Corporate Governance

Corporate Governance

Our corporate governance practice is rooted in practical expertise and decades of experience.

We counsel public companies with regulatory compliance and disclosure practices under the Securities Exchange Act of 1934 and offerings under the Securities Act of 1933. Our attorneys are experienced in applying and implementing best practices and offer practical advice in addressing complex issues that pose regulatory and compliance risks in securities and corporate governance matters.

Our Services

  • Securities regulation: significant experience with disclosure practices relating to periodic reports and offering documents, including disclosure controls and procedures, internal controls, Regulation FD, Regulation G, Regulation M, Rule 144, Section 13(d) reporting, Section 16 reporting, shareholder proposals, Sarbanes-Oxley compliance, Dodd-Frank compliance, insider trading, and responding to SEC comment letters; counseled clients on billions of dollars of securities offerings, including equity and debt offerings
  • Corporate governance: significant experience advising on corporate governance matters, including board governing documents, board composition, responsibilities of the board, related party and independence matters, fiduciary duties, senior management changes, and D&O indemnification
  • Accounting and auditing expertise: experience advising on SEC and Public Company Accounting Oversight Board (PCAOB) accounting and auditing matters, financial statement materiality and restatement issues, internal control issues, auditor engagement and independence matters, and accounting-related disclosure practices; conducting thorough internal investigations relating to securities and accounting disclosure practices
  • Board governing documents: drafting board charters, articles and by-laws; committee governing documents
  • Board composition: selecting board members; separation of board members
  • Board responsibilities: onboarding and training board members
  • Independence, related-party and fiduciary obligation matters: navigating conflict-of-interest issues and related-party transactions; understanding fiduciary responsibilities; recusal from board deliberations to maintain independence
  • Senior management changes: hiring and separation of senior management personnel
  • D&O indemnification: drafting D&O agreements; assisting directors and officers in understanding coverage limitations
  • Insurance matters: negotiating D&O insurance policies and exclusions; negotiating E&O insurance policies and exclusions
  • Materiality and restatement issues: materiality determination; accounting issues; restatement issues; working with auditors and other service providers
  • Internal control issues: implementing a robust internal control environment
  • Auditor engagement and independence: drafting and negotiating engagement letters; assessing independence issues
  • Disclosure practices: drafting disclosure controls and procedures; disclosure committee governance issues, including charter, membership determination, etc.
  • SEC comment letter process: assisting public companies in navigating the SEC comment letter and correspondence process
  • Internal investigations: advising corporations and individuals with internal investigations; ensuring successful navigation of the investigation process while avoiding legal and business pitfalls
  • Ethics and compliance: counseling corporations and individuals in taking preventive measures to avoid costly litigation, administrative penalties and reputational risk; helping build a workplace of high ethical standards and a culture of compliance

Our Clients

Some of Kegler Brown’s most notable corporate governance experience includes:

  • representing a leading technology company specializing in content management solutions
  • counseling a Fortune 20 company specializing in the distribution of pharmaceuticals and medical products in all aspects of securities and corporate governance matters, including disclosure practices, securities offerings, and accounting fraud and restatement issues
  • representing a global company that offers system solutions to the commercial vehicle market
  • counseling a company focused on providing energy technology to electric utilities and their industrial, commercial, institutional and municipal customers

People

Erin C. Herbst

Director

614-462-5420Email
Kacie N. Davis

Director + Chair, Business Transactions + Franchising

614-462-5402Email

Experience

Real Property Recovery + Contract Litigation for Public Institution

Shareholder Negotiation and Sale of Fire Safety Company Stock

Magnifying glass over a fire logo

Recapitalization and Related Negotiations for a UK Tech Company

Circuit Board Background - Computer, Data, Technology, Artificial Intelligence

Providing Strategic Counsel for a Global Online Payment Company

Publications + Presentations

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Ohio’s Revised LLC Act - What You Need to Know

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Latest PPP Guidance Provides More Pieces to the PPP Puzzle

