DealLawyers.com Blog

July 30, 2015

Rite Aid Shareholders Vote to Take Wind Out of CEO’s Golden Parachute

As noted in this Reuters article, last month, nearly 60% of Rite Aid shareholders supported a non-binding shareholder proposal at the company’s annual meeting that asks that the company to limit the CEO’s golden parachute. This is a rare case of a rebuke of a golden parachute as similar measures at other companies only garnered an average of 33% support this proxy season…

July 22, 2015

July-August Issue: Deal Lawyers Print Newsletter

This July-August issue of the Deal Lawyers print newsletter was posted a few weeks ago – & also sent to the printers – and includes articles on:

– Reflections on the DuPont Proxy Contest: What Happens Next?
– Finding the Antidote: Addressing Poison Put Provisions in Debt Instruments
– “Exclusive Forum” Bylaws: Fast Becoming a New Item on Deal Checklists
– Integration Clauses & Letters of Intent
– Joint Venture Agreements: An Interview

Remember that – as a “thank you” to those that subscribe to both DealLawyers.com & our Deal Lawyers print newsletter – we are making all issues of the Deal Lawyers print newsletter available online for the first time. There is a big blue tab called “Back Issues” near the top of DealLawyers.com – 2nd from the end of the row of tabs. This tab leads to all of our issues, including the most recent one.

And a bonus is that even if only one person in your firm is a subscriber to the Deal Lawyers print newsletter, anyone who has access to DealLawyers.com will be able to gain access to the Deal Lawyers print newsletter. For example, if your firm has a firmwide license to DealLawyers.com – and only one person subscribes to the print newsletter – everybody in your firm will be able to access the online issues of the print newsletter. That is real value. Here are FAQs about the Deal Lawyers print newsletter including how to access the issues online.

July 20, 2015

Tomorrow’s Webcast: “Selling the Public Company – Methods, Structures, Process, Negotiating, Terms & Director Duties”

Tune in tomorrow for the webcast – “Selling the Public Company: Methods, Structures, Process, Negotiating, Terms & Director Duties” – to hear Greenberg Traurig’s Cliff Neimeth, Richards Layton’s Ray DiCamillo and Richards Layton’s Mark Gentile analyze the legal and commercial parameters of what you can – and can’t do (or should and shouldn’t do) – when shopping and agreeing to sell control of a public company are evolving due to judicial decisions, legislative developments and market conditions.

July 15, 2015

Whoa! Dell Shareholders Lose Appraisal Rights Due to Custodial’s Back-Office Procedures

Here’s news from this Fried Frank memo (also see this Bloomberg article – we’re posting memos in our “Appraisal Rights” Practice Area):

In a decision with the potential for immediate impact on stockholders’ access to appraisal rights, Delaware Vice Chancellor Laster, in In re Appraisal of Dell (July 13, 2015), held that the funds seeking appraisal of their Dell shares (acquired by them after announcement of the Dell going-private transaction) had not met the “Continuous Holder Requirement” of the appraisal statute. Ruling that the funds had therefore lost their right to appraisal, the Vice Chancellor granted summary judgment in favor of Dell.

After the appraisal petition had been filed, The Depository Trust Company (DTC), following standard procedure, had transferred the shares owned by the funds to the funds’ custodial banks. As is not uncommon, the banks changed the name of the record holder of the shares from Cede & Co. (DTC’s nominee) to the banks’ nominees. The Vice Chancellor ruled that the name change caused a change in the record ownership of the shares. The Vice Chancellor characterized the result as not reflecting the “reality” that the beneficial owners of the shares had remained unchanged and should have been entitled to appraisal rights.

The result was compelled, however, according to the Vice Chancellor, by Delaware Supreme Court precedent that, under these circumstances, treats Cede for all purposes as the record holder (without “looking through” Cede or considering the beneficial owner’s custodial bank as being in the same position as Cede), as well as the Supreme Court’s emphasis on the need for “strict construction” of the appraisal statue requirements. Companies, stockholders, and custodial banks and brokers should evaluate the impact of the decision on their current situations.

July 14, 2015

Trend for Courts to Scrutinize “Disclosure Only” Settlements Continues

In the pending case of In Re Riverbed Technology, Fordham Professor Sean Griffith has filed an objection to a disclosure only settlement and the payment of plaintiffs’ attorney fees on the basis that the disclosures really aren’t worth anything. While Delaware VC Laster has become increasingly critical of proposed settlements involving claims with little or no merit (eg. Raymond Acevedo v. Aeroflex Holding, C.A. No. 9730-VCL, hearing (Del. Ch.; 7/8/15) and Haverhill Retirement System v. Omar Asali and Harbinger Group, C.A. No. 9474-VCL, transcript (Del. Ch.; 6/8/15)) – and VC Noble recently was critical & withheld judgment over a settlement for similar reasons (In Re InterMune Stockholder Litigation, C.A. No. 10086-VCN (consol.) hearing (Del. Ch.; 7/8/15)) – this objection by an actual stockholder, albeit a law professor, may provide the Chancery Court with a significant opportunity to crack down on such settlements.

While shareholders have occasionally filed objections to settlements, few have appeared in court to object – and none have argued the merits of their objection as thoroughly and cogently as Prof. Griffith.

The upside is that increasing scrutiny of settlements may reduce the incentives for plaintiffs’ counsel to file complaints over virtually every merger assuming that, at a minimum, they will ultimately be able to collect $400-$500k for a “disclosure only” settlement and a bit more for a “disclosure plus” settlement. The downside for defendants is that the inability to get such settlements approved will limit the ability of defense counsel to obtain broad global releases unless they bump the price or otherwise materially amend the terms of the deal (i.e. reduce deal protections in a manner reasonably likely to increase the likelihood of a topping bid).

