Complete Home & Office Legal Guide/Complete Home and Office Legal Guide (Chestnut) (1993).ISO/stat/mbiz/busi3t.asc

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/* Part 3 of 8 of the Model Act continues. */

would have been required to be sent to nonvoting shareholders in
notice of meeting at which the proposed action would have been
submitted to the shareholders for action.


Official Comment

2. Revocation of Consent Action by unanimous written consent is
effective only when the last shareholder has signed the
appropriate written consent and all consents have been delivered
to the secretary of the corporation. Before that time, any
shareholder may withdraw his consent simply by advising the
secretary of that fact.  Cf. Calumet Industries, Inc. v.
MacClure, 464 F.Supp. 19 (N.D.Ill.1978).  The withdrawal of a
single consent, of course, destroys the unanimous written consent
required by this section. If a shareholder seeks to withdraw his
consent after all shareholders have signed written consents and
filed them with the secretary of the corporation, the corporation
may treat the attempted withdrawal as too late or give it effect,
thereby requiring the matter to be presented at a shareholders'
meeting.

7.05 Notice of Meeting

(a) A corporation shall notify shareholders of the date, time,
and place of each annual and special shareholders' meeting no
fewer than 10 nor more than 60 days before the meeting date.
Unless this Act or the articles of incorporation require
otherwise, the corporation is required to give notice only to
shareholders entitled to vote at the meeting.

(b) Unless this Act or the articles of incorporation require
otherwise, notice of an annual meeting need not include a
description of the purpose or purposes for which the meeting is
called.

(c) Notice of a special meeting must include a description of the
purpose or purposes for which the meeting is called.

(d) If not otherwise fixed under section 7.03 or 7.07, the record
date for determining shareholders entitled to notice of and to
vote at an annual or special shareholders' meeting is the day
before the first notice is delivered to shareholders.

(e) Unless the bylaws require otherwise, if an annual or special
shareholders' meeting is adjourned to a different date, time, or
place, notice need not be given of the new date, time, or place
if the new date, time, or place is announced at the meeting
before adjournment. If a new record date for the adjourned
meeting is or must be fixed under section 7.07, however, notice
of the adjourned meeting must be given under this section to
persons who are shareholders as of the new record date.


7.06 Waiver of Notice

(a) A shareholder may waive any notice required by this Act, the
articles of incorporation, or bylaws before or after the date and
time stated in the notice. The waiver must be in writing, be
signed by the shareholder entitled to the notice, and be
delivered to the corporation for inclusion in the minutes or
filing with the corporate records.

(b) A shareholder's attendance at a meeting:

(1) waives objection to lack of notice or defective notice of the
meeting, unless the shareholder at the beginning of the meeting
objects to holding the meeting or transacting business at the
meeting;

(2) waives objection to consideration of a particular matter at
the meeting that is not within the purpose or purposes described
in the meeting notice, unless the shareholder objects to
considering the matter when it is presented.

7.07 Record Date

(a) The bylaws may fix or provide the manner of fixing the record
date for one or more voting groups in order to determine the
shareholders entitled to notice of a shareholders' meeting, to
demand a special meeting, to vote, or to take any other action.
If the bylaws do not fix or provide for fixing a record date, the
board of directors of the corporation may fix a future date as
the record date.

(b) A record date fixed under this section may not be more than
70 days before the meeting or action requiring a determination of
shareholders.

(c) A determination of shareholders entitled to notice of or to
vote at a shareholders' meeting is effective for any adjournment
of the meeting unless the board of directors fixes a new record
date, which it must do if the meeting is adjourned to a date more
than 120 days after the date fixed for the original meeting.

(d) If a court orders a meeting adjourned to a date more than 120
days after the date fixed for the original meeting, it may
provide that the original record date continues in effect or it
may fix a new record date.

Subchapter B

Voting

7.20 Shareholders' List for Meeting

(a) After fixing a record date for a meeting, a corporation shall
prepare an alphabetical list of the names of all its shareholders
who are entitled to notice of a shareholders' meeting.  The list
must be arranged by voting group (and within each voting group by
class or series of shares) and show the address of and number of
shares held by each shareholder.

(b) The shareholders' list must be available for inspection by
any shareholder, beginning two business days after notice of the
meeting is given for which the list was prepared and continuing
through the meeting, at the corporation's principal office or at
a place identified in the meeting notice in the city where the
meeting will be held.  A shareholder, his agent, or attorney is
entitled on written demand to inspect and, subject to the
requirements of section 16.02(c), to copy the list, during
regular business hours and at his expense, during the period it
is available for inspection.

(c) The corporation shall make the shareholders' list available
at the meeting, and any shareholder, his agent, or attorney is
entitled to inspect the list at any time during the meeting or
any adjournment.

(d) If the corporation refuses to allow a shareholder, his agent,
or attorney to inspect the shareholders' list before or at the
meeting (or copy the list as permitted by subsection (b)), the
[name or describe court of the county where a corporation's
principal office (or, if none in this state, its registered
office) is located, on application of the shareholder, may
summarily order the inspection or copying at the corporation's
expense and may postpone the meeting for which the list was
prepared until the inspection or copying is complete.

