In a recent Delaware Chancery opinion,Kim, et al. v. FemtoMetrix, Inc. (Del. Ch.; 8/25), Vice Chancellor Will addressed the enforceability of a voting agreement amendment. She found the amendment was allowed under the terms of the voting agreement even though it altered a party’s right to designate a director without its consent. Law Prof Ann Lipton (now of the University of Colorado Law School) blogged about the decision last week:
Avaco was a stockholder in FemtoMetrix, and had signed a voting agreement with other stockholders. That agreement gave Avaco the right to designate one director, and it chose Kim, who was then an Avaco employee. The voting agreement had the following relevant terms:
Section 1.2(a) granted Avaco had a designation right, subject to sections 1.6 and 1.4(a) . . . Section 1.4(a) provided that Avaco’s designee could be removed without Avaco’s approval, but only for “cause.” Section 7.8 provided that amendments to the voting agreement required a stockholder vote, but an amendment specific to a particular investor – that did not “appl[y]” to all equally – would require that investor’s consent. It also provided that Section 1.2(a) could not be amended without Avaco’s consent.
FemtoMetrix and Avaco also had a commercial relationship and, for whatever reason, that relationship soured and Avaco filed a lawsuit against FemtoMetrix. To “prevent Avaco from obtaining sensitive information while the parties were embroiled in litigation,” the company and certain stockholders entered into an amendment to the voting agreement that did not revise Section 1.2 containing Avaco’s designation right, but revised Section 1.4 in a way that effectively prevented Avaco from exercising that designation right.
Specifically, they amended section 1.4 by adding a new subsection, (d), defining a “conflicted director” to mean a director who is affiliated with an entity engaged in commercial litigation against FemtoMetrix, and they amended 1.4(a) to define “cause” to reference the new 1.4(d). They also added a new Section 1.7, preventing stockholders with designation rights from appointing conflicted directors. FemtoMetrix then kicked Kim off the board, Avaco sued, and the two sides moved for summary judgment.
The company claimed that, in all respects, it complied with the voting agreement. Section 1.2(a) had not been amended at all, so Avaco’s consent was not required. The other sections had been amended, but – because they applied equally to all investors – Avaco’s consent was still not required.
Ann points out:
Avaco previously had a designation right, unrestricted except for SEC bad actors, and now it didn’t! Avaco’s director previously could only be removed for “cause” – which as a background concept usually means misconduct of some kind – and now could be removed for other reasons! And of course the amendment was limited to Avaco; the investors chose an Avaco-specific quality and targeted the amendment to that quality.
But Vice Chancellor Will found this to be copacetic under the strict language of the voting agreement and granted summary judgment.
Avaco was protected against amendments to Section 1.2(a), and the actual words that were changed appeared in Sections 1.4 and 1.7 . . . As for whether the amendments concerned a specific investor – they were phrased in general terms, so those were okay too! Any investor engaged in commercial litigation against FemtoMetrix would have received the same treatment . . . The contract required equal application of a contract amendment; not equal effect. The fact that the amendment had a disparate effect (and was clearly intended to have a disparate effect) played no part in the analysis because the agreement only guaranteed against disparate application.
In mid-July, we ran a reader quick poll asking: “What’s your least favorite S-K item?” The results are in! Item 402 is the Regulation S-K item our readers most love to hate. In a narrow victory, Item 402 beat out my least favorite, Item 305, by 1%! This just underscores that the SEC revisiting the current executive compensation disclosure requirements is a welcome development!
Now that we know readers’ least favorite, I can’t help but wonder if there is a clear favorite! I’m not sure I have one myself. Maybe Item 303, because I enjoy reading MD&As, but then again, I also enjoy reading CD&As — even though I’m aligned with our readers on Item 402. I think I must just like a “discussion & analysis.”
Anyway, less about me, let’s talk about you! Do you have a favorite? Please, search your soul and take a minute to answer this quick poll.
As I mentioned in the blog a few times this week, the fact that we are transitioning from carefree summer days to back-to-school time is weighing heavily on my mind, because in about 10 days I am going to find myself back in a classroom at Georgetown Law co-teaching a course about the exemptions from registration in the Securities Act of 1933. For reasons that I cannot really explain, I always get very nervous about speaking in front of students in the classroom, even though I am very much at ease speaking to a large group of professionals at our October Conferences or at other securities regulation programs. This nervousness prompts me to over-prepare for class, even though I could probably teach the course in my sleep at this point. As part of that preparation, I am always looking for current developments that can convey to the students the state of the capital markets and the ongoing debate about how best to facilitate capital-raising. Fortunately, there has been no shortage of current events to talk about concerning capital-raising and exempt offerings over the past five years!
