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The Nasdaq Stock Market has proposed to broaden the exception (in Rules 5605(c)(2)(B), 5605(d)(3) and 5605(e)(3)) that allows one non-independent director to serve on a company’s audit, compensation or nomination committee under “exceptional and limited circumstances” for a maximum of two years if the board determines that it is in the best interests of the company and its shareholders. Under the existing rules, a company may not use the exception if the director is currently an officer or employee of the company or has a family member who is an officer or employee of the company.  The proposed rules would continue to prohibit the use of the exception for family members of executive employees but would not prohibit the use of the exception if the director is a family member of a non-executive employee. The proposal attempts to harmonize the exception with the director independence rules generally, which do not disqualify a director from being considered independent based on a familial relationship with a non-executive officer. As before, a listed company that relies on the exception must comply with the relevant disclosure requirements.  The SEC is soliciting comments on the proposal. Comments are due within 21 days from the date the proposal is published in the federal register (which is expected shortly). Read the proposed rule change.
7 years 1 month ago
We're at that stage during proxy season when observers analyze and come to preliminary views of the results so far, as we did ourselves in this memo. With more annual meetings having taken place, many focus on the voting tallies for shareholder proposals. The Conference Board's May Proxy Season Fact Sheet uses data for Russell 3000 companies as of the end of April and includes a detailed chart of each company's reported say-on-pay vote. The Manhattan Institute's Center for Legal Policy's Proxy Monitor's Mid-Term Report is based on its scorecard tracking every ballot proposal at Fortune 200 companies. Some of the notable details in these reports include:
7 years 1 month ago
On May 15, 2012, the Eleventh Circuit Court of Appeals issued its long-awaited decision in the In re: Tousa, Inc.  fraudulent transfer litigation.  The Court affirmed the Bankruptcy Court holding that the “Transeastern Lenders” received fraudulent transfers when Tousa, Inc., the parent company paid a settlement of $421 million dollars to the Transeastern Lenders which was funded by a loan from “the New Lenders” secured primarily by the assets of several Tousa subsidiaries, “Conveying Subsidiaries,” who were not themselves legally obligated to the Transeastern Lenders.The Tousa decision is a cautionary tale.  Companies that are dealing with troubled debtors who are receiving repayment of substantial debts will have to be wary and exercise due diligence and consider their potential exposures for fraudulent transfers after this decision.At trial, the Bankruptcy Court ruled the subsidiaries did not receive reasonable equivalent value in exchange for the liens to secure the loans from the New Lenders and the Transeastern Lenders were entities for whose benefit the Conveying Subsidiaries transferred the liens and liable for repayment of the funds under 11 U.S.C. §550(a)(i).

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7 years 1 month ago
In the run-up to the spectacular Lehman Brothers Holdings Inc. bankruptcy case and the immediate aftermath of the filing, JP Morgan Chase (“JPMC”) received over $8.6 billion dollars from the Lehman entities.  As a result of those transfers the Lehman entities and their Official Committee of Unsecured Creditors brought suit against JPMC to recover the transfers.On April 19, 2012, the Honorable James M. Peck entered his opinion granting in part and denying in part JPMC’s motion to dismiss.  The extensive and lengthy decision contains three broad groups of holdings.  First, the Court held that the transfers could not be avoided as either preferences or constructively fraudulent transfers because the safe harbor of 11 U.S.C.

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7 years 1 month ago
The United States Court of Appeals for the Second Circuit recently weighed in on the scope of the United States Supreme Court’s influential opinion in Stern v. Marshall, 564 U.S. 2 (2011).  The case before the Second Circuit, In re Quigley Co., 2012 U.S. App. LEXIS 7167 (2d Cir. Apr.

