Examples of Fee Shifting By-Laws

Some smaller companies and those in the process of going public have begun adopting fee shifting by-laws.  As my colleagues at Stinson Leonard Street have advised, we urge caution for those headed in this direction until, among other things, issuers know the views of investors and proxy advisory firms and any possible legislative changes in Delaware are more clear.

Echo Therapeutics, Inc.

5.13 Litigation Costs.  To the fullest extent permitted by law, in the event that (i) any current or prior stockholder or anyone on their behalf (“Claiming Party”) initiates or asserts any claim or counterclaim (“Claim”) or joins, offers substantial assistance to, or has a direct financial interest in any Claim against the Corporation and/or any Director, Officer,  Employee or Affiliate, and (ii) the Claiming Party (or the third party that received substantial assistance from the Claiming Party or in whose Claim the Claiming Party had a direct financial interest) does not obtain a judgment on the merits that substantially achieves, in substance and amount, the full remedy sought, then each Claiming Party shall be obligated jointly and severally to reimburse the Corporation and any such Director, Officer, Employee or Affiliate, the greatest amount permitted by law of all fees, costs and expenses of every kind and description (including but not limited to, all reasonable attorney’s fees and other litigation expenses) (collectively, “Litigation Costs”) that the parties may incur in connection with such Claim.

Biolase Inc.

Section 12.2 Certain Litigation Costs.

To the fullest extent permitted by law, in the event that (a) without obtaining advance approval of the Board, any current or former director or anyone on behalf of any current or former director (each, a “Claiming Director”) asserts any claim or initiates any proceeding or joins, offers substantial assistance to or has a direct financial interest in any claim or proceeding against the Corporation or any of its directors or officers (including any proceeding purportedly filed on behalf of the Corporation or any stockholder), and (b) such Claiming Director (or the third party that received substantial assistance from the Claiming Director or in whose claim or proceeding such Claiming Director had a direct financial interest) does not obtain a judgment on the merits that substantially achieves, in substance and amount, the full remedy sought by such Claiming Director (or third party), then such Claiming Director shall be obligated to reimburse the Corporation and any such director or officer for all fees, costs and expenses of every kind and description (including all reasonable attorneys’ fees and other litigation expenses) that the Corporation or any such director or officer actually incurs in connection with such claim or proceeding; provided, however, that the foregoing shall not apply with respect to any claim asserted or proceeding initiated by a Claiming Director for which such Claiming Director is entitled to (i) indemnification under Section 10.1 or any agreement with the Corporation or (ii) bring suit under Section 10.1(b). For purposes of this Section 12.2, “proceeding” shall have the definition set forth in Section 10.1(a) of these Bylaws.

The LGL Group, Inc.

The By-laws of The LGL Group, Inc. (the “Company”) are hereby amended by adding to Article V thereof new Sections 5.2(k) and (l) reading as follows:

(k)           To the fullest extent permitted by law, in the event that (i) any current or prior stockholder or anyone on their behalf (“Claiming Party”) initiates or asserts any claim or counterclaim (“Claim”) or joins, offers substantial assistance to, or has a direct financial interest in any Claim against the Company and/or any Director, Officer, Employee or Affiliate (together, the “Company Parties”), and (ii) the Claiming Party (or the third party that received substantial assistance from the Claiming Party or in whose Claim the Claiming Party had a direct financial interest) does not obtain a judgment on the merits that substantially achieves, in substance and amount, the full remedy sought, then each Claiming Party shall be obligated jointly and severally to reimburse the Company Parties the greatest amount permitted by law of all fees, costs and expenses of every kind and description (including but not limited to, all reasonable attorney’s fees and other litigation expenses) (collectively, “Litigation Costs”) that the Company Parties may incur in connection with such Claim.

(l)           To the fullest extent permitted by law, in the event that any Claiming Party initiates or asserts any Claim or joins, offers substantial assistance to, or has a direct financial interest in any Claim against any Company Parties, then, regardless whether the Claiming Party is successful on its Claim in whole or in part, (i) the Claiming Party shall bear its own Litigation Costs, and (ii) the Claiming Party and the Claiming Party’s attorneys shall not be entitled to recover any Litigation Costs or, in a derivative or class action, to receive any fees or expenses as the result of the creation of any common fund, or from a corporate benefit purportedly conferred upon the Corporation.

The By-Laws of the Company are hereby amended by adding to Article V thereof a new Section 5.5 reading as follows:

Section 5.5.  Severability.  If any provision (or any part thereof) of these By-laws shall be held to be invalid, illegal or unenforceable as applied to any circumstance for any reason whatsoever: (i) the validity, legality and enforceability of such provisions in any other circumstance and of the remaining provisions of these By-laws (including, without limitation, each portion of any section of these By-laws containing any such provision held to be invalid, illegal or unenforceable that is not itself held to be invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby and (ii) to the fullest extent possible, the provisions of these By-laws (including, without limitation, each such portion containing any such provision held to be invalid, illegal or unenforceable) shall be construed for the benefit of the Corporation to the fullest extent permitted by law so as to (a) give effect to the intent manifested by the provision held invalid, illegal or unenforceable, and (b) permit the Corporation to protect its directors, officers, employees and agents from personal liability in respect of their good faith service.  Reference herein to laws, regulations or agencies shall be deemed to include all amendments thereof, substitutions therefor and successors thereto, as the case may be.

 

Topics:  Bylaws, Delaware General Corporation Law, Fee-Shifting, Public Offerings

Published In: Civil Procedure Updates, Civil Remedies Updates, General Business Updates, Securities Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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