Last Tuesday, each director on Abercrombie & Fitch’s board was sued in the Delaware Court of Chancery for waste and breach of duty of good faith and loyalty for allegedly overpaying its CEO. The directors also were sued for breach of the duty of disclosure!
The complaint appears to be solely based on the company’s 2002 Compensation Committee report in the proxy statement, which the plaintiff claims is false. Paragraph 18 of the complaint repeats the Compensation Committee report verbatim – and then Paragraph 19 cites an excerpt from the company’s 2003 proxy statement, which discusses an amended and restated employment agreement with the CEO. This complaint is posted in the “Compensation Litigation” Portal on CompensationStandards.com.
Against those disclosures, Paragraph 20 of the complaint cites a Bud Crystal article on Bloomberg.com from August 4, 2004, in which Crystal points out that the Abercrombie CEO pay was at the top of the peer group. This basically was all that the plaintiff firm needed to file the lawsuit!
The bottom line is that this is further evidence of the continuing scrutiny of compensation by the plaintiffs bar looking for the “next” Ovitz case. Learn how directors can take steps to avoid liability in our March 3rd webcast on CompensationStandards.com – “Steps to Take: How to Avoid Director Liability After WorldCom, Enron and Disney” – featuring John Olson of Gibson Dunn; Marty Lipton of Wachtell Lipton; Frank Balotti of Richards Layton; and Rich Koppes of Jones Day.
Corp Fin Focuses on Cash Flows in Letter Sent to Certain Companies
In January, Corp Fin sent letters to certain companies related to their presentation of cash receipts from inventory sales in their statements of cash flows. In order to affect wide-spread awareness of this issue – and to refocus companies on the proper presentation in their consolidated statements of cash flows – the SEC posted a copy of this letter, which includes sample comments, so that companies will consider these issues for future filings.
NYSE Updates 303 Written Affirmation Forms
Last week, the NYSE updated its 303 Written Affirmation Forms and Instructions for both US and non-US companies. The 2005 forms and instructions were updated to reflect the 303A.02(b)(iii) rule change effected on November 3, 2004, the expiration of the first year transition period and to provide expanded textual guidance for frequently asked questions. Here is a more detailed comparison between the 2005 and 2004 forms.
Corp Fin Sends Letter to Oil & Gas Companies
Recently, I received an email from a member who had noticed a number of oil companies reporting their year-end reserves in Section 2.02 of Form 8-K. Oil & gas companies have been under the gun from the SEC’s Division of Enforcement – and now the Division of Corporation Finance has posted this letter that it has sent to all oil & gas companies. The letter asks the companies to answer accounting questions in the areas of exploratory drilling, buy/sell arrangements and disposition of properties.