Tag: corporate

Secretary Of State Issues 2020 Women On Boards Report

The legislation creating California’s female director board quota requires the Secretary of State to publish on his Internet website a report no later than March 1, 2020 a report of the following:

  1. The number of corporations subject to the law that were in compliance during at least “one point during the preceding calendar year”.

  2. The number of publicly held corporations that moved their United States headquarters to California from another state or out of California into another state during the preceding calendar year.

  3. The number of publicly held corporations that were subject to this section during the preceding year, but are no longer publicly traded.

The Secretary of State published the mandated report a day late and without some of the required information.  Below is the Secretary of State’s summary of the report:

The above table illustrates one confusing aspect of the new law – the female director quota law refers to “publicly held corporations” and foreign corporations that are “publicly held corporations” while the corporate disclosure statement requirement applies to “publicly traded corporations” and “publicly traded foreign corporations”.  See Publicly Held Corporations and Publicly Traded Corporations – Non Bis In Idem?

The report explains that the Secretary of State lacked the data necessary to comply with the requirement to report on publicly held corporation’s movement of headquarters or delisting of shares from a particular market or exchange.

© 2010-2020 Allen Matkins Leck Gamble Mallory & Natsis LLP

Healthy Habits for You and Your Company: File Your Annual Reports, Replace Your Air Filters, and Renew Your DMCA Agent Registration

Businesses and people alike each have recurring routine tasks they need to perform to stay in good shape. Every year we prepare corporate filings, undergo our necessary medical examinations, and file our taxes.1 And starting in December 2019, companies began adding a new task to this checklist: renewing their DMCA Agent registration. Is your company prepared?

The DMCA can protect your website from its users’ copyright infringement.

Anyone with a website that allows users to post content to the site, even in a simple comment section, risks liability for copyright infringement based on those users’ posts. The Digital Millennium Copyright Act (“DMCA”) helps website owners mitigate that risk. If you operate a site and you comply with the safe harbor criteria, the DMCA shields you from copyright liability. The DMCA isn’t limited to internet service providers; its safe harbor offers websites an immensely valuable protection against costly and lengthy copyright infringement lawsuits. A registered Agent is only one of the many required elements needed for DMCA compliance, but it’s a crucial requirement that’s easy to overlook.

Congress passed the DMCA in 1998 to strike a balance between protecting the dynamic creativity of internet users and enforcing federal copyright protection. And regardless of whether you think Congress managed to find that balance, the DMCA sets the standard for statutory copyright enforcement on the internet—users ignore it at their peril. Websites that don’t comply with the DMCA must2 screen every comment and post submitted to the site by anyone for potential copyright violations, because the site can be held directly liable for any infringing submissions.3 On the other hand, DMCA compliance makes the website essentially immune from its users’ infringement.

Social media networks are the most obvious beneficiaries of DMCA safe harbor protection. Can you imagine if Facebook or Twitter needed to pre-screen every single post or tweet before it went live? In exchange for this safe harbor protection, the DMCA requires businesses to (among other things) create and enforce copyright takedown procedures for copyright holders to use when they spot potentially infringing content on the website.4

The Designated Agent is a key part of DMCA compliance.

Every organization that seeks safe harbor protection needs to designate an Agent as the organization’s point of contact for takedown notices. The designation is submitted to the U.S. Copyright Office, where it’s published on a searchable database. The designated Agent (which can be one person or an entire department) is then responsible for receiving all of the company’s DMCA takedown notices and then ensuring that they are acted upon.

Each Agent designation is effective for three years. Whenever the designated Agent’s information is updated with the Copyright Office, the three-year clock starts over. But if a three-year period ends without an update or renewal, the designation becomes invalid and the organization’s DMCA safe harbor protection ends with it.

You don’t want to forget about your renewal and you shouldn’t wait three years between checkups.

Fortunately, it’s pretty simple to figure out when your company’s Agent designation will expire. You can check the date that your organization’s Agent was last updated by searching the DMCA Designated Agent Directory and clicking on the name of the Service Provider.5 Add three years to the displayed effective date, and that’s your deadline.

