Salgado, failed to obtain a majority of the votes cast. The reason, apparently, was that he failed to attend 75% of the meetings of the Board.

How do we know about his attendance? The SEC requires disclosure in the proxy statement of any director that does not meet this standard. See Item 407 of Regulation S-K ("State the total number of meetings of the board of directors (including regularly scheduled and special meetings) which were held during the last full fiscal year. Name each incumbent director who during the last full fiscal year attended fewer than 75 percent of the aggregate of:The total number of meetings of the board of directors (held during the period for which he has been a director); and The total number of meetings held by all committees of the board on which he served (during the periods that he served).").

This is one of those interesting requirements that is less about material information and more about altering substantive behavior. The provision was put in place back in 1978. See Exchange Act Release No. 15384 (Dec. 6, 1978). For a discussion of the requirement go here. The provision was less about informing shareholders and more about encouraging directors to attend board meetings in order to avoid embarrassing disclosure. The SEC has often used this approach under the securities laws. See Essay: Corporate Governance, the Securities and Exchange Commission, and the Limits of Disclosure.

In an era of both majority vote provisions and "just say no," attendance has become a flashpoint with shareholders. The NYSE Euronext apparently recognized this and provided a spirited defense of Mr. Salgado. As the Company explained in its proxy statement:

  • Each of our directors attended at least 75% of the total number of meetings of the Board and committees on which the director served that were held while the director was a member, except for Mr. Salgado. Mr. Salgado has been a member of the Board since 2007, and this is the first year that Mr. Salgado did not attend at least 75% of meetings of the Board and the committees on which he served. Mr. Salgado holds a key position as vice-chairman and president of the executive committee of Banco Espirito Santo, Portugal's largest bank, which in 2011 required him to focus on managing the bank's navigation of the European debt crisis. He also actively participated in high-level European regulatory and political discussions about how best to resolve the crisis. Mr. Salgado attended a number of joint meetings of the European Commission, the European Central Bank and the International Monetary Fund, as well as meetings of the Bank of Portugal and the Portuguese Banking Association, to implement the new requirements imposed on Portugal and its banking sector. Mr. Salgado's intensive efforts to address the crisis restricted his ability to attend certain of the significant number of special meetings held in connection with the proposed business combination with Deutsche Borse, which were not part of the regular meeting schedule and were often called with little advance notice. Mr. Salgado participated in major decisions of the Board concerning the proposed business combination, kept apprised of developments regarding the transaction through communications with his fellow directors, and attended all but one of the regularly scheduled meetings of the Board and the committee on which he served.

Nonetheless, shareholders disagreed and declined to give him majority support. That in turn triggered an obligation to resign. The NYSE has a bylaw that provides for majority voting. See Bylaw 2.7 ("each director shall be elected by the vote of the majority of the votes cast with respect to that director's election at any meeting for the election of directors at which a quorum is present").

As is typical of these provisions, the director did not actually lose but instead was required to submit a letter of resignation. Id. ("In the event an incumbent director fails to receive a majority of the votes cast in an election that is not a Contested Election, such director shall tender his or her resignation to the Nominating and Governance Committee of the Board of Directors"). Mr. Salgado submitted the requisite letter.

In the past, resignation letters have not been accepted by the board. They were rejected at Pulte and Axcelis. The NYSE Euronext, however, accepted the letter of resignation. So does this mean that these majority provisions have teeth after all? It does not.

These majority vote provisions do not give meaningful authority to shareholders. They merely trigger a resignation that places in the hands of the board the authority to remove an incumbent director, something ordinarily not permitted under state law. In other words, the resignation enhances the board's authority. This case shows that when confronted with a letter that does not implicate the behavior of management, boards will at least sometimes accept the resignation. Where, however, a defeat by shareholders is at least partially a commentary on incumbent management, boards have little incentive to accept the resignation. Nothing about the NYSE Euronext situation altered that dynamic.

