DOCSLIB.ORG

Memorandum (“Shark Repellants”)

Total Page：16

File Type：pdf, Size：1020Kb

Download full-text PDF Read full-text
Memorandum (“Shark Repellants”) IPO Database Sample: Antitakeover Defenses Memorandum (“Shark Repellants”) Memorandum Confidential Attorney-Client Privilege TO: Board of Directors FROM: Bingham McCutchen LLP RE: “Shark Repellents” -- Possible Defenses Against Certain Abuses Introduction This memorandum considers a variety of measures that, as part of preparation for a possible public offering, [Company] (the “Company”) might implement to enhance the ability of the Board of Directors of the Company (the “Board”) to resist possibly abusive takeover attempts, possibly forestalling a takeover at a time when the Board believes that it is not in the best interest of the stockholders, and in any event enhancing the ability of the Board to assure that stockholders receive a fair price for their shares in the event of a takeover. One of the obvious disadvantages of going public is that it enables a potentially unfriendly third party to accumulate a substantial equity position. We recognize that the Company is not likely to be confronted with a takeover threat in the period immediately following an initial public offering, because the majority or a controlling portion of the Company’s stock would still presumably be in “friendly hands.” It is nevertheless possible that at some point in the future a controlling stake in the Company could be acquired on the public market. Furthermore, because many of the measures described in this memorandum require stockholder approval, or, if only requiring Board approval, may subject the Board to close stockholder scrutiny, it would be much easier for the Company to consider and implement, if desirable, these defensive measures now while it is still private rather than after an initial public offering and in the context of reacting to some future event. Accordingly, in many cases, companies about to go public choose at that time to consider and adopt a program of defensive measures comprising some (though generally not all) of the measures described below prior to the IPO. On the other hand, the purpose of this memorandum is not to recommend the adoption of any specific defensive measures. Rather, it summarizes types of defensive measures that are employed by various public corporations. The defensive measures described below include certain antitakeover statutory provisions and certain charter and by-law provisions and other corporate actions (so-called “shark __________________________ © 2009 Bingham McCutchen LLP One Federal Street, Boston, MA 02110 Attorney Advertising This communication is being circulated to Bingham McCutchen LLP’s clients and friends. This document does not constitute legal advice and it is not intended to provide legal advice addressed to a particular situation. The information has not been updated since last use and may be required to be updated and customized for particular facts and circumstances. Prior results do not guarantee a similar outcome. A/73218225.1 Board of Directors Page 2 repellents”) which may make a hostile takeover more difficult. These measures are generally intended to give the Board more leverage in the event a takeover proposal is made so as to better enable the Board to protect the interests of the Company and its stockholders. The case law (at least in Delaware where the Company is incorporated) has generally developed in support of the use by management of all reasonable means to thwart an offer which the directors, in the proper exercise of their business judgment, believe is not in the best interest of stockholders. The Company’s IPO underwriters may have views as to the expected impact of certain defensive measures on the offering. Nonetheless, the decision whether to adopt any of the measures summarized below is ultimately one for the Company and the Board to make. We should note, however, the “corporate governance ratings,” assigned by a number of organizations such as Institutional Shareholder Services (ISS), which carry some weight with at least some institutional investors. Adoption of virtually any of these “shark-repellant” measures will lower the Company’s rating and could, in any case, cause some institutional shareholders to vote against management proposals, including even director nominations. Brief Background The measures described below fall into different categories -- some defenses would be conferred automatically upon the Company by law (unless the Company affirmatively “opted out” of the particular provision before the closing of its IPO); most would require amendments to the Company’s charter and by-laws approved by the present stockholders; while others (particularly adoption of a so-called “poison pill” rights plan or issuance of “blank check” preferred stock) could be implemented even after an IPO by the Board, without stockholder approval (although the taking of such an action by the Board once an unsolicited offer has emerged or appears imminent might be successfully challenged in the courts). At your request, we can provide you with actual examples of the documentation for any of these measures, as well as summaries from prospectuses of other companies. It would be customary (and we recommend) the adoption of a new Amended and Restated Certificate of Incorporation (a “New Amended and Restated Certificate of Incorporation”), which could be filed and/or take effect just prior to the closing of the IPO, to implement any changes the Company decides to make as well as clean up the record of any prior amendments. __________________________ © 2009 Bingham McCutchen LLP One Federal Street, Boston, MA 02110 Attorney Advertising This communication is being circulated to Bingham McCutchen LLP’s