(e) Refusal or failure to prepare or make available the
shareholders' list does not affect the validity of action taken
at the meeting.

Official Comment

5. The Right to Obtain a Copy of the List

Section 7.20(b) permits shareholders to "inspect" the list
without limitation, but permits the shareholder to "copy" the
list only if the shareholder complies with the requirement of
section 16.02(c), that the demand be "made in good faith and for
a proper purpose." The right to copy the list includes, if
reasonable, the right to receive a copy of the list upon payment
of a reasonable charge. See sections 16.03(b) and (c). The
distinction between inspection" and "copying" set forth in
section 7.20(b) reflects an accommodation between competing
considerations of permitting shareholders access to the list
before a meeting and possible misuse of the list.

6. Relationship to Right to Inspect Corporate Records Generally
Section 7.20 creates a right of shareholders to inspect a list of
shareholders in advance of and at a meeting that is independent
of the rights of shareholders to inspect corporate records under
chapter 16A. A shareholder may obtain the right to inspect the
list of shareholders as provided in chapter 16A without regard to
the provisions relating to the pendency of a meeting in section
7.20, and similarly the limitations of chapter 16A are not
applicable to the right of inspection created by section 7.20
except to the extent the shareholder seeks to copy the list in
advance of the meeting. The right to inspect under chapter 16A is
also broader in the sense that in some circumstances the
shareholder may be entitled to receive copies of the documents he
may inspect.  See section 16.03.

7.21 Voting Entitlement of Shares

(a) Except as provided in subsections (b)and (c) or unless the
articles of incorporation provide otherwise, each outstanding
share, regardless of class, is entitled to one vote on each
matter voted on at a shareholders' meeting.  Only shares are
entitled to vote.

(b) Absent special circumstances, the shares of a corporation are
not entitled to vote if they are owned, directly or indirectly,
by a second corporation, domestic or foreign, and the first
corporation owns, directly or indirectly, a majority of the
shares entitled to vote for directors of the second corporation.

/* The code starts with a new concept, that prevents corporations
from interlocking. */

(c) Subsection (b) does not limit the power of a corporation to
vote any shares, including its own shares, held by it in a
fiduciary capacity.

(d) Redeemable shares are not entitled to vote after notice of
redemption is mailed to the holders and a sum sufficient to
redeem the shares has been deposited with a bank, trust company,
or other financial institution under an irrevocable obligation to
pay the holders the redemption price on surrender of the shares.

Official Comment

Section 7.21 deals with the entitlement of shareholders to vote,
while section 7.22 deals with voting by proxy and section 7.24
establishes rules for the corporation's acceptance or rejection
of proxy votes.

1. Voting Power of Shares

Section 7.21(a provides that each outstanding share, regardless
of class, is entitled to one vote per share unless otherwise
provided in the articles of incorporation.  See section 6.01 and
its Official Comment. The articles of incorporation may provide
for multiple or fractional votes per share and may provide that
some classes of shares are nonvoting on some or all matters, or
that some classes have multiple or fractional votes per share
while other classes have a single vote per share or different
multiple or fractional votes per share, or that some classes
constitute one or more separate voting groups and are entitled to
vote separately on the matter.

The articles of incorporation may also authorize the board of
directors to create classes or series of shares with preferential
rights, which may be voting or nonvoting in whole or in part. See
section 6.02 and its Official Comment.

Fractional or multiple votes per share, or nonvoting shares, are
often used in the planning of business ventures, particularly
closely held ventures, when the contributions of participants
vary in kind or quality.  It is possible through these devices,
for example, to give persons with relatively small financial
contributions a relatively large voting power within the
corporation.

The power to vary or condition voting power is also often used to
give increased protection to financial interests in the
corporation. It is customary, for example, to make classes of
shares with preferential rights nonvoting, but the power to vote
may be granted to those classes if distributions are omitted for
a specified period.  This conditional right to vote may permit
the class of shares with preferential rights to vote separately
as a voting group to elect one or more directors or to vote with
the shares having general voting rights in the election of the
directors.

In order to reflect the possibility that shares may have multiple
or fractional votes per share, all provisions relating to
quorums, voting, and similar matters in the Model Act are phrased
in terms of "votes" rather than "shares."

2. Voting Power of Nonshareholders

Under the last sentence of section 7.21(a), the power to vote
cannot be granted generally to nonshareholders. The statutes of
some states permit bondholders to be given the power to vote
under certain specified circumstances; this option is not
available under the Model Act. But creditors may in effect be
given the power to vote, e.g., by creating a special class of
redeemable voting shares for them, by creating a voting trust at
the time the credit is extended with power in the creditors to
name the voting trustees, by registering the shares in the name
of the creditors as pledgees with power to vote, or by granting
the creditors a revocable or irrevocable proxy to vote some or
all of the outstanding shares.  See the Official Comment to
section 7.22.

