Posts Tagged ‘Lawrence Hamermesh’

Putting Stockholders First, Not the First-Filed Complaint

Posted by June Rhee, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Tuesday January 22, 2013 at 9:11 am
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Editor’s Note: The following post comes to us from Leo E. Strine, Jr., Senior Fellow for the Harvard Program on Corporate Governance and Austin Wakeman Scott Lecturer at Harvard Law School, Lawrence A. Hamermesh, Ruby R. Vale Professor of Corporate and Business Law at Widener University School of Law, and Matthew Jennejohn, an associate at Shearman & Sterling, LLP.

The prevalence of settlements in class and derivative litigation challenging mergers and acquisitions in which the only payment is to plaintiffs’ attorneys suggests potential systemic dysfunction arising from the increased frequency of parallel litigation in multiple state courts. After examining possible explanations for that dysfunction, and the historical development of doctrines limiting parallel state court litigation — the doctrine of forum non conveniens and the “first-filed” doctrine — this paper suggests that those doctrines should be revised to better address shareholder class and derivative litigation. Revisions to the doctrine of forum non conveniens should continue the historical trend, deemphasizing fortuitous and increasingly irrelevant geographic considerations, and should place greater emphasis on voluntary choice of law and the development of precedential guidance by the courts of the state responsible for supplying the chosen law. The “first-filed” rule should be replaced in shareholder representative litigation by meaningful consideration of affected parties’ interests and judicial efficiency.

Putting Stockholders First responds to the observation that in 2011, only 5% of settlements of shareholder litigation challenging mergers and acquisitions involved an additional payout to stockholders, 84% of such settlements were based on additional disclosure only, but all of such settlements involved payment of fees for plaintiffs’ attorneys. These figures reflect a significant change from 1999 to 2000, when 52% of suits filed on behalf of shareholders produced a financial benefit for the class, and only 10% of settlements were “disclosure-only.”

…continue reading: Putting Stockholders First, Not the First-Filed Complaint

Delaware Decision Defers to Retention of Directors Under a “Majority Vote Resignation Policy”

Posted by Lawrence A. Hamermesh, Ruby R. Vale Professor of Corporate and Business Law, Widener University School of Law, Wilmington, Delaware, on Friday October 30, 2009 at 9:04 am
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Editor’s Note: This post is based on an article by Professor Hamermesh in the Widener Institute of Delaware Corporate and Business Law. This post is part of the Delaware law series, which is cosponsored by the Forum and Corporation Service Company; links to other posts in the series are available here.

In a very interesting opinion on a matter of first impression, Vice Chancellor John Noble has indicated that the refusal of a board of directors to accept the resignation of a director who fails to obtain a majority vote under a “Pfizer-style” majority vote resignation policy is largely immune from judicial review.

The case – City of Westland Police & Fire Retirement System v. Axcelis Technologies, Inc., decided September 29, 2009 – involved something of a collateral issue: namely, whether to permit inspection of documents relating to the board’s decision to reject the proffered resignations of three directors.  In rejecting that demand, however, the court suggested that such a rejection would not ultimately be tested under standards of judicial review more demanding than the business judgment rule.  For reasons explained below, I question whether that degree of deference should prevail as a general rule, especially in the situation where the majority voting rule exists as a requirement in the bylaws, rather than only as a matter of board policy.

The three directors in question, while elected by the required plurality vote as specified in Axcelis’ bylaws, did not receive a majority of votes cast at Axcelis’ 2008 annual meeting.  (The opinion suggests that this shortfall resulted from an ISS recommendation based on the 7-member board’s refusal to support a proposal to dismantle the board’s classified structure).  As a result, and as mandated by a governance policy adopted by the board of directors (a so-called Pfizer type policy), those three individuals were required to submit their resignations.  Under the policy, however, the board of directors had the discretion to reject the resignations.  In announcing the board’s rejection of the three directors’ policy-mandated resignations, Axcelis referred to the experience of the directors, their membership on key committees, and the anticipated need to supervise negotiations with a potential bidder for the company.

