Advocacy Blog

D & O Notebook: Do Your Directors Have Third-Party Compensation Plans?

by Priya Cherian Huskins, Esq. December 13, 2016 If you’re an all-star independent director with a proven track record of success, one day you may get a knock at the door from an activist hedge fund that wants you to represent its interests on a board. To get you on that board, the activist may offer you lucrative compensation—over and above what you would earn from the company as a director—in exchange for agreeing to be the activist’s designated board candidate. The activist may even offer you additional compensation if the company reaches certain goals after you join the board. These amounts can be substantial. Historically, there hasn’t been a clear set of rules about disclosing these third-party financial arrangements. This is odd given that corporations always disclose what they are paying their directors. One stock exchange, however, is rectifying this gap in the disclosure rules. As of August 2016, all Nasdaq-listed companies will have to disclose third-party director compensation agreements pursuant to Nasdaq Rule 5250(b)(3). Also called “golden leashes,” third-party compensation arrangements are typically made between activist investors and the directors they nominate to boards of public companies. Such arrangements seem to be on the rise. Read...

CMO shift to gaining business lift

Today’s CMOs see themselves as growth drivers, with a clear mandate from senior management to add value and impact revenue. But are they actually delivering? Deloitte and The CMO Council surveyed 200+ CMOs worldwide to find out. The results are a wake-up call for CMOs. Our findings show that marketing leaders agree with senior management’s growth expectations. But they also indicate that CMOs spend most of their time on brand and campaign-related activities. They’re not focused on activities that could have a greater impact on revenue generation: Just 7 percent are spending time looking for strategic partnerships, alliances, and acquisitions that drive growth Only 8 percent are focused on continually improving the customer experience And just 15 percent spend time teaming with leadership executives on global business and strategy As today’s CMOs gain influence in the C-suite, they have an opportunity to help shape business strategy and growth initiatives. CMOs who can enlist support from colleagues, reallocate their time, and utilize new marketing technologies may be able to impact the company’s bottom line.  Learn...

D & O Notebook: Reps & Warranties Insurance: Synthetic Indemnity

D&O Notebook by Emily Maier December 6, 2016 We’ve been working through a series on M&A issues. Such a series would be incomplete without an entry on international M&A and the use of reps and warranties insurance. My colleague Emily Maier is at the forefront of these types of transactions. In the post below, she describes one the very creative M&A insurance solutions—Synthetic Indemnity Cover–that the market can provide for US/UK M&A transactions.—Priya Huskins Despite Brexit, the purchase of UK entities by American companies is still going strong. As in all M&A transactions, both parties typically make representation and warranties to each other, which form the basis of certain liability and sets the conditions for closing. However, a common problem in these transactions is that business is “done differently” over there. The gap in expectations as to what representations and warranties are appropriate between a UK seller and a US buyer can feel like a chasm. New developments in Reps and warranties insurance, a specialized M&A insurance product, can bridge that gap. UK versus US: Similar words, different language. So what is the difference in expectations when it comes to representations and warranties between a UK seller and a US buyer? Three predictable areas of contention include: Consequential losses. In the UK consequential losses are often excluded in a standard English law stock purchase agreement (SPA). US buyers, by contrast, typically expect to be able to recover these indirect losses. Thus, the UK seller’s expectation is for (potentially significantly) less recovery by the buyer than the US buyer might have for a US deal. Remedy for a breach of warranty claim. In...

