Senate Bill No. 127

SPONSOR: Sen. Vaughn & Rep. Wagner;
Reps. George, Plant, Valihura

 

DELAWARE STATE SENATE
142nd GENERAL ASSEMBLY
SENATE BILL NO. 127

 

AN ACT TO AMEND TITLE 8 OF THE DELAWARE CODE RELATING TO THE GENERAL CORPORATION LAW.

BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF DELAWARE (Two-thirds of all members elected to each house thereof concurring therein):

Section 1. Delete Section 111, Chapter 1, Title 8, Delaware Code, in its entirety, and replace it with the following:

“(a) Any civil action to interpret, apply, enforce, or determine the validity of the provisions of (i) the certificate of incorporation or the bylaws of a corporation, (ii) any instrument, document or agreement by which a corporation creates or sells, or offers to create or sell, any of its stock, or any rights or options respecting its stock, (iii) any written restrictions on the transfer, registration of transfer, or ownership of securities under §202 of this title, (iv) any proxy under §212 or §215 of this title, (v) any voting trust or other voting agreement under §218 of this title, (vi) any agreement or certificate of merger or consolidation governed by §251, §252, §253, §255, §256, §257, §258, §263 or §264 of this title, (vii) any certificate of conversion under §265 or §266 of this title, (viii) any certificate of domestication, transfer or continuance under §388, §389 or §390 of this title, or (ix) any other instrument, document, agreement, or certificate required by any provision of this title, may be brought in the Court of Chancery, except to the extent that a statute confers exclusive jurisdiction on a court, agency, or tribunal other than the Court of Chancery.

(b) Any civil action to interpret, apply or enforce any provision of this title may be brought in the Court of Chancery.”

Section 2. Amend Section 141(c), Title 8, Delaware Code, by adding a new subsection (3) thereto as follows:

(3) Unless otherwise provided in the certificate of incorporation, the bylaws or the resolution of the board of directors designating the committee, a committee may create one or more subcommittees, each subcommittee to consist of one or more members of the committee, and delegate to a subcommittee any or all of the powers and authority of the committee.

Section 3. Add a new Section 146 to Title 8, Delaware Code, to read as follows:

“A corporation may agree to submit a matter to a vote of its stockholders whether or not the board of directors determines at any time subsequent to approving such matter that such matter is no longer advisable and recommends that the stockholders reject or vote against the matter.”

Section 4. Amend Section 219(c), Title 8, Delaware Code, by deleting the existing subsection (c) in its entirety and by substituting in lieu thereof the following subsection (c):

“(c) The stock ledger shall be the only evidence as to who are the stockholders entitled by this section to examine the list required by this section or to vote in person or by proxy at any meeting of stockholders.”

Section 5. Amend Section 220, Title 8, Delaware Code, by deleting the existing subsection (a) in its entirety and by substituting in lieu thereof the following subsection (a):

“(a) As used in this section:

(1) ‘Stockholder’ means a holder of record of stock in a stock corporation, or a person who is the beneficial owner of shares of such stock held either in a voting trust or by a nominee on behalf of such person, and also a member of a nonstock corporation as reflected on the records of the nonstock corporation.

(2) ‘List of stockholders’ includes lists of members in a nonstock corporation.

(3) ‘Under oath’ includes statements the declarant affirms to be true under penalty of perjury under the laws of the United States or any State.

(4) ‘Subsidiary’ means any entity directly or indirectly owned, in whole or in part, by the corporation of which the stockholder is a stockholder and over the affairs of which the corporation directly or indirectly exercises control, and includes, without limitation, corporations, partnerships, limited partnerships, limited liability partnerships, limited liability companies, statutory trusts and/or joint ventures.”

