The Corporate Law Section of the Delaware Bar Association will meet Thursday, February 26, 2009 to consider and vote upon amendments to the Delaware General Corporation Law (DGCL). The most significant proposals pertain to: (i) new Sections 112 and 113, which could modify stockholder's ability to nominate directors, gain access to corporate proxy materials and be reimbursed for proxy-related expenses; (ii) Section 145(f), which would safeguard director's right to indemnification and advancement against a subsequent bylaw amendment; and (iii) Section 225(c), which would create a new cause of action granting the Court of Chancery the power to remove directors.
In light of the nature of the proposed amendments and because the DGCL, more than any other body of law, governs the internal workings of corporate America, the upcoming vote will be of interest to many clients. Several attorneys in Blank Rome's Wilmington office are members of the Corporate Law Section and are available to discuss the potential impact of the proposed amendments or advocate in favor of changes to the amendments. Below is a brief summary of the amendments.
8 Del.C. §112 and 113
Two proposed new statutes will authorize but not require the corporation to adopt enabling bylaws that would facilitate (1) stockholder nomination of directors and access to proxy materials (§112) and (2) reimbursement of proxy expenses in certain circumstances (§ 113). The proposed Section 112 identifies a non-exclusive list of conditions that bylaws may impose on stockholders' right to access proxy materials. For instance, bylaws can establish a threshold stock ownership requirement before allowing inclusion of nominees in the corporation's proxy material. Similarly, the proposed Section 113 suggests a list of conditions that bylaws may impose on stockholder's right to reimbursement, such as conditioning it upon the number or proportion of persons nominated by such stockholder or whether such stockholder previously sought reimbursement for similar expenses.
8 Del. C. § 145(f)
The proposed amendment to Section 145(f) is in direct response to a recent decision of Schoon v. Troy Corp, 948 A. 2d 1157, 1165-1166 (Del. Ch. 2008). In Schoon, the Court enforced a bylaw amendment eliminating the company's advancement obligations to former directors, even though the director seeking advancement had served under the company's prior bylaws and had left the board prior to the bylaw amendment. If adopted, the new 145(f) will protect director's right to indemnification or advancement under a provision of a certificate of incorporation or bylaw against any amendments seeking to eliminate or impair such right after the occurrence of the act to which indemnification or advancement of expenses related.
8 Del. C. § 213(a)
The proposed amendment to Section 213(a) would permit a board of directors to bifurcate the record date for determining the stockholders entitled to vote at a meeting from the record date for determining those stockholders entitled to notice of the meeting. The practical implication of record/notice vs. record/voting dates is to mitigate the potential for voting by persons who no longer have an economic interest in the corporations.
8 Del. C. § 225(c)
The proposed new Section 225(c) will create a new cause of action granting the Court of Chancery authority to remove a director under very limited emergency circumstances involving criminal or other serous misconduct. Any removal must be predicated on a conviction "of a felony in connection with the duties of such director" or if "there has been a prior judgment on the merits by a court of competent jurisdiction" that such director breached the duty of loyalty. The Court can remove a director only upon a determination that the director did not act in good faith and when judicial removal is necessary to avoid irreparable harm to the corporation. Noteworthy, is the further expansion on the concept of "good faith" that both lawyers and the Courts have struggled to define.
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