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CALIFORNIA CORPORATE & SECURITIES LAW

Failure To Return Shares Subject To Repurchase Right Supports Conversion Claim

Closely held issuers often include a repurchase right in their equity award agreements.  I expect that in most cases, shareholders will comply with these provisions.  When a shareholder doesn’t, the company’s most obvious cause of action will be for breach of contract.  Conversion is a less obvious cause, but according to the California Court of Appeal, a viable claim nonetheless. …

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D&O Loans: California Section 315 Versus Sarbanes-Oxley Section 402

Although both Section 315 of the California Corporations Code and Section 402 of the Sarbanes-Oxley Act purport to ban loans to directors and officers, there are significant differences between these statutes.  Below is a precis of some of the key differences. Companies covered.  Section 315 applies to corporations.  The California General Corporation Law (GCL) defines “corporation” as only a…

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Should Tweener Corporations Include This Provision In Their Equity Compensation Plans?

I have previously commented on the phenomenon of what I call the “tweener” corporation.  See Will The Rise Of Tweener Corporations Increase Focus On California’s Annual Report Statute?  These are corporations that are not quite private and not quite publicly traded.  One of the advantages of not being subject to the reporting requirements of the Securities…

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Ninth Circuit Finds That Purpose Of Stock Rights Plan Matters

Most equity award plans that I come across include a statement of the plan’s purposes.  I haven’t tended to give these provisions a whole lot of thought, but an opinion issued yesterday by the Ninth Circuit Court of Appeal makes it clear that a plan’s purpose clause can be very important indeed.  The case arose from the retirement…

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Corporation Owes No Duty To Warn Former Director Of Impending Option Expiration

Does a corporation commit constructive fraud if it fails to warn a former director of the impending expiration of a stock option?  That was one question decided earlier this month by Judge Jennifer A. Dorsey in  Nelson v. FluoroPharma Med., Inc., 2016 U.S. Dist. LEXIS 1270 (D. Nev. Jan. 4, 2016).  In granting summary judgment for the…

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Do Indemnity Agreements Constitute Unlicensed And Unlawful Insurance?

Parties to all sorts of agreement negotiate over the allocation of risk.  A seller, for example, might sell goods at a higher price with a full warranty and at a lower price with no warranty. A corporate officer may insist on higher compensation in the absence of an indemnification agreement.  Do these risk shifting bargains constitute unlicensed and unlawful policies of…

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The Fundamental Distinction Overlooked By The SEC

Yesterday marked the close of the comment period on the SEC’s proposed incentive compensation clawback rules.  You can read my comments here.  The proposed rules are fundamentally flawed because the SEC failed to recognize that different bodies of law apply to officers and employees. Although it should go without saying, not every officer is an…

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Did The SEC Misapprehend The Meaning of “Will”?

Today is the close of the comment period on the Securities and Exchange Commission’s proposed rules under Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which added Section 10D to the Securities Exchange Act of 1934.   Briefly, the proposed rules would “direct the national securities exchanges and national securities associations to establish listing…

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When It Comes To Director Compensation, California Is Not Delaware

Yesterday, I wrote about my disagreements with the approach to director compensation adopted by the Delaware Court of Chancery in Calma v. Templeton, 114 A.3d 563 (Del. Ch. 2015) and Seinfeld v. Slager, 2012 Del. Ch. LEXIS 139 (June 29, 2012).  In both cases, the Court ruled that the rigorous “entire fairness” standard of review applies to director’s who receive grants…

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No Calm In Delaware After Calma v. Templeton

In derivative suits, cases are essentially lost and won at the motion to dismiss stage.  Unless the defendants succeed in winning dismissal, they must confront an unhappy choice between continued litigation with all of its costs and risks or a settlement that “feeds the bulldog”.  Thus, the Delaware Court of Chancery’s rulings in Calma v. Templeton,…

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