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7 years 1 month ago
Updated from previous post.On April 20, 2012, the Nortel Networks UK Pension Trust Limited (the “Trustee”), as Trustee of Nortel Networks UK Pension Plan, and the Board of the Pension Protection Fund (the “Board,” together with the Trustee, the “Petitioners”) petitioned the United States Supreme Court to review the Third Circuit’s ruling in In re Nortel Networks Inc., 669 F.3d 128 (3d Cir. 2011), that the “police power” exception to the automatic stay as set forth in Section 362(b)(4) of Bankruptcy Code did not apply to the situation at hand.  The Third Circuit’s opinion can be found here.The petitioners describe the question presented as “whether the police power exception . . .

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7 years 1 month ago
With proxy season in full swing, we wanted to provide an update on this year’s say-on-pay findings to date and compare them to results from last year at this time, almost to the day.  As of the end of last week (May 18, 2012), 639 large accelerated filers reported the voting results from their shareholder meetings. Note that these results do not account for any companies that adopted a triennial or biennial say-on-pay vote, nor do they include smaller companies. Percentage Approval Large Accelerated Filers by Say-on-pay Vote  (as of May 18, 2012) Large Accelerated Filers by Say-on-pay Vote (as of May 20, 2011) 90-100% 454 540 80-89% 85 126 70-79% 40 65 60-69% 22 40 50-59% 23 14 40-49% 8 9 30-39% 4 7 20-29% 3 1 0-19% 0 0 Total 639 802                            Approval for say-on-pay votes has remained high so far this season, as the average say-on-pay results for all large accelerated filers is 89%.  The findings to date reveal that less than 16% of large accelerated filers reported say-on-pay results below the 80% approval level (compared to less than 17% by this time last year), and less than 10% reported results below the 70% approval level (compared to less than 9% by this time last year).  Companies that garnered less than 70% approval last year received extra scrutiny from ISS this proxy season.
7 years 1 month ago
Affairs of the Checkbook: a Growing Problem… When the word “infidelity” comes to mind, most people think of an extramarital affair, of a husband, wife or significant other cheating by sneaking around with another lover.  In fact, America is so obsessed with the concept that there is an entire industry called daytime TV devoted to different versions of the issue. However, despite the fact that affairs of the heart receive most of the attention, affairs of the checkbook can be equally damaging and are rising in number. Financial infidelity can be defined as one member of a couple, who have consolidated their finances, lying about expenditures, credit card accounts, bank accounts and even earnings. According to Forbes, one in three Americans who have combined their finances admitted lying to their spouses about money, and another one-third of these adults said they’d been deceived. A Personal Story
7 years 1 month ago
This proxy season there has been a lot of focus on companies filing additional soliciting materials to supplement proxy disclosure, with a particular focus on executive compensation in light of the say-on-pay vote. Exxon Mobil has taken a particularly interesting approach turning a two-dimensional paper communication into something more dynamic by inviting interested persons to a company-sponsored webcast on executive compensation. The webcast represents an additional proactive step Exxon has taken. On the same day it filed its proxy statement, Exxon took the unusual step of also filing a colorful presentation filled with data, graphs and photos to explain how its pay-for-performance approach focuses on the long-term nature of its capital-intensive business. In supplemental information filed more recently, Exxon took issue with specific aspects of the ISS analysis, including the peer group selected, which Exxon asserted failed to adjust for its size and complexity, since the company's revenue is more than 4X larger by revenue and 3.5X larger by market capitalization than the median of the peer group. 
7 years 2 months ago
The NYSE announced today that the Proxy Fee Advisory Committee (PFAC), formed in September 2010 and comprised of representative investors, brokers and companies, has published its recommendations to change the proxy fees. Brokers and banks are required under SEC rules to distribute company proxy materials to beneficial owners of securities, or shareholders holding in "street name." In turn, companies must reimburse them for their expenses. The NYSE regulates the amount of fees, subject to SEC review and approval. The full Report by PFAC explains in summary form the complexities of the proxy distribution process, by reference to the SEC "proxy plumbing" concept release. Over 80% of public securities are estimated to be held in street name. Broadridge, the primary intermediary for proxy distribution, reported that in 2011 it handled distributions to 90 million beneficial owners with accounts at over 900 banks and brokers, covering over 628 billion shares, at a cost of about $200 million to companies in the aggregate.