April 30, 2012
Director Ownership, Governance, and Performance
by R. Christopher Small

Editor's Note: The following post comes to us from Sanjai Bhagat, Professor of Finance at the University of Colorado at Boulder, and Brian Bolton of the Department of Finance at Portland State University.

In our paper, Director Ownership, Governance, and Performance, forthcoming in the Journal of Financial and Quantitative Analysis, we study the impact of SOX on the relationship between corporate governance and company performance. A significant part of SOX and other exchange requirements increase the role of independent board members. Given that prior academic research suggests there is no positive relationship between board independence and firm performance, the above regulatory efforts are especially notable.

We find a shift in the relationship between board independence and firm performance after 2002. Prior to 2002, we document a negative relationship between board independence and operating performance. After 2002, we find a positive relationship between independence and operating performance. We find this result is driven by firms that increase their number of independent directors. An event study provides independent evidence supportive of the above results - specifically, when a company goes from being non-compliant to being compliant with SOX's board independence requirement, the market response is significantly positive. Why might SOX be related to this positive performance? SOX and the listing standards impose new responsibilities on firms' directors, such as regular meetings of the independent directors, approval of director nominations by independent directors, and approval of CEO compensation by independent directors. As a consequence of these policies boards began including more independent directors, and, perhaps the independent directors became more engaged in the firm's governance processes. For example, we find that firms with greater board independence (and stock ownership of board members) are less likely to engage in a value-destroying activity, namely, acquisitions.

In addition to studying the changing nature of corporate governance across the pre-2002 and post-2002 sub-periods, we make four additional contributions to the literature. First, consistent with the Efficient Market Hypothesis, we show that none of the governance measures are correlated with current or future stock market performance, in contrast to the claims in papers such as Gompers, Ishii and Metrick (GIM, 2003). Second, we find that given poor firm performance, the probability of disciplinary management turnover is positively correlated with stock ownership of board members and board independence. However, given poor firm performance, the probability of disciplinary management turnover is negatively correlated with better governance measures as proposed by GIM. In other words, so called "better governed firms" as measured by the GIM index are less likely to experience disciplinary management turnover in spite of their poor performance. Third, we find that firms with greater stock ownership of board members (and board independence) are less likely to engage in a value-destroying activity, namely, acquisitions. On the other hand, better governed firms as measured by the GIM index are more likely to engage in acquisitions.

The most important contribution of this paper is a new measure of corporate governance, namely - dollar ownership of the board members. On average, the median director's stock ownership is 45 percent greater in 2003-2007 than it was in 1998-2001 - and the relationship between director ownership and firm performance is consistently positive for both sub-periods; this relationship is robust to a battery of specification tests. Furthermore, the governance measure proposed here, namely - dollar ownership of the board members - is simple, intuitive, less prone to measurement error, and not subject to the problem of weighting a multitude of governance provisions in constructing a governance index. Consideration of this governance measure by future researchers would enhance the comparability of research findings with more robust progress in governance research.

The full paper is available for download here.

April 30, 2012
Separate Entity Doctrine for U.S. Branches of Foreign Banks
by Noam Noked

Editor's Note: The following post comes to us from three law firms: Cleary Gottlieb Steen & Hamilton LLP; Davis Polk & Wardwell LLP; and Sullivan & Cromwell LLP. It is based on a white paper authored jointly by the three firms on the separate entity doctrine as applied to the U.S. branches of foreign headquartered (non-U.S.) banks. The hybrid treatment of the U.S. branches of foreign headquartered banks has become a subject of focus in the wake of the financial crisis and in light of the enactment of the Dodd-Frank Act. The white paper provides a summary of the regulatory treatment of U.S. branches of foreign headquartered banks under various U.S. legal regimes, and highlights the hybrid nature of such branches. The original white paper, including footnotes, is available here.

Although a branch of a bank is not a separate juridical entity from the bank of which it is a component, U.S. law treats branches as separate from the head office and other branches of a bank when such differentiation is appropriate for various purposes. Branches are a hybrid structure, at the same time both an integral part of the banks of which they are merely offices and separate legal entities for a number of U.S. regulatory and commercial law purposes. This feature of bank branches is a central tenet of federal banking statutes, and the law governing U.S. branches of foreign banks in particular.