You could, in theory, set a calendar reminder for every three years and forget about the DMCA in the interim, but we don’t recommend it. What if your Agent takes a leave of absence or leaves the company? What if your company reorganizes and the designated department is renamed (or gets lost in the transition)? We recommend that you check your Agent’s status at least once a year, just to be safe. It only takes a moment to do.

When in doubt, check with your attorneys to make sure that your rights are still being protected.

There’s much more to DMCA protection beyond Agent registration. Copyright law is constantly evolving—especially when it comes to the internet. DMCA safe harbor protection has many requirements beyond just having a designated Agent, and there’s a lot at risk if your company doesn’t qualify for the safe harbor. You can’t “undo” a gap in safe harbor protection, but you can close the door on future liability. That’s a door you want to keep shut. As your business’s online presence grows, so does its exposure to potential liability.

So when you’re checking your DMCA Agent registration, don’t just tick the box and wait until the next year. Take the time to consider your DMCA protocols. If your company’s DMCA compliance protocols aren’t up to date and compliant, your safe harbor is in jeopardy. What about the company’s future needs? If your company’s online presence will be growing, is your designated Agent capable of handling an increased caseload of takedown notices? This is an area where it’s better to be safe than sorry.

References:

1 This article is not meant to provide specific legal or medical advice. If you would like more specific legal advice, please contact an attorney. If you’re looking for specific medical advice, you’re reading the wrong article.
2 Or at least they really, really should.
3 Damages for copyright infringement are no joke. A successful plaintiff can receive their actual damages while also forcing the infringer to disgorge its profits from the infringement, or can alternatively obtain statutory damages of up to $150,000 per infringed work.
4 Many articles could be (and have been) written on abusive and overzealous DMCA takedown notices, especially since the development of automated takedown services that can act without human interaction. For brevity’s sake, this article won’t dive into those deep waters.
5 If you run a website, you should assume that you’re a service provider under the DMCA.

Copyright © 2020 Ryley Carlock & Applewhite. A Professional Association. All Rights Reserved.

For more on the Digital Millennium Copyright Act, see the National Law Review Intellectual Property law section.

Spurned by HP Board of Directors, Xerox Gets Hostile, and is Spurned Again

Case raises a unique antitrust question.

Copy equipment giant HP Inc. turned down the much smaller Xerox Holdings Corp.’s acquisition overtures twice in one week as the exchange of statements between corporate leadership grows increasingly hostile. From an anticompetition perspective, the case raises the interesting question of how the “failing firm” defense could come into play.

A deal would bring together the world’s second largest copier company, HP, a company whose leadership position was once so strong that its very brand name, derived from the word “xerographic” in 1938, became a verb used more often than the word “copy” itself. Xerox is also credited with innovations that brought us tools like the mouse and ethernet networks.

But Xerox, which has long since fallen from the top of the copier industry, was met with a flat-out rejection of its offer to get its mojo back by acquiring HP. Xerox offered HP $17.00 in cash and 0.137 Xerox shares for each HP share or $22 per share, or $27 billion overall. Skeptics wondered whether Xerox could execute such a deal, given it is “only” a $9.2 billion business, a third the size of HP. The skeptics were right. On Nov. 17 the HP Board of Directors informed Xerox that its offer was not in the best interests of shareholders as it “significantly undervalues” the HP business.

In its letter to Xerox Vice Chairman and CEO John Visentin, HP wrote that its board was concerned about the “potential impact of outsized debt levels on the combined company’s stock.” While saying it remained “ready to engage” with Xerox to better understand its business and its thinking around a merger, the HP board rejected the bid unanimously.

“We recognize the potential benefits of consolidation, and we are open to exploring whether there is value to be created for HP shareholders through a potential combination with Xerox. However,” the HP letter to Visentin continued, “… we have fundamental questions that need to be addressed in our diligence of Xerox. We note the decline of Xerox’s revenue from $10.2 billion to $9.2 billion (on a trailing 12-month basis) since June 2018, which raises significant questions for us regarding the trajectory of your business and future prospects. In addition, we believe it is critical to engage in a rigorous analysis of the achievable synergies from a potential combination. With substantive engagement from Xerox management and access to diligence information on Xerox, we believe that we can quickly evaluate the merits of a potential transaction.”

