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Proposed Delaware General Corporation Law Amendments一月 1, 0001
The Corporation Law Council of the Delaware State Bar Association has proposed amendments to the Delaware General Corporation Law. These amendments, which would have a significant impact on the corporate governance of Delaware corporations, have been submitted to the Delaware State Bar Association. To be enacted, these proposed amendments must be submitted to the Delaware General Assembly for approval and to the Governor of the State of Delaware for signature. As proposed, the amendments would become effective August 1, 2009.
Access to Proxy Solicitation Materials -- Proposed Section 112 of the DGCL
Proposed Section 112 would expressly authorize a Delaware corporation to adopt a bylaw that grants stockholders the right to include stockholders’ nominees for election to the board of directors in the corporation’s proxy solicitation materials, including any form of proxy card that it distributes, subject to any procedures or conditions the bylaw may impose. Proposed Section 112 would clarify that Delaware corporations may impose reasonable restrictions on stockholders’ right to access the corporation’s proxy materials and would identify a non-exclusive list of possible procedures or conditions, including:
establishing minimum ownership requirements, including duration of ownership requirements, for stockholders to be eligible to include nominees in the corporation’s proxy materials;
defining beneficial ownership to include ownership of options or other rights relating to the corporation’s stock, including derivative rights;
conditioning eligibility for inclusion in the corporation’s proxy materials on the number or proportion of directors nominated by stockholders;
conditioning eligibility for inclusion in the corporation’s proxy materials on whether the stockholder previously sought to require inclusion;
excluding nominations by persons who own or publicly propose to acquire (such as through a tender offer) more than a specified percentage of the corporation’s stock within a specified period before the election of directors;
requiring the nominating stockholder to submit specified information concerning the stockholder and the nominee(s), such as information regarding ownership of the corporation’s stock, or options or other rights relating to stock;
requiring the nominating stockholder to execute an undertaking to indemnify the corporation for any loss resulting from any false or misleading information submitted by the stockholder and included in the corporation’s proxy materials; and
establishing “any other lawful condition.”
Reimbursement for Proxy Expenses -- Proposed Section 113 of the DGCL
Proposed Section 113 would effectively codify a key holding from last year’s Delaware Supreme Court decision in CA, Inc. v. AFSCME Employees Pension Plan, 953 A.2d 227 (Del. 2008). Proposed Section 113 would permit a Delaware corporation to adopt a bylaw that provides for the reimbursement by the corporation of expenses incurred by a stockholder in soliciting proxies in connection with an election of directors, subject to any procedures or conditions the bylaw may impose. The proposed section would permit Delaware corporations to define the voting or other thresholds necessary to qualify for reimbursement and to limit reimbursements to “short slate” contests (where a nominating stockholder nominates fewer directors than would make up a majority of the board and fills the remaining slots with the corporation’s nominees). Proposed Section 113 also would identify a non-exclusive list of procedures or conditions that the bylaw may prescribe, including:
conditioning eligibility for reimbursement on the number or proportion of persons nominated by the stockholder seeking reimbursement;
conditioning eligibility for reimbursement on whether the stockholder previously sought reimbursement for similar expenses;
linking the amount of reimbursement to the proportion of favorable votes for one or more of the persons nominated by the stockholder seeking reimbursement, or to the corporation’s own expenses in soliciting proxies in connection with the election;
imposing limits concerning elections of directors by cumulative voting; and
establishing “any other lawful condition.”
Notably, proposed Section 113 does not address specifically whether a reimbursement bylaw may include a “fiduciary out” that would permit the directors to choose whether or not to reimburse expenses -- one of the points at issue in the CA vs. AFSCME decision. It is unclear whether Delaware courts will read such a “fiduciary out” standard into a reimbursement bylaw adopted under the express authority provided in proposed Section 113.
Amendments to Address “Empty Voting” -- Proposed Revisions to Section 213(a) of the DGCL
The proposals would amend Section 213(a) (along with a number of conforming amendments to other sections of the DGCL) to allow for revisions to the process by which Delaware corporations may determine stockholders of record for purposes of stockholder meetings. Specifically, the amendments would permit a board of directors to fix a record date for voting that is separate from the record date for notice of the stockholder meeting. This would allow a board to fix one date (not more than 60 days nor less than 10 days before the meeting) as the record date for notice of the meeting and to fix a later date (on or before the date of the meeting) as the record date for voting, rather than the current practice of fixing a record date for all purposes that is as many as 60 days prior to the meeting date. The need to provide notice well ahead of a meeting (especially for those meetings relating to proposed mergers or acquisitions) can lead to difficulties in obtaining required votes in cases in which a large number of shares changes hands following the record date. The proposed amendments to Section 213(a) would provide no limit on how close the record date for voting may be to the meeting date.
Other Amendments -- Proposed Revisions to Section 145(f) and Section 225(c) of the DGCL
Section 145(f) - Indemnification of Officers, Employees and Agents: The proposals would amend Section 145(f) to prohibit a Delaware corporation from eliminating or impairing a right to indemnification or a right to advancement of expenses under the corporation’s bylaws or articles of incorporation after the occurrence of an event giving rise to potential liability unless the provision itself explicitly provides for its own elimination or impairment after the occurrence of such an event.
Section 225(c) - Removal of Directors: The proposals would amend Section 225(c) to allow a Delaware corporation (either through a direct or a derivative claim) to ask the Chancery Court to remove a director who has been (a) convicted of a felony in connection with his or her duties as a director or (b) found by a court of competent jurisdiction to have breached his or her duty of loyalty to the corporation in connection with his or her duties as a director.
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