clients and friends. This document does not constitute legal advice and it is not intended to provide legal advice addressed to a particular situation. The information has not been updated since last use and may be required to be updated and customized for particular facts and circumstances. Prior results do not guarantee a similar outcome. A/73218225.1 Board of Directors Page 3 1. Classified Board of Directors. Description. The Board would be divided into three classes of approximately equal size with one class being elected each year. Directors can be removed by the stockholders only for “cause” and only the directors can change the size of the Board or fill resulting vacancies. This would require a stockholder-approved New Amended and Restated Certificate of Incorporation, and that amendment itself would be protected by a supermajority requirement against repeal or further amendment. Advantages. Board classification limits the ability of stockholders to effect an immediate change in control of the corporation. Such control would be important in the event of a proxy contest by an insurgent group, especially to maintain any other structural defenses (such as a rights plan) that the Company has in place. As an example, Lotus Development Corp. lacked a staggered board, which meant that the holders of a bare majority of the Lotus common shares could have removed the entire Lotus board without cause in about 60 days (because Lotus had not adopted provisions to limit Delaware’s “consent vote” alternative to stockholder meetings, see below). This structure contributed to Lotus’ quick capitulation to an unsolicited bid from IBM. Limitations. From an antitakeover point of view, the classified Board may provide less protection than it appears to. If an offeror can obtain the votes of a majority of the target company’s stock actually voting at a meeting, and is thus in a position to elect one-third of a classified Board at the next annual meeting, the offeror theoretically will not be in control because the carryover Directors will remain in two-thirds of the Board positions. However, it is not uncommon for the carryover Directors to resign their positions once it is clear that the battle for control of the majority of the voting stock has been lost. Resignations result both from concerns as to potential liability in continuing to serve on a Board divided against itself and the fact that there may be little of substance to be gained in continuing the fight. To the extent that this fact is perceived by potential offerors, the deterrent effect of the classified Board is weakened. In addition, the delay in achieving control caused by even a stubborn classified Board will not usually be fatal to a well-financed offeror, although in at least one well-known instance it did prove fatal to such an offeror. __________________________ © 2009 Bingham McCutchen LLP One Federal Street, Boston, MA 02110 Attorney Advertising This communication is being circulated to Bingham McCutchen LLP’s clients and friends. This document does not constitute legal advice and it is not intended to provide legal advice addressed to a particular situation. The information has not been updated since last use and may be required to be updated and customized for particular facts and circumstances. Prior results do not guarantee a similar outcome. A/73218225.1 Board of Directors Page 4 Nevertheless, classified Boards are often established by companies comparable to the Company preceding an IPO.1 2. Limitation on Nominations and Call of Stockholder Meetings; Unanimous Written Consents. Description. Only the Board of Directors, the Chairman of the Board, Chief Executive Officer, specified other officers and/or a very large percentage of stockholders are authorized to call a special meeting of stockholders. The foregoing provisions can be implemented through stockholder-approved amendments to the by- laws. Another
Load more

Recommended publications
  • Fact Sheet: Treasury Senior Preferred Stock Purchase Agreement
    U.S. TREASURY DEPARTMENT OFFICE OF PUBLIC AFFAIRS EMBARGOED UNTIL 11 a.m. (EDT), September 7, 2008 CONTACT Brookly McLaughlin, (202) 622-2920 FACT SHEET: TREASURY SENIOR PREFERRED STOCK PURCHASE AGREEMENT Fannie Mae and Freddie Mac debt and mortgage backed securities outstanding today amount to about $5 trillion, and are held by central banks and investors around the world. Investors have purchased securities of these government sponsored enterprises in part because the ambiguities in their Congressional charters created a perception of government backing. These ambiguities fostered enormous growth in GSE debt outstanding, and the breadth of these holdings pose a systemic risk to our financial system. Because the U.S. government created these ambiguities, we have a responsibility to both avert and ultimately address the systemic risk now posed by the scale and breadth of the holdings of GSE debt and mortgage backed securities. To address our responsibility to support GSE debt and mortgage backed securities holders, Treasury entered into a Senior Preferred Stock Purchase Agreement with each GSE which ensures that each enterprise maintains a positive net worth. This measure adds to market stability by providing additional security to GSE debt holders – senior and subordinated-- and adds to mortgage affordability by providing additional confidence to investors in GSE mortgage-backed securities. This commitment also eliminates any mandatory triggering of receivership. These agreements are the most effective means of averting systemic risk and contain terms and conditions to protect the taxpayer. They are more efficient than a one-time equity injection, in that Treasury will use them only as needed and on terms that the Treasury deems appropriate.