For example, last month, the SEC’s Office of the Advocate for Small Business Capital Formation hosted policy roundtables on reexamining the IPO on-ramp and reassessing the framework for small public companies. During these roundtables, the panelists discussed how to improve the IPO process to encourage companies to go public, as well as potential changes that would encourage more companies to stay public. The video and transcript for the panel “IPO Policy Roundtable: Reexamining the IPO On-Ramp” and the video and transcript for the panel “Small Cap Policy Roundtable: Reassessing the Framework for Small Public Companies” are now available on the SEC’s website, so check them out today.
On Wednesday, the U.S. District Court for the Central District of California denied a motion for preliminary injunction seeking to halt enforcement of California’s SB 253 (the Climate Corporate Data Accountability Act) and SB 261 (the Climate-Related Financial Risk Act) on First Amendment grounds. As this Fenwick alert notes:
With respect to SB 253, the district court found that plaintiffs did not show a likelihood of success on the merits based on California’s dual interests in providing investors with reliable information on which to make investment decisions and in reducing emissions (while acknowledging that California’s interest in providing reliable information to investors may not be justified to the extent the law compels disclosure form companies that have no California investors).
With respect to SB 261, the district court found that California made a sufficient showing as to benefits of investors’ desire for the specific disclosures required by SB 261 to achieve the legislature’s objective in reliable information that enables investors to make informed judgments about the impact of climate-related risks on their economic choices.
The district court also found that the plaintiffs had not shown irreparable harm (due to their failure to show how the climate laws violate the First Amendment) and that “the balance of equities favors denial of plaintiffs’ motion,” primarily because “enjoining SB 253 and 261 would delay the State from advancing the public interests for which it adopted the laws.”
So, for now, the litigation will continue as the deadlines for reporting under the climate laws draw closer.
SB 261 contemplates reporting as of January 1, 2026, while the California Air Resources Board (CARB) is still working on regulations that will establish when 2026 reports are due under SB 253.
The latest issue of The Corporate Counsel newsletter has been sent to the printer. It is also available now online to members of TheCorporateCounsel.net who subscribe to the electronic format. The issue includes the following articles:
– Noisy Exits: Navigating Director Disagreement Resignations
– Offerings During Blackout Periods: Disclosure Considerations for “Flash Numbers”
Please email info@ccrcorp.com to or call 1.800.737.1271 to subscribe to this essential resource.
The SEC announced yesterday that it launched a new statistics and data visualization page that “includes statistics and graphics on key elements of the capital markets, such as initial public offerings, exempt offerings, corporate bond offerings, reporting issuers, municipal advisors, transfer agents, and household participation in the capital markets.” The announcement notes:
The webpage provides statistics presented in time series charts to show market trends, pie charts to show distribution across different categories, as well as heat maps to show geographic distributions. The visuals are interactive, allowing the public to explore the information in which they are interested.
“I have long believed that greater transparency is essential to serving the public effectively, and this new webpage is another step toward making our work more accessible,” said SEC Chairman Paul S. Atkins. “This new statistics page provides an unprecedented window into the capital markets. I am pleased that the SEC has launched this effort to put vital information into the hands of investors, market participants, and the public.”
“This page offers users the ability to explore information about the market and follow how that information has changed over time,” said Dr. Robert Fisher, Acting Chief Economist and Director of the Division of Economic and Risk Analysis. “These data will enable a better understanding of what is happening in the markets.”
The new webpage includes:
– Data Visualizations: interactive graphics based on statistics
– Statistics Table: fundamental statistics regularly updated with the most recently available data
– Statistics Guide: description, calculation method, and data source for each metric
– Statistics Download: all available statistics in the table and data visualizations
– Related Materials: research and reports, regulatory background, investor bulletins, or additional resources
The new webpage can be found on the SEC’s website under Data & Research.
I encourage you to take a spin through this new site, the information is interesting. I suspect that I might share some of this information with my students this Fall, because it provides some interesting context regarding the utilization of various securities offering exemptions.
