The Corporation Law Section of the Delaware State Bar Association has approved, in substantially the form proposed by the Delaware Corporate Council, amendments to the General Corporation Law of the State of Delaware (DGCL) that would prohibit so-called “fee-shifting” provisions in charters and bylaws, expressly permit “exclusive forum provisions” in a corporation’s charter and bylaws, and make certain changes with respect to appraisal rights. The fee-shifting and exclusive forum proposals of the Delaware Corporate Council were discussed in the March 20 edition of Corporate and Financial Weekly Digest.
The proposed amendments would add new Sections 102(f) and 109(b) of the DGCL, which would prohibit the inclusion in any charter or bylaw (but without applying this prohibition to provisions in any other contractual agreements) of any provision that would “impose liability on a stockholder for the attorneys’ fees or expenses of the corporation or any other party in connection with an internal corporate claim.” In addition, proposed Section 115 of the DGCL would expressly permit charter and bylaw provisions that require that “internal corporate claims” be brought exclusively in any or all of the courts of the State of Delaware. The term “internal corporate claims,” as defined in the proposed amendments, includes claims (including claims in right of the corporation) based upon violations of a duty by a current or former director or officer or stockholder, in such capacity.
The proposed amendments to the DGCL also would provide an exception to the availability of appraisal rights under Section 262 of the DGCL. Specifically, under a proposed amendment to Section 262(g) of the DGCL, the Delaware Court of Chancery would be required to dismiss an appraisal proceeding with respect to any class or series of stock of a corporation listed on a national securities exchange immediately prior to the merger or consolidation of such corporation unless (1) the total shares entitled to appraisal exceeds 1 percent of the outstanding shares of the class or series entitled to appraisal, (2) the consideration provided in the merger or consolidation for such shares exceeds $1 million, or (3) the merger was a short-form merger pursuant to §253 or §267 of the DGCL. By eliminating certain de minimis appraisal claims, this provision would potentially assist in addressing concerns over increased appraisal activity by parties investing in target corporations for the sole or primary purpose of extracting a payment from the corporation (rather than engaging in a lengthy and costly appraisal process).
In addition, under a proposed amendment to Section 262(h) of the DGCL, the surviving corporation would have the right to pay each stockholder entitled to appraisal in advance of the entry of any judgment in the proceeding, which would stop interest from accruing, as otherwise required by Section 262(h), with respect to the amount paid.
The Corporation Law Section also approved other proposed amendments to the DGCL, including as to matters relating to calculation of consideration payable in exchange for stock or upon exercise of rights or options and ratification of defective corporate actions. It is expected that the proposed amendments to the DGCL will be presented to the Delaware General Assembly for approval.