August 5, 2003

Today, the SEC’s “reporting up”

Today, the SEC’s “reporting up” rules become effective. Our “Quick Survey” (~100 respondents) reveals that 13% don’t intend to adopt a written policy; 24% say they are waiting for the SEC to decide about “reporting out” before adopting a policy; 47% say they are in the process of drafting a written policy and 15% have adopted one already. Thanks to Marty Wagner at Xerox for donating their “reporting up” policy to our library as “Sample 2” at

The Delaware General Assembly recently amended Section 251(c) of the DGCL to delete the second sentence thereof (which permitted corporations, to agree in their merger agreements, to submit the merger agreement for stockholder adoption irrespective of whether the directors determine at any time subsequent to declaring the advisability of the merger agreement that the agreement no longer is advisable and recommend against its adoption). In lieu of previous DGCL Section 251(c), a new DGCL Section 146 has been adopted which essentially embodies the old DGCL Section 251(c) language.

This “‘force the vote” provision, when combined with a no-soliciation covenant (without a fiduciary termination right) and majority stockholder lockups (which operated to make a proposed third party stautory, long-form merger a fait accompli), was struck down in a 3-2 split decision by the Delaware Supreme Court in the Omnicare v. NCS case this past April as constituting a preclusive, coercive and draconian combination of terms. [Side note – One of the Delaware Supreme Court Judges who ruled against such combination of merger agreement terms – Judge Walsh – just retired and was replaced by high-profile Delaware Chancery Court Vice Chancellor Jack Jacobs]. The Omnicare decision, which was written with great breadth, was criticized by some in the M&A bar, including Cliff Neimeth and Cathy Reese of Greenberg Traurig in a recent article in the M&A Lawyer. It is unlikely that the Delaware legislature was reacting to Omnicare – but it is a bizarre development. We will keep you posted…

The SEC has taken the position that defendants who settle injunctive proceedings with the SEC – in which they neither admit nor deny the allegations – will be deemed by the SEC to admit the allegations for purposes of subsequent SEC administrative proceedings. See Mike O’Sullivan’s blog about this development in our Blog City – and the SEC’s announcement of its policy change in In the Matter of Marshall E. Melton and Asset Management & Research, Inc. at

The SEC also has issued a 5-page paper to explain what persons must do when they respond to a subpoena or voluntarily provide information to the SEC staff at