3. Circular Holdings

Section 7.21(b) prohibits the voting of shares held by a domestic
or foreign corporation that is itself a majority-owned subsidiary
of the corporation issuing the shares, The purpose of this
prohibition is to prevent management from using a corporate
investment to perpetuate itself in power. Similar public policy
considerations may be present in situations where the issuing
corporation owns a large but not a majority interest in the
corporation voting the shares.  The inclusion of section 7.21(b)
is not intended to affect the possible application of common law
principles that may invalidate circular holding situations not
within its literal prohibition. As to the possible existence of
these common law principles, see, e.g., Cleveland Trust Co. v.
Eaton, 11 Ohio Misc. 151, 229 N.E.2d 850 (1967), rev'd on the
basis of statutory amendment, 21 Ohio St.2d 129, 256 N.E.2d 198
(1970).  The phrase "absent special circumstances" is included to
enable a court to permit the voting of shares where it deems that
the purpose of the section is not violated.

4. Shares Held in a Fiduciary Capacity

Section 7.21(c) makes the prohibition against voting of
circularly-owned shares of section 7.21(b) inapplicable to shares
held in a fiduciary capacity.  Compare Del.Gen.Corp.Law 160(c).
The Ohio statute involved in the Eaton case authorized a bank to
vote its own shares that were held by it in a fiduciary capacity.
A state may grant or prohibit such voting by another statute;
section 7.21(c) provides only that such voting is not prohibited
by the Model Act. .

7.22 Proxies

(a) A shareholder may vote his shares in person or by proxy.

(b) A shareholder may appoint a proxy to vote or otherwise act
for him by signing an appointment form, either personally or by
his attorney-in-fact.

(c) An appointment of a proxy is effective when received by the
secretary or other officer or agent authorized to tabulate votes.
An appointment is valid for 11 months unless a longer period is
expressly provided in the appointment form.

(d) An appointment of a proxy is revocable by the shareholder
unless the appointment form conspicuously states that it is
irrevocable and the appointment is coupled with an interest.
Appointments coupled with an interest include the appointment of:

(1) a pledgee;

(2) a person who purchased or agreed to purchase the shares;

(3) a creditor of the corporation who extended it credit under
terms requiring the appointment;

(4) an employee of the corporation whose employment contract
requires the appointment; or

(5) a party to a voting agreement created under section 7.31.

(e) The death or incapacity of the shareholder appointing a proxy
does not affect the right of the corporation to accept the
proxy's authority unless notice of the death or incapacity is
received by the secretary or other officer or agent authorized to
tabulate votes before the proxy exercises his authority under the
appointment.

(f) An appointment made irrevocable under subsection (d) is
revoked when the interest with which it is coupled is
extinguished.

(g) A transferee for value of shares subject to an irrevocable
appointment may revoke the appointment if he did not know of its
existence when he acquired the shares and the existence of the
irrevocable appointment was not noted conspicuously on the
certificate representing the shares or on the information
statement for shares without certificates.

(h) Subject to section 7.24 and to any express limitation on the
proxy's authority appearing on the face of the appointment form,
a corporation is entitled to accept the proxy's vote or other
action as that of the shareholder making the appointment.

Official Comment.

I. Nomenclature

The word "proxy" is often used ambiguously, sometimes referring
to the grant of authority to vote, sometimes to the document
granting the authority, and sometimes to the person to whom the
authority is granted. In the revised Model Act the word "proxy"
is used only in the last sense; the term "appointment form" is
used to describe the document appointing the proxy; and the word
"appointment" is used to describe the grant of authority to vote.

7.23 Shares Held by Nominees

(a) A corporation may establish a procedure by which the
beneficial owner of shares that are registered in the name of a
nominee is recognized by the corporation as the shareholder. The
extent of this recognition may be determined in the procedure.

(b) The procedure may set forth:

(1) the types of nominees to which it applies;

(2) the rights or privileges that the corporation recognizes in a
beneficial owner;

(3)  the manner in which the procedure is selected by the
nominee;

(4) the information that must be provided when the procedure is
selected;

(5) the period for which selection of the procedure is effective;
and

(6) other aspects of the rights and duties created.

7.24 Corporation's Acceptance of Votes

(a) If the name signed on a vote, consent, waiver, or proxy
appointment corresponds to the name of a shareholder, the
corporation if acting in good faith is entitled to accept the
vote, consent, waiver, or proxy appointment and give it effect as
the act of the shareholder.

(b) If the name signed on a vote, consent, waiver, or proxy
appointment does not correspond to the name of its shareholder,
the corporation if acting in good faith is nevertheless entitled
to accept the vote, consent, waiver, or proxy appointment and
give it effect as the act of the shareholder if:

(1) the shareholder is an entity and the name signed purports to
be that of an officer or agent of the entity;

(2) the name signed purports to be that of an administrator,
executor, guardian, or conservator representing the shareholder
and, if the corporation requests, evidence of fiduciary status
acceptable to the corporation has been presented with respect to
the vote, consent, waiver, or proxy appointment;

(3) the name signed purports to be that of a receiver or trustee
in bankruptcy of the shareholder and, if the corporation
requests, evidence of this status acceptable to the corporation
has been presented with respect to the vote, consent, waiver, or
proxy appointment;

(4) the name signed purports to be that of a pledgee, beneficial
owner, or attorney-in-fact of the shareholder and, if the
corporation requests, evidence acceptable to the corporation of
the signatory's authority to sign for the shareholder has been
presented with respect to the vote, consent, waiver, or proxy
appointment;

(5) two or more persons are the shareholder as cotenants or
fiduciaries and the name signed purports to be the name of at
least one of the coowners and the person signing appears to be
acting on behalf of all the coowners.