Section 6. Amend Section 220(b), Title 8, Delaware Code, by deleting the existing subsection (b) in its entirety and by substituting in lieu thereof the following subsection (b):

“(b) Any stockholder, in person or by attorney or other agent, shall, upon written demand under oath stating the purpose thereof, have the right during the usual hours for business to inspect for any proper purpose, and to make copies and extracts from: (1) the corporation’s stock ledger, a list of its stockholders, and its other books and records; and (2) a subsidiary’s books and records, to the extent that (i) the corporation has actual possession and control of such records of such subsidiary, or (ii) the corporation could obtain such records through the exercise of control over such subsidiary, provided that as of the date of the making of the demand (A) stockholder inspection of such books and records of the subsidiary would not constitute a breach of an agreement between the corporation or the subsidiary and a person or persons not affiliated with the corporation, and (B) the subsidiary would not have the right under the law applicable to it to deny the corporation access to such books and records upon demand by the corporation. In every instance where the stockholder is other than a record holder of stock in a stock corporation or a member of a nonstock corporation, the demand under oath shall state the person’s status as a stockholder, be accompanied by documentary evidence of beneficial ownership of the stock, and state that such documentary evidence is a true and correct copy of what it purports to be. A proper purpose shall mean a purpose reasonably related to such person’s interest as a stockholder. In every instance where an attorney or other agent shall be the person who seeks the right to inspection, the demand under oath shall be accompanied by a power of attorney or such other writing which authorizes the attorney or other agent to so act on behalf of the stockholder. The demand under oath shall be directed to the corporation at its registered office in this State or at its principal place of business.”

Section 7. Amend Section 220(c), Title 8, Delaware Code, by deleting the fourth and fifth sentences thereof, and by substituting in lieu thereof the following:

“Where the stockholder seeks to inspect the corporation’s books and records, other than its stock ledger or list of stockholders, such stockholder shall first establish that (1) he, she or it is a stockholder, (2) he, she or it has complied with this section respecting the form and manner of making demand for inspection of such documents; and (3) the inspection such stockholder seeks is for a proper purpose. Where the stockholder seeks to inspect the corporation’s stock ledger or list of stockholders and establishes that he, she or it is a stockholder and has complied with this section respecting the form and manner of making demand for inspection of such documents, the burden of proof shall be upon the corporation to establish that the inspection such stockholder seeks is for an improper purpose.”

Section 8. Amend Section 220(d), Title 8, Delaware Code, by adding, after the third sentence thereof, the following:

“The burden of proof shall be upon the corporation to establish that the inspection such director seeks is for an improper purpose.”

Section 9. Amend Section 225(a), Title 8, Delaware Code, by inserting the words “, appointment, removal or resignation” after the words “validity of any election” in the first sentence thereof, and by inserting the words “or continue to hold” after the words “the right of any person to hold” in the first sentence thereof.

Section 10. Amend Section 251(b), Title 8, Delaware Code, by striking clause (5) thereof in its entirety and by inserting a new clause (5) to read as follows:

“(5) the manner, if any, of converting the shares of each of the constituent corporations into shares or other securities of the corporation surviving or resulting from the merger or consolidation, or of cancelling some or all of such shares, and, if any shares of any of the constituent corporations are not to remain outstanding, to be converted solely into shares or other securities of the surviving or resulting corporation or to be cancelled, the cash, property, rights or securities of any other corporation or entity which the holders of such shares are to receive in exchange for, or upon conversion of such shares and the surrender of any certificates evidencing them, which cash, property, rights or securities of any other corporation or entity may be in addition to or in lieu of shares or other securities of the surviving or resulting corporation; and”

Section 11. Amend Section 251(c), Title 8, Delaware Code, by deleting the second sentence thereof.

Section 12. Amend Section 252(b), Title 8, Delaware Code by striking clause (3) thereof in its entirety and by inserting a new clause (3) to read as follows:

“(3) the manner, if any, of converting the shares of each of the constituent corporations into shares or other securities of the corporation surviving or resulting from the merger or consolidation, or of cancelling some or all of such shares, and, if any shares of any of the constituent corporations are not to remain outstanding, to be converted solely into shares or other securities of the surviving or resulting corporation or to be cancelled, the cash, property, rights or securities of any other corporation or entity which the holders of such shares are to receive in exchange for, or upon conversion of, such shares and the surrender of any certificates evidencing them, which cash, property, rights or securities of any other corporation or entity may be in addition to or in lieu of the shares or other securities of the surviving or resulting corporation;”

Section 13. Amend Section 253(a), Title 8, Delaware Code, by adding to the first sentence the words “, or the cancellation of some or all of such shares” after the words “not owned by the parent corporation” and before the period.

