October 2, 2006

Mock-Up: Termination/Change of Control Table and Related Disclosure

In our “Severance/Executive Compensation” Practice Area, I have posted this “mock-up” of a termination/change of control table (and related disclosure) from Scott Spector of Fenwick & West and Mike Kesner of Deloitte Consulting.

Scott and Mike provided this table in connection with our recent Conference on the SEC’s new executive compensation rules. The table is key for two reasons. One is that this is not a table for which the SEC provided a template, so it’s very useful to get a head start on drafting your version. Second is that it illustrates how much work creating this table will entail.

Poison Pill Tinkering Not Enough, Some Investors Say

From ISS’s “Corporate Governance Blog“: While more companies are agreeing to submit future “poison pill” plans to a shareholder vote or modifying existing ones to make them more palatable, some individual investors are pressing ahead with shareholder proposals–including binding resolutions seeking bylaw or certificate of incorporation changes–to get companies to submit future defenses to a shareholder vote.

A case in point is the Aug. 21 announcement by Pep Boys, the automotive aftermarket retail and service chain, that it will modify its poison pill after reaching an agreement to resolve a proxy fight with Barington Capital Group, which holds a 9.9 percent stake in the company. As part of the agreement, the dissidents will get four director nominees at the company’s Oct. 19 annual meeting.

Pep Boys said it will amend its anti-takeover plan to include a provision that requires a committee of independent directors to meet every three years to review the plan and determine whether the plan should be terminated or revised. The proposed change also calls for the elimination of the so-called “modified slow-hand provision,” which requires a vote by directors unrelated to a potential acquirer to redeem the pill, and in its place permit the redemption of the plan by the entire board.

“This tinkering with the poison pill plan falls far short of allowing shareholders a vote on this most important topic, especially at an underperforming company such as Pep Boys,” shareholder activist John Chevedden told Governance Weekly. He said his proposal to submit future pills to a shareholder vote will remain on the company’s ballot.

In addition to the more than a dozen companies that have either rescinded their pill or put it up for a shareholder vote this year, a number of companies have promised to do so in the future, including Comerco and Gemcorp in 2007, and OfficeMax in 2008. At News Corp., which was sued by investors last year after it failed to submit a poison pill extension for shareholder approval, management is now seeking such an endorsement at the company’s upcoming annual meeting, tentatively scheduled for Oct. 20.

An unusual poison pill proposal by Harvard Law Professor Lucian Bebchuk is set to come to a vote on Sept. 18 at CA, a large management software company. The measure seeks a binding bylaw amendment that would require all poison pills that have not been endorsed by shareholders to be approved by a unanimous vote of the board of directors, and that these poison pills may not have a life of longer than one year, and must be renewed every year by another unanimous vote of the board.

Bebchuk’s proposal may ultimately help to establish a legal precedent clarifying issues surrounding “binding bylaw” proposals regarding poison pills. The validity of such proposals is largely unsettled in Delaware law. The outcome of Bebchuk’s proposal, and a similar proposal which got 71.2 percent approval by Hilton Hotels shareholders in May, may spur Delaware courts to address the issue.

At the 14 companies where poison pill proposals by investors have come to a vote this year, the average level of support exceeded 50 percent.