We are almost two months away from 2025 Proxy Disclosure Conference, which is taking place at The Virgin Hotels in Las Vegas and by webcast on Tuesday, October 21. I look forward to gathering with the other “SEC All-Stars” for the panel “The SEC All-Stars: Proxy Season Insights,” which the agenda notes will take place from 8:50 – 9:50 a.m. local time. I have been putting pen to paper to prepare what I will talk about and here is a sneak peek:
– The SEC’s new priorities under the leadership of Chairman Paul Atkins;
– The impact of deregulatory Executive Orders on SEC rulemaking;
– The status of the climate disclosure litigation;
– Key SEC actions regarding shareholder proposals and shareholder engagement;
– The future of cybersecurity disclosure;
– The SEC’s focus on executive compensation disclosure;
– Regulatory priorities for the capital markets; and
– The evolution of crypto asset regulation.
My remarks will only scratch the surface on these topics, and then our panels throughout the day and during the 22nd Annual Executive Compensation Conference on the following day will delve into the details.
You will not want to miss this year’s Proxy Disclosure Conference! You can sign up online or reach out to our team to register by emailing info@ccrcorp.com or calling 1.800.737.1271.
We have assembled a great group of speakers for the 22nd Annual Executive Compensation Conference, which is taking place at The Virgin Hotels in Las Vegas and by webcast on Wednesday, October 22. Right after our morning session when we will hear from astronaut José Hernández, I will be joining my fellow SEC All-Stars for the panel “The SEC All-Stars: Executive Pay Nuggets.” I am planning to tackle a topic that is often on our minds, and that is a volatility playbook for executive compensation. Some of the topics I plan to cover include:
– Rule 10b5-1 plan practices in volatile markets;
– Evolving equity grant practices;
– Option repricing;
– Hedging and pledging issues; and
– Managing stock ownership requirements
You will not want to miss the 22nd Annual Executive Compensation Conference! Also note that this year, we mark the very special occasion of CCRCorp’s 50th Anniversary with a Welcome Party + CCRcorp’s 50th Anniversary Celebration, which will take place from 4:00 pm to 7:00 pm PT on October 20. As always, you can sign up online or reach out to our team to register by emailing info@ccrcorp.com or calling 1.800.737.1271.
It was all the way back in February when I blogged about the Trump Administration’s first round of tariffs, an opening salvo of three executive orders directing the United States to impose new tariffs on imports from Canada, Mexico, and China. Then came “Liberation Day,” when the Administration announced sweeping new tariffs that were more broadly applicable than the initial round of tariffs, which should not be confused with the “Liberation Day” for Washington, DC that was announced earlier this week. In the wake of these global trade actions, we have experienced what one might euphemistically describe as a “dynamic” trade environment, with the completion of some new trade deals, escalating tariffs on some trading partners, retaliatory tariffs and constantly shifting deadlines. It has been quite a wild ride, making it difficult to maintain one’s Zen amidst the tumult.
As an outside advisor, this dynamic global trade policy has made it difficult to understand what tariffs apply and how they might impact a company’s business. Thankfully, a cottage industry has grown up around tracking the Trump Administration’s tariffs, which is certainly a Herculean task. Here are some of the free tracking efforts that I have found useful:
– The Global Business Alliance, which serves as an advocacy resource for international companies in the United States, maintains the GBA Tariff Tracker, which shows enacted, retaliatory, in-progress and threatened tariffs by country/country group and by sector.
– The Atlantic Council, which is a nonpartisan organization promoting constructive leadership and engagement in international affairs, maintains the Trump Tariff Tracker, which includes a nifty interactive map, a tariff calendar and a description of all of the legal authorities used by the Trump Administration to impose tariffs.
– The Trade War Tracker is a project of Mike Waugh, who is an Economist and Monetary Advisor at the Federal Reserve Bank of Minneapolis, and it provides some handy bar charts and a useful timeline.
There are no doubt many other useful tariff trackers out there, so please drop me a line if you have come across one that you like. I hope that these trackers prove useful to you on your tariff journey, and remember: “The only Zen you can find on the tops of mountains is the Zen you bring up there.”
The paper, which KPMG describes as “a briefing prepared for audit committee members,” includes summaries of key areas of financial reporting that tariffs may affect and questions audit committees may want to ask related to each area. In KPMG’s view, the current geopolitical, macro-economic, and risk landscape — including tariffs uncertainty — is a top audit committee priority. KPMG’s publication provides a comprehensive overview of the issues audit committees may need to grapple with in the changing tariff environment, and the suggested questions would be a good starting point for exploring these issues with management.