7 years 2 months ago
The U.K.’s implementation of “say on pay” in 2002 is widely considered the harbinger of mandatory “say on pay” in the United States. So far, in both countries, the shareholder advisory vote on executive compensation has been non-binding on companies and their boards. Now, the U.K. appears to be moving toward a binding regime. Earlier this spring, the U.K. government’s Department of Business Innovation & Skills (BIS) published a consultation paper setting out a range of measures, including: An annual binding vote on future remuneration policy;An increase in the level of support required on votes on future remuneration policy (up to 75% of votes cast);An annual advisory vote on how the company’s pay policy was implemented in the previous year (same as the status quo); andA binding vote on “exit payments” of more than one year’s salary – with “exit payments” including not only cash severance payments, but also the vesting of equity compensation, continuation of benefits, etc.How This Differs from Current Practice
7 years 2 months ago
An increasing number of shareholders are filing solicitation materials advocating for a particular position on a voting matter at annual meetings, the flip-side to our recent discussion of companies filing additional soliciting materials to support management proposals. Some companies that are not accustomed to the practice may be surprised that the shareholder materials are filed under the company's EDGAR record, as a Notice of Exempt Solicitation. As permissible under Rule 14a-6(g)(1) and Rule 14a-2(b)(1), the solicitation is exempt from requiring the proponents to file accompanying proxy statements.
7 years 2 months ago
The emerging trend, according to a recent CNN Money article, is that the economy has tanked to the point people can't even afford to file for bankruptcy. Probably true, based on the experience of this law firm. When the crash hit in 2007, the biggest problem was the wave of toxic mortgages re-setting to interest rates, and consequently payments, that shot to absurd amounts. Home owners couldn't make the payments, so bankruptcy was one way to eliminate the debt and stop the foreclosure long enough to get out of the house and not have to abandon your toothbrush and Fido. This event, in turn, triggered the economic down-turn, the lay-offs and decline in income that bring us to where we are today. The 2005 "reform" of bankruptcy law has compounded the problem for debtors by requiring more paperwork and thereby increasing costs. Among the most ludicrous requirements is pre-filing debt counseling. Bankruptcy is the last thing debtors want to do. If debt management re-payment plans were a solution, they would be doing them.
7 years 2 months ago
The emerging trend, according to a recent CNN Money article, is that the economy has tanked to the point people can't even afford to file for bankruptcy. Probably true, based on the experience of this law firm. When the crash hit in 2007, the biggest problem was the wave of toxic mortgages re-setting to interest rates, and consequently payments, that shot to absurd amounts. Home owners couldn't make the payments, so bankruptcy was one way to eliminate the debt and stop the foreclosure long enough to get out of the house and not have to abandon your toothbrush and Fido. This event, in turn, triggered the economic down-turn, the lay-offs and decline in income that bring us to where we are today. The 2005 "reform" of bankruptcy law has compounded the problem for debtors by requiring more paperwork and thereby increasing costs. Among the most ludicrous requirements is pre-filing debt counseling. Bankruptcy is the last thing debtors want to do. If debt management re-payment plans were a solution, they would be doing them.
7 years 2 months ago
The European Court of Justice (“ECJ”) in Interedil Srl (in liquidation) vFallimento Interedil Srl, Intesa Gestione Crediti SpA has provided further guidance on determining a debtor company’s centre of main interests and on interpreting the term “establishment” under the Council Regulation (EC) No 1346/2000 of 29 May 2000 on insolvency proceedings (“Regulation”). The court reiterated that the company’s place of registration is not always the right jurisdiction in which to issue insolvency proceedings.  Article 3(1) of the Regulation states that the courts of the member state in which a debtor has its centre of main interests (“COMI”) shall have jurisdiction to open insolvency proceedings. In the absence of proof to the contrary, the place of a debtor’s registered office is presumed to be its COMI. Under Article 3(2), the courts of a different member state shall only have jurisdiction if the debtor possesses an “establishment” in that other member state.

