By: Jamie Wang
On December 18, 2018, the Securities and Exchange Commission (SEC) announced that it had approved and adopted final rules requiring public companies to disclose, in proxy or information statements for election of directors, any of their policies and practices regarding the ability of the company’s employees, officers and directors to engage in certain hedging transactions with respect to the company’s equity securities. The final rules implement provisions of Section 14(j) of the Securities Exchange Act of 1934, which was added pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act. The effective date of the new rules is 30 days after publication in the federal register. As noted in the release of the final rules, the new requirements are intended to provide shareholders with information, at the time that they are asked to elect directors, about whether employees, officers or directors may engage in transactions that could reduce the extent to which their equity holdings and equity compensation are aligned with shareholders’ interests.
(more…)
By: Marc Casarino
On January 15, 2019, the Delaware Court of Chancery ruled that Papa John’s International, Inc. must allow its director John Schnatter access to materials responsive to his demand pursuant to the books and records inspection statute, 8 Del. C. § 220, subject to certain restrictions on use of the materials.[1] Schnatter is Papa John’s founder, its largest stockholder and a director on its board. Until recently, he served as the company’s Chairman of the Board, CEO and spokesman. He resigned as Chairman and CEO following much publicized reports of his commentary on the NFL’s handling of player protests and his use of a racially charged term during a company training session. His spokesman role was terminated following recommendations by a special committee comprised of his fellow board members.
(more…)
By: Marc Casarino
On December 19, 2018, The Delaware Court of Chancery held in Sciabacucchi v. Salzberg [1] that Delaware corporations cannot use charter or bylaw provisions to mandate that claims under the Securities Act of 1933 (‘33 Act) must be pursued in federal court. Such federal forum selection provisions have become a frequent component of corporate constitutive documents. This largely has been in response to increasing pursuit of state court actions asserting ‘33 Act claims and particularly after the Supreme Court’s decision in Cyan, Inc. v. Beaver County Employees Retirement Fund [2] – which clarified that ‘33 Act claims may be pursued in either state or federal court.
(more…)
By: Howard Jiang
Since the Enron debacle, the Financial Accounting Standards Board (FASB) has paid a lot of attention to the types of entities that were used by Enron to avoid its financial reporting obligations. The FASB released Accounting Rule Bulletin No. 51 (ARB 51) and later FASB Interpretation No.46, as revised (FIN46(R)) to shed more light on Variable Interest Entities (VIE) in which an investor has control of a company that is not based on ownership of a majority of the voting interests and the factors that trigger financial consolidation obligations.
ARB 51 requires that an enterprise’s consolidated financial statements include all subsidiaries in which an enterprise has a controlling financial interest. That rule had historically been applied to circumstances in which an enterprise had control through holding a majority voting interest. However, the financial structuring engaged in by Enron and other entities of that era revealed a weakness in focusing solely on majority voting control as there are other situations in which a party could have a controlling financial interests but not control the majority of the voting interests or in which the equity investors do not bear the actual financial risk.
(more…)
By: Michael Mentzel
If you just bought a brand new car, would you drive it off the lot without insurance? Of course you wouldn’t, but many entrepreneurs in a hurry to get their business going set up corporations without considering the risks of proceeding without a shareholders agreement.
Like insurance, you are likely to give a shareholders agreement little thought when things are going well, but if the relationships among the shareholders become contentious, you will find that the time and effort put into crafting a shareholders agreement was worthwhile.
(more…)
By: George Morrison
The State of New York is seeking comments on draft guidance from employers on mandatory sexual harassment prevention policies and annual employee training. Effective October 9, 2018, New York employers will be required to adopt the state’s written model sexual harassment prevention policy or issue a substantially similar policy to employees. A copy of New York’s draft model policy can be found here. (more…)
By: Ryan Udell and Melissa Pang
The #MeToo movement jumpstarted, by the sexual misconduct allegations against film producer Harvey Weinstein, has led to a sea of change in how companies address and handle inappropriate behavior in the workplace. Indeed, over the last few years, we have seen the swift removal of very high profile filmmakers, television figures, politicians, chefs and financial and public relations executives from their positions. Seeing the potentially devastating effects of a #MeToo claim – from public relations crises, to expensive lawsuits and other lasting harm, businesses are taking action to minimize the future occurrence of such behavior. This includes additional training, implementing better policies and mechanisms for addressing complaints, and increasing insurance coverage for sexual harassment. Because one #MeToo claim could substantially impair value, buyers are also now worried about acquiring a company in which sexual harassment claims have occurred or may be lurking and are increasingly focusing on understanding any potential exposure through more robust due diligence in addressing any such exposure in the definitive purchase agreement through so called “Weinstein Reps” or “MeToo Reps.”
(more…)
By: John K. Baker and Victoria Fuller
Today, August 10, 2018, Massachusetts Governor Charlie Baker signed into law a comprehensive economic development act which amends the Massachusetts General Laws Chapter 149 to create a new Section 24L, which will impose substantial new restrictions on employers’ use of non-compete agreements.
(more…)
By: Carl Seldin Koerner
Any contract worth its salt will contain a substantial amount of “boilerplate”: those provisions at the back that seem to go on in endless succession, reviewed only by the lawyers tasked with proofreading, but rarely anyone else. The etymology of the phrase is actually quite interesting. Boilerplate is a type of rolled steel used primarily for the manufacture of water boilers. But the coinage of the term, used to refer to repetitive or unoriginal writing, arises from another use of that rolled steel, newspaper plates. There was a time when newspapers were printed from steel printing plates manufactured from set type. Just as they do today, small local newspapers without the budget for too many reporters of their own, would purchase content in bulk to fill their pages, often with advertising built in. In the pre-digital age the bulk content didn’t arrive as a zip file. Instead it arrived in steel plates ready for the press. Over time the prepackaged material was derogatorily called “boilerplate” to distinguish it from the original local content.
(more…)