Here’s something I shared yesterday on DealLawyers.com:
The second set of 2025 DGCL amendments, reflected in Senate Bill 95, which was signed by the governor on June 30 and mostly became effective on August 1, has been understandably overshadowed by their slightly older sibling. But there are a few important things to know. Kyle Pinder of Morris Nichols recently penned a client alert that pulls all the 2025 amendments together in one helpful summary.
The second round of amendments primarily did the following: (i) clarified the types of claims that may be covered by certificate of incorporation- or bylaw-based forum selection provisions, and (ii) extended the prohibition on certificate of incorporation- or bylaw-based fee-shifting provisions to cover this clarified universe of claims.
On forum selection clauses, the amendments dealt with a tricky situation resulting from a circuit split.
Amended Section 115 adopts the result reached by the Seventh Circuit and permits forum selection provisions addressing non-internal corporate claims that “relate to the business of the corporation, the conduct of its affairs, or the rights or powers of the corporation or its stockholders, directors or officers,” so long as they permit stockholders to bring such claims in at least one court in Delaware (e.g., to bring Exchange Act derivative claims in the District of Delaware).
With respect to fee shifting, the DGCL already prohibited org doc provisions from shifting liability for fees and expenses incurred in connection with internal corporate claims to a stockholder. Amended DGCL Sections 102(f) and 109(b) extend that moratorium to prohibit provisions shifting to a stockholder the corporation’s fees and expenses incurred in connection with “any other claim that a stockholder, acting in its capacity as a stockholder or in the right of the corporation, has brought . . . .”
The amendments tackle a handful of miscellaneous items, too, that are neatly addressed on the last page of the alert.
I’m happy to say that Kyle will be speaking on this topic during the “Delaware Hot Topics: Navigating Case Law & Statutory Developments” panel with fellow panelists Hunton’s Steve Haas, Barnes & Thornburg’s Jay Knight and Faegre Drinker’s Oderah Nwaeze at our Fall “Proxy Disclosure & Executive Compensation” Conferences happening in Las Vegas and virtually on October 21-22. I’m so looking forward to hearing from them — there’s so much to talk about! You can sign up online or reach out to our team to register by emailing info@ccrcorp.com or calling 1.800.737.1271.
On Monday, the Department of the Treasury announced that it has issued the request for comment required by section 9(a) of the GENIUS Act. The announcement says:
This request for comment offers the opportunity for interested individuals and organizations to provide feedback on innovative or novel methods, techniques, or strategies that regulated financial institutions use, or could potentially use, to detect illicit activity involving digital assets. In particular, Treasury asks commenters about application program interfaces, artificial intelligence, digital identity verification, and use of blockchain technology and monitoring.
Innovative tools are critical to advancing efforts to address illicit finance risks but can also present new resource burdens for financial institutions. As required by the GENIUS Act, Treasury will use public comments to inform research on the effectiveness, costs, privacy and cybersecurity risks, and other considerations related to these tools.
Comments responding to this request should be submitted by October 17 and will be publicly viewable at www.regulations.gov.
As Meaghan recently acknowledged on The Mentor Blog, we’re at a point in the year when in-house legal teams may be tending to things like committee charters and corporate policies. If you are taking a look at your Code of Ethics, give this Morgan Lewis alert a read. It addresses compliance programs, oversight and governance, codes of ethics, reporting mechanisms, investigations, and code waivers and disclosures. After addressing the applicable regulatory frameworks, on the topic of “one code or many?” it says:
While the SEC allows different codes for different groups (e.g., executives, employees, board members), many compliance professionals recommend maintaining a single, comprehensive code for all personnel. Tailored training can then address the specific responsibilities of high-risk or gatekeeper functions, such as legal, finance, HR, or procurement.
Only one code that satisfies Item 406 of Regulation S-K requirements must be disclosed, and only the portions covering the required officers and topics need to be made publicly available to comply with SEC regulations.
It also has some practical & sometimes overlooked reminders to ensure that your Code of Ethics is both understandable and actively promoted. It suggests:
Publishing codes in multiple languages
Posting in PDF format with table of contents for searchability
Periodically reminding employees where to find the code and how to report issues
Ensuring codes are readable, ideally at an eighth- or ninth-grade level for broader comprehension
On Friday, the SEC sent a reminder that September 15, a key date for EDGAR Next, is (now less) than one month away.
