The SEC staff has released new guidance regarding the use of social media such as Twitter in securities offerings, business combinations and proxy contests (as a senior SEC official telegraphed at the Tulane Corporate Law Institute conference). Until now, SEC legending requirements have restricted an issuer’s ability to communicate electronically using Twitter or similar technologies with built-in character limitations before having an effective registration statement for offerees, or definitive proxy statement for stockholders (as the legends generally exceed the character limits). Companies using Twitter and similar media with character limits can now satisfy these legend requirements by using an active hyperlink to the full legend and ensuring that the hyperlink itself clearly conveys that it leads to important information. Although the SEC guidance does not provide example language, hyperlinks styled as “Important Information” or “SEC Legend” would seem to satisfy this standard. Social media platforms that do not have restrictive character limitations, such as Facebook and LinkedIn, must still include the full legend in the body of the message to offerees or stockholders.
Posts Tagged ‘Proxy disclosure’
On April 8, 2014, Vice Chancellor Laster of the Delaware Court of Chancery issued an opinion addressing the reasonableness of a “market check” as well as required proxy disclosures to stockholders in M&A transactions. In Chen v. Howard-Anderson,  the Vice Chancellor held that (i) evidence suggesting that a board of directors favored a potential acquirer by, among other things, failing to engage in a robust market check precluded summary judgment against a non-exculpated director, and (ii) evidence that the board failed to disclose all material facts in its proxy statement precluded summary judgment against all directors. The opinion addresses the appropriate scope of a market check, the necessary disclosure when submitting a transaction to stockholders for approval, the effect of exculpatory provisions in a company’s certificate of incorporation, and the potential conflicts faced by directors who are also fiduciaries of one of the company’s stockholders.
The private equity firm that was the controlling stockholder of Orchard Enterprises effected a squeeze-out merger of the minority public stockholders. Two years later, a Delaware appraisal proceeding determined that Orchard’s shares at the time of the merger were worth more than twice as much as was paid in the merger. Public shareholders then brought suit, claiming that the directors who had approved the merger and the controlling stockholder had breached their fiduciary duties and should be held liable for damages. The Orchard decision  issued by the Delaware Chancery Court this past Friday adjudicates the parties’ respective motions for summary judgment before trial.
The SEC’s Division of Corporation Finance recently released three Compliance and Disclosure Interpretations concerning the SEC’s so-called unbundling rule (Exchange Act Rule 14a-4(a)(3)), which requires proxies to identify clearly and impartially each “separate matter” intended to be acted upon.
Nearly a year ago, in Greenlight Capital, L.P. v. Apple, Inc., a federal court enjoined Apple from bundling four charter amendments into a single proposal. The Apple decision highlighted the lack of clarity in the unbundling rules and the risk that the SEC or an activist shareholder could challenge a company’s presentation of proposals. The new C&DIs provide bright-line guidance for amendments to equity incentive plans but leave other situations to be considered on a facts-and-circumstances basis and, implicitly, to be discussed with the SEC Staff in cases of uncertainty.
Two new concepts will need to be addressed going forward:
As we begin 2014, calendar-year companies are immersed in preparing for what promises to be another busy proxy season. We continue to see shareholder proposals on many of the same subjects addressed during last proxy season, as discussed in our post recapping shareholder proposal developments in 2013. To help public companies and their boards of directors prepare for the coming year’s annual meeting and plan ahead for other corporate governance developments in 2014, we discuss below several key topics to consider.
In light of increased transparency and governance expectations imposed by shareholder advisory groups and increasingly aggressive attempts by plaintiffs’ firms to enjoin shareholder votes on key compensation issues, U.S. public companies face a substantial burden to provide adequate disclosure in their annual proxy statements. This Director Notes examines the key disclosure issues and challenges facing companies during the 2013 proxy season and provides examples of company responses to these issues taken from proxy statements filed during the first half of 2013.
