H.S. Grace & Company, Inc.
Case Studies

Executive Compensation
Overview: Shareholders had sued Walt Disney Company alleging that the amount of compensation paid CEO Michael Ovitz, who was terminated after just over a year, was excessive. H.S. Grace & Company, Inc. (HSG) was hired to analyze the business case behind the decisions. HSG's report found that the company followed appropriate governance processes in the hiring process and that the contractual arrangements were justifiable based on the circumstances and similar executive pay plans.

Result: An appellate court ruling validated these findings.

Corporate Governance Responsibilities vis-à-vis Minority Shareholders
Overview: HSG was engaged on behalf of minority shareholders of a small capitalized company to determine whether the value of their investment was intentionally devalued over the course of a seven-year period by the senior management of the acquiring company. HSG found governance problems in the financial, operational and management practices of the defendants.

Result: A settlement was reached that was favorable for the plaintiffs.

Cause of Start-up Failure
Overview: HSG was hired by the directors and officers of a failed startup firm. There were questions of inappropriate actions within the zone of insolvency, waste of corporate assets, excessive compensation and other issues. Our findings established that the startup firm failed because its business model simply did not work.

Result: A favorable settlement was reached.

Fair Valuation of Shares
Overview: HSG was hired as an expert by two law firms in their representation of a group of shareholders who felt they did not receive fair value when different classes of shareholdings were combined. Our work demonstrated how compensating shareholders with one class of stock, and later combining that class of stock with other classes of stock, provides the opportunity to basically re-price the initial transaction. Our analysis also found that the board of directors had failed to focus on their duty of fairness to all of the involved shareholders.

Result: A settlement in the high eight-figures was achieved by the two law firms for their shareholder clients.

Appropriate Board Oversight of Separation of Ownership Interests
Overview: Plaintiffs (major shareholder, banks and other shareholders) charged that another majority shareholder and his two sons, who had served as CEO and COO of the company, unfairly influenced separation of interests in the company in a way that enriched them and damaged the other interests. HSG examined the situation and found that the board did not have appropriate checks and balances in place to ensure fair treatment of both parties, allowing family members to manipulate the process in their favor over a two-year period.

Result: Plaintiffs were awarded a nine-figure settlement.

Commodity Exchange: Board Oversight and Fulfillment of Duties
Overview: The old board of a commodities trading exchange was sued by the new board alleging negligence, self-dealing and misconduct in its oversight of the market. HSG was brought in a specialized consulting assignment to review the board's actions. We found significant problems with the board's actions and that its responsibilities were not satisfied.

Result: The matter was subsequently resolved.

Accounting Recognition of In-the-Money Stock Option to Employees
Overview: In a shareholder derivative action, plaintiffs filed suit in Delaware, federal and state court alleging breach of fiduciary duties and fraudulent misrepresentation regarding the award of stock options to certain employees. HSG's analysis showed that the company had communicated its stock option program openly, and that audit committee had properly discharged its responsibilities in connection with an earlier award of "in-the-money" options. Sensitive to the manner in which those options were awarded, the audit committee worked with its outside accountant and chose to take a conservative approach to recognizing the value of these options.

Result: Favorable settlment was reached for our client.

Board Oversight of IPO
Overview: HSG was asked to review the board's action in an initial public offering. Shareholders had sued, alleging that the company had deliberately misled the marketplace as shares were down 40% two months after going public. HSG's analysis determined the appropriate checks and balances were in place, with lines of communication open between senior management and the board. The board was informed of problematic, recurrent issues in the industry and the company had taken appropriate steps to address them. The share price decline was the result of market forces, not board action or inaction.

Result: Favorable settlment was reached for our client.