At times the status of a U.S. branch of a foreign bank under a particular statutory scheme is explicit. Such is the case with the U.S. law treatment of U.S. branches of foreign banks in insolvency. As discussed below, U.S. law treats those branches virtually as separate entities in insolvency.

In other circumstances, a particular statute does not explicitly address the status of U.S. branches of foreign banks, and the treatment has to be arrived at through an analysis of the purpose of the statutory scheme. For example, as discussed below, after a long series of no-action letters, the Securities and Exchange Commission ("SEC") issued interpretive guidance providing that securities issued or guaranteed by U.S. branches of a foreign bank (but not its non-U.S. branches) could rely on the exemption from registration afforded to securities issued or guaranteed by a bank under Section 3(a)(2) of the Securities Act of 1933 ("Securities Act"). Thus, U.S. branches can rely on the Section 3(a)(2) exemption while the bank itself is required to register to distribute its securities in the United States.

This paper will review the treatment of U.S. branches of foreign banks under a variety of statutory schemes and explore the rationale for that treatment.

I. Background on Branches

(a) Parallel Federal and State Regulatory Regimes

The establishment of a branch is the most prevalent form in which foreign banks operate in the United States. Foreign banks seeking to open U.S. branches face essentially the same regulatory regime as new U.S.-domiciled institutions. As with U.S.-based banks, foreign banks choose whether to seek a federal or state license for their U.S. branches.

Federal branches are authorized and subject to regulation and supervision by the Office of the Comptroller of the Currency ("OCC"). State-chartered branches are authorized and subject to regulation at the state level.

(b) The International Banking Act Provides for National Treatment of U.S. Branches

The International Banking Act of 1978 ("IBA") establishes a comprehensive framework for the supervision and regulation of non-U.S. banks in the United States. The IBA's guiding principle of "national treatment" - or parity of treatment between domestic and foreign banks - has informed all subsequent U.S. legislation affecting foreign banks.

Under the IBA framework, a U.S. branch of a non-U.S. bank is treated for most purposes as if it were a U.S. bank. Importantly, despite the fact they are the same juridical entity, it is the U.S. branch - and not the non-U.S. bank as a whole - that is treated as the U.S. bank under the IBA. For example, while the Federal Reserve has authority to examine the foreign bank because it is treated as a bank holding company, the OCC's examination authority is limited to the federal branch.

(c) Only U.S. Branches Have Been Eligible for Federal Deposit Insurance

The distinction between a foreign bank and its U.S. branch is also reflected in the Federal Deposit Insurance Act ("FDIA"), pursuant to which a U.S. branch, and not the bank as a whole, is eligible to apply for federal deposit insurance for deposits payable at the branch. With the passage of the Federal Deposit Insurance Corporation Improvement Act of 1991("FDICIA"), no more insured branches may be created. However, the provision of the FDIA that established eligibility was not repealed and the 52 then-insured U.S. branches of foreign banks retained their eligibility pursuant to a grandfathering provision. The FDIC can be appointed as receiver or conservator of the insured branch under the FDIA in the same manner as the FDIC can be appointed as receiver or conservator of an insured U.S. bank. In addition, prior to the enactment of FDICIA, FDIC insurance coverage for U.S. branches of foreign banks was granted on a branch-by-branch basis such that a foreign bank could have a branch in one U.S. state that was insured by the FDIC and another branch in another U.S. state that was not insured by the FDIC.