D & O Notebook: Preparing for Appraisal Rights Litigation

  D&O Notebook by Priya Cherian Huskins, Esq. November 29, 2016 In a recent post, I discussed how directors and officers can mitigate risk during an M&A transaction, and I shared a cautionary tale about the Dole Food Company. This week, I want to talk about appraisal rights, an increasingly common type of litigation in the current M&A environment. While it’s not something that can be avoided, per se, it’s prudent to plan for potential appraisal rights litigation as part of a company’s M&A strategy. To start, a little background: Typically in an M&A deal, directors create disclosure (the proxy statement) that is then sent to shareholders. The shareholders review this disclosure to determine whether or not to vote for a sale of their company. If enough shareholders say no, the deal fails. Often, however, a deal has enough votes to pass even though some shareholders vote against the merger or abstain from voting. In these cases, the transaction will proceed. In Delaware, stockholders who voted against a transaction that will still take place can either accept the compensation offered in the deal or demand an appraisal. When a shareholder demands an appraisal, the shareholder doesn’t have to allege that directors breached their fiduciary duties. Dissenting shareholders have a right to an appraisal. In an appraisal, a court evaluates the value of the stock that stockholders believed was priced too low. This happens even when the deal was transacted fairly (all parties were acting independently), presumably yielding a fair price. Read...

OC Tech Members, Sponsors and Supporters

OC Tech Members, Sponsors and Supporters: As was announced in September, OC Tech Alliance will merge with OCTANe effective December 31, 2016. This is an exciting evolution for our technology community, OC Tech members and sponsors. All of the great OC Tech Alliance events from which you have benefitted will be carried over and produced under the OCTANe brand. This includes the 2017 High-Tech Innovation Awards, the members only CEO Round Table, and the outstanding peer to peer education opportunities provided by the CFO, HR, Legal/General Counsel, Sales & Marketing, and Global Business Practices Round Tables. Operating as part of the newly announced OCTANe Growth Services, which will focus on established SMB and Enterprise technology companies, these round tables will produce both public forum events and during 2017 begin to offer more select, by invitation and members only private sessions. Should you decide to become an OCTANe member, you would have access as well to the exemplary access to capital programs, for which OCTANe is noted, as well as the best in class advisory resources being announced as OCTANe Growth Services. You can begin receiving the OCTANe newsletter to keep updated on upcoming events by signing up here. Thank you for prior support and participation with OC Tech Alliance. We hope to see you at an OCTANe soon. Our very best wishes to you and your families for a wonderful Thanksgiving and holiday season. Sincerely, Peter Craig, CEO Brenda Scialdone, Events Program Manager Orange County Technology Alliance...

D & O Notebook: Guide to D&O Insurance for your IPO (2017 Edition)

   by Priya Cherian Huskins, Esq. November 14, 2016   I’m interrupting the M&A series I’ve been posting so that we can move forward the release of our Guide to D&O Insurance for your IPO (2017 edition). I’ll be back to discussing M&A issues, including my promised post on appraisal rights, after Thanksgiving. –Priya The election is over, and the stock market has rallied. Time to plan for your IPO? In case the answer is yes, check out Woodruff-Sawyer’s 2017 version of our Guide to D&O Insurance for Your IPO. Ramping up your D&O insurance for an IPO is a complex process. There are important insurance milestones that coincide with your IPO milestones. In this guide, you’ll find out: How to develop a risk management strategy with your broker; What the launch and brokering phase should look like and things to watch for; When to implement the program and what happens next; and How to garner ongoing D&O insurance support that will take you beyond the IPO. We’re releasing this 2017 edition early to make it available for the attendees of the EY Strategic Growth Forum in Palm Desert this week. Woodruff-Sawyer & Co. is proud to be a sponsor of this event, and I’m delighted to be speaking at the event again this year. My session, held on Wednesday morning (11/16), is on managing D&O and transactional risk. EY’s Anna Bourne is my co-presenter. Read the full article....