    [Show full text]
  • Preparing a Venture Capital Term Sheet
    Preparing a Venture Capital Term Sheet Prepared By: DB1/ 78451891.1 © Morgan, Lewis & Bockius LLP TABLE OF CONTENTS Page I. Purpose of the Term Sheet................................................................................................. 3 II. Ensuring that the Term Sheet is Non-Binding................................................................... 3 III. Terms that Impact Economics ........................................................................................... 4 A. Type of Securities .................................................................................................. 4 B. Warrants................................................................................................................. 5 C. Amount of Investment and Capitalization ............................................................. 5 D. Price Per Share....................................................................................................... 5 E. Dividends ............................................................................................................... 6 F. Rights Upon Liquidation........................................................................................ 7 G. Redemption or Repurchase Rights......................................................................... 8 H. Reimbursement of Investor Expenses.................................................................... 8 I. Vesting of Founder Shares..................................................................................... 8 J. Employee
    [Show full text]
  • [List of Stocks Registered on National Securities Exchanges]
    F e d e r a l R e s e r v e Ba n k O F D A LLA S Dallas, Texas, July 29, 1953 To All Banking Institutions in the Eleventh Federal Reserve District: On June 9, 1953 we sent you a copy of Amendment No. 12 to Regulation U which is to become effective August 1, 1953. A principal provision of the amendment is that a bank loan for the purpose of purchas­ ing or carrying a “redeemable security” issued by an “ open-end company” as defined in the Investment Company Act of 1940, whose assets customarily include stocks registered on a national securities exchange, shall be deemed under the regulation to be a loan for the purpose of purchasing or carrying a stock so registered. The amendment also provides that in determining whether or not a security is a “ redeemable security,” a bank may rely upon any reasonably current record of such securities that is published or specified in a publication of the Board of Governors. This, of course, adopts the same procedure as that specified in the regulation for determining whether or not a security is a “ stock registered on a national securities exchange,” and in the past the Board has published a “ List of Stocks Registered on National Securities Exchanges.” This list has now been revised and expanded to include also a list of “redeem­ able securities” of the type covered under the regulation by Amendment No. 12 thereto. A copy of this list dated June, 1953 and listing such stocks and securities as of March 31, 1953 is enclosed.
    [Show full text]
  • U.S. Preferred Stock
    FIXED INCOME 101 CONTRIBUTOR Jason Giordano U.S. Preferred Stock Director Fixed Income Indices Preferred stock is a hybrid security that reflects characteristics of both [email protected] stocks and bonds. Typically, the dividends paid by preferred shares generate higher yields than common stock and investment-grade corporate bonds (see Exhibit 1). Therefore, preferred shares could serve 1 as a potential source of significant current income. In addition, their relatively low correlations with traditional asset classes, such as common stocks and bonds, may provide potential portfolio-diversification and risk- reduction benefits. In Exhibit 1, the highlighted period from June 2014 to June 2016 reflects the turmoil in the high-yield markets and interest rate hike during that time. Note the interest rate sensitivity (similar to debt) and volatility (similar to equity) of the S&P U.S. Preferred Stock Index (TR). Exhibit 1: Relative Performance Versus Corporate Bonds (2014-2016) Typically, the dividends paid by preferred shares generate higher yields than common stock and investment-grade corporate bonds. Source: S&P Dow Jones Indices LLC. Data from June 2014 to June 2016. Past performance is no guarantee of future results. Chart is provided for illustrative purposes and reflects hypothetical historical performance. Please see the Performance Disclosure at the end of this document for more information regarding the inherent limitations associated with back-tested performance. In low-interest-rate environments with narrow credit spreads, preferred stocks behave similarly to bonds. In periods of high volatility, they behave more like stocks. When used as a complement to traditional fixed income asset classes, preferred securities may provide an opportunity for enhanced total return, while potentially reducing overall volatility.
