Monday, June 6, 2011
While the annual advisory say-on-pay vote has been the subject of quite a bit of discussion, the new requirement for advisory votes on merger-related golden parachutes has not be the subject of much attention. For deal lawyers, though, it is likely going to be an important addition to the deal process. And by "important" I mean - another thing that you better remember and get right, lest you crew up getting your deal approved. The new Rule 14a-21 includes the following language with respect to golden parachutes:
c. If a solicitation is made by a registrant for a meeting of shareholders at which shareholders are asked to approve an acquisition, merger, consolidation or proposed sale or other disposition of all or substantially all the assets of the registrant, the registrant shall include a separate resolution subject to shareholder advisory vote to approve any agreements or understandings and compensation disclosed pursuant to Item 402(t) of Regulation S-K, unless such agreements or understandings have been subject to a shareholder advisory vote under paragraph (a) of this section. Consistent with section 14A(b) of the Exchange Act, any agreements or understandings between an acquiring company and the named executive officers of the registrant, where the registrant is not the acquiring company, are not required to be subject to the separate shareholder advisory vote under this paragraph.
If the golden parachute in question was previously the subject of an annual vote, there is no need to hold a separate advisory vote when seeking approval of the merger. However, if the golden parachute was adopted in conjunction with the merger agreement and not previously voted on, then there is a required vote under 14a-21. These golden parachute votes - like the annual say-on-pay votes - are advisory. Of course, depending on the nature and amounts of deal related compensation, the disclosures may motivate some investors to vote no on transactions that are otherwise in their interests. It's a new complication that deal makers are going to have fit into their calculus.
Update: Steve QUinlivan has a very good post on this issue here.