(c) The corporation is entitled to reject a vote, consent,
waiver, or proxy appointment if the secretary or other officer or
agent authorized to tabulate votes, acting in good faith, has
reasonable basis for doubt about the validity of the signature on
it or about the signatory's authority to sign for the
shareholder.

(d) The corporation and its officer or agent who accepts or
rejects a vote, consent, waiver, or proxy appointment in good
faith and in accordance with the standards of this section are
not liable in damages to the shareholder for the consequences of
the acceptance or rejection.

(e) Corporate action based on the acceptance or rejection of a
vote, consent, waiver, or proxy appointment under this section is
valid unless a court of competent jurisdiction determines
otherwise.

/* An interesting statement that appears to be unnecessary.
Corporate actions are usually effective unless a court says
otherwise. */

7.25 Quorum and Voting Requirements for Voting Groups

(a) Shares entitled to vote as a separate voting group may take
action on a matter at a meeting only if a quorum of those shares
exists with respect to that matter. Unless the articles of
incorporation or this Act provide otherwise, a majority of the
votes entitled to be cast on the matter by the voting group
constitutes a quorum of that voting group for action on that
matter.

(b) Once a share is represented for any purpose at a meeting, it
is deemed present for quorum purposes for the remainder of the
meeting and for any adjournment of that meeting unless a new
record date is or must be set for that adjourned meeting.

(c) If a quorum exists, action on a matter (other than the
election of directors) by a voting group is approved if the votes
cast within the voting group favoring the action exceed the votes
cast opposing the action, unless the articles of incorporation or
this Act require a greater number of affirmative votes.

(d) An amendment of articles of incorporation adding, changing,
or deleting a quorum or voting requirement for a voting group
greater than specified in subsection (a) or (c) is governed by
section 7.27.

(e) The election of directors is governed by section 7.28.

Official Comment

3. Quorum Requirements for Action by Voting Group

Section 7.25(b) retains the common law view that once a share is
present at a meeting, it is deemed present for quorum purposes
throughout the meeting.  Thus, a voting group may continue to act
despite the withdrawal of persons having the power to vote one or
more shares in an effort "to break the quorum." In this respect,
a meeting of shareholders is governed by a different rule than a
meeting of directors, where a sufficient number of directors must
be present to constitute a quorum at the time action is taken.
See section 8.24 and its Official Comment.

Once a share is present at a meeting it is also deemed to be
present at any adjourned meeting unless a new record date is or
must be set for that adjourned meeting. See section 7.07. If a
new record date is set, new notice must be given to holders of
shares of a voting group and a quorum must be established from
within the holders of shares of that voting group on the new
record date.

The shares owned by a shareholder who comes to the meeting to
object on grounds of lack of notice may be counted toward the
presence of a quorum.  Similarly, the holdings of a shareholder
who attends a meeting solely for purposes of raising the
objection that a quorum is not present is counted toward the
presence of a quorum. Attendance at a meeting, however, does not
constitute a waiver of other objections to the meeting such as
the lack of notice.  Such waivers are governed by section
7.06(b).

As used in sections 7.25 and 7.26, "represented at the meeting"
means the physical presence of the shareholder (whether in person
or by his written authorization) in the meeting room after the
meeting has been called to order or the presiding officer has
commenced consideration of the business of the meeting, and
before the final adjournment of the meeting.

4. Voting Requirements for Approval by Voting Group

Section 7.25(c) provides that an action (other than the election
of directors, which is governed by section 7.28) is approved by a
voting group at a meeting at which a quorum is present if the
votes cast in favor of the action exceed the votes cast opposing
the action.  This section changes the traditional rule appearing
in earlier versions of the Model Act and many state statutes that
an action is approved at a meeting at which a quorum is present
if it receives the affirmative vote `of a majority of the shares
represented at that meeting." The traditional rule in effect
treated abstentions as negative votes; the Revised Model Act
treats them truly as abstentions.

5. Modification of Standard Requirements

The articles of incorporation may increase the quorum and voting
requirements to any extent desired up to and including unanimity
upon compliance with section 7.27 . . . The articles may also
decrease the quorum requirement as desired. Earlier versions of
the Model Act limited the power to reduce the quorum to a minimum
of one-third; this restriction, was eliminated from the Revised
Model Act because it was thought to be unreasonably confining in
certain situations, such as where a class of shares with
preferential rights is given a limited right to vote that may be
exercisable only rarely.

7.26 Action by Single and Multiple Voting Groups

(a) If the articles of incorporation or this Act provide for
voting by a single voting group on a matter, action on that
matter is taken when voted upon by that voting group as provided
in section 7.25.