    [Show full text]
  • Cooperative Preferred Stock: Basic Concepts
    Cooperative Preferred Stock: Basic Concepts Preferred stock offerings are sometimes used by cooperatives to meet their capitalization needs. In contrast to other types of cooperative stock, preferred stock: • may be sold to member and non-members, which expands the potential number of equity investors; • offers dividends and other preferential terms to its shareholders. Preferred stock, however, may not be appropriate for every situation in which a cooperative is raising equity. Some basic information about cooperative stock and securities is essential when considering the possibility of offering preferred stock.1 STOCK BASICS One tool that a business can use to raise money for start-up or growth is to sell shares of stock in their businesses. The shareholder, by purchasing the stock, has made an equity investment that is “at risk,” with no guarantee of a return. In return for the equity investment, stock gives shareholders certain ownership rights that are laid out in the terms associated with the stock. The terms define voting and redemption rights and requirements, and any claims on earnings. The stockholder’s ownership control is exercised through the level of voting rights associated with the share of stock. A shareholder’s number of votes increases with the number of shares owned. The terms are set by the business that issues the stock. The “class” of a stock – class A, class B, etc. – is a label assigned by the business to stock shares that are issued with the same purpose and general set of terms. The class name by itself has no stand-alone legal meaning. Stocks are securities, which are legally defined as a monetary investment made in an enterprise with the expectation of a profit from the efforts of others.
    [Show full text]
  • Enhancing Liquidity in Emerging Market Exchanges
    ENHANCING LIQUIDITY IN EMERGING MARKET EXCHANGES ENHANCING LIQUIDITY IN EMERGING MARKET EXCHANGES OLIVER WYMAN | WORLD FEDERATION OF EXCHANGES 1 CONTENTS 1 2 THE IMPORTANCE OF EXECUTIVE SUMMARY GROWING LIQUIDITY page 2 page 5 3 PROMOTING THE DEVELOPMENT OF A DIVERSE INVESTOR BASE page 10 AUTHORS Daniela Peterhoff, Partner Siobhan Cleary Head of Market Infrastructure Practice Head of Research & Public Policy [email protected] [email protected] Paul Calvey, Partner Stefano Alderighi Market Infrastructure Practice Senior Economist-Researcher [email protected] [email protected] Quinton Goddard, Principal Market Infrastructure Practice [email protected] 4 5 INCREASING THE INVESTING IN THE POOL OF SECURITIES CREATION OF AN AND ASSOCIATED ENABLING MARKET FINANCIAL PRODUCTS ENVIRONMENT page 18 page 28 6 SUMMARY page 36 1 EXECUTIVE SUMMARY Trading venue liquidity is the fundamental enabler of the rapid and fair exchange of securities and derivatives contracts between capital market participants. Liquidity enables investors and issuers to meet their requirements in capital markets, be it an investment, financing, or hedging, as well as reducing investment costs and the cost of capital. Through this, liquidity has a lasting and positive impact on economies. While liquidity across many products remains high in developed markets, many emerging markets suffer from significantly low levels of trading venue liquidity, effectively placing a constraint on economic and market development. We believe that exchanges, regulators, and capital market participants can take action to grow liquidity, improve the efficiency of trading, and better service issuers and investors in their markets. The indirect benefits to emerging market economies could be significant.