Section 14. Amend Section 254(c), Title 8, Delaware Code, by striking clause (3) thereof in its entirety and by inserting a new clause (3) to read as follows:

“(3) the manner, if any, of converting the shares of stock of each stock corporation, the interest of members of each nonstock corporation, and the shares, membership or financial or beneficial interests in each of the joint-stock associations into shares or other securities of a stock corporation or membership interests of a nonstock corporation or into shares, memberships, or financial or beneficial interests of the joint-stock association surviving or resulting from such merger or consolidation, or of cancelling some or all of such shares, memberships or financial or beneficial interests, and, if any shares of any such stock corporation, any membership interests of any such nonstock corporation, or any shares, memberships or financial or beneficial interests in any such joint-stock association are not to remain outstanding, to be converted solely into shares or other securities of the stock corporation or membership interests of the nonstock corporation or into shares, memberships, or financial or beneficial interests of the joint-stock association surviving or resulting from such merger or consolidation or to be cancelled, the cash, property, rights or securities of any other corporation or entity which the holders of shares of any such stock corporation, membership interests of any such nonstock corporation, or shares, memberships or financial or beneficial interests of any such joint-stock association are to receive in exchange for, or upon conversion of such shares, membership interests or shares, memberships or financial or beneficial interests, and the surrender of any certificates evidencing them, which cash, property, rights or securities of any other corporation or entity may be in addition to or in lieu of shares or other securities of the stock corporation or membership interests of the nonstock corporation or shares, memberships, or financial or beneficial interests of the joint-stock association surviving or resulting from such merger or consolidation; and”

Section 15. Amend Section 255(b), Title 8, Delaware Code by striking clause (4) thereof in its entirety and by inserting a new clause (4) to read as follows:

“(4) the manner, if any, of converting the memberships of each of the constituent corporations into memberships of the corporation surviving or resulting from the merger or consolidation, or of cancelling some or all of such membership interests; and”

Section 16. Amend Section 256(b), Title 8, Delaware Code by striking clause (3) thereof in its entirety and by inserting a new clause (3) to read as follows:

“(3) the manner, if any, of converting the memberships of each of the constituent corporations into memberships of the corporation surviving or resulting from such merger or consolidation, or of cancelling some or all of such memberships;”

Section 17. Amend Section 257(b), Title 8, Delaware Code by striking clause (4) thereof in its entirety and by inserting a new clause (4) to read as follows:

“(4) the manner, if any, of converting the shares of stock of a stock corporation and the interests of the members of a nonstock corporation into shares or other securities of a stock corporation or membership interests of a nonstock corporation surviving or resulting from such merger or consolidation, or of cancelling some or all of such shares or interests, and, if any shares of any such stock corporation or membership interests of any such nonstock corporation are not to remain outstanding, to be converted solely into shares or other securities of the stock corporation or membership interests of the nonstock corporation surviving or resulting from such merger or consolidation or to be cancelled, the cash, property, rights or securities of any other corporation or entity which the holders of shares of any such stock corporation or membership interests of any such nonstock corporation are to receive in exchange for, or upon conversion of such shares or membership interests, and the surrender of any certificates evidencing them, which cash, property, rights or securities of any other corporation or entity may be in addition to or in lieu of shares or other securities of any stock corporation or membership interests of any nonstock corporation surviving or resulting from such merger or consolidation; and”.