After more than a month without additional guidance from the Treasury or the SBA, new guidance was released on August 4th in the form of Frequently Asked Questions on Loan Forgiveness. Many borrowers have completed their covered periods and spent most or all of their PPP funds at this point. Accordingly, this guidance will be most helpful to those who have elected to use a 24-week covered period or have yet to apply for a PPP loan. If you have spent all of your PPP funds already, take solace in the fact that the SBA has clarified that borrowers may rely on the guidance available at the time of their application. With that out of the way, I have outlined some of the new pieces to the PPP puzzle below.Timing Timeline for Applying for ForgivenessBorrowers must apply for forgiveness within 10 months of the completion of their covered period. PaymentsBorrowers do not need to begin making payments on amounts not forgiven until the forgiveness amount is remitted to the lender by the SBA. Interest accrues on amounts owed during the time between the disbursement of the funds and the SBA’s remittance of the forgiveness amount on any amount that is not forgiven. After the lender receives notice from the SBA of the forgiveness amount, the lender is responsible for notifying the borrower of the forgiveness amount and the date on which the first payment is due. After that, the amount not forgiven must be repaid by the maturity date of the loan. Note that the maturity of the loan is 5 years if the loan was issued after June 5, 2020. For loans issued prior to June 5, the maturity date is 2 years, unless a different arrangement is reached between the lender and the borrower.Payroll Costs Cash v. Accrual BasisAccrual basis is reaffirmed for payroll costs incurred prior to the covered period, but paid during the covered period, and payroll costs incurred during the covered period, but paid by the next payroll date after the covered period. Cash Compensation and CalculationAll forms of cash compensation are includable as payroll costs (subject to the $100k annualized limit). This includes: tips, commissions, bonuses, and hazard pay. In calculating cash compensation to employees, it was not previously clear whether this would include the gross or net amount. The newest guidance clarifies that the gross amount before deductions for taxes, employee benefits payments, and similar payments should be used for calculating cash compensation. Group Health BenefitsAlthough not previously clear, the guidance clarified that forgiveness is not provided for group health payments accelerated from periods outside of a borrower’s covered period. However, those group health benefits payments by borrowers on behalf of employees that were incurred or paid during the covered period are still eligible for forgiveness. Retirement ContributionsAs with group health benefits, forgiveness is not provided for employer contributions for retirement benefits accelerated from periods outside of a borrower’s covered period. However, employer contributions for retirement benefits on behalf of employees that were incurred or paid during the covered period are still eligible for forgiveness. Owner CompensationThe guidance has provided detailed guidance on amounts paid to owners that are eligible for forgiveness for owners of C. Corps, S. Corps, Self-Employed Individuals, General Partners, and LLC Owners. Non-Payroll Costs Alternative Covered PeriodFor payroll costs, borrowers may elect an alternative covered period, beginning on their first payroll date after receiving their funds. However, this is not permitted for non-payroll costs. For non-payroll costs, the covered period is limited to the period beginning on the date of the disbursement of the PPP loan. Cash vs. Accrual BasisAccrual basis is reaffirmed for non-payroll costs incurred prior to the covered period, but paid during the covered period, and non-payroll costs incurred during the covered period, but paid during the next regular billing date after the covered period. Prepayments of Non-Payroll CostsPrepayment of all non-payroll costs (except for mortgage payments) is not prohibited. Unsecured DebtsInterest payments on unsecured debts are not eligible for forgiveness. Forgiveness is limited to interest payments on business mortgages on real or personal property (like auto loans). Renewal of Leases and Refinancing of MortgagesPayments on leases renewed during the covered period or mortgages that were refinanced during the covered period are eligible for forgiveness, so long as the obligation under the original agreement existed prior to February 15, 2020. Prepayments on lease obligations are not expressly prohibited. Transportation CostsPrior to the latest guidance, there was much confusion as to what constituted “transportation costs” as a permitted non-payroll cost. The guidance clarified that “transportation costs” refers to transportation utility fees assessed by state and local governments. Forgiveness Reductions Comparison Period for Seasonal EmployersSeasonal employers are to use the same 12-week period used for calculation of their loan amount as the period used for calculation of any reduction in the amount of loan forgiveness. Employees Making More Than $100kBorrowers are to include those employees who made more than $100,000 in 2019 on their forgiveness applications. Reductions to CompensationFinally, the guidance clarified that only decreases to an employee’s salary or wages are to be counted against a borrower for purposes of reductions to its forgiveness amount, as opposed to all reductions to that employee’s compensation.

