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Dodd-Frank

A Review of Golden Parachute Disclosures and Voting in Acquisition Transactions

by   |   May 16, 2011

The Dodd-Frank Act requires an advisory vote on “golden parachute compensation” in connection with a shareholder vote on a merger transaction.  In addition, the SEC requires disclosure of golden parachute compensation in connection with tender offers.  In each case, the disclosures consist of a table including the information set forth in Rule 401(t) of Regulation S-K.  A few more examples of golden parachute disclosures and required advisory votes have appeared in acquisition related filings with the SEC.

Proxy Statements

One common theme is to emphasize that the golden parachute compensation will be paid regardless of the outcome of the advisory vote.

Lawson Software has a clear tabular presentation of golden parachute amounts and understandable footnotes.  It includes the following explanation of the effect of the vote:

“Stockholders should note that this proposal is merely an advisory vote which will not be binding on the Company, the Board, Parent or the surviving corporation. Further, the underlying plans and arrangements are contractual in nature and not, by their terms, subject to stockholder approval. Accordingly, regardless of the outcome of the advisory vote, if the merger is consummated, our named executive officers will be eligible to receive the various change in control payments in accordance with the terms and conditions applicable to those payments.”

Park Sterling’s S-4 is interesting.  It includes golden parachute compensation payable by the acquirer, Park Sterling, and compensation payable by the target, Community Capital.  Here the golden parachute compensation is relatively straight forward.  We like the Q&A’s which address the golden parachute vote:

Q:    Why am I being asked to cast an advisory (nonbinding) vote to approve “golden parachute” compensation that certain Community Capital officers will receive in connection with the merger?

A:    The SEC recently has adopted new rules that require us to seek an advisory (nonbinding) vote with respect to certain payments that will be made to our named executive officers by Community Capital and CapitalBank in connection with the merger.

Q:    What will happen if shareholders do not approve the “golden parachute” compensation at the special meeting?

A:    Approval of the “golden parachute” compensation payable under existing agreements that certain Community Capital officers will receive from Community Capital and CapitalBank in connection with the merger is not a condition to completion of the merger. The vote with respect to the “golden parachute” compensation is an advisory vote and will not be binding on Community Capital. Therefore, if the merger is approved by the shareholders and completed, the “golden parachute” compensation will still be paid to the Community Capital named executive officers.

The following disclosure is made regarding the required vote for the advisory vote to pass:

The approval of the proposal regarding “golden parachute” compensation payable under existing agreements that certain Community Capital officers will receive from Community Capital and CapitalBank in connection with the merger requires the number of votes cast at the special meeting, in person or by proxy and entitled to vote thereon, in favor of the proposal to exceed the number of votes cast against the proposal.

We have previously discussed Kirby Corp.’s disclosure here.

Tender Offers

Tender offers do not require a shareholder vote — stockholders merely tender their shares.  Dodd-Frank did not mandate that any golden parachute disclosures be made for tender offers, but the SEC decided disclosures should be made.  It was not a bad decision by the SEC, because a merger and a tender offer end in the same result — target is acquired.

In a tender offer, the target must file a Schedule 14D-9 with the SEC outlining the target’s position with respect to the tender offer.  That is where the golden parachute compensation disclosures are included.

We have located the following disclosures regarding golden parachute compensation in Schedule 14D-9s:

  • Vital Images:  Fairly complex golden parachute arrangements with extensive footnotes and detail on the agreements.
  • Volcom Inc:  Like many, the required footnotes explaining each item of compensation includes further sub-tables.
  • CNA Surety Corp.
  • TradeStation Group:  Rather than burying the disclosures in Item 8 at the end, this issuer included the disclosures in Item 3 where other matters regarding officers and directors are typically disclosed.
  • SunPower Corp.

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