(d) Foreign Banks with U.S. Branches Are Subject to Regulation as Bank Holding Companies under the Bank Holding Company Act

The separateness of a foreign bank and its U.S. branch is also reflected in the application of the Bank Holding Company Act ("BHC Act") to foreign banks with U.S. branches. The BHC Act generally limits the activities of bank holding companies to those of banking or managing and controlling banks, and to those that are closely related thereto or that are financial in nature. By virtue of maintaining a U.S. branch, a foreign bank is deemed a bank holding company, and the BHC Act is applied to the foreign bank and U.S. branch as though they were a holding company and subsidiary bank, respectively. Thus, the foreign bank is subject to the activity restrictions of the BHC Act and to the supervisory and enforcement powers of the Federal Reserve applicable to bank holding companies, including its authority to issue cease-and-desist orders and assess civil money penalties. For purposes of the interstate banking restrictions of the BHC Act, branches were treated as banks, and thus a foreign bank could not acquire a bank in another state, or establish a branch in another state, until the advent of interstate banking with the passage of the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994. The separateness of a foreign bank and its U.S. branch is also reflected in the Federal Reserve's Regulation K, which permits a qualified foreign banking organization to "[e]ngage in activities of any kind outside the United States," even though a U.S. branch or subsidiary of the same legal entity would generally be subject to the activity restrictions in the BHC Act and the IBA because activities engaged in by such a U.S. branch or subsidiary are considered to be activities engaged in in the United States.

II. Insolvency Laws

(a) State-Chartered Branches Are Liquidated as Separate Legal Entities

State-chartered branches of foreign banks are subject to liquidation at the state level according to state insolvency laws. State laws generally provide a "ring-fence" mechanism, pursuant to which regulators have broad power to liquidate all of the domestic assets of the foreign bank - including those owned by the foreign bank in its own name as opposed to that of the branch - for the benefit of (domestic) claimants against the branch.

The New York bank insolvency law, which is often regarded as a model for state bank insolvency laws, is illustrative. Under this regime, the Superintendent of Financial Services has the authority to seize all the assets of the foreign bank that are located in New York. Upon liquidation, proceeds go first to pay the claims of creditors arising from the transaction of business with the New York branch. The Superintendent is expressly prohibited from honoring claims that would not constitute enforceable legal obligations against the branch if it were a separate and independent legal entity, and claims against other offices, branches and other affiliates of the foreign bank. After claims against the branch are satisfied, any excess proceeds are then paid over to the liquidators, if any, of any of the foreign bank's other U.S. branches or offices. Only after all such claims are satisfied are any remaining proceeds returned to the principal office of the foreign bank.

(b) Federally Chartered Branches Are Liquidated as Separate Legal Entities

A similar ring-fence regime governs insolvency on the part of a foreign bank that has one or more federally chartered U.S. branches. The IBA empowers the OCC to appoint a receiver to take possession of all U.S. assets of the foreign bank and serve as receiver for all of the foreign bank's U.S. branches. Only claims arising out of transactions with the foreign bank's U.S. branches that would be valid obligations against such branch if it were a separate legal entity are honored, and only after all such claims against all U.S. branches are satisfied are excess proceeds returned to the foreign bank's home office.

(c) Congress Amended the U.S. Bankruptcy Code to Protect the Separateness of Foreign Banks and Their U.S. Branches

In 2003, a district court overturned a bankruptcy court's ruling that the Bankruptcy Code barred a foreign representative of two failed foreign banks with branches licensed in New York from seeking an injunction to prevent state regulators from giving preference to New York creditors in the liquidation of the U.S. assets of those banks. This decision, which was widely criticized as departing from established authority, effectively disregarded the distinction between the foreign banks and their U.S. branches.

In 2005, Congress responded by amending the Bankruptcy Code to clarify that a foreign bank with a U.S. branch is ineligible to file for bankruptcy in the United States, thereby ensuring the dichotomy between a foreign bank and its U.S. branches will continue to be reflected in U.S. bankruptcy proceedings.

III. Securities Laws

(a) Securities Act Exemption for U.S. Branches of Foreign Banks

Section 3(a)(2) of the Securities Act provides an exemption from the general registration requirements for securities "issued or guaranteed by… any national bank, or any banking institution organized under the laws of any State." On its face, the statute is unclear as to whether a foreign bank's compliance with the licensure and related requirements to charter a U.S. branch is akin to the branch's being "organized under" U.S. law. However, at least as early as 1964, the SEC began issuing no-action letters permitting the U.S. branches of foreign banks to rely on this "bank" exemption to issue various types of securities in specific states.