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7 years 2 months ago
If you serve as an officer or director you probably assume that if things go badly you will be protected by directors and officers insurance.  But if things go very badly and bankruptcy ensues, you may not have the protection you thought you had.On April 10, 2012, Bankruptcy Judge Martin Glenn in MF Global Holdings Ltd., No. 11-15059, 2012 WL 1191892 (Bankr.

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7 years 2 months ago
In 2011, companies included in their proxy ballots a choice for shareholders to advise on whether they preferred to cast advisory votes on executive compensation every 1, 2 or 3 years, the so-called "say-when-on-pay" or frequency vote. Item 5.07(d) of Form 8-K required issuers that did not otherwise announce their decisions earlier to file a second, amended Form 8-K. That deadline was months later, either 150 calendar days after the meeting or 60 days before the shareholder proposal deadline, whichever came first. The SEC Staff realized this year in reported news accounts that possibly hundreds of companies did not file the amended Form 8-K.  Failure to file this Form 8-K can lead to the loss of Form S-3 eligibility, but the SEC Staff appears willing to consider granting a waiver to those companies that have implemented the frequency that the majority of shareholders supported, which was the case for all but a handful of companies. To obtain a waiver (which the Staff prefers to characterize as a "non-objection"), a company with an existing shelf registration or one that is about to file a shelf registration must file the amended Form 8-K and make a request by writing a letter and uploading it to the new SEC site.  A company will work directly with Office of the Chief Counsel on the exact content of the letter, but in general the information may include: Whether the company has an existing Form S-3 registration statement or is planning to file one
7 years 2 months ago
“The court recognizes the difficulties presented by § 1129(b)(2)(A) for real estate developers trying to reorganize, but Congress has decided that debtors must bear the risk of reorganization by contributing additional capital and/or pledging additional collateral to their undersecured creditors before debtors may enjoy the benefits of a confirmed plan.”                                                       In re Saguaro Ranch Development Corporation,                                                      2011 WL 2182416 (Bankr. D. Ariz.

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7 years 2 months ago
Normally bankruptcy does not expand pre-petition contracts or impose different risks on contracting parties, but it appears that when the courts are firmly convinced of the public good of creating an asbestos trust, insurance contracts at least can be re-written.11 U.S.C §524(g) was added to the Bankruptcy Code after the historic Johns Manville asbestos bankruptcy case to codify the use of a trust and channeling injunction to allow asbestos defendants to channel all their asbestos liabilities into a trust, fund the trust with assets and stock, provide for present and future claimants of these long latency diseases, and take their productive assets and continue their businesses without being responsible for those liabilities beyond the trust assets. As the practice has evolved in many cases, the trusts are controlled by plaintiffs’ lawyers and payment decisions are not based on state law liability factors such as injury, damage or causation, but rather based on Trust Distribution Protocols which can provide compensation to persons who would not recover in the tort system.In Federal Mogul Global Inc., et al., (No. 09-2230, Third Cir.

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7 years 2 months ago
In year two of say-on-pay, we find that companies continue to file additional materials to solicit for favorable votes. These additional materials are generally in the form of a brief letter to shareholders highlighting aspects of executive compensation.  Most are in the form of descriptive narratives, although a few companies use graphs and charts and even PowerPoints. While a few are filed early on following the proxy statement, the majority appear to be in response to negative recommendations on say-on-pay from proxy advisory firms.  Proxy disclosure this season has been thorough and detailed, which would suggest that additional materials are not technically necessary. However, even with lengthy disclosure on executive compensation, companies have many reasons to want to file additional materials. They may wish to highlight key aspects of compensation without worrying about including all the different aspects necessary for compliance with SEC rules, or the proxy advisory firms' reports have narrowed the main issues that become important to discuss. Some materials provide companies with a set of talking points or script for conversations with shareholders, and others believe that investors benefit from having a clear set of reasons in summary form as ammunition to reject the proxy advisory firms' recommendations.
7 years 2 months ago