Newsletter

The Post-Pandemic Future for M+A Activity

Each month, Eric Duffee looks at a different piece of The Anatomy of a Deal – a series of easy-to-digest articles that break down complicated aspects of business transactions – helping you better understand terms + processes that can shape the direction of your business. This piece is a collaboration with Bill Levendusky, an associate M+A lawyer at Kegler Brown who is working with business owners and corporate development professionals to plan their post-pandemic deal strategies.Smart Summary There will likely continue to be very little M+A activity in the short-term outside of distressed transactions. Private equity cash, eager investors, a solid pre-pandemic economy, and aggressive government stimulus set the stage for M+A to rebound. A true recovery will be inherent in improvement in economies abroad, progress in the treatment of COVID-19, and the successful re-opening of local economies. With the world economy in free-fall, it seems odd to be talking about the future of M+A activity. But there is reason to believe that M+A activity will rebound in the medium-term. So this month, we look at some of the reasons why deal volume may be poised to rally, and the signs we’re looking for to see when that improvement might occur. Why do we think a rebound is coming? First, let us emphasize that there are a lot of factors at play here. As such, it’s very hard to make any firm conclusions. In addition, we’re looking out a few months; there’s likely not going to be much conventional M+A activity in the short-term. There may be some distressed transactions (as we discussed last month), but many voluntary sellers—and the buyers who are interested in these targets—are waiting for some clarity and stability before jumping in. So with all the bad things happening now, what are the good things we see? A Mountain of PE Cash Private equity funds still have large capital stashes and are required to deploy that “dry powder” within a certain time period. So private equity funds are going to be aggressively looking for good deals. A “First-Mover” Advantage There has been some research as to whether buyers that jump into the M+A market earlier following a recession achieve better long-term results, and, although it’s not entirely conclusive, there is enough reason to believe that this potential will lead at least some buyers to test the M+A markets early on. Solid Pre-Pandemic Economic Indicators The economy was largely in good shape prior to the COVID-19 crisis. And while the timeline isn’t clear right now, the immediate public health threat will subside at some point in time. While there will be lasting damage to the economy, there is some hope that economic conditions could improve later in 2020 and continuing into 2021. Governments Pumping Liquidity into the Economy We’re not economists (but we did stay at a Holiday Inn Express last night). That said, it doesn’t take a Ph.D. to see the massive amounts of stimulus and financial support being provided by world governments to respond to the crisis. Consumer spending in the U.S. (which accounts for approximately 70% of GDP) fell almost 9% in March, but the ongoing government stimulus should theoretically fill in for at least some of that loss. While there will undoubtedly be companies that don’t survive “The Great Pause,” there is hope that the government support will help most businesses weather the storm and be positioned for a rebound. What are the signs we’re looking for in a recovery? After the Great Recession of 2008-2009, we could all look back and agree that we should have invested a bunch of money into the stock market on March 6, 2009. So, if a relatively quick recovery is in the cards as we hope, then how will we know it’s coming? Before we answer that question, it’s worth noting that traditional economic indicators—those charts from 2009-2010 that showed clear trends indicating that the country was emerging from the Great Recession—may not be as useful or as easy to project as they were a decade ago. Unemployment is considered among the most reliable traditional metrics when measuring the strength of the economy. During the week ending April 11, 2020, “Seasonally Adjusted Initial Claims for Unemployment Insurance,” according to the Department of Labor, numbered 5,245,000. The record for Unemployment claims in one week, prior to the COVID-19 crisis, was only 695,000, set in October 1982. During such extreme times, traditional metrics may prove less helpful. If the darkest hour is truly just before dawn, here are some of the signs we’re looking for to see when we’ve reached that point: Improvements OverseasAs many parts of the world—specifically China—began their response to the virus much sooner than the U.S., those regions will provide the first testing ground for determining how and whether economies can start functioning again. As China has begun to “re-open,” there are already reports of an uptick in M+A and investment activity there. At the same time, emerging markets, which often depend on foreign investment and tourism dollars, have been hit hard during this crisis. According to the Institute for International Finance, the economic impact of foreign capital fleeing emerging markets since January 21, 2020, may be three times worse than during the Great Recession. Investor confidence in emerging markets may be a key indicator of recovery, particularly with an eye toward those countries that were more effective at controlling the spread of COVID-19. Progress in the Fight against the CoronavirusOne of the best ways to bring about a quick change in economic conditions is for a medical breakthrough, such as a proven treatment for the virus that can provide a safeguard until a vaccine becomes available. Even if that doesn’t happen, some sustained success in avoiding a spike in new cases will be viewed as a win and start to restore investor confidence. Reopening of States and Local EconomiesWhile some states, such as Ohio, New York, and Texas, have announced plans to gradually re-open their economies, the process will undoubtedly be slow-moving. Ohio and Texas have announced plans to re-open in phases by business sector and New York has announced a plan to re-open in phases by geographic region. As states open their economies, look for consumer spending and wage growth to be on the move. Those factors—and how quickly the changes occur—may provide some insight into the U.S. economy’s health.This is uncharted territory for everyone, but there’s still reason for some optimism as of now. We continue to have numerous discussions with clients who are planning to move forward with transactions in the summer and fall. The coming weeks and months will be critical in determining how successful the rebound will be, and when we can expect it to occur. If fortune truly does favor the bold, then there may be some improvement on the horizon…at least we hope so. In May’s installment of Anatomy of a Deal, we will test this issue’s theories about market rebound and attempt to help owners track their business’s recovery against the economy more generally. Next Month: I'm Still Standing. Now What?Read last month’s piece: Crisis Demands Creativity in M+A