(b) If the articles of incorporation or this Act provide for
voting by two or more voting groups on a matter, action on that
matter is taken only when voted upon by each of those voting
groups counted separately as provided in section 7.25. Action may
be taken by one voting group on a matter even though no action is
taken by another voting group entitled to vote on the matter.

Official Comment

Section 7.26(a) provides that when a matter is to be voted upon
by a single voting group, action is taken when the voting group
votes upon the action as provided in section 7.25.  In most
instances the single voting group will consist of all the shares
of the class or classes entitled to vote by the articles of
incorporation; voting by two or more voting groups as
contemplated by section 7.26(b) is the exceptional case.

Section 7.26(b) basically requires that if more than one voting
group is entitled to vote on a matter, favorable action on a
matter is taken only when it is voted upon favorably by each
voting group, counted separately.  Implicit in this section are
the concepts that

(1) different quorum and voting requirements may be applicable to
different matters considered at a single meeting and

(2) different quorum and voting requirements may be applicable to
different voting groups voting on the same matter. See the
Official Comment to section 7.25. Thus, each group entitled to
vote must independently meet the quorum and voting requirements
established by section 7.25.

2. Participation of Shares in Multiple Voting Groups

As described in section 7.26(b), if voting by multiple voting
groups is required, the votes of members of each voting group
must be separately tabulated.  Normally, each class or series of
shares will participate in only a single voting group.  But since
holders of shares entitled by the articles of incorporation to
vote generally on a matter are always entitled to vote in the
voting group consisting of the general voting shares, in some
instances classes or series of shares may be entitled to be
counted simultaneously in two voting groups. This will occur
whenever a class or series of shares entitled to vote generally
on a matter under the articles of incorporation is affected by
the matter in a way that gives rise to the right to have its vote
counted separately as an independent voting group under the Act.
For example, assume that corporation Y has outstanding one class
of general voting shares without preferential rights ("common
shares"), 500 shares issued, and one class of shares with
preferential rights ("preferred shares"), 100 shares issued, that
also have full voting rights under the articles of incorporation,
i.e., the preferred may vote for election of directors and on all
other matters on which common may vote.  The preferred and the
common therefore are part of the general voting group.  The
directors propose to amend the articles of incorporation to
change the preferential dividend rights of the preferred from
cumulative to noncumulative. All shares are present at the
meeting and they divide as follows on the proposal to adopt the
amendment:

Yes -  Common 230

    -  Preferred 80

No  - Common 270

    - Preferred 20

Both the preferred and the common are entitled to vote on the
amendment to the articles of incorporation since they are part
of a general voting group pursuant to the articles. But the vote
of the preferred is also entitled to be counted separately on the
proposal by section 10.04(a)(4) of the Model Act. The result is
that the proposal passes by a vote of 310 to 290 in the voting
group consisting of the shares entitled to vote generally and 80
to 20 in the voting group consisting solely of the preferred
shares:

(a) First voting group

Yes: Common       230

     Preferred     80
                  ___
                  310

       No:  Common 270

          Preferred 20
                   ___
                   290

(b) Second voting group (preferred)

Yes: Preferred 80

No:  Preferred 20

In this situation, in the absence of a special quorum
requirement, a meeting could approve the proposal to amend the
articles of incorporation if-and only if-a quorum of each voting
group is present, i.e., at least 51 shares of preferred and 301
shares of common and preferred were represented at the meeting. .

7.27 Greater Quorum or Voting Requirements

(a) The articles of incorporation may provide for a greater
quorum or voting requirement for shareholders (or voting groups
of shareholders) than is provided for by this Act.

(b) An amendment to the articles of incorporation that adds,
changes, or deletes a greater quorum or voting requirement must
meet the same quorum requirement and be adopted by the same vote
and voting groups required to take action under the quorum and
voting requirements then in effect or proposed to be adopted,
whichever is greater.

Official Comment

Section 7.27(a) permits the articles of incorporation to increase
the quorum or voting requirements for approval of an action by
shareholders up to any desired amount including unanimity.  These
provisions may relate to ordinary or routine actions by the
general voting group . . . or to one or more other voting groups
or to actions for which the Model Act provides a greater voting
requirement-for example, changes of a fundamental nature in the
corporation like certain amendments to articles of incorporation
(section 10.03) . .

A provision that increases the requirement for approval of an
ordinary matter or a fundamental change is usually referred to as
a "supermajority" provision.

Section 7.27(b) requires any amendment of the articles of
incorporation that adds, modifies, or repeals any supermajority
provision to be approved by the greater of the proposed quorum
and vote requirement or by the quorum and vote required by the
articles before their amendment.  Thus, a supermajority provision
that requires an 80 percent affirmative vote of all eligible
votes of a voting group present at the meeting may not be removed
from the articles of incorporation or reduced in any way except
by an 80 percent affirmative vote. If the 80 percent requirement
is coupled with a quorum requirement for a voting group that
shares representing two-thirds of the total votes must be present
in person or by proxy, both the 80 percent voting requirement and
the two-thirds quorum requirement are immune from reduction
except at a meeting of the voting group at which the two-thirds
quorum requirement is met and the reduction is approved by an 80
percent affirmative vote.  If the proposal is to increase the 80
percent voting requirement to 90 percent, that proposal must be
approved by a 90 percent affirmative vote at a meeting of the
voting group at which the two thirds quorum requirement is met;
if the proposal is to increase the two thirds quorum requirement
to three-fourths without changing the 80 percent voting
requirement, that proposal must be approved by an 80 percent
affirmative vote at a meeting of the voting group at which a
three-fourths quorum requirement is met.