D & O Notebook: Directors and Officers: The Right Way to M&A

D&O Notebook by Priya Cherian Huskins, Esq. November 8, 2016 Last week, I highlighted the good news that M&A litigation is on the decline. In fact, we’re seeing some of the lowest numbers since 2009. But M&A litigation is still a serious threat. In this post, I will discuss how directors and officers can mitigate their litigation risk when selling a company. D&O Duties When Selling a Company: Revlon Directors are always obligated to fulfill their fiduciary duties. As a reminder, the duties include: Duty of care Duty of loyalty Duty of making appropriate disclosures to shareholders When selling their company, directors must fulfill their Revlon duties. In a nutshell, what the Delaware courts expect when applying Revlon duties to M&A transactions is that Ds and Os will act independently, free of conflict of interest, and will create a process that is reasonably designed to maximize shareholder value. It’s also expected that Ds and Os will disclose all appropriate information to their shareholders before asking their shareholders to vote for the transaction. (As a reminder, Revlon duties are only implicated once a board decides to sell the company, which is to say the company is “in play.” Revlon duties are not implicated merely because someone makes an offer for a company.) If accused of breaching their fiduciary duties in the context of selling a company, directors are held to a heightened standard of review than the normally deferential “business judgment rule” standard of review that courts typically afford directors. Read the full...

D & O Notebook: M&A Litigation Inching Down to Historical Lows

  According to Cornerstone Research, the percentage of M&A deals that were subject to shareholder litigation dropped below 90 percent to 84 percent in 2015. This rate of litigation dropped down to 64 percent in the first half of 2016.   The Cornerstone report focuses on litigation surrounding M&A of public companies valued at more than $100 million. The data was sampled from 2015 and the first half of 2016. As regular readers of this blog know, there is typically more than one lawsuit filed as a result of any given M&A deal. In 2015, the average number of suits any one deal experienced saw a slight decline, from 4.6 to 4.1. This was the lowest number seen since 2008.   What’s driving this decline? We’re seeing the playing out of the strong position staked by the Delaware Court of Chancery in the Trulia decision in late 2015. If you remember, in that case the court stopped the plaintiffs’ bar from extorting fees out of defendants for disclosure-only settlements. Read the article....

D & O Notebook: Looking Ahead to 2017: D&O Considerations and Coverage

D&O Notebook by Priya Cherian Huskins, Esq. October 18, 2016 As we approach the coming year, one of Woodruff-Sawyer’s goals is to equip directors and officers with the data and information they need to make smart decisions about their D&O insurance renewal in 2017. In the latest edition of the annual “Looking Ahead” interactive guide, which you can view at the bottom of this post, you’ll gain instant access to: Trends and analysis of D&O insurance in the US and abroad; Insights on what’s happening with D&O insurance in specific industry sectors and for various company stages; A look at insurer consolidations in 2016, and how it impacted the market; How D&O coverage has changed in the past year for better risk management—and what’s missing; What impact current events like Brexit have had on the market; Retention and pricing trends, and D&O insurance renewal strategies; and The hot topics thoughtful directors and officers will address in 2017 to mitigate risk in the coming year. D&O Insurance Trends The soft pricing cycle for D&O insurance that began in 2015 has continued through 2016. Many D&O buyers—particularly in business sectors favored by insurance carriers—are enjoying decreasing premiums. Read...

D & O Notebook: Private Companies: All SEC Inquiries are Cause for Alert (and What You Should Know About Rule 701)

D&O Notebook by Priya Cherian Huskins, Esq. October 11, 2016 On July 5, 2016, the SEC sent a slew of letters to late-stage, high-value private companies, including unicorn companies. These letters made “informal inquiries” about the securities-granting practices of the company. To many, these requests may have felt benign—after all, the SEC just wanted to find out which employees got what kind of securities. But it wasn’t that long ago (March 2016) that SEC Chair Mary Jo White confirmed that private companies were not beyond the reach of securities regulations or the “official curiosity” of SEC investigators. It seems this latest wave of informal inquiries could be their curiosity, piqued. It’s useful to remember that most SEC investigations start informally and privately. From the SEC website: All SEC investigations are conducted privately. Facts are developed to the fullest extent possible through informal inquiry, interviewing witnesses, examining brokerage records, reviewing trading data, and other methods. The Letters and Rule 701 It’s notable that the SEC letters sent in July were very specific in asking for information about the company’s compliance with Rule 701. Rule 701 regarding the “exemption for offers and sales of securities pursuant to certain compensatory benefit plans and contracts relating to compensation” is an exemption that private companies use in order to grant securities to employees without first registering those securities with the SEC. Read the full article....
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