The Anatomy of a Deal Newsletter
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Strategies to Maximize Your PPP Loan Funds + Forgiveness

Smart Summary PPP forgiveness is valuable, but there are certain conditions that businesses should take care to avoid.Businesses should be documenting their payments meticulously and planning re-hires strategically to fully realize loan forgiveness.Employers may need to get creative with payroll in order to incentivize employees currently receiving unemployment while meeting their quotas for forgiveness.When the CARES Act passed on March 27, 2020, the Paycheck Protection Program (“PPP”) provided an opportunity for small business owners to receive an injection of cash while their businesses are subject to government-ordered shut downs. Those businesses fortunate enough to receive funds now face a myriad of issues as they spend their PPP funds while also trying to plan for forgiveness to the greatest extent possible. The most pressing issue is one of time. The funds must be spent within 8 weeks of the loan’s funding, yet many businesses are still closed to the public or working with limited revenue potential. To that end, this article provides some FAQs and examples to show how forgiveness works so small business owners can plan accordingly.Forgiveness Like anything else, forgiveness under the PPP comes with conditions. What is the limit on forgiveness? The full principal amount of the loan, plus accrued interest. What expenses can be forgiven? It depends on the total amount spent over the covered period. We’ve prepared a worksheet that helps you understand and calculate all of this, which can be downloaded for free here. Are there restrictions on forgiveness? Yes. 75% of the amount forgiven must be attributable to payroll costs. How can my forgiveness be reduced? There are two ways your total forgiveness amount can be reduced: a reduction in number of employees or a reduction to employees’ salary or wages. Refer to our worksheet for help on your specific situation. If there is a reason my forgiveness amount may be reduced, are there any second chances? Yes. The PPP provides a grace period. If, from February 15 to April 26, 2020, you had: (i) a reduction in the number of FTEs as compared to February 15, 2020; and/or (ii) a reduction in the salary or wages of one or more employees as compared to February 15, 2020, but you eliminated the reduction in FTEs and/or salary or wages by June 30, 2020, then the amount of loan forgiveness will be determined without regard to any reductions.Employment Concerns Once you have your PPP money and a plan in place for forgiveness, it’s time to spend. But many employers are finding it hard to allocate 75% of their spending to payroll when employees have been laid off and are happy collecting employment. With the CARES Act’s additional $600 benefit, employers may need to get creative to compete with the expanded benefits. Options include a one-time “recall” bonus, temporary raises, partial unemployment, or any combination of the three. The best strategy will depend on your recall needs and PPP spend plan. ExamplesTo better understand your options, here are three common scenarios to consider.Company A – No LayoffsOn February 15, 2020, Company A had 10 FTEs. From February 15 – June 30, 2019, Company A had an average of 10 FTEs. Over the 8-week period after receiving loan funds, Company A had an average of 10 FTEs. Result: Company A will have its loan amount entirely forgiven with respect to covered expenditures, provided that at least 75% of the forgiveness amount is attributable to payroll costs. Company B – 60% Layoff with Full FTE Re-Hires Before June 30On February 15, 2020, Company B had 10 FTEs.From February 15 – June 30, 2019, Company B had an average of 10 FTEs. Company B operated on a skeleton crew of 4 FTEs over the 8-week period after the disbursement of the loan funds. Company B hired 6 additional FTEs on June 15, 2020, as their business ramped back up. Normally, Company B’s forgiveness amount would be reduced by 