by Cydney Posner
The Corporation Law Section of the Delaware Bar has approved, substantially as proposed, the amendments to the Delaware General Corporation Law proposed by the Delaware Bar’s Corporation Law Council regarding fee-shifting and forum selection provisions in Delaware governing documents. (See this post.) Accordingly, it is anticipated that the proposals would be introduced for consideration by the Delaware General Assembly.
More specifically, the proposed amendments would invalidate, in Delaware charters and bylaws, fee-shifting provisions in connection with internal corporate claims. “Internal corporate claims” are claims, including derivative claims, that are based on a violation of a duty by a current or former director or officer or stockholder in such capacity or as to which the corporation law confers jurisdiction on the Court of Chancery. These claims would include claims arising under the DGCL and claims of breach of fiduciary duty by current or former directors or officers or controlling stockholders of the corporation, or persons who aid and abet those breaches. However, as discussed in this post, federal securities class actions would not be included. The proposed amendments also expressly authorize the adoption of exclusive forum provisions for internal corporate claims, as long as the exclusive forum is in Delaware. Although the proposed amendment does not address the validity of a provision that selects, as an additional forum, a forum other than Delaware, the synopsis indicates that it would invalidate “a forum selection provision selecting the courts in a different State, or an arbitral forum, if it would preclude litigating such claims in the Delaware courts.” Accordingly, the legislation would not allow Delaware corporations to select another state as the exclusive forum.
While not exactly topics roiling the Delaware Bar, a few other matters are addressed in the proposed legislation. For example, with regard to public benefit corporations (see these news briefs and these posts), the proposed amendments would reduce the voting requirement for a corporation to become a public benefit corporation from 90% of the outstanding shares to 2/3 of the outstanding shares (still a rather high hurdle, especially if the company is already public) and provides a market out (applicable to listed companies and companies with over 2,000 record holders) to the provisions allowing appraisal for stockholders that did not vote in favor of the transaction.
Other proposed amendments relate to issuance of stock and options. These proposed amendments clarify that the board may authorize stock to be issued in “at the market” programs without having to separately authorize each individual stock issuance and that the amount of consideration to be received for stock or options may be determined by a formula that references or depends on the operation of extrinsic facts, such as market prices or averages of market prices on one or more dates.
The proposed amendments would also clarify a number of issues in connection with the new Delaware statutes, Sections 204 and 205, that authorize ratification of defective corporate acts by the corporation and the Delaware courts, respectively. Among other things, these amendments would address the situation in which the initial board was not named in the original certificate or properly appointed, allow listed companies to provide certain notices by making public filings, clarify the requirements for certificates of validation, clarify the term “validation effective time” (including allowing the board to designate a future time in some circumstances), clarify that the board may adopt a single set of resolutions ratifying multiple defective corporate acts, and clarify that holders of shares of putative stock would not be considered stockholders entitled to vote or to be counted for purposes of a quorum in any ratification vote and that the only stockholders entitled to vote on ratification are the holders of record of valid stock as of the record date (i.e., ratification of a defective corporate act will not result in putative shares being retroactively validated so that they become entitled to vote).