Delaware House Bill 371 (Prior Session Legislation)

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Completed Legislative Action
Spectrum: Slight Partisan Bill (Democrat 9-4)
Status: Passed on June 16 2016 - 100% progression
Action: 2016-06-16 - Signed by Governor
Text: Latest bill text (Draft #1) [HTML]

This bill’s changes to the corporations law are recommended by the Delaware State Bar Association. Section 1. Section 104 is amended in connection with the amendments to Sections 311, 312 and 313. Section 2. The amendment to Section 111(a)(2) permits the Court of Chancery to exercise non-exclusive subject matter jurisdiction over civil actions involving certain instruments, documents, or agreements, including (i) those to which a Delaware corporation is a party and pursuant to which one or more holders of the corporation’s stock sell or offer to sell any of such stock, and (ii) those by which a Delaware corporation agrees, subject to specified conditions, to sell, lease or exchange any of its property or assets. The amendment does not affect the concurrent subject matter jurisdiction of the Superior Court over civil actions at law involving such matters. Section 3. Section 141(b) is being amended to eliminate surplus language that addresses the minimum quorum requirement for a one-person board of directors. Section 4. Section 141(c) is being amended to specify default quorum and voting requirements for committees of a board of directors and subcommittees of committees of a board. Section 141(c)(3) is being amended to clarify that references in the General Corporation Law to board committees (and committee members) will be deemed to include references to subcommittees (and subcommittee members). Section 5. Section 141(d) is being amended to eliminate the express reference to subcommittees of committees of a board. The eliminated reference is unnecessary given the amendments to Section 141(c)(3). Section 6. The amendment to Section 158 provides that any two officers of the corporation who are authorized to do so may execute stock certificates on behalf of the corporation. The amendment is not intended to change the existing law that the signatures on a stock certificate may be the signatures of the same person, so long as each signature is made in a separate officer capacity of such person. Section 7. Section 7 amends Section 251(h) in several respects. It clarifies that Section 251(h) is applicable to a constituent corporation that has a class or series of stock that is listed on a national securities exchange or held of record by more than 2,000 holders immediately prior to the execution of the agreement of merger, even if not all classes or series of stock of such constituent corporation are so listed or held. Relatedly, Section 7 clarifies that the offer contemplated by paragraph (2) (the “Offer”) may be effected through separate offers for separate classes or series of stock. The amendments to Section 251(h) also clarify that the Offer may be conditioned on the tender of a minimum number or percentage of the shares of the stock of the constituent corporation, or of any class or series thereof. Section 7 permits, for purposes of determining whether the requirement in paragraph (3) (the “Statutory Minimum Tender Condition”) is satisfied, the inclusion of shares of stock of the constituent corporation held by any person that owns, directly or indirectly, all of the outstanding stock of the corporation making the Offer (the “Offeror”), or that is a direct or indirect wholly-owned subsidiary of such person or persons or of the Offeror (such owners and such subsidiaries, collectively, the “Offeror Affiliates”). Section 251(h), as amended, similarly permits shares of stock of the constituent corporation that are the subject of a written agreement requiring such shares to be transferred, contributed or delivered to the Offeror or any Offeror Affiliate in exchange for stock or other equity interests in the Offeror or any Offeror Affiliate to be counted for purposes of determining satisfaction of the Statutory Minimum Tender Condition, so long as such shares are in fact so transferred, contributed or delivered prior to the effective time of the merger (such shares in fact so transferred, contributed or delivered, “Rollover Stock”). Further, Section 7 provides that Rollover Stock and shares of the constituent corporation held by such constituent corporation in treasury, by any direct or indirect wholly-owned subsidiary of such constituent corporation, or by the Offer or Offeror Affiliates are excluded from the requirement that they be converted in the merger into, or into the right to receive, the same consideration paid in the Offer. Finally, Section 7 clarifies the methods by which shares of stock of the constituent corporation may be “received” for purposes of the Statutory Minimum Tender Condition. With respect to certificated shares, such shares will be “received” upon physical receipt of a stock certificate accompanied by an executed letter of transmittal so long as the certificate representing such shares was not cancelled prior to consummation of the Offer. With respect to uncertificated shares held of record by a clearing corporation as nominee, such shares will be “received” by transfer into the depository’s account by means of an agent’s message. With respect uncertificated shares not so held, such shares will be “received” by physical receipt of an executed letter of transmittal by the depository. Regardless of how uncertificated shares are held, they will cease to be “received” to the extent such uncertificated shares have been reduced or eliminated due to any sale of such shares prior to the consummation of the Offer. For purposes of the foregoing, an “agent’s message” is a message transmitted by the clearing corporation acting as nominee, received by the depository, and forming part of the book-entry confirmation, which states that such clearing corporation has received an express acknowledgment from a stockholder that such stockholder has received the Offer and agrees to be bound by the terms of the Offer, and that the Offeror may enforce such agreement against such stockholder. Section 8. The amendment to Section 262(c) is intended to clarify that where a provision of the certificate of incorporation confers appraisal rights where those rights otherwise do not exist, an appraisal proceeding must be dismissed under the new provisions of subsection (g) of Section 262, if applicable. Section 9. The amendments to Section 262(d) conform to Section 251(h) as amended. Section 10. The amendment to Section 262(g) limits the availability of a judicial determination and award of fair value where the corporation's shares had been traded on a national securities exchange. In that circumstance appraisal rights are essentially precluded unless the dispute with regard to valuation is substantial and involves little risk that the petition for appraisal will be used to achieve a settlement because of the nuisance value of discovery and other burdens of litigation. In a short-form merger under Section 253 or Section 267, however, there is no requirement of approval by the corporation's board of directors and therefore no obligation on the part of directors to approve and recommend the merger, and appraisal may be the only remedy. Accordingly, the limitation in new subsection (g) also is not applicable to mergers accomplished pursuant to Section 253 or Section 267. Section 11. The amendment to Section 262(h) provides an option to the surviving corporation to pay to the stockholders seeking appraisal a sum of money, the amount of which is to be determined in the sole discretion of the surviving corporation, at any time before judgment is entered in the appraisal proceeding, with the result of avoiding the need to pay subsequently accruing interest on that sum. There is no requirement or inference that the amount so paid by the surviving corporation is equal to, greater than, or less than the fair value of the shares to be appraised. Where one or more stockholders' entitlement to appraisal is contested in good faith, the corporation may elect to pay such amount only to those stockholders whose entitlement to appraisal is uncontested. Section 12. Section 311 is amended to include a procedure to restore a corporation’s certificate of incorporation after it has expired by limitation. This change is consistent with Section 278 which provides that Sections 279 through 282, relating to dissolved corporations, apply to any corporation that has expired by its own limitation. Section 311 is also amended to clarify that a corporation desiring to revoke its dissolution or restore its certificate of incorporation must file all annual franchise tax reports that the corporation would have had to file if it had not dissolved or expired by limitation and pay all franchise taxes that the corporation would have had to pay if it had not dissolved or expired. Section 13. Section 312 is amended to distinguish the procedure to extend the term of a corporation’s certificate of incorporation or to restore a corporation’s certificate of incorporation if it has expired by limitation from the procedure to revive a corporation’s certificate of incorporation when it has become forfeited or void. Section 312, as amended, only applies to a corporation whose certificate of incorporation has become forfeited or void and now uses only the term “revival” to reflect this process. The terms “renewal”, “extension” and “restoration” have been eliminated. The amendment to Section 312, however, does not invalidate or otherwise change the effect of filings to “revive”, “renew”, “restore” or “extend” a corporation that were made pursuant to Section 312 prior to the effective time of the amendment to Section 312. The amendment to Section 312 also does not affect the procedure for a corporation formed by a special act of the General Assembly to renew, revive and continue its corporate existence. The procedure to extend a corporation’s duration is now solely governed by Section 242 which sets forth the manner in which a corporation’s certificate of incorporation is amended, including for the purpose of changing the period of duration of the corporation. Section 311 as amended sets forth the procedure to restore a corporation’s certificate of incorporation that has expired by limitation. The other amendments to Section 312 clarify and simplify the procedures to be followed by a Delaware corporation to revive its certificate of incorporation which became forfeited or void. The amendments clarify that the provisions of Section 312 do not apply to a corporation whose certificate of incorporation has been forfeited or revoked by the Court of Chancery pursuant to Section 284. Amended Section 312 also clarifies and streamlines the process to approve a revival of the certificate of incorporation by providing that a majority of the directors then in office, even if less than a quorum, or the sole director in office, may authorize the revival of the certificate of incorporation. Further, Section 312 identifies such directors as those who, but for the certificate of incorporation having become forfeited or void, would be the duly elected or appointed directors of the corporation. The amendments also clarify the process for elections of directors if none are in office and the effect of a revival with respect to actions taken by the corporation’s directors or members of the governing body, officers, agents and stockholders or members. Section 14. The amendments to Section 313 conform to the amendments to Section 312 which provide that a corporation files a certificate of revival when its certificate of incorporation has become void or forfeited. Section 15. Section 314 is amended in connection with the amendments to Sections 311, 312 and 313. Sections 16, 17 and 18. Section 16 provides that the effective date of Sections 1, 3 through 6 and 12 through 15 is August 1, 2016. Section 17 provides that Section 2 shall be effective only with respect to instruments, documents and agreements entered into on or after August 1, 2016, and that Section 7 shall be effective only with respect to merger agreements entered into on or after August 1, 2016. Pursuant to Section 18, Sections 8 through 11 shall be effective only with respect to transactions consummated pursuant to agreements entered into on or after August 1, 2016 (or, in the case of mergers pursuant to Section 253, resolutions of the board of directors adopted on or after August 1, 2016 or, in the case of mergers pursuant to Section 267, authorizations provided on or after August 1, 2016 in accordance with an entity's (as defined in Section 267) governing documents (as defined in Section 267) and the laws of the jurisdiction under which such entity is formed or organized), and appraisal proceedings arising out of such transactions.