Over six months after the annual meeting, and after a very disappointing outcome of the bidding negotiations, the stockholder plaintiff made a formal demand to inspect documents, mostly relating to the board’s dealings with and evaluation of a potential bidder’s acquisition proposals.  The demand also included the following two categories:

6. All minutes of agendas for meetings (including all draft minutes and exhibits to such minutes and agendas) of the Board at which the Board discussed, considered or was presented with information concerning or related to the Board’s decision not to accept the resignations of Directors Stephen R. Hardis, R. John Fletcher, and H. Brian Thompson.

7. All documents reviewed considered, or produced by the Board in connection with the Board’s decision not to accept the resignations of Directors Stephen R. Hardis, R. John Fletcher, and H. Brian Thompson.

The stated purpose for this inspection was apparently to investigate possible waste or mismanagement, a traditionally accepted basis for inspection under Section 220 of the Delaware General Corporation Law.  Under settled Delaware law, all the plaintiff had to proffer to become entitled to the inspection demanded was “some evidence to suggest a credible basis from which [this Court] can infer that mismanagement, waste, or wrongdoing may have occurred.” And as the Vice Chancellor acknowledged, this evidentiary requirement has accurately been described as “‘the lowest possible burden of proof’ in Delaware jurisprudence.”

…continue reading: Delaware Decision Defers to Retention of Directors Under a “Majority Vote Resignation Policy”

The Delaware General Corporation Law for the 21st Century

Posted by Lawrence A. Hamermesh, Ruby R. Vale Professor of Corporate and Business Law, Widener University School of Law, Wilmington, Delaware, on Tuesday April 29, 2008 at 4:19 pm
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Editor’s Note: This post is from Lawrence A. Hamermesh of the Widener University School of Law. This post is part of the Delaware law series, which is cosponsored by the Forum and Corporation Service Company; links to other posts in the series are available here.

You are cordially invited to a very special symposium that marks and celebrates the 40th anniversary of the landmark 1967 revision of the Delaware General Corporation Law:

The Delaware General Corporation Law for the 21st Century

The Symposium will be held on May 5th at Widener University School of Law in Wilmington, Delaware. The event has been approved for 6 CLE credits in Pennsylvania and 6.3 CLE credits in Delaware (no ethics). Materials will be provided for self-reporting CLE for other states. We hope you will join us either in person, or remotely via a Live Video Webcast. There is no charge for participants attending remotely who do not need DE or PA CLE. (There is a $100 fee for remote attendance where DE or PA CLE is provided, and for in-person attendance).

For further information and to register, please click here. Corporation Service Company is the principal sponsor of the event.

In the current issue of The Delaware Lawyer, a variety of practitioners and academics (including Lucian Bebchuk, Robert Thompson, Michael Dooley and Charles Elson) present brief appeals for reform of Delaware’s corporate statutes. Many of these individuals, joined by Professors Jennifer Hill, Brett McDonnell, Faith Kahn, Elizabeth Nowicki, and Ann Conaway), will present more extended remarks about their proposals for reform at the Symposium. Vice Chancellor Leo E. Strine, Jr. will present the keynote address. Panels will address these subjects: The Delaware General Corporation Law and Takeovers; Stockholder Litigation Under the
DGCL; Stockholders in Corporate Governance; and What We Can Learn From Other Statutory Schemes.

Delaware General Corporation Law

Posted by Lawrence A. Hamermesh, Ruby R. Vale Professor of Corporate and Business Law, Widener University School of Law, Wilmington, Delaware, on Wednesday April 2, 2008 at 6:45 pm
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Editor’s Note: This post is from Lawrence A. Hamermesh of Widener University School of Law. This post is part of the Delaware law series, which is cosponsored by the Forum and Corporation Service Company; links to other posts in the series are available here.

