Indemnification and Advancement Rights – Section 145(f)

The Delaware State Bar Association has proposed amendments to Delaware General Corporation Law (DGCL) Section 145(f) to clarify that a director’s or officer’s right to indemnification or advancement of expenses under a provision in a company’s certificate of incorporation or bylaws may not be eliminated or impaired by a subsequent amendment of the provision, unless the provision contains, at the time of occurrence of the event with respect to which the right to indemnification or advancement arises, an explicit authorization that the right may be eliminated or limited. This proposed change results from (and is in direct contradiction to) the recent Schoon v. Troy Corp. case in which the court held that a board of directors could amend a company’s bylaws to eliminate indemnification or advancement rights for claims relating to actions taken before the amendment, as long as no claim had actually been made against the indemnitees before the amendment was adopted.

“Notice” and “Record” Dates for Meetings of Stockholders

Under a proposed amendment to DGCL Section 213(a), the board of directors can select both a “notice” record date for determining the stockholders entitled to notice of a meeting and a later record date for determining the stockholders entitled to vote at the meeting. The later record date could be any date on or before the meeting date, but would be required to be specified in the initial notice of the meeting. This change is intended to address “empty voting,” which occurs in a number of different situations. For example, a stockholder may own shares on the record date but may sell the shares prior to the meeting date. Therefore, the stockholder holds the right to vote, but without an economic stake in the mutual fund. Moving the record date for voting closer to the meeting should result in more record stockholders continuing to be stockholders on the meeting date.

However, the practical implications of setting separate dates on which rights to notice and rights to vote attach may be quite cumbersome. It may be logistically difficult and expensive for mutual funds to obtain up-to-date stockholder lists and to solicit proxies effectively from new stockholders. From the stockholders’ view, those who become eligible to vote closer to the later record date may not have adequate time to digest the information given to them and cast informed votes. These concerns suggest that mutual funds may consider waiting to adopt a system of two record dates until the share transfer and proxy solicitation systems have been adapted to the use of two record dates.