In one month, on September 15, 2025, compliance with the EDGAR Next changes to EDGAR filer access and account management is required to continue to file on EDGAR uninterrupted. Filers must be enrolled in EDGAR Next or have been granted access on Form ID on or after March 24, 2025.
Enrollment will remain open through December 19, 2025, however, as of September 15, 2025, filers who have not enrolled or been granted access on Form ID on or after March 24, 2025 will be unable to file until they enroll.
– At a minimum, unenrolled filers should ensure NOW that they have a current CCC and passphrase which are required to enroll, as well as access to their EDGAR POC email box (in case the CCC and passphrase must be reset or confirmed as current).
– Unenrolled filers cannot change their EDGAR POC email after 10 p.m. September 12, 2025.
As Dave shared last week, stock buybacks are expected to top records in 2025. While the WSJ reported that buybacks are “particularly concentrated at the top, with the 20 largest companies accounting for almost half of repurchases,” I suspect there may be quite a few companies implementing share repurchase programs for the first time and trying to get their arms around structural and regulatory considerations. To that end, here’s a timely HLS blog penned by Cravath that discusses structuring share repurchase programs.
When looking at the alternatives – including, relatively simple open-market share repurchases (“OMR”), more complex accelerated share repurchase transactions (“ASR”) and a hybrid in between, enhanced open-market share repurchases (“eOMR”) – the blog suggests companies begin with these considerations:
– The level of control over the daily spend of the share repurchase activity;
– The ability to terminate the share repurchase activity;
– The ability to receive a large upfront delivery of shares;
– Whether to use a derivative transaction to effect share repurchase activity; and
– The ability for such share repurchase activity to qualify for the Rule 10b-18 safe harbor and/or constitute a Rule 10b5-1 plan.
The blog then considers OMRs, ASRs and eOMRs in detail. Here is a short summary of how these structures stack up against the above considerations:
OMRs provide the public company greater control over share repurchase activity and allow the share repurchase activity to be terminated at any time. But they don’t allow for a large upfront delivery of shares to be repurchased. OMRs are typically executed pursuant to the broker-dealer’s form of Rule 10b-18 agreement, and a Rule 10b5-1 plan can govern the terms of share repurchases if a company wishes to continue share repurchase activity through a closed window period.
ASRs offer a public company the ability to receive a large upfront delivery of shares to be repurchased plus certainty on the per-share repurchase price (discount to the average Rule 10b-18 VWAP during the term of an ASR (subject to any lookback option)). But it also means that it relinquishes control over the daily spend of share repurchase activity and the day the transaction will terminate. ASRs do not qualify for the Rule 10b-18 safe harbor but may be structured to reduce the risk of alleged manipulation. They are typically structured to meet the requirements of Rule 10b5-1.
In an eOMR, the public company relinquishes control over the daily spend but it retains the ability to terminate at any time (but, as described in the blog, the investment bank may be relieved from its reimbursement obligation for potential underperformance and the public company remains liable for the potential outperformance payment). An eOMR is typically structured to meet the requirements of Rule 10b5-1. It may qualify for the Rule 10b-18 safe harbor if it is structured so that the share repurchase activity is executed on an agency or riskless principal basis, where shares are repurchased in the open market.
This Woodruff Sawyer blog shares some helpful info on trends in officer exculpation proposals in the 2025 proxy season. Here are some notable takeaways:
– When exculpation proposals failed, high vote thresholds and low turnout were to blame. The three companies with failed proposals still received majority of votes cast. A heavily retail base contributed to this challenge.
– Many companies presented a proposal with charter amendments that contemplated “modernization of archaic language, removing references to classes of stock that have since been retired, or cleanup changes to conform with current Delaware law,” including officer exculpation.
– Proffered rationales didn’t break new ground. They included addressing rising litigation and insurance costs and an enhanced ability to attract and retain officers.
– Companies have made their disclosure clear that officer exculpation only permits exculpation for direct claims brought by stockholders. It would not eliminate officers’ monetary liability for breach of the duty of care claims brought by the company itself or for derivative claims made by stockholders on behalf of the company.
– The proxy advisors maintained their approaches to officer exculpation, with both taking a case-by-case approach, but Glass Lewis noting it would “recommend voting against such proposals eliminating monetary liability for breaches of the duty of care for certain corporate officers, unless compelling rationale for the adoption is provided by the board, and the provisions are reasonable.”