60%, but because Company B eliminated the discrepancy in FTEs before June 30, 2020, the reduction amount is calculated without regard to such reduction. Note in this example that it is unlikely Company B will have spent all of their available funds because they operated on a skeleton crew during the 8-week payment period. Thus, there would likely be some funding remaining which can be repaid or retained as a loan. Result: Company B will have its loan amount entirely forgiven with respect to covered expenditures, provided that at least 75% of the forgiveness amount is attributable to payroll costs. Company C – 100% Layoff with Re-Hires and Bonus IncentivesOn February 15, 2020, Company C had 10 FTEsFrom February 15 – June 30, 2019, Company C had an average of 10 FTEs. Company C was forced to completely shut down operations. To make matters more difficult, most of Company C’s employees make less than $50,000 per year, such that its full-time employees were making more on unemployment than if they returned to work. In order to incentivize employees who would otherwise qualify for continued unemployment, Company C decides to implement temporary raises. It did not bring back any of them until week 6 of the 8-week period, at which point, Company C re-hired all 10 FTEs and gave them temporary raises in an amount equal to the entire loan amount, dispersed evenly among them. Result: Although Company C’s average FTE over the 8-week period was equal to 2.5 FTE, Company C’s loan amount will be entirely forgiven with respect to covered expenditures. This is because Company C eliminated the discrepancy in FTEs before June 30, 2020. Further, all payroll costs, including the incentives, were paid during the 8-week period. What You Should Do Now Document Everything. When you apply for forgiveness, you will need to provide documentation of payroll records over the covered period. Such documentation may include Form 941, state quarterly wage unemployment insurance tax reporting forms, or equivalent payroll processor records that best correspond to the covered period. You must also submit evidence of business rent, business mortgage interest payments on real or personal property, or business utility payments during the covered period if you used loan proceeds for those purposes. Accordingly, you will want to document all expenses with these important categories in mind. Project and Plan. As with Companies A, B, and C above, each borrower will be in a unique situation. You should project your FTEs over the 8-week period against both your designated historical comparison period and February 15, 2020. You will also want to plan how and when funds will be expended with forgiveness in mind. Know the categories of expenses for which forgiveness is permitted and that the expenditures must occur over the 8-week period after you have received the funds. Watch for Reduction Traps and Don’t Forget About Grace. If your projected average of FTEs over the 8-week period is less than your historical comparison period, then you should look for creative ways to receive 100% forgiveness. As long as you can eliminate any discrepancies prior to June 30, 2020, then you may be able to take advantage of the grace period to receive full forgiveness. Work with Your Advisors. Given how quickly everything has developed with the PPP, it is important to take the time to plan for how you will comply with forgiveness requirements. The earlier you bring in your financial and legal advisors, the greater chance you have of making the most of your PPP funds.Danielle Crane is an employment lawyer with Kegler Brown, advising clients on human capital strategies to help navigate the COVID-19 pandemic and prepare for re-opening. She can be reached directly at dcrane@keglerbrown.com or (614) 462-5444.Brendan Feheley is a director and chair of Kegler Brown’s Labor + Employment practice where he is working with business owners and their HR leaders to navigate the COVID-19 pandemic. He can be reached directly at bfeheley@keglerbrown.com or (614) 462-5482.

