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The Bankruptcy Court for the District of New Jersey (Kaplan, J.) recently held that hotel revenues (including revenues generated from room occupancy, food and beverage sales, catering, gift shop purchases, spa, and related hotel services) do not constitute “rent” within the meaning of the Third Circuit decision of In re Jason Realty, L.P., 59 F.3d 423 (3d Cir. 1995).  Therefore, even if they are absolutely assigned to the secured lender, hotel revenues can be used by the debtor as cash collateral to pay its ordinary and necessary operating expenses and to reorganize.  In re Ocean Place Dev., LLC, No. 11-14295 (Bankr. D.N.J. Mar. 31, 2011).
6 years 3 months ago
When shareholders mark "abstain" on a ballot, what does it mean?  Does the meaning differ depending on whether it's to elect a director, vote on say-on-pay or a shareholder proposal?  The effect of abstentions in determining the pass/fail rate for an item depends on state law and corporate governance documents, but should they be excluded if we're trying to examine different companies' results for comparability?   You may be aware that it is ISS policy to ignore abstentions when reporting the results of shareholder proposals, citing Rule 14a-8(i)(12).  The approval rate of shareholder proposals determined by ISS feeds into their policy of recommending against boards for failure to implement proposals that receive majority support two out of three years in a row.  If abstentions were counted, it would decrease the level of support for these proposals.  Given the close votes received on written consent and special meeting proposals in recent years at some companies, whether or not abstentions are counted sometimes matter.   We're not aware that such a policy exists yet for say-on-pay.  In his RiskMetrics Insights blog, Ted Allen reports results that includes abstentions, as duly noted in the articles.  As a management proposal, abstentions have the opposite effect on say-on-pay than for shareholder proposals, by decreasing the level of support.  In both cases, the companies come out looking worse.  
6 years 3 months ago
There is a new mosaic, or one that was just not recognized, developing in the Economy, and somewhat specifically in the mortgage area. Banks, systematically getting bigger and bigger, and fewer and fewer, are dictating the rules.The Big 4 (or 4 1/2) BANKS have made it clear through their elected, and properly paid for members of Congress (politely referred to as "Lobbying"), that they do not want Elizabeth Warren to head the Consumer Financial Protection Board (CFPB) but in case she gets there (during a recess appointment), they want to emasculate (no offense Prof/Dr/Atty Warren) the agency first. The argument or rationalization: No agency should have the authority to enforce existing regulations that affect consumers or pass new regulations to fix really bad problems that hurt the economy as a whole. Even Hemp has more supporters than HAMP!The same interests have been keeping Congress itself where it is possible, from passing enacting legislation that would force mortgage modifications and punish those who knowingly created, hyped and sold securities that they themselves bet against (hedges). These "Security Instruments", known as Mortgage Backed Securities and more generally categorized as Collateralized Debt Obligations were the mainstay of Lehman Brothers' (remember them?) profits; oh, and don't forget about Goldman Sachs!
6 years 3 months ago
Here’s a Davis Polk memo on Vice Chancellor Laster’s recent decision finding that a series of spin-offs and split-offs will not be aggregated when determining whether Liberty Media has sold all or “substantially all” of its assets in violation of a covenant in its bond indenture.  In reaching this conclusion, the court adopted a test for determining when transactions should be aggregated.  The newly adopted test— which provides, among other things, that multiple transactions will generally be combined if carried out as part of a “master plan” — should come as no surprise.  The helpful fact was that the transactions occurred over a seven-year period with significant gaps in between.  The ambiguity arose because all the transactions shared a common purpose of implementing a strategic redirection of the business.  I think it was critical to the court’s conclusion that the strategic redirection was not accompanied by a specific plan of execution.   Contact Phillip Mills.  
6 years 3 months ago
We released today a memo summarizing the say-on-pay results so far this proxy season, including eleven companies who have failed to get majority support and a number of others where the vote was close enough to suggest meaningful shareholder concerns.  My anecdotal experience so far this season suggests a couple of supplemental points: With every public company required for the first time this year to comply with say-on-pay, ISS is clearly swamped, and it's showing in terms of quality control: we've seen an unusual level of cases in which ISS made factual mistakes in its report, and even a couple of situations in which ISS missed issues that in other years would likely have concerned them. If you do face a negative ISS recommendation you will wish you had planned for it, because the recommendations generally come with only about two weeks to go before the meeting, which will not allow much time to plan and execute a communications campaign.  You can't predict in advance how ISS will react, but in the vast majority of cases you can determine whether you are at risk of a negative recommendation.  If you're at risk you should have a communications plan on the shelf and ready to execute, unless you're feeling lucky. Contact Bill Kelly.  
