Several noteworthy amendments to the Delaware General Corporation Law regarding stockholder access to proxy solicitation materials, proxy solicitation expense reimbursement, record dates for voting, indemnification and advancement of expenses to directors and judicial removal of directors became effective on August 1, 2009.
Proxy Access and Expense Reimbursement. A new Section 112 of the DGCL provides that a Delaware corporation's by-laws may require the corporation to include in its proxy solicitation materials the board of director nominees that were nominated by stockholders in addition to those nominated by the board. The statute also provides procedures or conditions that may be (but are not required to be) imposed upon an inclusion, such as minimum levels or duration of stock ownership by the nominating stockholder; stockholder/nominee disclosure requirements; the number of stockholder nominees and previous inclusion; preclusion in the event the nominating stockholder has acquired or publicly proposed to acquire a specified percentage of voting stock within a specified period prior to the director election; and indemnification of the corporation by the nominating stockholder with respect to any false or misleading statements made in a nomination. In addition, a new Section 113 of the DGCL provides that the by-laws may also require the corporation to reimburse stockholders for expenses incurred in soliciting proxies in director elections. Again, optional conditions are listed, such as conditioning eligibility upon the number of directors nominated by the stockholder; previous reimbursement; the proportion of votes cast in favor of the subject director(s); the amount spent by the corporation in soliciting proxies in the election; and whether cumulative voting applied.
Record Dates for Notice and Voting. To eliminate the concept of "empty voting" (i.e. when a person or entity retains the right to vote shares that the person or entity no longer owns), Section 213(a) of the DGCL has been amended to provide that a board of directors may fix two different record dates in a stockholders meeting. One record date (which must be between 10 days and 60 days prior to the meeting) will determine those stockholders entitled to notice of the meeting and a later date (which may be any date between the first record date and the date of the meeting) will determine those stockholders entitled to vote at the meeting. In the event that the board does not elect to set two record dates, the notice record date will also serve as the voting record date.
Indemnification and Advancement of Expenses. Section 145(f) of the DGCL has been amended to provide that a director's right to indemnification and advancement of expenses in the corporation's certificate of incorporation or by-laws may not be eliminated once an act or omission has occurred that would give rise to those rights, unless the certificate of incorporation or by-laws specifically allow an elimination at that time.
Judicial Removal of Directors. A new subsection (c) to Section 225 of the DGCL provides that a corporation may seek, in a direct or derivative suit, Court of Chancery judicial removal of a director that has been convicted of a felony or found by a court of competent jurisdiction to have committed a breach of the director's duty of loyalty. However, the judicial removal may only be ordered if the court finds that the director did not act in good faith in performing the acts giving rise to the conviction or judgment and that removal is necessary to avoid irreparable harm to the corporation.
Copyright © 2009 Herrick, Feinstein LLP. This alert is published by Herrick, Feinstein LLP for information purposes only. Nothing contained herein is intended to serve as legal advice or counsel or as an opinion of the firm.