United States: June 2015 Corporate Alert

The Herrick Advantage

Herrick recently represented Bounce Boat, an operator of one of the largest private event yachts in the northeast, in securing its charter for the 2015 season and in executing a contract for its first cruise this year – the June 5 birthday party of famous hip hop artist, Jadakiss. The deal team, led by corporate partner Richard M. Morris, included IP partner Barry Werbin, and associates Julie Albinsky and Liliana Chang.

Delaware Supreme Court Rules on Exculpatory Provisions

The Delaware Supreme Court unanimously held that a claim for damages against independent, disinterested directors of a corporation with exculpatory provisions in its certificate of incorporation must be dismissed in the absence of disloyalty or bad faith allegations. This holding applies to all situations including controlling stockholder cases.  The claim arose out of the approval, by the board of directors, of a going private transaction that was led by controlling stockholders.

In addressing a previously unsettled area of case law, the court ruled that the claimant "must plead non-exculpated claims against a director who is protected by an exculpatory charter provision to survive a motion to dismiss, regardless of the underlying standard of review for the board's conduct."  The court further ruled that the claimant must plead "facts supporting a rational influence that the director harbored self-interest adverse to the stockholders' interests, acted to advance the self-interest of an interested party from whom they could not be presumed to act independently, or acted in bad faith."

In re Cornerstone Therapeutics Inc. Stockholder Litig. No 564, 2014 (Del. Sup. Ct., May 14, 2015)

Delaware Chancery Court Provides Guidance on Dead Hand Proxy Puts

The Delaware Chancery Court provided guidance on its prior ruling regarding the validity of a dead hand proxy put (the "Put") contained in a corporation's credit agreement. Under the Put, the debt covered by the credit agreement would have effectively accelerated if a majority of the directors were replaced by nominees of activist stockholders over the span of two annual meetings without the right of the board of directors to approve the activist stockholder nominees as continuing directors whose election would not count toward determining if the Put had been triggered. The case before the court arose out of a stockholder class action challenging the Put.

In denying, the defendants' motion to dismiss, the court ruled that its denial should not be viewed as applying to any "change-in-control" provision contained in a credit agreement.  Rather, the court's ruling was limited to the Put and the underlying facts and circumstances including the timing of the adoption of the Put.  The court further ruled that its decision did not apply to other acceleration rights that might be triggered by breaches of debt covenants or similar lender-protective provisions that do not affect the stockholder franchise.

Pontiac Gen. Employees Retirement Syst. v. Ballantine, C.A. No. 9789-VCL (Del. Ch. Ct., May 8, 2015)

Delaware Chancery Court Permits Voluntary Dissolution of Profitable Limited Liability Company Despite Operating Agreement to the Contrary

The Delaware Chancery Court ruled in favor of the dissolution of a limited liability company even though (i) there was no management deadlock, (ii) the company was profitable and (iii) the company's operating agreement barred voluntary dissolution. In so ruling, the court disregarded the integration clause in the operating agreement and considered other agreements that were contemporaneously entered into by the members at the time of the formation of the limited liability company.  In particular, the court found that the termination of a supply contract between the company and one of its members frustrated the company's business purpose. The termination of this supply agreement also resulted in the termination of non-competition provisions previously applicable to certain members of the limited liability company.

Meyer Natural Foods LLC v. Duff, C.A. No. 9703-VCN (Del. Ch. Ct., June 4, 2015)

Delaware Enacts Statute Banning "Loser Pays" By-Laws

Delaware's governor has signed into law a statute prohibiting Delaware corporations from adopting "fee shifting" by-laws which require the losing party in a stockholder derivative suit to pay the attorney fees of the prevailing party.  Debate over "fee shifting" by-laws began in May 2014 following a ruling by the Delaware Supreme Court that "fee shifting" by-laws were not invalid and might be a permissible way to discourage litigation. The statute, however, does permit Delaware corporations to adopt forum selection by-laws that require derivative suits to be filed in the Delaware courts. The statute will become effective on August 1, 2015.

Senate Bill 75, 148th Gen. Assembly,  An Act to Amend Title 8 of the Delaware Code Relating to the General Corporation Law (DE June 24, 2015)

SEC Brings Illegal Brokerage Charges against EB-5 Immigrant Investor Program

The Securities and Exchange Commission (the "SEC") instituted illegal brokerage charges for the first time in connection with an EB-5 Immigrant Investor Program.  This program provides a means for foreigners to obtain legal U.S. residency by investing directly in a U.S. business or private regional center that promotes economic development in specific areas and industries. The SEC charged two firms for acting as unregistered brokers for more than $79 million of investments made under the EB-5 program. The SEC found the firms used a website to solicit EB-5 investors.  While these firms promised to help investors choose the right regional center to invest with, the SEC claimed the firms directed most of the EB-5 investors to the same handful of regional centers which paid the firms approximately $35,000 per EB-5 investor once as investor's green card was issued. 

SEC Rel. No. 2015-17 (SEC Charges Unregistered Brokers in EB-5 Immigrant Investor Program) (June 23, 2015)

SEC Receives Recommendation to Formalize Section 4(a)(1-1/2) Registration Exemption

The Securities and Exchange Commission Advisory Committee on Small and Emerging Companies formally submitted to the Securities and Exchange Commission a recommendation regarding the formalization of an exemption from securities registration commonly known as "Section 4(a)(1-1/2)." This exemption is a legal construct that has developed based on case law. The Section 4(a)(1-1/2) exemption incorporates elements of exemptions available under Securities Act of 1933 Section 4(a)(1) for persons other than an issuer, underwriter or dealer and Section 4(a)(2) for transactions by an issuer not involving a public offering.  Due to the lack of formal recognition of the Section 4(a)(1-1/2) exemption, the expenses involved for a transaction based thereupon can be significant.

See the Advisory Committee's recommendation here:


The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.