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Court of Chancery Deals a Blow to Use of “Pfizer Type” Majority Voting Policies as a Mechanism for Shareholder Activism

Prof. Lawrence A. Hamermesh
Ruby R. Vale Professor of Corporate and Business Law

In a very interesting opinion on a matter of first impression, Vice Chancellor John Noble has indicated that the refusal of a board of directors to accept the resignation of a director who fails to obtain a majority vote under a “Pfizer-style” majority vote resignation policy is largely immune from judicial review. Continue reading

Amylin Pharmaceuticals and a Substantive Duty of Care?

San Antonio Fire & Police Pension Fund v. Amylin Pharm., Inc., 2009 WL 3182602 (Del.).

In the trial below, the plaintiffs claimed, among other issues, that the board violated their fiduciary duty of care because they were not explicitly aware of the proxy puts when they approved the Indenture and credit agreements. The board had retained highly-qualified counsel and asked if there was anything “unusual or not customary” in the terms of the agreement.  It was told there was not.  The Proxy Puts exposed the Company to immediate repayment and repurchase obligations if Amylin shareholders elected a board of directors that did not include a majority of the incumbent directors, or directors approved by the incumbent directors.  These obligations could have required Amylin to remit more than $900 million – an amount exceeding the Company’s available cash. Continue reading

New Vice Chancellor Confirmed

On September 20th, J. Travis Laster was confirmed by the Delaware Senate to become the newest Vice Chancellor on the Delaware Court of Chancery.  October 9 is the expected date for his investiture and swearing in ceremony.  Laster, 39, will fill the seat vacated by retired Vice Chancellor Stephen P. Lamb.

For coverage of the news by Bloomberg and Delaware News Journal:
http://www.bloomberg.com/apps/news?pid=20601127&sid=a1uOdqjI8PvM
http://www.delawareonline.com/article/20090923/NEWS02/909230356

The “Proof of Beneficial Ownership” Requirement Explained

Smith v Horizon Lines, Inc., C.A. 4573-CC, 2009 WL 2913887 (Aug. 31, 2009).

The statute governing demands for inspection rights requires a beneficial owner who makes demand to provide proof of beneficial ownership. This decision explains what form that proof must take. An account statement that just has the owner’s last name and does not indicate the date of ownership is not good enough. Moreover, a sworn statement is not a proper substitute.

U.S. Supreme Court to Weigh in On Executive Pay

The United States Supreme Court has agreed to hear Jones v. Harris Associates, a case on executive pay.  The case is on manager’s fees in the mutual fund industry, but the holding will likely effect corporate governance in all industries.  Oral arguments are scheduled for November 2.

For coverage of the case see:
http://www.scotuswiki.com/index.php?title=Jones%2C_et_al.%2C_v._Harris_Associates (scotus wiki providing links to briefs and commentary)

http://busmovie.typepad.com/ideoblog/2009/09/more-on-paternalism-and-mutual-funds.html (Larry E. Ribstein’s coverage of commentary exchanged between several professors)

Bainbridge on Fiduciary Duties and Preferred Stockholders

The Court of Chancery’s recent decision in In Re: Trados Incorporated Shareholder Litigation, No. 1512-CC, 2009 WL 2225958 (July 24, 2009) prompted Professor Bainbridge to question the basic issue of whether there ought to be fiduciary duties to preferred stock holders at all   Professor Bainbridge gives a brief overview of this area of Delaware corporate law and concludes that Jedwab v. MGM Grand Hotels, Inc., 509 A.2d 584 (Del. Ch. 1986) should be overturned on both doctrinal and policy grounds.

For the full commentary see the post on his blog.

Amendments Made to the Delaware General Corporation Law

The amendments to the Delaware General Corporation Law that were signed by the Governor this past spring became effective on August 1, 2009.  They can be viewed here.  As described more fully in the synopsis to the legislation, these are very significant amendments, dealing with issues like proxy access bylaws (new Section 112), proxy contest expense reimbursement bylaws (Section 113), bifurcation of record dates for notice and voting at stockholder meetings (amended Section 213 and related sections), and alteration of rights to indemnification and advancement of defense costs (amended Section 145(f)).