Delaware Legislative Update 12/09/2013Posted by Morse, Barnes-Brown Pendleton in Corporate, Public Companies.
Tags: corporate act, delaware, DGCL, general corporation law, IPO
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By: Joshua French
Many times prior to an institutional financing, acquisition or an IPO, a company will review its corporate records and notice that there may be a couple of loose ends to tie up with ratifying board resolutions. While this works for many corporate actions, certain actions are not permissible to be retroactively approved under Delaware law and are void. Among these actions include the issuance of stock that was not authorized under a company certificate of incorporation filed with the Delaware Secretary of State. This means that if shares of stock were issued to stockholders before there were enough shares authorized, that those shares are void and any action taken by those stockholders (for example, electing board members) would also be void. This, obviously, could be very problematic, particularly if the board is no longer controlled by the original stockholders.
Beginning in April 2014, the Delaware General Corporation Law (the DGCL) will allow these types of mistakes to be rectified and will allow for corporations to remedy any actions taken that would otherwise have been deemed void. In order to remedy a defective corporate act, the following steps will need to be taken:
- The board of directors must pass a resolution ratifying the defective corporate act and stating in detail the defect seeking to be cured.
- If the resolution would have needed to have been approved by the stockholders, the stockholders must also approve the resolution and the company must provide at least twenty days prior notice of the meeting at which the resolution is to be adopted. The notice must also state that any challenge to the ratification must be brought within 120 days of the date on which the resolution is adopted.
- If the action being remedied would have required a filing with the Secretary of State of Delaware, then a “Certificate of Validation” must be filed with the Secretary of State. The form of this certificate is currently being prepared by the Secretary of State’s office.
- If the resolution did not require stockholder approval, the corporation must provide notice of the adoption of the ratification resolution to the stockholders within 60 days of approval. The notice must also that any challenge to the ratification must be brought within 120 days of the date on which the resolution is adopted.
This procedure will not be effective until April 1, 2014, but it may be worthwhile for corporations to consider if there are any actions which may not have been approved properly when completed and contact your law firm to determine whether those actions need to be approved under this new section of the DGCL or if there are steps that can be taken now to ensure that proper corporate approvals had been obtained.
For more information on this topic, please feel free to contact Josh.
Tags: arbitration provisions, federal arbitration act, post closing disputes, Viacom
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By: Joseph Marrow
Many business acquisition agreements provide that post-closing disputes relating to earn-outs, working capital adjustments and other purchase price adjustments are to be submitted to an independent third party (i.e., an accounting firm) for resolution. A recent decision of the Delaware Supreme Court, Viacom Int’l, Inc. v. Winshall, No. 513, 2012, 2013 WL 367878786 (Del. July 16, 2013) (“Viacom”), reaffirms the enforceability and binding nature of the alternative dispute resolutions procedures chosen in these agreements. In Viacom, the parties to a merger agreement agreed to submit a dispute regarding an earn-out issue to arbitration subject to resolution by an independent accounting firm which decision would be final, binding and conclusive. The accounting firm made a determination adverse to Viacom and Viacom filed an action in state court seeking a declaration that the arbitration award was erroneous.
The Delaware Supreme Court upheld the arbitration award. The Court noted that the challenge to the arbitration award was governed by the Federal Arbitration Act. Absent a determination that the decision “was procured by fraud” or was subject to “manifest error”, the Court could not vacate the award. The Court rejected Viacom’s arguments of fraud or manifest error.
The Viacom decision lends support to the ability of parties to rely on the enforceability of alternative dispute resolution provisions in business acquisition agreements to resolve post-closing disputes as long as such disputes fall within the scope of the independent arbitrator’s scope of review.
For more information on this topic, please feel free to contact Joe.
Employee Classification and M&A 12/02/2013Posted by Morse, Barnes-Brown Pendleton in Corporate, New Resources, Public Companies.
Tags: boston globe, DOL, new england media group, red sox, worcester telegram
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By: Mark Tarallo
A Massachusetts Superior Court judge recently held up the sale of The Boston Globe (and related entities) to Red Sox owner John Henry, as a result of a restraining order filed against the Worcester Telegram & Gazette, part of the New England Media Group along with The Boston Globe. While the injunction was eventually dissolved and the sale completed, it did create some tense moments in the process. The suit was filed by a class of newspapers carriers, claiming that they were misclassified as independent contractors when they should have been treated as employees. While the actions that gave rise to the suit happened several years ago, employee classification issues are back in the spotlight. The United States Department of Labor budget for 2014 includes a line item of $10 million for grants to the states to investigate worker misclassification and recover additional taxes. States that are looking to generate additional tax revenue will be quick to take advantage of these grants.