    [Show full text]
  • Accessing the U.S. Capital Markets
    ACCESSING THE U.S. CAPITAL MARKETS SECURITIES PRODUCTS An Introduction to United States Securities Laws This and other volumes of Accessing the U.S. Capital Markets have been prepared by Sidley Austin LLP for informational purposes only, and neither this volume nor any other volume constitutes legal advice. The information contained in this and other volumes is not intended to create, and receipt of this or any other volume does not constitute, a lawyer-client relationship. Readers should not act upon information in this or any other volume without seeking advice from professional advisers. Sidley Austin LLP, a Delaware limited liability partnership which operates at the firm’s offices other than Chicago, London, Hong Kong, Singapore and Sydney, is affiliated with other partnerships, including Sidley Austin LLP, an Illinois limited liability partnership (Chicago); Sidley Austin LLP, a separate Delaware limited liability partnership (London); Sidley Austin LLP, a separate Delaware limited liability partnership (Singapore); Sidley Austin, a New York general partnership (Hong Kong); Sidley Austin, a Delaware general partnership of registered foreign lawyers restricted to practicing foreign law (Sydney); and Sidley Austin Nishikawa Foreign Law Joint Enterprise (Tokyo). The affiliated partnerships are referred to herein collectively as “Sidley Austin LLP,” “Sidley Austin” or “Sidley.” This volume is available electronically at www.accessingsidley.com. If you would like additional printed copies of this volume, please contact one of our lawyers or our Marketing Department at 212-839-5300, e-mail: [email protected]. For further information regarding Sidley Austin, you may access our web site at www.sidley.com Our web site contains address, phone and e-mail information for our offices and attorneys.
    [Show full text]
  • Primer on Preferred Stocks
    Investment Essentials | Perspective Primer on Preferred Stocks Preferreds Within the vast spectrum of financial instruments, preferred stocks (or “preferreds”) occupy a unique place. Because of their characteristics, they straddle the line between stocks and bonds. Technically, they are equity securities, but they share many characteristics with debt instruments. Some even refer to preferred stocks as hybrid securities. Bonds Stocks Why Preferreds? Bonds and Preferreds A company may choose to issue preferreds for a couple of reasons: Because so much of the commentary about preferred shares compares them to bonds and other debt instruments, let us first look at the u Flexibility of payments. Preferred dividends may be similarities between preferreds and bonds. suspended in case of corporate cash problems. u Potentially easier to market. The majority of preferred stock Similarities is bought and held by institutional investors, which may make Interest Rate Sensitivity. Preferreds are issued with a it easier to market at the initial public offering. fixed par value and pay dividends based on a percentage of Institutions tend to invest in preferred stock because IRS rules allow that par, usually at a fixed rate. Just like bonds, which also U.S. corporations that pay corporate income taxes to generally exclude make fixed payments, the market value of preferred shares 70% of the dividend income they receive from their taxable income. This is sensitive to changes in interest rates. If interest rates rise, is known as the dividend received deduction, and it is one of the main the value of the preferred shares falls. If rates decline, the reasons why investors in preferreds are primarily institutions.
    [Show full text]
  • Preferred Stocks: a Strong Case for Active Management
    Preferred Stocks: A Strong Case for Active Management A structurally flawed benchmark index has proven a fertile ground for active managers. AUTHORED BY: Key Points � Preferred stock ETFs are predominately passively managed funds. Index-based strategies hold about 85% of the more than Jay D. Hatfield Chief Investment Officer $31 billion of AUM in ETFs, and over $16 billion is concentrated Infrastructure Capital in the largest passively managed ETF, which has underperformed Advisors the Morningstar Preferred Stock Category average and placed in the bottom quartile of the category for the 1-, 3-, 5- and 10-year 1 Edward Ryan periods through 8/31/19. Chief Operating Officer Infrastructure Capital � Four of the 14 preferred stock ETFs are actively managed. Only Advisor one seeks to maximize yield-to-call, using modest leverage and an option strategy to enhance income which offers the potential for above-average current income. � In addition to offering attractive income potential, preferred stocks have provided diversification and lower correlation benefits. Deconstructing Passive The ICE Exchange-Listed Preferred & Hybrid Securities Index represents the broad universe of listed preferred stocks in the U.S. and is the index underlying the largest passively managed ETF. The index has structural inefficiencies that are exploitable and recurring, including the following: Virtus InfraCap U.S. Unmanaged call risk: Call provisions are standard with preferred Preferred Stock ETF issues, and mispricing of securities on a yield-to-call basis is Subadvised by common. A substantial portion of the listed preferred stock universe is priced with negative yield-to-call. The benchmark index is indifferent to call risk.
