This July-August issue of the Deal Lawyers print newsletter was just posted – & also mailed – and includes articles on (try a “Half-Price for Rest of ‘16” no-risk trial):
– How to Deal With Stock Options Between Signing & Closing
– The Examples
– Preliminary Considerations
– Economics of Option Treatment in Various Transaction Settings
– Section 409A Considerations
– Plan & Award Agreement Considerations
– Compensation Committees: Strategic Role in a Successful M&A Process
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.
As noted in this Steve Quinlivan blog and this Ning Chiu blog, the SEC approved Nasdaq’s golden leash disclosure rule last week – just before it’s July 4th extended deadline. Here’s the 14-page order from the SEC. Both of those blogs were written before Nasdaq released Amendment No. 2 yesterday. Amendment No. 2 contains the actual rule language (starting on page 30). The new rule will be effective in approximately 30 days. I’m posting memos in our “Executive Compensation Practices” Practice Area.
Here’s an excerpt from Cydney Posner’s blog, which she tweaked after Amendment No. 2 was released:
Rule 5250(b)(3) will require each listed company to disclose, by the date the company files its definitive proxy statement for its next annual meeting, the parties to and material terms of all arrangements between any director or nominee and any person or entity other than the company relating to compensation or other payment in connection with that person’s candidacy or service as a director. A company must make the required disclosure at least annually until the earlier of the resignation of the director or one year following the termination of the agreement or arrangement.
The accompanying interpretive material indicates that the terms “compensation” and “other payment” as used in the rule are not limited to cash payments and are intended to be construed broadly. The disclosure requirement encompasses non-cash compensation and other forms of payment obligation, such as indemnification or health insurance premiums. Note that the rule does not separately require the initial disclosure of newly entered arrangements so long as disclosure is made under the rule for the next annual meeting. The information must be disclosed either on or through the company’s website (in which case it must be continuously accessible) or in its definitive proxy statement.
Nasdaq also explicitly states that, if a company provides disclosure in a definitive proxy or information statement, including to satisfy the SEC’s proxy disclosure requirements, sufficient to comply with the proposed rule, the company’s obligation to satisfy the rule is fulfilled regardless of the reason that the disclosure was made.
No disclosure will be required for arrangements that:
– relate only to reimbursement of expenses in connection with candidacy as a director;
– existed prior to the nominee’s candidacy (including as an employee of the other person or entity) and the nominee’s relationship with the third party has been publicly disclosed in a definitive proxy or annual report (such as in the director or nominee’s biography); or
– have been disclosed under Item 5(b) of the proxy rules (interests of certain persons in connection with a proxy contest) or Item 5.02(d)(2) of Form 8-K (description of arrangements in connection with election of a new director) in the current fiscal year. (However, this disclosure would not obviate the need for the company to comply with its annual disclosure obligations under the rule.)
Nasdaq cites as an example of an agreement or arrangement falling under the exception for arrangements that existed prior to the nominee’s candidacy is a director or a nominee employed by a private equity or venture capital firm or a related fund, “where employees are expected to and routinely serve on the boards of the fund’s portfolio companies and their remuneration is not materially affected by such service. If such a director or a nominee’s remuneration is materially increased in connection with such person’s candidacy or service as a director of the company, only the difference between the new and the previous level of compensation needs to be disclosed under the proposed rule.”
So long as a company has undertaken reasonable efforts to identify all arrangements — including asking each director or nominee in a manner designed to allow timely disclosure — if the company then discovers an agreement or arrangement that should have been disclosed but was not, then the company can remedy the inadvertent failure to disclose by prompt disclosure after discovery of the error by filing a Form 8-K, where required by SEC rules, or by issuing a press release; in that event, the company will not be considered deficient with respect to the rule. However, remedial disclosure, regardless of its timing, would not satisfy the annual disclosure requirements. In all other cases, the company must submit a plan showing that the company has adopted processes and procedures designed to identify and disclose relevant agreements or arrangements, subject to approval by Nasdaq.
Nasdaq is also amending Rule 5615 to provide that the required disclosure of third-party payments to directors will be among the provisions allowing a foreign private issuer, upon satisfying specified conditions, to follow home country practice.
As noted in this blog by Steve Quinlivan:
Tesla, in an offer to acquire SolarCity, appears to be the first to announce a major proposed acquisition by a blog post. Since an 8-K was also filed, it can’t be sole proof that social media is a recognized distribution channel for Regulation FD. But dissemination was nonetheless rapid, with the first news apparently appearing on Twitter at about 4.11 pm, the 8-K being filed at 4.13 pm, and the first Wall Street Journal e-mail alert being received at 4.58 pm (all times Central).
There had to be some advance coordination between the parties, because SolarCity filed an 8-K almost simultaneously. The exhibit includes an email from SolarCity’s CEO, in which he wisely advises employees not to comment on social media.
The Tesla 8-K also discloses that Tesla adopted an exclusive forum by-law the day before the acquisition was announced.