July 8, 2015

Now Available Online: All Issues of “Deal Lawyers Print Newsletter”

As a “thank you” to those that subscribe to both DealLawyers.com & our Deal Lawyers print newsletter, we are making all issues of the Deal Lawyers print newsletter available online for the first time. There is a big blue tab called “Back Issues” near the top of DealLawyers.com – 2nd from the end of the row of tabs. This tab leads to all of our issues, including the most recent one.

And a bonus is that even if only one person in your firm is a subscriber to the Deal Lawyers print newsletter, anyone who has access to DealLawyers.com will be able to gain access to the Deal Lawyers print newsletter. For example, if your firm has a firmwide license to DealLawyers.com – and only one person subscribes to the print newsletter – everybody in your firm will be able to access the online issues of the print newsletter. That is real value. Here are FAQs about the Deal Lawyers print newsletter including how to access the issues online.

July 7, 2015

Advance Notice Bylaws: Delaware Supreme Court Allows Proxy Contest to Proceed

Here’s news from Steve Haas of Hunton & Williams: In Hill International v. Opportunity Partners, No. 305 (Del. July 2, 2015), the Delaware Supreme Court affirmed a lower court ruling that refused to block a dissident stockholder’s director nominations from being considered at an annual meeting. Specifically, the court held that the corporation’s advance notice bylaw did not bar the nominations. The decision is based on the court’s interpretation of the bylaw. For that reason, many corporations should review their advance notice bylaws to determine whether changes might be advisable. Hill is also a reminder that advance notice bylaws tend to be construed rather strictly under Delaware law.

Background

In Hill, the corporation’s advance notice bylaw provided as follows:

To be timely, a stockholder’s notice shall be delivered to or mailed and received at the principal executive offices of the Corporation not less than sixty (60) days nor more than ninety (90) days prior to the meeting; provided however, that in the event that less than seventy (70) days notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder, to be timely, must be received no later than the close of business on the tenth (10th) day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made, whichever first occurs (emphasis added).

The corporation’s 2014 proxy statement stated that the 2015 annual meeting would be held “on or about June 10, 2015.” Ultimately, the 2015 annual meeting was scheduled for June 9, 2015. The corporation did not announce that date, however, however, until it filed its proxy statement with the SEC on April 30, 2015—less than 70 days before the annual meeting date. On May 7, 2015 – less than ten days after the proxy statement was filed – an activist investor (an affiliate of Bulldog Investors) gave notice of its intent to (i) nominate two directors and (ii) submit two other proposals recommending that the board engage an investment banker and rescind the corporation’s stockholder rights plan.

Arguments & Lower Court’s Order

The corporation argued that the nominations and proposals were not timely made under the advance notice bylaw because they were not received at least 60 days prior to the meeting date. The stockholder argued that the 2014 proxy statement did not specifically announce the date of the annual meeting and, therefore, the nominations and proposals fell within the proviso in the bylaw. Vice Chancellor J. Travis Laster ruled in favor of the stockholder and entered an order (i) enjoining the corporation from conducting any business at its annual meeting other than to adjourn it for a minimum of 21 days and (ii) allowing the stockholder to present its nominations and proposals when the meeting was reconvened. The Vice Chancellor observed that the 70 days’ notice in the bylaw had to be different than the corporation’s formal notice of the meeting, which cannot be given more than 60 days in advance pursuant to Section 222 of the DGCL.

Supreme Court’s Decision

The Delaware Supreme Court affirmed the Court of Chancery’s decision, finding that the advance notice bylaw was “clear and unambiguous.” The court held that the disclosure in the proxy statement that the meeting would be held “on or about June 10, 2015” did not constitute a “prior public disclosure of the date of the meeting” as set forth in the bylaw. The court reasoned that, under the plain text of the bylaw, the corporation had to announce the “actual” date – not the “anticipated date” – of the annual meeting in order for the 60-90 day window to apply.

Take-Aways

Corporations should periodically review their advance notice bylaws to make sure they remain “state-of-the-art.” From time to time, Delaware courts have ruled on technical issues that sometimes warrant changes. See, e.g., Levitt Corp. v. Office Depot, C.A. No. 3622-VCN (Del. Ch. Apr. 14, 2008) (holding that a stockholder could submit a nomination because the election of directors was an item specified in the notice of the meeting). Advance notice bylaws serve important purposes and will generally be upheld. But, as evidenced in Hill, Delaware courts often construe ambiguities and technical arguments in favor of stockholders.

The construct of the advance notice bylaw in Hill raised issues because it imposed a deadline based on date of the meeting at issue – which would not be known to a stockholder absent a formal disclosure by the corporation. A corporation with this type of bylaw thus needs to make a definitive announcement of the meeting date at least 70 days beforehand. Unless the corporation knows a proxy contest is imminent, it is easy to see how this technical point could be overlooked.

A corporation with a bylaw similar to the one in Hill might amend it to impose the deadline based on the announcement of an “approximate” date, perhaps with an exception if the actual meeting date differs significantly. Hill will not be an issue for most companies, however, because it is more common for advance notice bylaws to impose deadlines based on the anniversary of the prior year’s annual meeting (or, in some cases, the anniversary of the mailing of the prior year’s proxy statement). Under that construct, stockholders have clear notice of the deadline and do not face the uncertainty associated with the construct in Hill. Thus, this approach is probably the more desirable “fix” for the Hill construct. Still, even these more common advance notice bylaws typically have an exception where the meeting date is more than 30 or 60 days from such anniversary. In that case, the corporation should try, if possible, to give sufficient notice of the meeting date so as not to reopen the advance notice window.