Delaware Assembly Bill 341 has finally been signed into law. Among other things, the bill confirms the availability of specific powers relating to stockholders’ meetings that may be exercised by the board during an emergency condition, such as the current pandemic. These powers include changing the date, time and place of meetings (including to virtual formats) and, for public companies, providing notice of these changes through an SEC filing. These provisions are effective retroactively as of January 1, 2020. (See this PubCo post.) The bill also makes it easier to convert a traditional corporation to a public benefit corporation or a PBC to a traditional corporation and amps up the protections for directors of a PBC. (See this PubCo post.) Another provision of the bill, less widely discussed, relates to indemnification, discussed below.
Section 145 of the Delaware General Corporation Law provides for both permissive and mandatory indemnification. Subsections (a) and (b) authorize companies to indemnify directors, officers, employees or agents against expenses, judgments, fines and amounts paid in settlement if the person acted in good faith and in a manner the person reasonably believed to be in or not opposed to the best interests of the corporation and, with respect to any criminal action, had no reasonable cause to believe the person’s conduct was unlawful. Subsection (a) applies to direct actions and Subsection (b) to derivative actions. By contrast, Subsection (c) provides for mandatory indemnification in the event that any present or former director or officer has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in subsections (a) and (b), or in defense of any claim, issue or matter in the action, suit or proceeding. Currently, however, the statute does not define who is considered an “officer” for purposes of this provision.
The new amendment (which will apply to any act or omission occurring after December 31, 2020), defines the term “officer” for purposes of Subsection (c) by importing by reference the definition of “officer” from Section 3114(b) of Title 10. (Note that, while Section 3114 relates to deemed consent to service of process by non-residents, for purposes of indemnification, the amendment will encompass residents as well.)
Under that definition,
“‘officer’ means an officer of the corporation who:
(1) Is or was the president, chief executive officer, chief operating officer, chief financial officer, chief legal officer, controller, treasurer or chief accounting officer of the corporation at any time during the course of conduct alleged in the action or proceeding to be wrongful;
(2) Is or was identified in the corporation’s public filings with the [SEC as a Named Executive Officer in the comp tables] at any time during the course of conduct alleged in the action or proceeding to be wrongful; or
(3) Has, by written agreement with the corporation, consented to be identified as an officer for purposes of this section.”
The amendment also provides that the company “may indemnify any other person who is not a present or former director or officer of the corporation against expenses (including attorneys’ fees) actually and reasonably incurred by such person to the extent he or she has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in subsections (a) and (b) of this section, or in defense of any claim, issue or matter therein.”
[View source.]