7.28 Voting for Directors; Cumulative Voting

(a) Unless otherwise provided in the articles of incorporation,
directors are elected by a plurality of the votes cast by the
shares entitled to vote in the election at a meeting at which a
quorum is present.

(b) Shareholders do not have a right to cumulate their votes for
directors unless the articles of incorporation so provide.

(c) A statement included in the articles of incorporation that
"[all] [a designated voting group of] shareholders are entitled
to cumulate their votes for directors" (or words of similar
import) means that the shareholders designated are entitled to
multiply the number of votes they are entitled to cast by the
number of directors for whom they are entitled to vote and cast
the product for a single candidate or distribute the product
among two or more candidates.

(d) Shares otherwise entitled to vote cumulatively may not be
voted cumulatively at a particular meeting unless:

(1) the meeting notice or proxy statement accompanying the notice
states conspicuously that cumulative voting is authorized; or

(2) a shareholder who has the right to cumulate his votes gives
notice to the corporation not less than 48 hours before the time
set for the meeting of his intent to cumulate his votes during
the meeting, and if one shareholder gives this notice all other
shareholders in the same voting group participating in the
election are entitled to cumulate their votes without giving
further notice.

Subchapter C

Voting Trusts and Agreements

7.30 Voting Trusts

(a) One or more shareholders may create a voting trust,
conferring on a trustee the right to vote or otherwise act for
them, by signing an agreement setting out the provisions of the
trust (which may include anything consistent with its purpose)
and transferring their shares to the trustee.  When a voting
trust agreement is signed, the trustee shall prepare a list of
the names and addresses of all owners of beneficial interests in
the trust, together with the number and class of shares each
transferred to the trust, and deliver copies of the list and
agreement to the corporation's principal office.

(b) A voting trust becomes effective on the date the first shares
subject to the trust are registered in the trustee's name. A
voting trust is valid for not more than 10 years after its
effective date unless extended under subsection (c).

(c) All or some of the parties to a voting trust may extend it
for additional terms of not more than 10 years each by signing an
extension agreement and obtaining the voting trustee's written
consent to the extension. An extension is valid for 10 years from
the date the first shareholder signs the extension agreement. The
voting trustee must deliver copies of the extension agreement and
list of beneficial owners to the corporation's principal office.
An extension agreement binds only those parties signing it.

7.31 Voting Agreements

(a) Two or more shareholders may provide for the manner in which
they will vote their shares by signing an agreement for that
purpose.  A voting agreement created under this section is not
subject to the provisions of section 7.30.

(b) A voting agreement created under this section is specifically
enforceable.

Official Comment

Section 7.31(a) explicitly recognizes agreements among two or
more shareholders as to the voting of shares and makes clear that
these agreements are not subject to the rules relating to a
voting trust. These agreements are often referred to as "pooling
agreements." The only formal requirements are that they be in
writing and signed by all the participating shareholders; in
other respects their validity is to be judged as any other
contract.  They are not subject to the 1-year limitation
applicable to voting trusts.

Section 7.31(b) provides that voting agreements may be
specifically enforceable.  A voting agreement may provide its own
enforcement mechanism, as by the appointment of a proxy to vote
all shares subject to the agreement; the appointment may be made
irrevocable under section 7.22.  If no enforcement mechanism is
provided, a court may order specific enforcement of the agreement
and order the votes cast as the agreement contemplates. This
section recognizes that damages are not likely to be an
appropriate remedy for breach of a voting agreement, and also
avoids the result reached in Ringling Bros. Barnum & Bailey
Combined Shows v. Ringling, 53 A.2d 441 (Del.1947), where the
court held that the appropriate remedy to enforce a pooling
agreement was to refuse to permit any voting of the breaching
party's shares.


[Old] Subchapter D

Derivative Proceedings

7.40 Procedure in Derivative Proceedings

(a) A person may not commence a proceeding in the right of a
domestic or foreign corporation unless he was a shareholder of
the corporation when the transaction complained of occurred or
unless he became a shareholder through transfer by operation of
law from one who was a shareholder at that time.

(b) A complaint in a proceeding brought in the right of a
corporation must be verified and allege with particularity the
demand made, if any, to obtain action by the board of directors
and either that the demand was refused or ignored or why he did
not make the demand.  Whether or not a demand for action was
made, if the corporation commences an investigation of the
charges made in the demand or complaint, the court may stay any
proceeding until the investigation is completed.

(c) A proceeding commenced under this section may not be
discontinued or settled without the court's approval.  If the
court determines that a proposed discontinuance or settlement
will substantially affect the interest of the corporation's
shareholders or a class of shareholders, the court shall direct
that notice be given the shareholders affected.

