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Equity Plan Scorecard Updates

Institutional Shareholder Services (ISS) implemented the Equity Plan Scorecard (“EPSC”) last year as a new means of evaluating and recommending votes in favor of or against equity plans submitted for shareholder approval.  ISS evaluates a proposed equity plan under a number of different factors and assigns a score for each component, weighting components differently in accordance with its methodology.  Plans that receive at least 53 points out of 100 possible will receive “for” recommendations.
Continue Reading ISS Gearing Up for the 2016 Proxy Season: Revisions to the Equity Plan Scorecard, Soliciting Updates to Peer Groups, and Delayed Guidance on Proxy Access

October featured significant M&A opinions from Delaware that are already having an impact on board processes and relationships between corporations and their financial advisors.  While the most recent opinion dismisses claims against the financial advisor for aiding and abetting breaches of duties by the target board, a careful reading of the case reveals that the decision is unlikely to change the practical impact of the holdings from earlier in the month.
Continue Reading What Do the Recent Delaware Opinions Mean for Corporate Board Processes and Relationships with Financial Advisors?

Re-affirming the significance of stockholder approval in corporate governance, the Delaware Supreme Court recently held that transactions approved by a fully informed, uncoerced stockholder vote will be reviewed under the business judgment rule when not subject to the entire fairness standard of review.  Corwin v. KKR Fin. Holdings LLC, No. 629, 2014 (Del. Oct. 2, 2015).  Last Friday, the Court unanimously affirmed Chancellor Bouchard’s dismissal of a post-closing damages action in In re KKR Fin. Holdings LLC S’holder Litig., 101 A.3d 980, 1003 (Del. Ch. 2014).  The opinion by Chief Justice Strine canvassed Delaware authority from as far back as 1928 to find extensive support for the proposition that “the approval of the disinterested stockholders in a fully informed, uncoerced vote that was required to consummate a transaction has the effect of invoking the business judgment rule.”  Op. at 7-8 n.19.
Continue Reading Corwin v. KKR: The Significance of Stockholder Approval

Addressing motions to dismiss in connection with the acquisition of Zale Corporation by Signet Jewelers, Vice Chancellor Parsons (in In Re Zale Corporation) dismissed claims against the Zales directors (under DGCL §102(b)(7)) and Signet, but denied dismissal of claims against Zales financial advisor.  Based on the allegations in the plaintiffs’ complaint, before being engaged, the financial advisor told the Board it had “limited prior relationships and no conflicts with Signet,” even though it had received approximately $2 million in fees in the year before the merger agreement.  More significantly for the Court, the complaint alleged that the financial advisor did not disclose – until after the merger agreement was signed – that it had made a presentation to Signet advocating a purchase of Zales shortly before Signet approached Zales, and that a senior member of the team that presented to Signet later became a member of the team that advised Zales.
Continue Reading Further Chancery Court Guidance on Financial Advisor Aiding and Abetting Claims

The UK Companies Act provides that a company can amend its constitutional documents by special resolution (being a shareholders’ resolution passed by 75%+ of votes cast by those shareholders voting on the resolution).  In private M&A transactions where the target has multiple shareholders and a drag right does not apply, a bidder wishing to acquire the entire issued share capital of the target may, given an amendment to the constitutional documents does not require unanimity, consider conditioning its proposal on the insertion of a drag right into the target’s constitutional documents.  Some practitioners have historically taken the view that amendments of this sort are unlikely to be enforceable.
Continue Reading Court of Appeal of England and Wales considers important questions for UK M&A transactions

In Pontiac Gen. Employees Retirement Syst. v. Ballantine (Healthways) [1], the plaintiffs  alleged that Healthways’ directors had breached their fiduciary duties by entering into a credit agreement with a “dead-hand proxy put” – that is, a provision that provides for an event of default under the credit agreement if the majority of directors on the board are replaced without the consent of the directors in office on the date of the credit agreement (or the consent of successors approved by such directors), without any room for existing directors to approve new directors if they were nominated in connection with a proxy contest. The complaint also alleged that, as lender, SunTrust should be liable for aiding and abetting such a breach of fiduciary duty.  
Continue Reading Recent Developments on “Proxy Puts”

The Delaware Supreme Court issued a welcome decision, In re Cornerstone Therapeutics Inc. Stockholder Litigation (Del. May 14, 2015), to remove an anomaly that had been inhibiting lower courts from dismissing monetary claims against independent directors based on their roles in the approval of related party transactions.  Nevertheless, even as the Delaware Supreme Court adopts principles to distinguish the state’s courts as director-friendly venues, independent directors will continue to bear burdens of discovery in Delaware and consequent risks of actions that seek monetary damages and survive motions to dismiss. In addition, the considerations for the insider counterparties (e.g., the controlling stockholders) participating in related party transactions, as outlined in our prior memoranda, remain unchanged. 
Continue Reading Liability of Independent Directors and Insiders in Conflict Transactions: A Practical Perspective on Recent Delaware Case Law

On April 16, 2015, at 2:30 p.m. EST, Cleary Gottlieb partner Arthur H. Kohn will participate in The Conference Board‘s Governance Watch panel discussion, “Do ‘Golden Leash’ Board Arrangements Create Impermissible Conflicts of Interest?”

For additional information or to register for this webcast, click here.