Monthly Archives: April 2015

April 13, 2015

How the Delaware Corporation Law Council Works

With the proposed amendments from the Delaware Corporation Law Council in the news, I thought it was good to highlight how the Council works in practice. Here’s an excerpt from one of the Council’s documents:

The Delaware Corporation Law Council, which is a committee of the Delaware State Bar Association (the “DSBA”) has reproposed legislation similar to the legislation it proposed last year that would prohibit fee shifting charter and bylaw provisions. That proposed legislation was put on hold by the Delaware legislature following vocal objections from segments of the legal and business community, including the US Chamber of Commerce.

The Council drafts recommendations to the Delaware legislature for amendments to the Delaware General Corporation Law (the “DGCL”) every year. The group includes 22 lawyers with significant representation from law firms that regularly represent corporations and their directors and officers in transactions and litigation, as well as lawyers who generally represent investor plaintiffs. Any legislation the Council drafts must be approved by the DSBA Corporation Law Section, which consists of almost 500 Delaware attorneys, and must then be approved by the Executive Committee of the DSBA. In addition, the head of the Division of Corporations participates in Council deliberations as a non-voting member, so that there is administration input on legislation the Council drafts.

April 10, 2015

Fee-Shifting & Exclusive Venues: Delaware Corporation Council Approves Amendments

Here’s an excerpt from this blog by Cooley’s 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).

Meanwhile, the “Delaware Rapid Arbitration Act” has been enacted – see this memo

April 8, 2015

Canada Seeks Fundamental Changes to Its Takeover Regime

Last week, as noted in these memos posted in our “Canadian M&A” Practice Area, the Canadian Securities Administrators released draft amendments to Canada’s take-over bid regulatory regime. As previously announced by the CSA in September, the amendments will increase the minimum period that a take-over bid must remain open from 35 days to 120 days—unless the target board consents to a shorter period of not less than 35 days or the target enters into a board-supported change of control transaction—and make other changes designed to rebalance the current dynamics between bidders, target boards and target securityholders.

April 7, 2015

Proposed Treasury Regs Aim to Curb Elective Transaction Costs Treatment

As noted in this Proskauer memo:

Some taxpayers have taken the position that an acquiring corporation and a target corporation, when the target corporation is joining the acquiring corporation’s consolidated corporate group, can choose between taking certain acquisition-related expenses into account in the target’s pre-acquisition taxable year or the post-acquisition consolidated taxable year. If included in the post-acquisition consolidated taxable year, this has the effect of permitting the use of these deductions to offset the income of other group members without limitation under section 382 of the Code. On March 5, 2015, Treasury issued proposed regulations that would reverse this result.

April 6, 2015

7 Law Firm Letter on Proposed Delaware Appraisal Amendments

Last week, seven NY law firms sent this letter to the Delaware Corporate Law Council criticizing the proposed appraisal law modifications recommended by the Council. Here’s a related blog by Wachtell Lipton’s Trevor Norwitz – and a WSJ article

April 1, 2015

Post-Merger Cultural Integration Success Program

This recent article from Deloitte is noteworthy because it addresses a scarcely resourced, but virtually always encountered, merger challenge – post-merger cultural integration issues.

The article soundly advises implementing a formal integration program with concrete steps linked to measurable business results, as follows:

1. Make culture a major component of the change management work stream.
2. Identify who “owns” corporate culture and have them report to senior management.
3. Insist that the cultural work focuses on the tangible and the measurable.
4. Consider the strengths of both existing cultures, not just the weaknesses.
5. Implement a decision-making process that is not hampered by cultural differences.
6. Build the employee brand with a view toward how it will be understood by employees.
7. Put people with knowledge of, and experience in, culture change on the teams that define the important interfaces in the new organizational model.

Each suggested step is supported by further explanation and sensible guidance.

Access additional resources in our “Integration” Practice Area.