(d) On termination of the proceeding the court may require the
plaintiff to pay any defendant's reasonable expenses (including
counsel fees) incurred in defending the proceeding if it finds
that the proceeding was commenced without reasonable cause.

(e) For purposes of this section, "shareholder" includes a
beneficial owner whose shares are held in a voting trust or held
by a nominee on his behalf.

Official Comment

f. There Need Be No Prior Notice to or Demand on Shareholders

Rule 23.1 of the Federal Rules of Civil Procedure requires that,
in addition to a demand on the board of directors, a demand be
made on shareholders "if necessary." The statutes of a number of
states, including California and New York, require demands only
on boards of directors.

Although a demand on shareholders seems generally consistent with
the broad doctrine of requiring exhaustion of all internal
avenues of relief before commencement of suit, the board of
directors, not the shareholders, is charged with governance of
the corporation, including the commencement and management of
litigation. Further, to require a demand on shareholders would
virtually require the plaintiff to engage in a preliminary proxy
contest and, in the case of publicly held corporations, would
greatly increase the costs of filing all derivative suits,
discouraging even legitimate cases.

For these reasons, it was concluded that the requirement of a
demand on shareholders would add uncertainty, expense, and delay
without commensurately improving the prospects of resolving the
substantive issues.

h. Plaintiffs Are Not Required to Post Bond as Security for
Expenses

Earlier versions of the Model Act and the statutes of many states
required a plaintiff to give security for reasonable expenses,
including attorneys' fees, if his holdings of shares did not
reach a specified size or value-five percent of the outstanding
shares or a value of $25,000 in the earlier version of the Model
Act.  This requirement has been deleted.  The security for
expenses requirement, to the extent it was based on the size or
value of the plaintiff's holdings rather than on the apparent
good faith of his claim, was subject to criticism that it
unreasonably discriminated against small shareholders.

The basic policy question with respect to the requirement of a
bond for small shareholders is how far to go in protecting the
corporation and its officers and directors from suits. The choice
is between making the right to sue widely available, without
obstacles except in obviously baseless cases, or imposing
obstacles in the way of the small shareholder without imposing a
similar obstacle in the way of the large shareholder.  Moreover,
no bond requirement exists for class actions, anti-trust cases,
or individual actions for personal injury, all of which involve
the corporation in substantial expense of defending against suit.

Several states have concluded on the basis of these
considerations that the bond requirement for small plaintiffs
should be repealed or not adopted. . .

[New] Subchapter D

Derivative Proceedings

7.40 Subchapter Definitions

In this subchapter:

(1) "Derivative proceeding" means a civil suit in the right of a
domestic corporation or, to the extent provided in section 7.47,
in the right of a foreign corporation.

(2) "Shareholder" includes a beneficial owner whose shares are
held in a voting trust or held by a nominee on the beneficial
owner's behalf.

Official Comment

The definition of "derivative proceeding" makes it clear that the
subchapter applies to foreign corporations only to the extent
provided in section 7.47. Section 7.47 provides that the law of
the jurisdiction of incorporation governs except for sections
7.43 (stay of proceedings), 7.45 (discontinuance or settlement)
and 7.46 (payment of expenses). See the Official Comment to
section 7.47.

The definition of "shareholder", which applies only to subchapter
D, includes all beneficial owners and therefore goes beyond the
definition in section 1.40(22) which includes only record holders
and beneficial owners who are certified by a nominee pursuant to
the procedure specified in section 7.23. Similar definitions are
found in section 13.01 (dissenters' rights) and section 16.02(f)
(inspection of records by a shareholder). In the context of
subchapter D, beneficial owner means a person having a direct
economic interest in the shares. The definition is not intended
to adopt the broad definition of beneficial ownership in SEC rule
13d-2 under the Securities Exchange Act of 1934 which includes
persons with the right to vote or dispose of the shares even
though they have no economic interest in them.

7.41 Standing

A shareholder may not commence or maintain a derivative
proceeding unless the shareholder:

(1) was a shareholder of the corporation at the time of the act
or omission complained of or became a shareholder through
transfer by operation of law from one who was a shareholder at
that time; and

(2) fairly and adequately represents the interests of the
corporation in enforcing the right of the corporation.

Official Comment.

Section 7.41 requires the plaintiff to be a shareholder and
therefore does not permit creditors or holders of options,
warrants, or conversion rights to commence a derivative
proceeding.

Section 7.41(2) follows the requirement of Federal Rule of Civil
Procedure 23.1 with the exception that the plaintiff must fairly
and adequately represent the interests of the corporation rather
than shareholders similarly situated as provided in the rule. The
clarity of the rule's language in this regard has been questioned
by the courts. See Nolen v. Shaw-Walker Company, 449 F.2d 506,
508 n. 4 (6th Cir.1971). Furthermore, it is believed that the
reference to the corporation in section 7.41(2) more properly
reflects the nature of the derivative suit.