An Act To Amend Title 8 Of The Delaware Code Relating To The General Corporation Law.

Rep. Melanie Smith [D]	Rep. Sean Lynn [D]	Sen. Margaret Henry [D]	Sen. Bryan Townsend [D]
Rep. Gerald Brady [D]	Rep. James Johnson [D]	Rep. Helene Keeley [D]	Rep. John Mitchell [D]
Rep. Bryon Short [D]	Rep. Stephen Smyk [R]	Rep. Jeffrey Spiegelman [R]	Sen. Catherine Cloutier [R]
Sen. Gregory Lavelle [R]

2016-06-08 - Senate - Senate Third Reading (Y: 20 N: 0 NV: 0 Abs: 1) [PASS]

Date	Chamber	Action
2016-06-16	House	Signed by Governor
2016-06-08	Senate	Passed by Senate. Votes: Passed 20 YES 0 NO 0 NOT VOTING 1 ABSENT 0 VACANT
2016-05-18	Senate	Reported Out of Committee (JUDICIARY) in Senate with 5 On Its Merits
2016-05-12	Senate	Assigned to Judiciary Committee in Senate
2016-05-12	House	Passed by House of Representatives. Votes: Passed 38 YES 0 NO 0 NOT VOTING 3 ABSENT 0 VACANT
2016-05-11	House	Reported Out of Committee (JUDICIARY) in House with 1 Favorable, 8 On Its Merits
2016-05-05	House	Introduced and Assigned to Judiciary Committee in House

Type	Source
Summary	http://legis.delaware.gov/LIS/lis148.nsf/2bede841c6272c888025698400433a04/80a850d0e5ee2d5185257fa8005683e9?OpenDocument
Text	http://legis.delaware.gov/LIS/lis148.nsf/vwLegislation/HB+371/$file/legis.html?open
Roll Call	http://legis.delaware.gov/LIS/lis148.nsf/7712cf7cc0e9227a852568470077336f/59ed0a6b4b2801e585257fcc0073b9bc?OpenDocument