6 years 3 months ago
In In re Montgomery Ward, LLC, 634 F.3d 732 (3d. Cir. 2011), the Court of Appeals for the Third Circuit clarified the principles of res judicata in the context of a bankruptcy proceeding and further defined the scope of 11 U.S.C. § 1111(b). The decision is significant because it is the first appellate decision to determine what constitutes privity for res judicata purposes in the context of a bankruptcy proceeding and also because it held that section 1111(b) transforms non-recourse claims into recourse claims only for distribution purposes. Facts and Procedural History Montgomery Ward, LLC (“Montgomery Ward”) contracted with Jolward Associates Limited Partnership (“Jolward”) to construct a department store, on land Montgomery Ward owned in Illinois that was the planned site to develop a mall. The parties entered into a ground lease and Montgomery Ward transferred a leasehold interest in the land upon which the department store was to be constructed to Jolward.
6 years 3 months ago
In In re Montgomery Ward, LLC, 634 F.3d 732 (3d. Cir. 2011), the Court of Appeals for the Third Circuit clarified the principles of res judicata in the context of a bankruptcy proceeding and further defined the scope of 11 U.S.C. § 1111(b). The decision is significant because it is the first appellate decision to determine what constitutes privity for res judicata purposes in the context of a bankruptcy proceeding and also because it held that section 1111(b) transforms non-recourse claims into recourse claims only for distribution purposes. Facts and Procedural History Montgomery Ward, LLC (“Montgomery Ward”) contracted with Jolward Associates Limited Partnership (“Jolward”) to construct a department store, on land Montgomery Ward owned in Illinois that was the planned site to develop a mall. The parties entered into a ground lease and Montgomery Ward transferred a leasehold interest in the land upon which the department store was to be constructed to Jolward.
6 years 3 months ago
The SEC has just extended the deadline for comments in response to its proposed rules directing the national securities exchanges to adopt listing standards regarding the independence of compensation committees and advisers, as required by Dodd-Frank. The original deadline was today, and we had submitted our comments yesterday in anticipation, but commenters now have until May 19, 2011. Our comments generally applaud the SEC for giving the exchanges the flexibility to develop applicable independence considerations. We’ve also made suggestions for technical changes and clarifications, such as that the independence rules for compensation committee members should not apply to committees that are responsible for broad-based plans (e.g., 401(k) plans), that the independence rules for consultants and advisers should not apply to in-house or outside counsel retained by management and that IPOing companies should be permitted a transition period, as they currently have under existing listing standards. The SEC will consider the comments that it receives and will then propose its final rules. Ultimately, it will be up to the exchanges to determine how to implement those rules, subject to SEC approval. Exchanges must have their final listing standards within one year after the SEC publishes its final rules in the Federal Register. Contact Kyoko Takahashi Lin. 
6 years 3 months ago
Today is the deadline for comments in response to the SEC's proposed rules directing the national securities exchanges to adopt listing standards relating to the independence of compensation committees and compensation consultants, as required by Dodd-Frank.. We've submitted our comments, which generally applaud the SEC for giving the exchanges the flexibility to develop applicable independence considerations. We've also made suggestions for technical changes and clarifications, such as that the independence rules for compensation committee members should not apply to committees that are responsible for broad-based plans (e.g., 401(k) plans), that the independence rules for consultants and advisers should not apply to in-house or outside counsel retained by management and that IPOing companies should be permitted a transition period, as they do under existing listing standards. The SEC will consider the comments that it receives and will then propose its final rules. Ultimately, it will be up to the exchanges to determine how to implement those rules, subject to SEC approval. Exchanges must have their final listing standards within one year after the SEC publishes its final rules in the Federal Register. Contact Kyoko Takahashi Lin. View Kyoko's bio.
6 years 3 months ago
Perhaps the onset of warmer weather has made us aware of the approach of July 21st, an auspicious date representing the one-year anniversary of the Dodd-Frank Act and also the statutory deadline for hundreds of provisions in the Act. The SEC doesn’t seem concerned, as it has announced a delay until August for final rulemaking on conflict minerals, resource extraction and mining disclosure, although those rules were required to be issued this month. The deadline to issue whistleblower rules also passed recently with Chairman Schapiro indicating that it’s coming soon. Now Congressman Barney Frank, the Act’s co-author, has publicly stated that the deadlines are not set in stone. According to this article, Mr. Frank remarked, “there is no penalty for not meeting the deadline. There’s no gun at their heads. Nobody gets fired.” Contact Ning Chiu.
6 years 3 months ago
There continue to be multiple areas of legislative activity to repeal or amend certain provisions of Dodd-Frank, including draft legislation to require employees to communicate internally before making whistleblower claims to the SEC. In March House Republicans announced a bill to eliminate the provision to disclose the ratio between the CEO’s compensation and the median annual total of all employees. Recently the AFL-CIO denounced this attempt to “water-down” Dodd-Frank, expressing their belief that this disclosure would have a “profound impact.” on executive compensation. According to their data, the average total compensation for S&P 500 CEOs is now about 343 times that of the average American worker, up from 42 times in 1980. Contact Ning Chiu.