U.S. public companies face a substantial burden to provide adequate disclosure in their annual proxy statements. In addition to complying with a growing number of increasingly burdensome disclosure rules from Congress and the Securities and Exchange Commission (“SEC”), companies must take into account corporate governance guidelines from institutional shareholder advisory groups such as Institutional Shareholder Services (“ISS”) and Glass Lewis & Co. Moreover, a recent wave of proxy injunction lawsuits has added to this burden and created additional issues and challenges for companies. The plaintiffs’ bar has also been actively pursuing damage claims against public companies based on disclosure and corporate governance issues, including issues relating to Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”). All of these developments present many traps for the unwary. As a result, companies should review their executive compensation disclosure and their say-on-pay and equity plan proposals to determine whether additional disclosures, beyond those required by statutes and rules, are appropriate to attempt to reduce the risk of a potential lawsuit or investigation by a plaintiff’s law firm.
In In re Plains Exploration & Production Co. S’holder Litig., the Delaware Court of Chancery denied the plaintiffs’ request to enjoin a merger between Plains Exploration & Production Company and Freeport-McMoran Copper & Gold even though the Plains board of directors (1) did not shop Plains before agreeing to be acquired by Freeport for a combination of cash and stock, (2) did not obtain price protection on the stock component of the merger consideration and (3) allowed its CEO (who Freeport had decided to retain after closing) to lead negotiations with Freeport. The Court also held that the estimates of future free cash flows prepared by Plains’ financial advisor did not need to be disclosed in Plains’ proxy materials because management’s estimates of cash flows were already disclosed.
In early 2012, the CEOs of Freeport and Plains discussed an acquisition of Plains by Freeport. The Plains board did not shop the company to other potential buyers or form a special committee, instead allowing the CEO to lead negotiations with Freeport even after becoming aware of the fact that Freeport had determined to retain the Plains CEO after the merger. The Court noted that the Plains CEO was “motivated to obtain the best deal possible” given that a higher merger price would have resulted in a larger payout to him as a substantial stockholder (although ultimately he agreed to roll his stock into the post-merger company).
Throughout my tenure as an SEC Commissioner, I have spoken out repeatedly on the subject of diversity – and the benefits it can bring to our economy. I strongly believe in the importance of diversity and inclusion. I continue to be deeply concerned with the lack of significant progress in the recruitment, retention, and promotion of women and persons of color – whether in corporate boardrooms, Wall Street, or at my own agency, the SEC.
Today, although much of what I will say applies equally to other forms of diversity such as race and ethnicity, I will focus my remarks on the important issue of gender diversity in corporate America – particularly:
- The wealth of talent and positive impact of gender diversity;
- The dismal lack of progress in increasing gender diversity on corporate boards; and
- Improving disclosures about diversity, or the lack thereof.
We have previously discussed a wave of “say-on-pay” lawsuits focused on allegedly inadequate proxy disclosures (in a memo, article, and memo). At least six courts (four state and two federal) have denied requests for injunctive relief against say-on-pay votes. Now, a federal court that had already denied preliminary injunctive relief has dismissed the complaint with prejudice. Noble v. AAR Corp., No. 12 C 7973 (N.D. Ill. Apr. 3, 2013).
Applying Delaware and federal law, the Northern District of Illinois held that Delaware law did not require a company soliciting proxies in advisory say-on-pay vote to disclose information beyond that specified in Regulation S-K:
This post addresses an emerging litigation trend that entails a higher degree of litigation risk than in past years. Companies familiar with shareholder litigation in the context of mergers and acquisitions transactions know that virtually all material corporate transactions attract plaintiffs’ lawyers who, suing on behalf of shareholders, allege that proxy materials published ahead of a shareholder vote are, for one reason or another, false or misleading. These plaintiffs’ lawyers typically seek a quick settlement in which the issuer avoids a possible injunction delaying the shareholder vote on the proposed transaction by publishing “corrected” disclosure. In return, the plaintiffs’ lawyers demand a fee for the purported “benefit” to the shareholder class.
This proxy season, there has been an uptick in the number of cases in which plaintiffs’ lawyers assert similar claims in connection with “say-on-pay” proxy disclosures and approval of equity incentive plans. Although many of these cases have been dismissed, or motions for preliminary injunctive relief have been denied by the courts, some issuers are electing to settle such claims to avoid even a remote possibility of a delayed annual shareholder meeting and the burden and expense associated with litigation. Recent press reports highlight this growing trend.  We outline below the current trend and several suggested strategies for addressing this new proxy litigation.