February 9, 2012

Coordinated Attack on Exclusive Forum Bylaw Provisions

Here’s news from Steven Haas of Hunton & Williams (also see this blog from Francis Pileggi): In recent days, shareholders have filed several class action complaints in Delaware (here’s a sample complaint posted in our “Exclusive Forum Bylaws” Practice Area; there are 9 filed so far). The litigation will require Delaware courts to review a bylaw that would increase Delaware’s market share of corporate litigation. A ruling upholding these bylaws would likely cause numerous other corporations to adopt them.

An exclusive forum provision typically provides as follows:

Unless the Corporation consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware shall be the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of the Corporation, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of the Corporation to the Corporation or the Corporation’s stockholders, (iii) any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law, or (iv) any action asserting a claim governed by the internal affairs doctrine. Any person or entity purchasing or otherwise acquiring any interest in shares of capital stock of the Corporation shall be deemed to have notice of and consented to the provisions of this Article __.

These provisions gained traction, particularly for IPO companies, ever since Vice Chancellor Laster suggested in a 2010 opinion that they would be enforceable (see In re Revlon S’holders Litig., 990 A.2d 940 (Del. Ch. 2010)). Claudia Allen of Neal Gerber recently updated her study detailing that, as of December 31st, 195 Delaware corporations have adopted or proposed exclusive forum charter or bylaw provisions. Although a California court refused to enforce Oracle’s exclusive forum bylaw last year, this is the first time the issue has been squarely presented to the Delaware courts. Steven Davidoff (aka The Deal Professor) previously offered his thoughts on the issue.

Large Trader Reporting Rules Update: No Annual Form 13H Required This Year

Here’s news from Skadden Arps: Exchange Act Rule 13h-1(b), which went into effect on October 3, 2011, requires persons defined as “large traders” to file a Form 13H with the SEC on the following timetable:

– promptly after first effecting aggregate transactions, or after effecting aggregate transactions subsequent to becoming an inactive large trader, equal to or greater than the identifying activity levels in Rule 13h-1;
– within 45 days after the end of each full calendar year; and
– promptly following the end of a calendar quarter in the event that any of the information contained in a Form 13H filing become inaccurate for any reason.

Large traders were required to file their first Form 13H on or before December 1, 2011.
We have confirmed with the SEC staff that it is interpreting the annual reporting requirements in Rule 13h-1(b) not to apply to 2011 since the new rules were not in effect for a “full calendar year.” As a result, large traders will not be required to file an annual Form 13H on or before February 14, 2012.

The large trader rules also include provisions applicable to registered broker-dealers, including requirements to maintain records in connection with transactions by large traders, monitor customer accounts for activity that may trigger the large trader reporting requirements and report large trader transaction information to the SEC upon request through the Electronic Blue Sheets (EBS) system. Although these broker-dealer requirements were expected to go into effect on April 30, 2012, it is our understanding that the SEC staff is considering requests to extend the compliance date for these requirements.

Here’s A Metric on the Facebook IPO You Won’t See Anywhere Else

Last week, Facebook’s filing of a Form S-1 for its IPO was all the rage – and as I blogged, the level of traffic to the SEC’s site seemed to bring Edgar to its knees. Chris Hitt hints on Blog Mosaic just how much traffic there actually was…

– Broc Romanek