Xerox had said it could generate $2.3 billion by selling its 25% share in the joint venture, Fuji Xerox Co., Ltd., to FUJIFILM Holdings Corp. In a Nov. 8, 2019, statement, Xerox also said it was selling to a Fuji Xerox affiliate Xerox’s 51% stake in Xerox International Partners, a joint original-equipment-manufacturer venture between Xerox and Fuji Xerox. The companies also agreed to end the $1 billion lawsuit FUJIFILM filed against Xerox after last year’s terminated merger. “Total after-tax proceeds to Xerox from the transactions, which included accrued but unpaid dividends through closing, are approximately $2.3 billion. Xerox expects to use the proceeds opportunistically to pursue accretive M&A in core and adjacent industries, return capital to shareholders and pay down its $554 million December 2019 debt maturity,” according to Xerox.

Xerox did not take HP’s rejection well.

“We were very surprised that HP’s Board of Directors summarily rejected our compelling proposal ….” Xerox CEO Visentin responded, “claiming our offer ‘significantly undervalues’ HP. Frankly, we are confused by this reasoning in that your own financial advisor, Goldman Sachs & Co., set a $14 price target with a ‘sell’ rating for HP’s stock after you announced your restructuring plan on October 3, 2019. Our offer represents a 57% premium to Goldman’s price target and a 29% premium to HP’s 30-day volume weighted average trading price of $17.” Visentin added that the offer was not, as HP said, “highly conditional” or “uncertain.” “There will be NO financing condition to the completion of our acquisition of HP,” the Xerox CEO said.

Xerox gave HP until today (Monday, Nov. 25) to accept the offer, otherwise it would take the case directly to HP’s shareholders. “The overwhelming support our offer will receive from HP shareholders should resolve any further doubts you have regarding the wisdom of swiftly moving forward to complete the transaction,” Visentin said.

But HP didn’t need the whole weekend. Yesterday, on Sunday, Nov. 24, it rejected Xerox again via a letter signed by HP Chairman and CEO Enrique Lores and HP Board Chair Chip Bergh. They repeated that Xerox is undervaluing the company, adding that Xerox did not address HP’s concerns about Xerox’s ability to raise the cash or handle such a substantial debt burden. Lores and Bergh didn’t seem to appreciate Visentin’s attitude, either.

“It is clear in your aggressive words and actions that Xerox is intent on forcing a potential combination on opportunistic terms and without providing adequate information,” the HP leaders wrote. “When we were in private discussions with you in August and September, we repeatedly raised our questions; you failed to address them and instead walked away, choosing to pursue a hostile approach rather than continue down a more productive path. But these fundamental issues have not gone away, and your now-public urgency to accelerate toward a deal, still without addressing these questions, only heightens our concern about your business and prospects. Accordingly, we must have due diligence to determine whether a Xerox combination has any merit.”

And yet, things had seemed to be going so well. In June, Xerox and HP announced they were expanding their relationship. Xerox was to begin sourcing certain products from HP, many of which used Xerox software, and supplying toner for HP for these and other products. These printers use laser printing technology HP acquired from Samsung in 2017. Xerox and HP also agreed to partner in the Device as a Service (DaaS) market. Xerox said it would sell HP PCs and peripherals to its commercial customers under a DaaS model, and HP would make Xerox cloud-based content management available to its commercial PC customers in the United States.

As the HP leaders said, the relationship started to sour at least as early as August.

HP questions Xerox’s resources and innovation.

HP offered additional specifics as to why it didn’t find the deal attractive:

  • Xerox has missed consensus revenue estimates in four of the last five quarters.
  • Xerox’s revenue has fallen from $10.2 billion to $9.2 billion (on a trailing 12-month basis) since June 2018, and this is expected to continue. Xerox management projects revenue declines of 6% in fiscal 2019.
  • Given how much of the Xerox business is based on contractual revenue, HP is concerned about the decline in customer Total Contract Value (TCV) in excess of revenue declines, which suggests Xerox’s revenues may decline even faster in future years. HP noted that the TCV of enterprise signings (including renewals) in 2018 was down 13.9% in constant currency and Xerox’s churn for 2018 was 18%, both data points which Xerox has stopped providing publicly since the end of 2018.
  • After a review of synergies based on public information and the “limited information” Xerox provided, HP said it does not agree with the value of potential synergies. “[I]t appears that your assumptions include significant savings that are already included in each company’s independently announced cost reduction plans,” HP wrote.
  • When Xerox exited the Fujifilm joint venture, Xerox essentially “mortgaged its future for a short-term cash infusion.” HP feels this has “left a sizeable strategic hole” in the Xerox portfolio.
  • HP also took a shot that has to sting the once-heralded leader of innovation. “[W]e have concerns as to the state of Xerox’s technology resources, research and development pipeline, future product programs, and supply continuity and capability.
  • HP said Xerox has not accessed the great potential of the Asia Pacific market.

The ‘failing firm’ defense

What’s intriguing from an antitrust perspective is how the parties might use the “failing firm” defense in a hostile takeover scenario. The failing firm defense argues that a merger that substantially lessens competition is less harmful to competition than one party’s failure and exit from the market. The defense requires a showing that the acquired company cannot meet its financial obligations, would not be able to successfully reorganize in bankruptcy, has been unsuccessful efforts to elicit other reasonable offers, and is succumbing to the only available purchaser.

We would expect to see that defense raised here given the high post-merger market share and years-long decline of both parties. But how will Xerox make the required showing without the cooperation of HP management? And, in this case the acquirer is arguably the greater “failure” risk of the two firms, making this use of a “failing firm” case a rarity, if not a first.

Copier industry landscape.

Xerox’s global annual revenue was at $20.64 billion in 2011, $19.54 billion in 2014, and $9.83 billion in 2018. It’s now a $9.2 billion company, with revenues generated from a combination of services and equipment. In 2016, Xerox services accounted for roughly a third of the company’s global revenue. From 2012 to 2014 services generated more revenue than technology. That flipped in 2015 when service revenue dropped to a third of prior years.

HP’s net revenue from its printing business was at a high of $29.6 billion in 2008. It fell to $18.26 in 2016 and bounced up to $20.8 billion in 2018.

Worldwide, Canon is the market leader, with 24% of the market. HP is close behind with more than 21% of the market. Xerox has been in the low single digits for the past two years. After Canon and HP, market leaders are Brother (11%), Epson (10%), Kyocera (7%), NEC (5.6%), Ricoh (2.5%). Some 18.5% of the market is attributed to “other” companies.

Statistics provided by Statista based on data from IT Candor. Additional statistics from HP and Xerox.

© MoginRubin LLP

ARTICLE BY Dan Mogin and Jennifer M. Oliver of MoginRubin, edited by Tom Hagy.

Private Email Woes Infect The Private Sector in Delaware

emailVice Chancellor J. Travis Laster’s ruling in Amalgamated Bank v. Yahoo!, Inc., C.A. No. 10774-VCL (Del. Ch. Feb. 2, 2016) should sound a tocsin to directors that their “private” emails may not be so private.  The ruling addressed Amalgamated Bank’s demand to inspect the books and records of Yahoo! pursuant to Section 220 of the Delaware General Corporation Law.  The bank sought to inspect, among other things, documents that reflect discussions or decisions of Yahoo’s full Board or Committee.  Documents covered by the demand included emails to and from the directors, from management or the compensation consultant, emails among the directors themselves, and documents and communications prepared by Yahoo officers and employees about the Board‘s deliberations.

Vice Chancellor Laster found that emails were records subject to inspection under Section 220 and that through Delaware’s jurisdiction over a corporation, a court can compel production of documents in the possession of officers, directors, and managing agents of the firm.  According to the Vice Chancellor, the court can impose sanctions or other consequences on the firm if the officer, director, or managing agent fails to comply. He further noted that if a personal email account was used to conduct corporate business, the email is subject to production under Section 220. Directors and corporate officers should therefore take heed that emails concerning corporate business may be subject to disclosure even if conducted using a private email address.

Article By Keith Paul Bishop of Allen Matkins Leck Gamble Mallory & Natsis LLP

© 2010-2016 Allen Matkins Leck Gamble Mallory & Natsis LLP

 

Motions To Adjourn – Do They End Or Continue A Meeting?