6 years 3 months ago
We’re up to nine failed say-on-pay votes so far for the year. We’ll provide a client communication shortly on the latest state of play in the say-on-pay world, including the reasons reported for the negative votes, and interesting additional soliciting materials filed by companies facing negative ISS recommendations. But we still have a long way to go before we can get the full picture. While the last week in April saw 300 annual meetings held, there will be over 400 alone in the first two weeks of May and 650 in the third week of that month. Contact Ning Chiu.
6 years 3 months ago
Notwithstanding the proliferation of advance notice bylaws, floor resolutions at annual meetings are fairly unusual. In January, Walden Asset Management and 44 other investors contacted over 30 companies with representation on the Chamber of Commerce board regarding the Chamber’s position on climate change, health care legislation, financial reform and its political spending, noting its intent to introduce resolutions at annual meetings asking boards to initiate a review of the companies’ participation with the Chamber. It appears that Walden embarked on this strategy after determining that the resolution risked being excluded under SEC Rule 14a-8 for being too direct and specific in focus. After discussions with several companies, in early April Walden announced its plans to introduce resolutions at six companies. Contact Ning Chiu.
6 years 3 months ago
Perhaps as another fallout of the financial crisis, Moody's shareholders approved an independent chair proposal with 56% support, a substantial increase from the two prior years which saw votes at more typical levels for this proposal - 33% and 30%. It's been reported that the proponents, Hermes and Laborers International, actively campaigned and cited the financial crisis as a key reason to support the proposal. More than 15 independent chair proposals will be voted on this season. Contact Ning Chiu.
6 years 3 months ago
Last year a Texas judge allowed Apache Corp. to exclude a shareholder proposal from John Chevedden on the basis that his broker statement did not come directly from a “record holder” in DTC, but rather an introducing broker. Consistent with its own precedent, the SEC rejected that line of reasoning in several Rule 14a-8 no-action rulings, including a no-action request from Texas company Kinetic Concepts in March.  A month later the same Texas judge permitted KBR to omit a shareholder proposal following the Apache holding. Immediately thereafter, Kinetic Concepts informed the SEC that they intend to omit Chevedden's proposal by relying on the judge's ruling, noting that the SEC staff has stated previously that the SEC will defer to the courts regarding exclusion of shareholder proposals. Apache had similarly notified the SEC this season, without submitting a no-action request. With three Texas companies omitting Chevedden proposals, activists are urging the SEC to take action to stop the “Texas Secession” and have provided form letters that can be sent to Commissioner Schapiro at the SEC. Contact Ning Chiu. 
6 years 3 months ago
We’ve all engaged in the “what-if” scenarios of close votes on the say-on-pay frequency vote, faced by Green Mountain Coffee Roasters.  The company recommended triennial say-on-pay frequency and received 49.37% for annual and 49.99% triennial.  Talk about close.  Instead of keeping us in suspense as they are legally permitted to do, the company has announced that they will adopt annual frequency and hold another vote next year.  Would more a .01% support that pushed triennial into majority support made a difference to the board?  Contact Ning Chiu.
6 years 5 months ago
Last week House Republicans announced that they are drafting five bills to eliminate or change parts of the Dodd-Frank Act.  One of the five is the elimination of the provision to disclose the ratio between the CEO’s compensation and the median annual total of all employees.  Could this possibly come to fruition?  Unlikely given the hurdles of getting any kind action out of Congress lately, but it’s a space to watch.  The latest SEC timeline aims for proposing and adopting final rules on the pay ratio disclosure in the August-December timeframe.   Contact Ning Chiu. 
6 years 5 months ago
Notable recent support for triennial say-on-pay include Viacom, with insiders controlling about 80%, and Franklin Resources, which barely squeaks in 57% support for triennial even though insiders own approximately 35%.  The tide is starting to turn as more companies recognize that triennial is a long shot without some kind of insider block.  Our data shows 416 large accelerated filers and 188 S&P 500 companies had filed their proxy statements, with 59% of large accelerated filers and 64% of the S&P 500 now recommending for annual say-on-pay. Contact Ning Chiu.
6 years 5 months ago
We were quoted in a recent Compliance Week story (subscription required) on the evolution of the ordinary business exclusion in getting the SEC staff to agree on companies’ no-action requests for Rule 14a-8 shareholder proposal.  The exclusion becomes more elusive over time, but requests that continue to be granted include proposals that the Staff agrees relate to the sale of a company’s products and services, terms of code of conducts and policies, managing marketing and other expenditures and income tax risks.  There are sometimes tough lines to draw, for example, proposals implicating board oversight of risk is not excludable, but if the proposal reaches into how management reviews risk, then it’s excludable. Contact Ning Chiu.
6 years 5 months ago
We did so well with our sound bites in our last interview that we were again quoted by Compliance Week (subscription required) on another Rule 14a-8 story, this time on substantial implementation.  It’s easy to show the SEC that you’ve substantially implemented a request to, for example, declassify your board.  But if the proposal asks for any kind of report with a specified list of “asks”, then it’s much harder if not nearly impossible to show that your report on the same subject already complies. Contact Ning Chiu.
6 years 5 months ago