While most M&A transactions include representations from the seller regarding employee classification issues, parties considering an M&A transaction must place a renewed emphasis on spotting and dealing with any issues prior to the closing. Liabilities for misclassified workers can travel with the target, leaving the buyer to pay taxes and penalties that it did not anticipate, and indemnity claims may not completely resolve the problem. Sellers that cannot properly document their classification of employees run the risk of seeing their purchase price reduced, or deals fall apart completely, if buyers cannot get comfortable with the classification of the seller’s workers. Both sellers and buyers must work to identify and fix these issues prior to closing, to avoid having an unwanted third party (the DOL or a corresponding state agency) in their transaction.
For more information on this topic, please feel free to contact Mark.
SEC Proposal – Pay Ratio Disclosure Rules 11/15/2013Posted by Morse, Barnes-Brown Pendleton in Public Companies.
Tags: ceo compensation, Pay Ratio rules, SEC
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By: Joseph Marrow
On September 18, 2013, the U.S. Securities and Exchange Commission (SEC) issued proposed rules that would require companies to disclose the ratio between the compensation of a reporting company’s compensation paid to its chief executive officer (CEO) to the median compensation paid to all its employees. As such, the proposed rule would require disclosure of the following information:
- the total annual compensation paid to the reporting company’s CEO;
- the median of the total annual compensation of all employees of the registrant, except for the registrant’s CEO; and
- the ratio of the median to the total annual compensation paid to the CEO.
Those who support the proposed rule argue that the pay ratio disclosure will provide valuable information to investors (and prospective investors) by providing additional information regarding reporting company compensation practices. Opponents question the usefulness of the information and the difficulty of applying the rules to companies, particularly those with global workforces and those with many classifications of workers. The rules were adopted pursuant to requirements of Section 953(b) of the Dodd-Frank Act. Comments to the rules are due no later than December 2, 2013. It is expected that the SEC will issue final rules in 2014.
Please note that all public companies are not required to make the pay ratio disclosure. The proposed rules specifically exempt emerging growth companies (which include issuers with less than $1 billion in gross revenue in its most recently completed fiscal year), smaller reporting companies (companies with less than $75 million in public float or less than $50 million in revenues, if they have no public float) and foreign private issuers. The proposed rules require that the information be disclosed in the registrant’s annual report on Form 10-K, registration statements filed under the Securities Act of 1933 and the Securities and Exchange Act of 1934 and proxy and information statements.
Please feel free to contact a member of our public company practice group with any questions regarding the proposed rules or their implications on your company.
Tags: diversity policies, public company, SEC
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Section 342 of the Dodd Frank Act directed the SEC, and certain other federal agencies, to establish an Office of Minority and Women Inclusion. This office is responsible for developing standards by which the diversity policies and practices of the entities regulated by the SEC may be assessed. In its proposal, the SEC states that an assessment of the diversity policies and practices of a public company may include a review of the following factors:
- organizational commitment to diversity and inclusion;
- workforce profile and employment practices;
- procurement and business practices – supplier diversity; and
- practices to promote transparency of organizational diversity and inclusion.
The proposal provides that the SEC will tailor its assessments to take into consideration the public company’s size and other characteristics – such as total assets, number of employees, governance structure, revenues, number of members and/or customers, contract volume, geographic location, and community characteristics. The SEC has also stated that the assessment of diversity policies and practices undertaken by the SEC will not be a formal examination, but rather will include a self-assessment by the public company, voluntary disclosure to the SEC and public disclosure via the company’s website.
The SEC has requested comments on the proposal which are due by December 24, 2013.
For more information on this topic, please feel free to contact Daniele.
Action Items for Smaller Reporting Companies: Nasdaq Changes Compensation Committee Requirements 01/31/2013Posted by Morse, Barnes-Brown Pendleton in Legal Developments, Public Companies.