The blog shares these suggestions:
Review Your Charter Language Early. Identify whether a simple majority or supermajority threshold applies and plan accordingly.
Don’t Assume Investor Familiarity. Even with growing acceptance, many stockholders, especially retail, still require education on why officer exculpation matters. Make the case clearly and succinctly.
Bundle Wisely. Combining officer exculpation with refinements and clarifications can be effective, but avoid obscuring the proposal or diluting its rationale.
Engage Retail Shareholders. Where possible, boost turnout through proactive investor outreach and simple, accessible communications. Also, don’t feel like you need to go at it alone. Proxy solicitors are just a call away.
Be Ready to Proceed Without Proxy Advisor Support. Positive outcomes are achievable without unanimous recommendations from proxy advisors, but only with strong preparation.
Check out John’s latest “Timely Takes” Podcast featuring Cleary’s J.T. Ho & his monthly update on securities & governance developments. In this installment, J.T. reviews:
– SEC Climate Rule Update
– DOJ White Collar Enforcement Plan/SEC Enforcement
– First 10b5-1 Plan Conviction
– Consequences of Failure to Pushback on SEC Comments
– ISS and Glass Lewis litigation
As always, if you have insights on a securities law, capital markets or corporate governance issue, trend or development that you’d like to share in a podcast, we’d love to hear from you. You can email me and/or John at mervine@ccrcorp.com or john@thecorporatecounsel.net.
Since 1972, the SEC has had a policy that defendants settling civil claims with the Commission can’t go out afterwards and deny the allegations – which is not-so-affectionately known as the “gag rule.” As Liz shared in early 2024, the “neither admit nor deny” policy is, not surprisingly, not roundly supported by companies and other defendants. It’s also drawn criticism – on 1st Amendment grounds – from a federal court.
Petitioners in the case asked the Ninth Circuit to review the SEC’s denial of a request to amend Rule 202.5(e) to eliminate the provision prohibiting a defendant from denying the SEC’s allegation in a settlement. Because the petitioners were not challenging the application of the Rule to any specific factual scenario, the Court framed the challenge as a facial one. The Court, therefore, could only rule in favor of the petitioners if Rule 202.5(e) would be unconstitutional in all or most of its applications.
Applying the Supreme Court’s framework from Town of Newton v. Rumery, 480 U.S. 386 (1987), the panel concluded that the SEC’s policy is not facially invalid, principally because settling parties may voluntarily waive certain constitutional rights, including their First Amendment rights. The Court pointed out that Rule 202.5(e) applies only when a party agrees—voluntarily—not to deny the SEC’s allegations as a condition of settlement. It also relied on the limited scope of the SEC’s potential remedy for a breach, which is to return to court to ask that the court reopen the case, as providing an additional safeguard against misuse of the Rule. The Ninth Circuit’s holding aligns with the Second Circuit, which has also held that Rule 202.5(e) does not violate the Constitution.
However, the Court left open the possibility of as-applied challenges and took issue with some more expansive language in SEC settlements.
Although the Court rejected the facial challenge, it pointedly declined to immunize the Rule against future attacks. It noted that First Amendment concerns “could well arise in a more particularized, as-applied type of challenge.” For instance, if the SEC were to enforce the Rule in a way that chilled general criticism of the agency, courts may find such applications unconstitutional. In fact, the Court stated that one of the rationales put forth by the SEC in support of the Rule—that “it is necessary to silence defendants in order to promote public confidence in the SEC’s work”—would be an improper rationale in light of the “robust First Amendment protections for speech critical of the government.”
The panel also noted troubling language in some SEC settlement agreements that potentially extend beyond the Rule—for example, prohibiting defendants from making statements that merely “create the impression” that the SEC’s allegations or findings lack a factual basis or from “permitting” others to speak on their behalf. The Court explicitly left open the possibility that these broader restrictions could fail under future legal scrutiny. Additionally, the Court left open the possibility of challenges to the Rule’s unrestricted time period: “[n]or do we decide if it would be constitutional for the facial restrictions in Rule 202.5(e) to apply in perpetuity.”
On LinkedIn, Scott Mascianica says a defendant’s decision may not be as “voluntary” as it seems.
[F]ighting the SEC or settling with the agency can be a “Hobson’s choice” for individuals and entities: dig in and continue to face a financial crippling investigation or litigation OR settle and give up your right to deny the allegations against you. There is no door #3.