E-mployment Alert
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Are Ohio’s Commercial Landlords and Lenders Now Required to Give a 90-day Reprieve?

Smart Summary Governor DeWine issued an executive order requesting landlords to suspend commercial rent payments for at least 90 days. The Order also urges lenders to offer a similar reprieve to their landlord borrowers. The Order is not legally binding, though more forceful language could potentially be forthcoming. Since the COVID-19 crisis began, we’ve been fielding calls and e-mails from clients on both sides of the commercial landlord-tenant relationship.  Tenants negatively affected by the crisis want some sort of relief from their landlords in terms of a rent abatement or forbearance, and landlords are receiving a crippling volume of these requests from their tenants. Typically, there is no legal ground to require a landlord to grant an abatement or deferral request, but from a practical standpoint, it still may make sense for them to work with commercial tenants if the alternative is for those tenants to permanently close their doors. At the same time, it’s also important to recognize that landlords may be caught between a rock and hard place. Most are still required to make mortgage payments and pay taxes, common area maintenance costs and other expenses, without receiving rent from their commercial tenants. Each side may also put the responsibility on the other to attempt to obtain relief from federal sources, including the SBA’s Economic Injury Disaster Loan program and the Paycheck Protection Program provision of the recently passed CARES Act. To date, however, there hasn’t been an across-the-board standard or a one-size-fits-all approach for negotiations between commercial landlords and tenants dealing with the effects of COVID-19.Governor DeWine Opines with an Executive Order In an attempt to provide some relief for both sides, Governor Mike DeWine issued Executive Order 2020-08D on April 1, urging Ohio landlords to suspend rent payments and evictions for at least 90 days for small-business tenants experiencing “financial hardship due to the COVID-19 pandemic.” Accordingly, to assist those landlords who would then be at risk of defaulting on their own mortgages, the Order also requests that lenders agree to a minimum 90-day forbearance and refrain from enforcing default penalties or initiating foreclosures during that period. The Order specifies, however, that the governor is not requesting a rent abatement under the leases, nor forgiveness of mortgage payments, just a delay in collections instead.Interpretation: Request or Requirement? While the language may not be entirely clear, our interpretation of this Order is that it is a request, not a requirement , and that landlords and lenders alike are not currently legally obligated to comply. However, we think it’s unlikely that a court in Ohio is going to take up a foreclosure action at this time. Given the rapidly evolving pace of change right now, it’s certainly possible for Governor DeWine to sign a more forceful Order before this situation is over. Regardless, this Order may provide a new baseline for negotiations between landlords and tenants as they navigate through the COVID-19 crisis. Michael Schottenstein is an associate attorney in Kegler Brown’s Real Estate + Finance practice. He represents both commercial landlords and tenants in the drafting and negotiation of leases, amendments and works with clients in the context of their more general business operations. Michael can be reached at mschottenstein@keglerbrown.com or (614) 462-5451.

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