In 1986, after issuing more than 100 such no-action letters, the SEC issued guidance that it would thereafter take the position that, although U.S. branches of foreign banks are not separate legal entities in a strictly technical sense, they would be deemed banks for purposes of the bank exemption. The release noted the public policy of "national treatment" reflected in the IBA, and the SEC's conclusion that U.S. branches of foreign banks are subject to domestic supervision sufficient to render them "functionally indistinguishable from their domestic counterparts." Notably, while U.S. branches of foreign banks qualify for this exemption, foreign banks themselves do not.

The definition of "U.S. person" for purposes of the SEC's Regulation S, which governs securities offerings and sales outside of the United States that are not registered under the Securities Act, also reflects the separateness of branches and agencies of a legal entity. For example, while the definition of "U.S. person" in Regulation S does not include an entity organized or incorporated under foreign law, it expressly includes "[a]ny agency or branch of a foreign entity located in the United States." Similarly, while the "U.S. person" definition includes entities incorporated under U.S. law, expressly excluded from such definition is "[a]ny agency or branch of a U.S. person located outside the United States if: (A) The agency or branch operates for valid business reasons; and (B) The agency or branch is engaged in the business of insurance or banking and is subject to substantive insurance or banking regulation, respectively, in the jurisdiction where located."

(b) Exchange Act Exemption for U.S. Branches of Foreign Banks

Section 3(a)(6) of the Securities Exchange Act of 1934 ("Exchange Act") defines the term "bank" to include, subject to certain conditions, a "banking institution or savings association, as defined in section 2(4) of the Home Owners' Loan Act, whether incorporated or not, doing business under the laws of any state or of the United States." This provision has been construed by the SEC to include a U.S. branch of a non-U.S. bank. This in turn allows a U.S. branch of a non-U.S. bank to engage in certain types of activities that are permissible for banks under the Exchange Act in the absence of broker-dealer registration. This authority is granted only to a U.S. branch of a non-U.S. bank and not to the bank itself.

Moreover, the SEC has construed the broker-dealer "push-out" provisions of the Gramm-Leach-Bliley Act to restrict the ability of a U.S. branch of a non-U.S. bank to engage in certain brokerage and dealing activity, but not to apply to any non-U.S. branches of the same non-U.S. bank.

(c) Investment Company Act Exemption for U.S. Branches of Foreign Banks

Section 3(c)(3) of the Investment Company Act of 1940 ("Investment Company Act") excludes from the definition of "investment company," and thus from the Act's registration requirements, any entity that falls within the definition of "bank," as set forth in section 2(a)(5) of the Investment Company Act. Before the statute was amended in 1999 to address the issue, practitioners had long taken the view that U.S. branches of foreign banks met the criteria of clause (C) of this definition, which included any "banking institution... doing business under the laws of any State or of the United States, a substantial portion of the business of which consists of receiving deposits or exercising fiduciary powers similar to those permitted to national banks... and which is supervised and examined by State or Federal authority having supervision over banks."

In 1990, the SEC issued guidance providing that, for the purpose of issuing securities in the United States, it would deem U.S. branches of foreign banks to be "banks" falling within the exemption, provided their counsel could determine "that the nature and extent of Federal and/or State regulation and supervision of the particular branch [] are substantially equivalent to those applicable to banks chartered under Federal or state law in the same jurisdiction." This position was based on the SEC's determination that U.S. branches of foreign banks were "functionally equivalent to their domestic counterparts, as well as similarly regulated."

In 1999, the definition of "bank" in section 2(a)(5)(A) was amended to expressly include U.S. branches of foreign banks, but not the foreign banks themselves.