For many parties embroiled in SEC investigations or litigation, there is the appearance of a voluntary choice when it comes to resolving matters. In reality, for many, the only option available is to settle on terms set by the agency. Such settlements preclude a settling party from denying the allegations in the charging document; instead, the settling party is limited to stating that they neither admit nor deny the allegations.
He is quick to note not to blame SEC enforcement attorneys for these settlement terms — “their hands are tied by the rule.”
In a recent Delaware Chancery opinion,Kim, et al. v. FemtoMetrix, Inc. (Del. Ch.; 8/25), Vice Chancellor Will addressed the enforceability of a voting agreement amendment. She found the amendment was allowed under the terms of the voting agreement even though it altered a party’s right to designate a director without its consent. Law Prof Ann Lipton (now of the University of Colorado Law School) blogged about the decision last week:
Avaco was a stockholder in FemtoMetrix, and had signed a voting agreement with other stockholders. That agreement gave Avaco the right to designate one director, and it chose Kim, who was then an Avaco employee. The voting agreement had the following relevant terms:
Section 1.2(a) granted Avaco had a designation right, subject to sections 1.6 and 1.4(a) . . . Section 1.4(a) provided that Avaco’s designee could be removed without Avaco’s approval, but only for “cause.” Section 7.8 provided that amendments to the voting agreement required a stockholder vote, but an amendment specific to a particular investor – that did not “appl[y]” to all equally – would require that investor’s consent. It also provided that Section 1.2(a) could not be amended without Avaco’s consent.
FemtoMetrix and Avaco also had a commercial relationship and, for whatever reason, that relationship soured and Avaco filed a lawsuit against FemtoMetrix. To “prevent Avaco from obtaining sensitive information while the parties were embroiled in litigation,” the company and certain stockholders entered into an amendment to the voting agreement that did not revise Section 1.2 containing Avaco’s designation right, but revised Section 1.4 in a way that effectively prevented Avaco from exercising that designation right.
Specifically, they amended section 1.4 by adding a new subsection, (d), defining a “conflicted director” to mean a director who is affiliated with an entity engaged in commercial litigation against FemtoMetrix, and they amended 1.4(a) to define “cause” to reference the new 1.4(d). They also added a new Section 1.7, preventing stockholders with designation rights from appointing conflicted directors. FemtoMetrix then kicked Kim off the board, Avaco sued, and the two sides moved for summary judgment.
The company claimed that, in all respects, it complied with the voting agreement. Section 1.2(a) had not been amended at all, so Avaco’s consent was not required. The other sections had been amended, but – because they applied equally to all investors – Avaco’s consent was still not required.
Ann points out:
Avaco previously had a designation right, unrestricted except for SEC bad actors, and now it didn’t! Avaco’s director previously could only be removed for “cause” – which as a background concept usually means misconduct of some kind – and now could be removed for other reasons! And of course the amendment was limited to Avaco; the investors chose an Avaco-specific quality and targeted the amendment to that quality.
But Vice Chancellor Will found this to be copacetic under the strict language of the voting agreement and granted summary judgment.
Avaco was protected against amendments to Section 1.2(a), and the actual words that were changed appeared in Sections 1.4 and 1.7 . . . As for whether the amendments concerned a specific investor – they were phrased in general terms, so those were okay too! Any investor engaged in commercial litigation against FemtoMetrix would have received the same treatment . . . The contract required equal application of a contract amendment; not equal effect. The fact that the amendment had a disparate effect (and was clearly intended to have a disparate effect) played no part in the analysis because the agreement only guaranteed against disparate application.
In mid-July, we ran a reader quick poll asking: “What’s your least favorite S-K item?” The results are in! Item 402 is the Regulation S-K item our readers most love to hate. In a narrow victory, Item 402 beat out my least favorite, Item 305, by 1%! This just underscores that the SEC revisiting the current executive compensation disclosure requirements is a welcome development!
Now that we know readers’ least favorite, I can’t help but wonder if there is a clear favorite! I’m not sure I have one myself. Maybe Item 303, because I enjoy reading MD&As, but then again, I also enjoy reading CD&As — even though I’m aligned with our readers on Item 402. I think I must just like a “discussion & analysis.”
Anyway, less about me, let’s talk about you! Do you have a favorite? Please, search your soul and take a minute to answer this quick poll.