The materials generated in the drafting of the 1967 revision to the Delaware General Corporation Law (including the report by Professor Ernest Folk to the Corporation Law Revision Committee and the minutes of that committee’s deliberations) are now available online here.

These materials, not widely available before, provide extensive background about the substance and process of the major 1967 corporate law revision project. Janet Lindenmuth and the staff of the Widener Law School Legal Information Center arranged to gather, scan and post this material.

Does Delaware Compete?

Posted by Lawrence A. Hamermesh, Ruby R. Vale Professor of Corporate and Business Law, Widener University School of Law, Wilmington, Delaware, on Thursday October 11, 2007 at 6:10 pm
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Editor’s Note: This post is from Lawrence A. Hamermesh of Widener University School of Law. This post is part of the Delaware law series, which is cosponsored by the Forum and Corporation Service Company; links to other posts in the series are available here.

On Friday, September 28, on the occasion of the Annual Francis G. Pileggi Distinguished Lecture in Law, sponsored by Widener University Law School’s Delaware Journal of Corporate Law, Harvard Law Professor Mark Roe presented his paper Does Delaware Compete?. The audience included leading Delaware lawyers and judges–both sitting and retired–eager to hear about the state of interstate corporate chartering competition. Yet, describing what he calls a “revisionist perspective,” Professor Roe argued that such competition no longer meaningfully exists: Delaware has won, and no other state is bothering to compete.

…continue reading: Does Delaware Compete?

Topps and Bottoms: A Dubious Performance By Dissident Directors

Posted by Lawrence A. Hamermesh, Ruby R. Vale Professor of Corporate and Business Law, Widener University School of Law, Wilmington, Delaware, on Thursday June 28, 2007 at 5:23 pm
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Editor’s Note: This post is from Lawrence A. Hamermesh of the Widener University School of Law. This post is part of the Delaware law series, which is cosponsored by the Forum and Corporation Service Company; links to other posts in the series are available here.

Vice Chancellor Leo Strine last week produced another wonderfully detailed and thoughtful opinion, this time in In re The Topps Company Shareholders Litigation, the case challenging the proposed sale of Topps (think baseball cards) to a private equity firm run by Michael Eisner (think Disney).  There are already a number of descriptions and comments on the opinion (see, for example, here and here), and this case surely is significant even in its obvious ways.  While the Vice Chancellor grants a preliminary injunction halting the transaction in order to permit additional disclosure–a remarkably common remedy of late, as in Netsmart and Caremark, covered here and here–it takes the further and notable step of requiring the Topps board to free a competing bidder (Upper Deck, think baseball cards again) from a standstill agreement it had entered into with Topps during the go-shop period following execution of the Eisner merger agreement.

The Vice Chancellor is particularly critical of the board’s failure to pursue negotiations with Upper Deck once it became clear that Upper Deck could offer a transaction that would be significantly superior to the Eisner deal.  The court evidently concluded that this failure was likely driven–at least in part–by the fact that Eisner had given assurances that Topps’s incumbent managers (including the son of its founder) would continue in office after the merger, while the new bidder, Upper Deck, had made no such assurances.  On the other hand, Vice Chancellor Strine found that the original agreement with Eisner was a reasonable step for the board to take–a step that involved a 40-day go-shop period, a match right, a 3% termination fee for a superior bid accepted during the go-shop period, and a 4.6% termination fee for bids accepted after the go-shop period.  Most notably, the Eisner merger agreement permitted the board to pursue negotiations, even after the go-shop period, with a person the board concluded offered a reasonable probability of presenting a superior bid.

The lessons for M&A practitioners, however, aren’t what caught my attention here.  I was taken, rather, by the interesting and not altogether flattering light shed on the role of dissident directors.  In an environment in which proxy access tops the charts for corporate governance issues, a real-life example of how dissident directors actually performed in the heat of exploring a merger may say a great deal about the desirability of enhancing proxy access.  And the story in the Topps case, at least as told in the Vice Chancellor’s opinion, is not a strong testimonial in support of proxy access.  That story, and my analysis of its implications, follow below.

