EJECUCIÓN DE GASTOS DE LOS NIVELES DE GOBIERNO NACIONAL, REGIONAL Y LOCAL AL PRIMER TRIMESTRE DEL AÑO FISCAL 2016

Compensation Programs

Where the Company is the target in a pending or anticipated transaction, the principal goal of the Board is to ensure that the Company’s shareholders receive the best value for their shares. Executive compensation programs can further this goal by encouraging the continued attention and dedication of management to their assigned duties (including facilitating execution and closing of a sale agreement) and discouraging premature management departures or distraction that would be to the detriment of the Company and its shareholders. The most typical tools in this regard include:

• employment agreements with severance provisions;

• change in control severance agreements (a severance agreement that pays only in the

change in control context); and

• retention agreements (whether on a stand-alone basis or as a complement to existing

severance protections).

Who should have such agreements and what their specific provisions ought to be is a question unique to each company. It is important to analyze that question in the overall context of the Company’s compensation program, for example with regard to how any transaction-specific arrangements complement existing long-term incentive awards. Even where the Company is the acquirer, it is important to understand the consequences of existing Company executive compensation arrangements to identify any unintended consequences. For example, there may be circumstances under which a change in control definition may be triggered, particularly if the definition is of older vintage and the transaction approximates a merger of equals. While this could be appropriate in some limited circumstances, shareholders may view it skeptically (particularly if single-trigger equity vesting is the result). The acquisition also may require performance metrics under the Company’s existing incentive compensation programs to be adjusted.

It is important for Committee members to periodically review existing arrangements and consider the need for new or different ones so that the arrangements continue to serve their intended purpose. As discussed below, revising programs may become difficult once an actual transaction is contemplated and so it is generally preferable to implement any changes on a “clear day.”

Due Diligence Considerations

Where the Company is the acquirer, it is of critical importance to understand the consequences of the contemplated transaction for the target company’s executive compensation arrangements, including not only the cost but also the executive retention implications. From an operational perspective, the existence of a different compensation program at the target may be an indication of potential roadblocks to a successful integra- tion of the two companies for cultural or other reasons.

Regardless of whether the Company is the target or acquirer, special attention should be paid to golden parachute (280G) tax treatment, which is discussed in Chapter 8. Any loss of tax deduction for golden parachute payments will add to the cost of severance payments, particularly if the payments are grossed up for the excise tax imposed on the executive. As noted in Chapter 8, golden parachute gross-ups have become less common in recent years.

Scrutiny of New Compensation Programs

Adoption of new (or amendments to existing) compensation programs when a takeover or other M&A activity is pending or anticipated can be subject to enhanced scrutiny if the action is deemed to have been taken as a defensive measure. In such a case (under the so-called Unocal standard), directors must be able to demonstrate that:

• they had a reasonable basis for concluding that there was a danger to corporate policy

and effectiveness; and

• the adoption of new or amendments to existing compensation programs was reason-

able in relation to the threat posed.

If this standard is satisfied the directors will be entitled to the protections of the business judgment rule (as discussed in Chapter 1). Because of the risk that the standard may not be satisfied (and because of the risk that in any event the action may cause the directors’ activities to be more closely scrutinized), it is advisable to adopt new (or amendments to) existing compensation programs when there is no pending or anticipated M&A activity involving the Company.

Special Considerations in the Case of a Tender Offer — Best Price Rule

Pending tender offers present special concerns in regard to compensation arrangements because of the “best price rule,” which requires that all tendering security holders be paid the same consideration in a tender offer.

• Historically there had been concerns that compensatory and other arrangements with

a Company’s security holders, who may be employees or have other relationships with the Company, could be deemed additional consideration for their tendered shares above and beyond the price offered and paid to other security holders in the tender offer, in violation of the best price rule.

• Several years ago the SEC amended the best price rule to clarify that it only applies to

consideration paid in exchange for securities tendered and not to consideration that relates to an aspect of the acquisition transaction other than payment for the tendered securities simply because it is paid to persons who happen to be security holders (e.g., employees).

Due to the particular focus on compensatory arrangements, the SEC adopted a specific exemption from the best price rule for employee compensation, severance and benefit arrangements. Accordingly, the best price rule does not apply to the “negotiation, execution or amendment of an employment compensation, severance or other employee benefit arrangement, or payments made or to be made or benefits granted or to be granted according to such an arrangement, with respect to any security holder” where the amount payable under the arrangement:

• is being paid or granted as compensation for past services performed or future

services to be performed or refrained from (i.e., non-competition agreements), and matters incidental to those services; and

• is not calculated based on the number of securities tendered or to be tendered by the

security holder.

A non-exclusive safe harbor provides that an arrangement entered into in connection with a tender offer (whether conducted by a third party or an issuer) will be deemed to be within the exemption if it was approved as being an employment compensation, sever- ance or other employee benefit arrangement.

• In a third-party tender offer, this approval generally must be granted by the compensa-

tion committee of either the bidder (if the bidder is a party to the arrangement) or the subject company (regardless of whether the subject company is a party to the arrangement).

• In an issuer self-tender, the approval generally must be granted by the compensation

committee of the issuer (regardless of whether the issuer is a party to the arrange- ment) or, if an affiliate of the issuer is a party to the arrangement, that affiliate.

Although the safe harbor is available to eliminate any doubt that approved compensatory arrangements fall within the exemption from the best price rule, compliance with the terms of the exemption itself, without reference to the safe harbor, is sufficient to remove the arrangement from the scope of the best price rule.