On April 29, 2015, pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the Securities and Exchange Commission (SEC) voted 3 to 2 to approve a proposed amendment to executive compensation rules in Item 402 of Regulation S-K. The proposed amendment directs the SEC to adopt rules requiring registrants to disclose in their proxy or information statements the relationship between executive compensation actually paid and the financial performance of the registrant.
Specifically, the SEC is proposing new Item 402(v) of Regulation S-K that would require “a registrant to provide a clear description of (1) the relationship between executive compensation actually paid to the registrant’s NEOs [(Named Executive Officers)] and the cumulative total shareholder return (TSR) of the registrant, and (2) the relationship between the registrant’s TSR and the TSR of a peer group chosen by the registrant, over each of the registrant’s five most recently completed fiscal years.” Such disclosure should be made taking into account any change in the value of the shares of stock and dividends of the registrant and any distributions.
The SEC is seeking comments to the proposed rules which can be made in the following manner:
- Send paper comments to:
Brent J. Fields, Secretary, Securities and Exchange Commission
100 F St. NE
Opinions in registration statements continue to be one of the most commonly litigated items under Section 11 of the Securities Act of 1933 (“Section 11”). On March 24, 2015, the U.S. Supreme Court in Omnicare, Inc. v. Laborers District Council Construction Industry Pension Fund clarified a lower court split in the application of Section 11 to opinions in registration statements. The court held, in pertinent part:
1. A statement of opinion does not constitute an “untrue statement of … fact” simply because the stated opinion ultimately proves incorrect. Rather, for an opinion to constitute an “untrue statement of … fact” under Section 11, the opinion expressed must not have been sincerely held by the registrant
2. Section 11 liability only attaches to an omission of material fact in a registration statement if both (i) the registration statement omits material facts about the issuer’s inquiry into, or knowledge concerning, a statement of opinion, and (ii) those facts conflict with what a reasonable investor, reading the statement fairly and in context, would take from the statement itself.…
A recent Sixth Circuit case, interpreting Ohio law, found that a merger agreement stating that the representations and warranties “shall survive…the Closing until… the second anniversary date of the Closing…,” without more, was not sufficient to modify the statute of limitations for breach of contract claims related to the merger agreement. Fortunately, this issue can be remedied in merger agreements with the addition of a provision expressly limiting when “actions,” “demands” or “claims” may be brought.
This article describes the Sixth Circuit case in greater detail and provides a sample contract provision that M&A parties can add to their M&A agreements to ensure that courts will respect the parties’ intent to modify the statute of limitations in the survival clause of the agreement.
Background of the Sixth Circuit case
Escue v. Sequent, Inc., 2014 FED App. 0412N (6th Cir. 2014), involved the acquisition of Better Business Solutions of Alabama, Inc. (“Better Business”) by Sequent, Inc. pursuant to a stock for stock merger that closed Jan. 1, 2007. On Dec. 18, 2008, the plaintiff, the sole shareholder of Better Business, sent a letter to the defendant corporation stating that he intended to sue the defendant corporation for breaching its representations and warranties. However, the lawsuit was not filed until September 2009.…