…continue reading: Topps and Bottoms: A Dubious Performance By Dissident Directors

Go-Shops With Matching Rights: Reimbursing Topping Bidders

Posted by Mark A. Morton, Potter Anderson & Corroon LLP (Delaware), and Lawrence Hamermesh, Widener University School of Law, on Monday May 21, 2007 at 11:55 pm
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Editor’s Note: We’re pleased to host the following dialogue between Mark Morton of Potter Anderson and Corroon and Larry Hamermesh of Widener Law School, precipitated by Mark’s ruminations about sellers’ insistence that a go-shop provision with a matching right in a merger agreement be accompanied by a right to reimburse the expenses of a topping bidder who is subsequently matched.  As always, we welcome reader comments on the discussion below.

Mark Morton: In the typical M&A deal, there’s generally a match right.  As a result, the target can’t actually terminate the merger agreement for the superior proposal until the first bidder decides whether or not to match.  If the first bidder matches, he wins (unless he’s topped again).  In that case, the target will not have signed a merger agreement with the interloper, so the interloper doesn’t get a termination fee.  As a result, the interloper gets nothing for his superior bid–other than a large chunk of unreimbursed expenses.  I would argue, therefore, that the presence of a match right creates a significant disincentive to topping bids.

…continue reading: Go-Shops With Matching Rights: Reimbursing Topping Bidders

Proposed Amendments to the Delaware General Corporation Law

Posted by Lawrence A. Hamermesh, Ruby R. Vale Professor of Corporate and Business Law, Widener University School of Law, Wilmington, Delaware, on Wednesday May 9, 2007 at 7:22 pm
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Editor’s Note: This post is by Lawrence A. Hamermesh of the Widener University School of Law. This post is part of the Delaware law series, which is cosponsored by the Forum and Corporation Service Company; links to other posts in the series are available here.

This year’s round of proposed amendments to the Delaware General Corporation Law, introduced on May 8, unquestionably falls a little short in the excitement department, at least compared to last year’s amendments (particularly those relating to director elections and retirement policies).

In the current crop, the most notable changes are to the appraisal statute.  Under these proposed amendments:

–Petitions for appraisal can be filed by beneficial owners, rather than only by stockholders of record (although demands for appraisal must still be made by record owners).  The Depository Trust Company will surely be relieved not to have to serve as a nominal petitioner in every public company appraisal suit.

–Reference to a “national market system security on an interdealer quotation system by the National Association of Securities Dealers, Inc.” has been deleted from the so-called “market out,” in light of last year’s reorganization of the NASDAQ stock markets.

–Most notably, there is to be a presumptive approach to awarding interest in appraisal proceedings.  Ordinarily, interest is to “be compounded quarterly and shall accrue at 5% over the Federal Reserve discount rate (including any surcharge) as established from time to time during the period between the effective date of the merger and the date of payment of the judgment.”  This has been Delaware’s default legal rate of interest for some time, and has frequently been the basis for awards of interest in recent appraisal cases.  By making it the presumptive approach to awards of interest in such cases, however, it is hoped that unproductive litigation efforts on the interest issue can be avoided.  Under the proposal, however, the Court of Chancery still retains discretion, for “good cause,” to choose a different approach in awarding interest.

…continue reading: Proposed Amendments to the Delaware General Corporation Law

Chancery Rules on Appraisal Rights for Shares Acquired After the Record Date for Merger Votes

Posted by Lawrence A. Hamermesh, Ruby R. Vale Professor of Corporate and Business Law, Widener University School of Law, Wilmington, Delaware, on Tuesday May 8, 2007 at 12:49 am
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Editor’s Note: This post is by Lawrence A. Hamermesh of the Widener University School of Law. This post is part of the Delaware law series, which is cosponsored by the Forum and Corporation Service Company; links to other posts in the series are available here.