Last week, as noted in these memos, the Federal Trade Commission announced an increase in the maximum civil penalties it may impose for violations of the Hart-Scott-Rodino Act and various other rules and orders governed by the FTC. The maximum civil penalty for HSR violations has increased from a daily fine of $16,000 per day to $40,000. While these higher maximum civil fines will apply to any penalties assessed after August 1st, they will also apply to violations that predate the effective date…
Last week, the Delaware Court of Chancery held – In re Volcano Corp. Stockholder Litig. – held that the acceptance of a first-step tender offer by fully informed, disinterested, uncoerced stockholders representing a majority of a corporation’s outstanding shares in a two-step merger under Section 251(h) of the Delaware General Corporation Law had the same cleansing effect as a fully informed, uncoerced vote of a majority of the disinterested stockholders of a target in a merger. In other words, a third-party, cash-out merger accomplished through a fully informed tender offer will be governed by the business judgment standard of review, requiring dismissal of all litigation challenges to the transaction unless a plaintiff can establish corporate waste. Upon the receipt of the required tendered shares, the business judgment rule “irrebuttably” applied to the merger and the plaintiff could only challenge it on the basis that it constituted waste.
We’re posting memos in our “Fiduciary Duties” Practice Area. As one of the memos notes, the decision extends an important line of recent Delaware case law that substantially inoculates transactions other than controlling stockholder squeeze-out mergers from litigation challenge so long as they have been approved by a majority of the independent shares outstanding on the basis of proper disclosure.
Here’s the intro for this WSJ article about this court order approving a settlement issued yesterday (also see this Gary Lutin report with more info):
T. Rowe Price Group Inc. shareholders are getting some of their money back after a proxy voting blunder cost the mutual-fund company nearly $200 million. Dell Inc. will pay T. Rowe about $25 million to settle a long-running lawsuit over the technology giant’s buyout, according to people familiar with the matter.
That is a fraction of the almost $200 million T. Rowe would have received had it not accidentally voted in favor of the 2013 deal. A Delaware judge ruled last month that founder Michael Dell and his private-equity backers underpaid for the company and ordered them to repay dissenting investors — a windfall that T. Rowe was ineligible for. In exchange, T. Rowe has agreed not to appeal a series of unfavorable court rulings that disqualified it from a larger payday, the people said.
This Wilson Sonsini memo does a great job of analyzing the antitrust implications of Brexit…
As noted in this Cooley blog, Corp Fin issued 7 new CDIs last week on Rule 701 issues – primarily in the M&A context…
Here’s a summary of this memo from Ropes & Gray:
On June 16, 2016, Delaware Governor Jack Markell signed into law House Bill 371, which amends the Delaware General Corporation Law (DGCL) with respect to, among other things, appraisal proceedings and “intermediate-form” mergers.
Specifically, the bill amends Section 262 of the DGCL to limit de minimis appraisal claims and to provide surviving corporations with the right to pay stockholders exercising appraisal rights prior to the time the Delaware Court of Chancery makes a final value determination, thereby limiting the amount of interest that would accrue on an appraisal award.
The legislation also clarifies the requirements and procedures relating to “intermediate-form” mergers under Section 251(h) of the DGCL, particularly those involving rollover of target equity.
Here’s news from this Wachtell Lipton memo:
Yesterday, the entire board of directors of FBR & Co. was overwhelmingly re-elected in the face of a bitter proxy fight waged by Voce Capital Management, an activist hedge fund. Voce committed strategic and tactical errors, costing its investors significant amounts of money, and unwittingly providing valuable lessons on responding to dissident shareholders.
In 2015, Voce and its affiliates purchased approximately 5% of FBR’s outstanding common stock. Consistent with FBR’s commitment to regular dialogue with its shareholders, FBR attempted on several occasions to solicit input from Voce. Voce did not provide any meaningful suggestions for improvements and instead, after a brief series of initial conversations, elected not to engage with the company for a period of almost five months.
After the protracted silence, surprisingly Voce nominated three candidates for election to FBR’s board and commenced a vitriolic and highly-charged proxy campaign. Voce’s campaign was noteworthy for its repeated unsupported attacks which demonstrated a fundamental lack of knowledge of, and sensitivity to, the people-intensive nature of a financial institution. Voce had no concern for the highly skilled professionals whose talents are required to operate an investment banking and broker-dealer business. Despite the lack of merit to its arguments or a coherent business strategy, Voce received the support of ISS and Glass Lewis.
The management and board of FBR wisely elected not to sink to Voce’s level. Voce issued numerous highly inflammatory “fight letters”, planted critical news stories in trade and other publications and provided misleading information as to the state of the voting to shareholders. FBR responded by taking the high road, it did not issue attack letters or commence litigation, rather it professionally and analytically presented its plans to shareholders.
Voce further evidenced its lack of commitment to its position by the fact that none of the Voce nominees or principals of the fund attended the FBR shareholder meeting and Voce’s representatives chose to forego the time allotted to them to address the meeting. The very next day Voce sold its shares of FBR common stock at a significant loss. Voce had purchased its position in FBR at a volume weighted average price of $22.37 per share and sold its shares for $16.40 per share. In addition to the loss on the position, the Voce investors will bear Voce’s fees and expenses.
FBR was successful not only because of Voce’s numerous failings but also because the FBR management team had spent years engaging with its retail and institutional shareholders. As a result when shareholders were presented with a choice between an activist running a destructive campaign and management’s clear strategy, they overwhelmingly supported the current FBR board. This campaign illustrates that careful shareholder engagement over many years can counteract the results of a negative campaign and reflexive ISS and Glass Lewis recommendations of activists.