IV. Commodity Exchange Act

(a) Foreign Branches of U.S. and Foreign Banks Are Treated as Separate Entities for Introducing Broker and Futures Commission Merchant Registration Purposes

The Commodity Futures Trading Commission ("CFTC") generally does not require foreign branches of U.S. or foreign banks to register as introducing brokers ("IBs") or futures commission merchants ("FCMs") when they transact business only with foreign customers. Based in large part on the treatment of bank branches under banking laws, the CFTC staff has consistently "treated a bank in one country as a separate legal entity from the bank's branches in another country."

(b) The Dodd-Frank Act Contemplates Separate Designation of U.S. Branches of Foreign Banks as Swap Dealers

Consistent with the historical distinction between a foreign bank and its U.S. branches, the Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank Act"), in defining the term "prudential regulator," expressly contemplates that a "federally chartered branch... of a foreign bank" or a "State-chartered branch... of a foreign bank" could itself be a swap dealer. In addition, the Dodd-Frank Act's "swap dealer" definition specifically provides that a "person may be designated as a swap dealer for a single type or single class or category of... activities and considered not to be a swap dealer for other types, classes, or categories of... activities."

V. Other Banking Law Provisions

(a) Only U.S. Branches Access the Federal Reserve Discount Window and Comply with Reserve Requirements

Pursuant to the statutory framework and implementing regulations governing access to the Federal Reserve's discount window, a U.S. branch of a foreign bank is treated as if it were a member bank, separate and apart from the foreign bank of which it is a component.

In 1978, the IBA applied reserve requirements to "every Federal branch and Federal agency of a foreign bank in the same manner and to the same extent as if the Federal branch or Federal agency were a member bank," subject to certain exceptions. Pursuant to authority in the IBA, the Federal Reserve applied these requirements to state branches and agencies, and made Federal Reserve bank discount window access available "to any branch or agency of a foreign bank in the same manner and to the same extent that [the Federal Reserve bank] may exercise such powers with respect to a member bank if such branch or agency is maintaining reserves with such Reserve Bank..."

Subsequently, the Monetary Control Act of 1980 amended the Federal Reserve Act to provide that "any depository institution in which transaction accounts or nonpersonal time deposits are held shall be entitled to the same discount and borrowing privileges as member banks."

The Federal Reserve's Regulation D, which implements the reserve requirement provisions of the Federal Reserve Act, provides that a foreign bank's branch or agency located in the United States is required to comply with the reserve requirements "in the same manner and to the same extent" as if the branch or agency were a member bank. Under the Federal Reserve Act, the U.S. branch or agency is required to maintain reserves only with respect to its own reservable deposits - not those of the non-U.S. bank. Similarly, the Federal Reserve's Regulation A, which governs extensions of credit by a Federal Reserve bank, applies to U.S. branches and agencies of non-U.S. banks that are subject to reserve requirements under Regulation D "in the same manner and to the same extent as this part applies to depository institutions."

Thus, the U.S. branch is required to maintain reserves with a Federal Reserve bank with respect to its transaction accounts and nonpersonal time deposits, but neither the U.S. branch nor the foreign bank is required to maintain reserves against deposits of the foreign bank. As a consequence, the branch - but not the foreign bank - is entitled to the same discount and borrowing privileges as a member bank.

(b) Affiliate Transaction Restrictions Only Apply to U.S. Branches

Transactions between a U.S. branch and certain of its U.S. insurance, broker-dealer and merchant banking affiliates are subject to the restrictions of Sections 23A and 23B of the Federal Reserve Act, even though these restrictions do not apply to transactions between the foreign bank and these same U.S. affiliates.

(c) Anti-Tying Provisions Apply Only to U.S. Branches

Anti-tying provisions of the U.S. banking laws and regulations apply to the activities of the U.S. branches and agencies of a foreign bank, but do not apply to activities of the foreign bank generally.

(d) The Depository Institution Management Interlocks Act Applies Only to U.S. Branches

The Federal Reserve's application of the interlock restrictions in the Depository Institution Management Interlocks Act respects the distinction between a foreign bank and its U.S. branch by applying the act's restrictions to the officers of U.S. branches, but not those of the foreign bank itself.