Last Tuesday, Chancellor William Chandler handed down a short but long-anticipated decision in the Transkaryotic (TKT) appraisal litigation.  TKT shareholders approved the deal by the requisite majority of the outstanding shares.  Cede & Co., holder of record and a DTCC intermediary, voted 12.8 million shares in favor of the merger and voted against or abstained with about 16.8 million shares. 

The opinion addresses the appraisal rights, under 8 Del. C. § 262, of shareholders who purchased some 8 million shares held by Cede & Co. after the record date for voting on the merger.  TKT sought summary judgment on the appraisal petition, arguing that the stockholders seeking the appraisal had the burden of proving that their shares were not among those voted by Cede in favor of the merger.  That sort of burden would have been impossible to satisfy, since market purchases after the record date can’t be traced to specific shares, and there is therefore no way to “tie” specific shares owned by those seeking the appraisal to shares that were voted for (or against) the merger. 

In an important ruling, Chancellor Chandler concludes that the traditional statutory reliance on record stockholder status in appraisal cases works in favor of the appraisal seekers: as long as the stockholder of record formally demands an appraisal in a timely fashion (i.e., before a vote on the merger), the law is indifferent as to whether a predecessor beneficial owner sought to vote the shares in favor of the merger.

…continue reading: Chancery Rules on Appraisal Rights for Shares Acquired After the Record Date for Merger Votes

The North Dakota Experiment: Bundle Up!

Posted by Lawrence A. Hamermesh, Ruby R. Vale Professor of Corporate and Business Law, Widener University School of Law, Wilmington, Delaware, on Thursday April 26, 2007 at 4:44 pm
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Editor’s Note: This post is by Lawrence A. Hamermesh of the Widener University School of Law.

With the able assistance of Bill Clark (one of the finest business legislation drafters around), North Dakota has adopted legislation that permits public companies to opt into a legislative scheme that includes a whole bunch of rules that are reported to be “shareholder friendly.”  Mark Roe says (and I think he’s right) that we shouldn’t expect to see companies reincorporating in North Dakota; more likely, he says, is the possibility that IPO companies will use the new North Dakota option (although Mark wisely doesn’t put money down on this either).  Some say, in any event, that this puts a whole lot of pressure on us in Delaware to do something similarly “shareholder friendly.”

The logic of this escapes me.  I’m pretty confident that if anyone thought that this North Dakota package of rules was really a good thing for a public company, they could create the same package by incorporating in Delaware (or lots of other states, for that matter) under a Certificate of Incorporation that adopted all of the North Dakota provisions.  (Section 102(b)(1) of the Delaware General Corporation Law would permit any company incorporated there to do so.)  Or, if you thought that one or two of these provisions was a bad idea, you could simply leave them out.  Some people, for example, don’t think it’s a good idea to have a permanent statutory compulsion to separate the Chairman and Chief Executive Officer positions; others might want a threshold lower than 5% (the North Dakota rule) to qualify as a shareholder eligible to get access to management’s proxy statement.

As far as I can tell, however, it’s not clear that you can pick and choose pieces you like and throw out the ones you don’t like if you adopt a corporate charter that elects to be governed by the “shareholder friendly” North Dakota statutory package.  In terms of freedom of choice, this is pretty thin soup.  Can you imagine how a good shareholder activist would respond to a board-proposed charter amendment that provided for proxy access and mandated majority voting, but at the same time created a staggered board?  You’d hear howls of unfair bundling so fast it would make your head spin.  (Unless, of course, the SEC shot it down first under Rule 14a-4 for just that reason.)  Why should bundling accomplished by the North Dakota act be viewed as more benign?

…continue reading: The North Dakota Experiment: Bundle Up!

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