Last week, as noted in this detailed blog by Cooley’s Cydney Posner, the sweeping – and somewhat controversial – changes to the Delaware General Corporation Law were signed into law. Now, the new “safe harbor” provisions designed to cleanse conflict transactions involving directors, officers and controlling stockholders are effective, as well as the amendments that significantly narrow the categories of information subject to a books and records demand.
Here’s a set of bullets describing the changes:
1. Conflict transactions involving directors and officers
- New safe harbor provisions for conflict transactions under Section 144(a)
- Transactions can be protected from legal action if:
- Approved in good faith by disinterested directors
- Approved by disinterested stockholders
- Deemed fair to the corporation and stockholders
- Removes previous timing requirements for special committees
- Allows special committees to not be entirely composed of disinterested directors
2. Presumption of director disinterest
- Public company directors can be presumed disinterested if they meet stock exchange standards
- This presumption can be rebutted with substantial evidence of material conflict
3. Conflict transactions with controlling stockholders
- New provisions under Section 144(b) for transactions involving controlling stockholders
- Transactions can be protected if:
- Disclosed to a special committee with negotiation authority
- Approved by disinterested stockholders
- Deemed fair to the corporation and stockholders
- Differs from previous law by only requiring approval from either a special committee or disinterested stockholders (previously required both)
4. Go-private transactions
- New Section 144(c) provides protection for go-private transactions
- Transactions can be protected if:
- Approved by a special committee and disinterested stockholders
- Deemed fair to the corporation and stockholders
- Preserves the MFW doctrine for scrutiny under the business judgment rule
5. Definition of “controlling stockholder”
- New definition under Section 144(e)(2)
- Considered a controlling stockholder if they:
- Wield majority power
- Can designate majority of board members
- Control at least one-third of voting stock and have managerial authority
6. Liability protections
- Controlling stockholders can’t be liable for monetary damages for breach of duty of care
- No need for an “opt-in” certificate of incorporation provision
7. Books and records demands
- Significantly narrows stockholder access to corporate documents
- Limited to specific types of documents, including:
- Corporate incorporation documents
- Bylaws
- Meeting minutes (for past three years)
- Written communications to stockholders
- Board meeting materials
- Annual financial statements
- Stockholders agreements
- Director and officer independence questionnaires
- Maintains ability to seek additional records during active litigation or with demonstrated compelling need
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