    [Show full text]
  • Preferred Stock-Law and Draftsmanship T Richard M
    1954J Preferred Stock-Law and Draftsmanship t Richard M. Buxbaum* pREFERRED STOCK is an anomalous security. It is a debt security when it claims certain absolute rights, especially its right to an accumulated return or to throw the enterprise into receivership for failing to meet its obligations. It is an equity security when it tries to control the enterprise through a practical voting procedure or to share in excess distributions of corporate profits.' Of course, a share of preferred stock is actually a com- posite of many rights. It is entitled to dividends at a set rate which prob- ably accumulate if they are not paid. It is next in line after creditors if the enterprise is liquidated and may share exclusively to a limited amount or participate in any distribution. It is probably subject to redemption and more likely than not has the supposed benefit of a sinking fund to regulate this redemption. A substantial percentage of contemporary issues are con- vertible into common stock. It may, but probably does not, have preemp- tive rights in new stock issues. It probably cannot vote in the election of the corporate management but may have some contingent voting rights for certain proposed actions and upon default in dividend payments. Some of these rights are "inherent;" others are granted by statute; still others are voluntary contractual provisions. The purpose of this paper is to examine these rights; to see the extent to which the share contract creates and pro- tects them and the extent to which the law details them when the share contract is defective.
    [Show full text]
  • Extraordinary Announcement of the Board of Directors
    GENESIS Energy Investment Public Limited Company E n e r g y I n v e s t m e n t E n e r g y I n v e s t m e n t EXTRAORDINARY ANNOUNCEMENT OF THE BOARD OF DIRECTORS According to the agreement between the parties involved, the announcement of Genesis Energy on the Budapest Stock Exchange about the amendment of the Share Purchase Agreement concluded with Cogenco International, Inc. was scheduled to be published just after the receipt of the confirmation of the signature by Cogenco and their subsequent publication of the 8K Form according to the rules of the SEC. Last night the filing of 8K Form to the SEC was made at 16:44 (ET), of November 30, 2009, which was in the night in Budapest. As a result the Board of Directors had no chance to formulate the appropriate announcement prior to the opening of the markets today. Therefore, we submitted a request to the Budapest Stock Exchange asking to suspend the trading of Genesis shares until the proper announcement will be formulated and published. On November 24, 2009 Genesis Energy Investments Plc. entered into a legal binding amendment with Cogenco International, Inc. to amend the earlier agreed Stock Purchase Agreement (SPA) that came into effect on August 11, 2009. The primary goal of the Amendment was the acceleration of the closing of the transaction, with the aim that the fund raising process could start in Cogenco, and this supported by having the subsidiaries already integrated into Cogenco. Cogenco will act on the US capital markets as a company which will be majority owned by Genesis Energy Investment Plc.
    [Show full text]
  • STATEMENT of POLICY REGARDING PREFERRED STOCK I. INTRODUCTION This Statement of Policy Applies to All Applications to Register B
    STATEMENT OF POLICY REGARDING PREFERRED STOCK Adopted April 27, 1997; Amended March 31, 2008 and September 11, 2016 I. INTRODUCTION This statement of policy applies to all applications to register by coordination or by qualification. II. DEFINITIONS This statement of policy uses the following terms defined in the NASAA Statement of Policy Regarding Corporate Securities Definitions: Adjusted Net Earnings Administrator Cash Analysis Disclosure Document Equity Securities Independent Director Promoter III. GROUNDS FOR DENIAL OF SECURITIES REGISTRATION RELATING TO PAYMENT ABILITY A. The Administrator may deny the offer or sale of preferred stock if either: 1. The issuer’s Adjusted Net Earnings for its last fiscal year or the issuer’s Adjusted Net Earnings for its last three fiscal years were insufficient to pay: a. Fixed charges; b. Preferred stock dividends, whether or not accrued; and c. Any redemption requirement of the preferred stock being offered to investors; or 2. The issuer’s Statement of Cash Flows fails to demonstrate either a positive “Net Cash Provided by Operating Activities” for the last fiscal year, or an average positive “Net Cash Provided by Operating Activities” for the last three fiscal years. Under a Cash Analysis, the issuer must have sufficient cash flow to indicate that it can pay any dividend on the preferred stock being offered whether or not declared or cumulated. B. This Section does not apply to public offerings of: 1. Convertible preferred stock that ranks ahead of any convertible debt relating to payment of dividends, interest, and liquidation proceeds; or 2. Preferred stock that is or may be legally or beneficially, directly or indirectly, owned by Promoters.
    [Show full text]