Developments in Securities Regulation, Corporate Governance, Capital Markets, M&A and Other Topics of Interest. MORE

The Minnesota legislature is on the verge of approving several changes to the Minnesota Business Corporation Act, Chapter 302A of the Minnesota Statutes (the MBCA), in order to modernize the statute and follow the lead of Delaware in several areas. The bill in question passed the Minnesota House of Representatives on March 12th and had its second reading in the Minnesota Senate on March 15th.

Written Actions by Email

A change to Section 302A.011, Subd. 36 makes clear that a written action includes a record “consented to by authenticated electronic communication” by the requisite parties. Under existing law, an authenticated electronic communication includes an electronic communication received by a corporation or an officer of a corporation that “sets forth information from which the corporation can reasonably conclude that the communication was sent by the purported sender.”  Combined, these provisions make clear that a written action could be circulated to board members or shareholders via email and the board members or shareholders could validly consent to the action merely by replying to the email, without going through the hassle of printing and signing a document and sending back a pdf.

Exclusive Forum Bylaws

Minnesota is following the approach reflected in Section 115 of the Delaware General Corporation Law (DGCL) with respect to exclusive forum bylaws, which seek to control the forum in which internal corporate claims may be litigated by shareholders. New Section 302A.191 of the MBCA expressly allows the articles of bylaws of a Minnesota corporation to require that all “internal corporate claims” be brought exclusively in Minnesota courts, and disallows any provision of the articles or bylaws of a Minnesota corporation that would seek to designate a different jurisdiction for the litigation of internal corporate claims.  “Internal corporate claims” are defined to include fiduciary duty claims, all derivative claims, and any claim arising under the MBCA or the corporation’s articles or bylaws.

Pre-Authorization for Share Issuance

New subsection (b) of Section 302A.401 provides board with greater flexibility in approving the issuance of shares. The new language specifically allows a board to pre-authorize the issuance of shares in one or more transactions or at the direction of a person, who need not be a director, so long as certain parameters are described in the authorizing resolution, such as the maximum number of shares that can be issued, the time period during which the shares can be issued, and the minimum consideration that must be received in connection with the issuance of the shares.

Fast Track for Two-Step Mergers

The amendments will also facilitate faster transaction timelines for the two-step merger process used in going-private transactions. At the first step of such transactions, the acquirer launches a tender offer to acquire shares of the public corporation.  Provided that more than 50% of the shares are tendered, the ultimate approval of a subsequent merger with the acquirer is assured.  Nevertheless, under current Minnesota law the corporation would still be required to hold a meeting of the shareholders to vote on the merger and incur all of the cost, expense, and delay associated with producing a proxy statement and holding a meeting.  A new subdivision 4 to Section 302A.613 provides that the second-step merger can be completed without a vote of the shareholders provided that several fairly straight-forward requirements are satisfied.

This significant change ripples through several other sections of the MBCA, as well, such as in Section 302A.473 which now provides the option for a corporation to provide a notice of dissenters’ rights at the initial tender-offer stage in a two-step merger rather than waiting until the subsequent merger to provide the required notice and begin the process of dealing with dissenting shareholders. A first-step tender offer is also excluded from the definition of “takeover offer” in Section 80B.01, Subd. 8, so long as the tender offer was part of a two-step merger plan approved by the board.