Section 18. Amend Section 263(b), Title 8, Delaware Code by striking clause (3) thereof in its entirety and by inserting a new clause (3) to read as follows:

“(4) the manner, if any, of converting the shares of stock of each such corporation and the partnership interests of each such partnership into shares, partnership interests or other securities of the entity surviving or resulting from such merger or consolidation, or of cancelling some or all of such shares or interests, and if any shares of any such corporation or any partnership interests of any such partnership are not to remain outstanding, to be converted solely into shares, partnership interests or other securities of the entity surviving or resulting from such merger or consolidation or to be cancelled, the cash, property, rights or securities of any other corporation or entity which the holders of such shares or partnership interests are to receive in exchange for, or upon conversion of such shares or partnership interests and the surrender of any certificates evidencing them, which cash, property, rights or securities of any other corporation or entity may be in addition to or in lieu of shares, partnership interests or other securities of the entity surviving or resulting from such merger or consolidation; and”

Section 19. Amend Section 264(b), Title 8, Delaware Code by striking clause (3) thereof in its entirety and by inserting a new clause (3) to read as follows:

“(3) the manner, if any, of converting the shares of stock of each such corporation and the limited liability company interests of each such limited liability company into shares, limited liability company interests or other securities of the entity surviving or resulting from such merger or consolidation, or of cancelling some or all of such shares or interests, and if any shares of any such corporation or any limited liability company interests of any such limited liability company are not to remain outstanding, to be converted solely into shares, limited liability company interests or other securities of the entity surviving or resulting from such merger or consolidation or to be cancelled, the cash, property, rights or securities of any other corporation or entity which the holders of such shares or limited liability company interests are to receive in exchange for, or upon conversion of such shares or limited liability company interests and the surrender of any certificates evidencing them, which cash, property, rights or securities of any other corporation or entity may be in addition to or in lieu of shares, limited liability company interests or other securities of the entity surviving or resulting from such merger or consolidation; and”.

Section 20. Amend Section 266(c), Title 8, Delaware Code, by inserting”, the filing of any document required to be filed by the statute governing the formation of the entity into which the corporation is converting” after the words “subsection (b) of this section” and before the words “and payment”.

Section 21. This Act shall become effective August 1, 2003.

SYNOPSIS

Section 1. This amendment expands the jurisdiction of the Court of Chancery with respect to a variety of matters pertaining to Delaware corporations.

Section 2. This section clarifies that a committee of the board of directors may create subcommittees unless the authority to create a subcommittee has been restricted by the certificate of incorporation, the bylaws or the resolution of the board of directors designating the committee.

Sections 3 and 11. The deletion of the language from subsection (c) of Section 251 and the addition of new Section 146 clarify that the rule previously codified at Section 251(c) applies to any matter submitted to stockholders. Under this rule, directors may authorize the corporation to agree with another person to submit a matter to stockholders, but reserve the ability to change their recommendation.

Section 4. This amendment will make Section 219(c) consistent with Section 220 as revised.

Sections 5 – 8. These sections amend Section 220 in four principal respects. First, inspection rights are extended to a person who beneficially owns stock through either a voting trustee or a nominee who holds the stock of record on behalf of such person. Second, the oath requirement is deemed satisfied by a declaration under penalty of perjury under the law of the United States or any state. Third, books and records subject to inspection include those of subsidiaries under certain conditions. Finally, a director’s purpose for inspection is presumed to be proper. The amendment relating to inspection of books and records of subsidiaries is not intended to affect existing legal doctrine that, as a general matter, respects the separate legal existence of subsidiaries in relation to liability of stockholders to third parties, personal jurisdiction over subsidiaries of Delaware corporations, and discovery in litigation other than under Section 220.

Section 9 .This amendment clarifies that the Court of Chancery has jurisdiction to hear and determine controversies regarding the right of any person to hold or continue to hold office as a director, officer or member of the governing body of a Delaware corporation, irrespective of whether the controversy arose from the conduct of an election.

Sections 10, 12-19. The amendments to Sections 251, 252, 253, 254, 255, 256, 257, 263 and 264 clarify that shares or other interests of a constituent corporation or other entity to a merger or consolidation may be converted, cancelled or unaffected by the merger.

Section 20.This amendment to Section 266 confirms that Delaware corporations which desire to convert to Delaware limited liability companies, general partnerships, limited partnerships or statutory trusts must also comply with the applicable requirements of the statutes governing the formation of those entities to complete the conversion.

Section 21. This section provides for an effective date of August 1, 2003.

Author: Delaware Bar Association