(e) Federal and State Laws Require Maintenance of Assets or Capital Equivalency Deposits for a U.S. Branch of a Foreign Bank Notwithstanding the Overall Capital Adequacy of the Foreign Bank

The IBA requires that a foreign bank maintain a deposit in a member bank located in the state in which each of its Federal branches and agencies is located in an amount "not less than the greater of (1) that amount of capital (but not surplus) which would be required of a national bank being organized at this location, or (2) 5 per centum of the total liabilities of such branch or agency..." The underlying purpose of the IBA provision is to ensure that branches and agencies of a foreign bank maintain a minimum level of unencumbered assets in the United States that would be available in a liquidation of the branch or agency. Many states impose similar requirements on state-licensed branches of foreign banks.

(f) Before Its Repeal, the Prohibition Against the Payment of Interest on Demand Deposits Applied Only to U.S. Branches

The prohibition against payment of interest on demand deposits was applied only to those deposits maintained at U.S. branches of foreign banks and not to any deposits "payable only at an office located outside of the United States." This prohibition was repealed for both U.S. banks and U.S. branches of foreign banks, effective July 21, 2011.

VI. U.S. Law Recognizes Certain Distinctions Between U.S. Banks and Their Branches

(a) U.S. Law Recognizes the Distinction Between U.S. Banks and Their Foreign Branches

U.S. law also recognizes analogous distinctions between foreign branches of U.S. banks, and the banks of which they are components. For example, deposits payable only at foreign branches are non-reservable, non-insured, and in fact subordinated in right of payment to domestic deposits. In addition, although the credit of the whole bank is normally engaged when a foreign branch contracts, the Federal Reserve Act shields the bank from liability for deposits made at a foreign branch if the branch is unable to repay the deposit on account of war, civil strife or insurrection in, or expropriation by, the foreign country in which the branch is located.

Finally, in order to ensure foreign branches of U.S. banks are competitive in their local markets, such branches are authorized to engage a number of activities that are prohibited for U.S. banks, including offering insurance as agent or broker and underwriting and dealing in obligations of foreign governments.

(b) U.S. Law Recognizes the Distinction Between Different U.S. Branches of the Same U.S. Bank

U.S. commercial law recognizes the distinction between different U.S. branches of the same U.S. bank where the distinction is consistent with certain bank functions. For example, the Uniform Commercial Code provides that a branch or other separate office of a U.S. bank is a "separate bank" for the purpose of calculating certain timeframes with respect to negotiable instruments, bank deposits and collections, and wire transfers.

(c) Separate Entity Doctrine in New York Judicial Proceedings

The separate entity doctrine under New York judge-made law provides, in essence, that "each branch of a bank is a separate entity, [and is] in no way concerned with accounts maintained by depositors in other branches or at a home office." This doctrine has long been an important facet of New York attachment and execution law and stands for the proposition that the "mere fact that a bank may have a branch within New York is insufficient to render accounts outside of New York subject to attachment merely by serving a New York branch." The purpose of the separate entity doctrine is clear - service of process on one branch should not be permitted to accomplish a restraint on accounts in other branches because of the substantial interference with banking business, and the exposure of banks doing business in multiple jurisdictions to inconsistent determinations being rendered by the courts sitting in those jurisdictions. Section 138 of the New York Banking Law represents a statutory articulation of the separate entity doctrine for New York banks.

* * *

In conclusion, U.S. law has long recognized in a variety of contexts that bank branches are not merely offices of the bank. Instead, they enjoy a hybrid status that results in their treatment as separate entities for numerous purposes. Although that separate treatment is sometimes explicitly provided by statute, it is frequently the result of interpreting the relevant statutory scheme and its purpose in light of the nature and regulation of the branch.

April 30, 2012
A 2011 MAC Survey
by Broc Romanek

A 2011 MAC Survey

A while back, Nixon Peabody's issued its "2011 MAC Survey," which explores trends in the use of material adverse change clauses in M&A deals and reflects insight on a range of issues related to the allocation of risk between transacting parties in mergers and acquisitions.

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