Tags: compensation committee, corporate governance, nasdaq, SEC
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The SEC recently approved changes to Nasdaq’s corporate governance requirements regarding compensation committees. These changes apply to any company whose stock is listed on Nasdaq – with certain significant exceptions. Smaller reporting companies, or SRCs, are exempt from many, but not all, of the new requirements. Here is a brief summary of how the changes will affect SRCs.
All Nasdaq listed companies, including SRCs, are now required to have a compensation committee consisting of at least two members each of whom qualify as independent under Nasdaq’s current listing standards. The compensation committee must adopt a formal written charter which includes specific provisions noted here:
- the scope of the compensation committee’s responsibilities, and how it carries out those responsibilities, including structure, processes and membership requirements;
- the compensation committee’s responsibility for determining, or recommending to the board for determination, the compensation of the chief executive officer and all other Executive Officers of the Company; and
- that the chief executive officer may not be present during voting or deliberations on his or her compensation.
Alternatively, in the absence of a compensation committee charter, a SRC may have the Board adopt resolutions specifying the committee’s responsibilities and authority. The compensation committee is required to review and reassess its charter on an annual basis.
Action Item: SRCs that do not have a compensation committee should begin identifying potential compensation committee members.
Action Item: SRCs who do not have a compensation committee charter should begin drafting a charter. SRCs who already have a charter in place should review their charter to determine whether modifications are required.
SRCs have until the earlier of their first annual meeting after January 14, 2014, or October 31, 2014 to comply with the provisions set forth above, Each listed company must certify to Nasdaq that it has met the requirements described above no later than 30 days after such date.
For more information on this topic, please contact Daniele Levy.
Tags: Boston Business Journal, micro-cap, nasdaq
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The Boston Business Journal recently published an article written by MBBP attorneys Daniele Levy and Joe Marrow. The article, titled “A Solution for Smaller Companies”, discusses the BX Venture Market – a new trading platform recently proposed by NASDAQ. Daniele and Joe provide insights into the benefits the BX Venture Market may provide for smaller public companies.
To learn more on this subject, visit the BBJ for the full article.
Tags: cybersecurities, public companies, SEC
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By: Daniele Levy
The U.S. Securities and Exchange Commission (SEC) recently issued guidance to help public companies assess what, if any, disclosure should be provided regarding cybersecurity risks or incidents. While federal securities laws do not specifically require companies to disclose cybersecurity risks, the SEC’s guidance makes it clear that a number of existing disclosure requirements may impose obligations to disclose cybersecurity matters.
The SEC specifically stated that its guidance and the federal securities laws should not be interpreted to require disclosure that would compromise a company’s cybersecurity efforts.
As an action item, companies should consider whether cybersecurity risks and incidents may affect their risk factor disclosure, MD&A, description of the company’s business and operations, legal proceedings disclosure and financial statements.
Disclosure committees, in their periodic review of the effectiveness of disclosure controls and procedures, will want to consider cybersecurity matters as well.
For more information on this topic, please feel free to contact Daniele Levy.
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Smaller Reporting Companies (defined as a company with a public equity float of less than $75 million) have been granted a temporary exemption from Section 14A of the Securities Exchange Act of 1934 regarding shareholder approval of executive compensation by implementing Section 951 of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
As of January 21, 2011, Smaller Reporting Companies will not be required to conduct a Say-on-Pay Vote or a Frequency Vote until the first annual meeting of the shareholders occurring on or after January 21, 2013. However, this exemption does not apply to a Golden Parachute Vote, which must be included in a merger proxy statement.
Read the full article here: SEC Adopts Rules for Say-on-Pay Advisory Votes for Executive Compensation
Tags: nasdaq, nyse, public company
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NASDAQ has stated that it does not expect to extend the suspension of the minimum bid price requirement past July 31, 2009, the current expiration date. Click here for details. Without further action by NASDAQ, the minimum bid price requirement will be reinstated on Monday, August 3, 2009. Once this requirement is reinstated, NASDAQ-listed companies may face delisting proceedings if their closing bid price falls below $1.00 for thirty consecutive business days. The company will then have 180 calendar days to achieve compliance.
NASDAQ initially suspended the minimum bid price requirement in October, citing extraordinary market conditions, and it extended the suspension in each of December and March.
NASDAQ’s recent action is consistent with the actions of the NYSE. The NYSE’s suspension of the minimum trading price requirement will expire on July 31, 2009.
For more information on NASDAQ listing requirements, please contact Daniele Ouellette Levy.