Corporate Securities Law Blog

A recent Delaware Chancery Court decision raises questions about certain common merger practices. The opinion, In re TCI Shareholders Litigation, criticizes both:

• the use of a contingent fee arrangement by an investment bank that issued a fairness opinion to a special committee; and
• a special committee's use of investment bankers and legal counsel who had worked for the company.

Since December 1, 2005, issuers qualifying as well known seasoned issuers (WKSIs) have been able to file shelf registration statements with the SEC on Form S-3 or F-3 which become effective immediately upon filing. In addition, a primary offering by an issuer can now be made under such a shelf registration statement immediately following its effectiveness. This method of selling securities may well become the primary means by which large issuers raise both debt and equity capital.

In January 2006, the SEC staff rejected the argument of Hewlett-Packard Company that it could exclude from its proxy statement a stockholder proposal to adopt a majority vote standard in the election of directors. Hewlett-Packard had argued that it could exclude the proposal under the SEC proxy rules because its existing voting policy "substantially implemented" the proposal. At its annual meeting on March 15, 2006, 53.0% of the votes present voted against the proposal, 43.5% voted for the proposal and 3.5% abstained.

Senator Richard Alarcon (D: San Fernando Valley) has introduced a bill that would require a company incorporated in California to elect directors by a majority of the votes cast in an uncontested election. The bill codifies a majority vote standard similar to those already adopted by Intel Corporation, Dell Inc., PepsiCo, Inc., Texas Instruments and others.

Two standards are emerging in the push to replace the current plurality vote standard in the election of directors.

The SEC has approved Nasdaq's application to register as a national securities exchange. The SEC expects this transition to occur in April.

The U.S. Supreme Court has ruled that arbitrators, not courts, decide the validity of contracts that include arbitration clauses ("Buckeye Check Cashing Inc. v. Cardegna"). The ruling is a victory for those financial services providers that include clauses regarding disputes to be heard before industry-oriented arbitration panels, and will make it harder for consumers to attack those clauses by claiming that the underlying contract is illegal.