AllenM logo with tagline

I’ve previously remarked on the different usages attached to the word “adjourn”.  Often a meeting will end with a motion to adjourn.  Sometimes, a meeting will be prorogued – that is, continued to another date.  ”Adjourn” is derived from the Latin words “ad” and “diurnus”, meaning “to” and “daily” (a diurnal flower opens only during the day).  The word came into the English language through Old French “ajorner” (“soup du jour” is the soup of the day).  Based on etymology, an adjournment is a moving a meeting to another day.  This is the meaning given by William Shakespeare to Cardinal Campeius (Lorenzo Campeggio) when in Act II, Scene 4 of Henry VII Katherine of Aragon leaves her divorce proceedings:

So please your highness,
The queen being absent, ’tis a needful fitness
That we adjourn this court till further day:

Strangely, many meetings end with a motion to adjourn.  Those inclined to greater precision might move to adjourn the meeting sine die (i.e, without a day – ”diurnus” is an adjective derived from the Latin word for day, “dies”).  Thus, when a motion to adjourn sine die is reduced to its original meaning, it becomes a motion to move to a day without a day!

Corporations Code Section 602(b) allows for either meaning.  It provides:

The shareholders present at a duly called or held meeting at which a quorum is present may continue to transact business until adjournment notwithstanding the withdrawal of enough shareholders to leave less than a quorum, if any action taken (other than adjournment) is approved by at least a majority of the shares required to constitute a quorum or, if required by this division or the articles, the vote of a greater number or voting by classes.

If “adjournment” means the end of the meeting, the statute simply allows shareholders to continue to transact business even though some shareholders have left a quorum has been lost.  In this case, the “until adjournment” is stating the obvious – no shareholder action can be taken after the meeting has ended.  If “adjournment” means until such time as the meeting is continued, then the statute’s special dispensation for quorumless action ends when the meeting is continued.

In a future post, I’ll discuss the question of who has the power to decide to adjourn a meeting.

Yahoo!/Tumblr Deal and the Tax Cost of Cash Acquisition Payments

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When Yahoo! recently acquired the blogging service Tumblr, the two companies structured the deal so that virtually all of the $1.1 billion price tag for Tumblr will be paid in cash. In the current economy, many companies, particularly tech companies, have a lot of cash available, making the more traditional payment in stock appear less desirable. However, tax planning during mergers or acquisitions can be invaluable because, with proper counsel, the organizations can anticipate and mitigate the tax ramifications for the companies, individuals and shareholders.

Specific information about any tax planning in the Yahoo!/Tumblr deal hasn’t been released, but let’s consider the potential tax consequences of an essentially all-cash deal.

Most of Tumblr’s existing shareholders likely purchased their stock for substantially less than it was valued at the time of Yahoo’s acquisition. Since capital gains taxes are levied on the difference between the purchase price and the sale price, those Tumblr shareholders may be facing a hefty capital gains tax bill that will come due as soon as the transaction is complete.

If the deal had been structured as a stock transaction, on the other hand, it might have been structured to defer the capital gains tax for those shareholders until they actually sell their stock to Yahoo! There are a number of methods, such as 1031 exchanges, Section 368 tax-free reorganizations, and or 338(h)(10) stock purchase elections, that might also be effective in mitigating the tax burden.

An all-cash deal also presents challenges for Yahoo! in that it could affect the incentives for Tumblr’s founder and senior management going forward. In a tax-free reorganization, for example, they would generally be compensated in Yahoo! stock, which automatically creates an incentive for Tumblr’s leadership to build value for Yahoo! Without stock, a different incentive plan is needed.

According to The New York Times’ DealBook blog, Yahoo! may not need to worry about incentivizing Tumblr’s leadership, however, as it plans to continue to run the blog service as a separate company with the same group of executives. That may leave the existing incentives for success in place.

In this particular case, we don’t have enough information to determine why Yahoo! and Tumblr structured the acquisition as an all-cash deal. Well-considered tax planning, however, is essential for any business considering a merger or acquisition, stock sale, or major asset sale. Anticipating and minimizing transactional taxes, including business transfer taxes and business succession taxes, can help ensure that companies garner all potential benefits of the deal.

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