The introductory language of section 7.41 refers both to the
commencement and maintenance of the proceeding to make it clear
that the proceeding should be dismissed if, after commencement,
the plaintiff ceases to be a shareholder or a fair and adequate
representative. The latter would occur, for example, if the
plaintiff were using the proceeding for personal advantage. If a
plaintiff no longer has standing, courts have in a number of
instances provided an opportunity for one or more other
shareholders to intervene.

7.42 Demand

No shareholder may commence a derivative proceeding until:

(1) a written demand has been made upon the corporation to take
suitable action; and

(2) 90 days have expired from the date the demand was made unless
the shareholder has earlier been notified that the demand has
been rejected by the corporation or unless irreparable injury to
the corporation would result by waiting for the expiration of the
90 day period.

Official Comment

Section 7.42 requires a written demand on the corporation in all
cases. The demand must be made at least 90 days before
commencement of suit unless irreparable injury to the corporation
would result. This approach has been adopted for two reasons.
First, even though no director may be independent, the demand
will give the board of directors the opportunity to reexamine the
act complained of in the light of a potential lawsuit and take
corrective action. Secondly, the provision eliminates the time
and expense of the litigants and the court involved in litigating
the question whether demand is required.  It is believed that
requiring a demand in all cases does not impose an onerous burden
since a relatively short waiting period of 90 days is provided
and this period may be shortened if irreparable injury to the
corporation would result by waiting for the expiration of the 90
day period. Moreover, the cases in which demand is excused are
relatively rare. Many plaintiffs' counsel as a matter of practice
make a demand in all cases rather than litigate the issue whether
demand is excused.

1. Form of Demand

Section 7.42 specifies only that the demand shall be in writing.
The demand should, however, set forth the facts concerning share
ownership and be sufficiently specific to apprise the corporation
of the action sought to be taken and the grounds for that action
so that the demand can be evaluated.  See Allison v. General
Motors Corp., 604 F.Supp. 1106, 1117 (D. Del.1985).  Detailed
pleading is not required since the corporation can contact the
shareholder for clarification if there are any questions. In
keeping with the spirit of this section, the specificity of the
demand should not become a new source of dilatory motions.

2. Upon Whom Demand Should Be Made

Section 7.42 states that demand shall be made upon the
corporation. Reference is not made specifically to the board of
directors as in previous section 7.40(b) since there may be
instances, such as a decision to sue a third party for an injury
to the corporation, in which the taking of, or refusal to take,
action would fall within the authority of an officer of the
corporation.  Nevertheless, it is expected that in most cases the
board of directors will be the appropriate body to review the
demand.

To ensure that the demand reaches the appropriate person for
review, it should be addressed to the board of directors, chief
executive officer or corporate secretary of the corporation at
its principal office.

3. The 90 Day Period.

Two exceptions are provided to the 90 day waiting period.  The
first exception is the situation where the shareholder has been
notified of the rejection of the demand prior to the end of the
90 days.  The second exception is where irreparable injury to the
corporation would otherwise result if the commencement of the
proceeding is delayed for the 90 day period.  The standard to be
applied is intended to be the same as that governing the entry of
a preliminary injunction.  Compare Gimbel v. Signal Cos., 316
A.2d 599 (Del. Ch.1974) with Gelco Corp. v. Coniston Partners,
811 F.2d 414 (8th Cir.1987). Other factors may also be considered
such as the possible expiration of the statute of limitations
although this would depend on the period of time during which the
shareholder was aware of the grounds for the proceeding.

It should be noted that the shareholder bringing suit does not
necessarily have to be the person making the demand.  Only one
demand need be made in order for the corporation to consider
whether to take corrective action.

4. Response by the Corporation

There is no obligation on the part of the corporation to respond
to the demand. However, if the corporation, after receiving the
demand, decides to institute litigation or, after a derivative
proceeding has commenced, decides to assume control of the
litigation, the shareholder's right to commence or control the
proceeding ends unless it can be shown that the corporation will
not adequately pursue the matter. .

7.43 Stay of Proceedings

If the corporation commences an inquiry into the allegations made
in the demand or complaint, the court may stay any derivative
proceeding for such period as the court deems appropriate.

Official Comment

Section 7.43 provides that if the corporation undertakes an
inquiry, the court may in its discretion stay the proceeding for
such period as the court deems appropriate. This might occur
where the complaint is filed 90 days after demand but the inquiry
into the matters raised by the demand has not been completed or
where a demand has not been investigated but the corporation
commences the inquiry after the complaint has been filed. In
either case, it is expected that the court will monitor the
course of the inquiry to ensure that it is proceeding
expeditiously and in good faith.

7.44 Dismissal

(a) A derivative proceeding shall be dismissed by the court on
motion by the corporation if one of the groups specified in
subsections (b) or (f) has determined in good faith after
conducting a reasonable inquiry upon which its conclusions are
based that the maintenance of the derivative proceeding is not in
the best interests of the corporation.

(b) Unless a panel is appointed pursuant to subsection (f), the
determination in subsection (a) shall be made by:

(1) a majority vote of independent directors present at a meeting
of the board of directors if the independent directors constitute
a quorum; or

/* It is important to note that the Model Business Corporation
Act provides that derivative suits are subject to dismissal if
the corporation has a truly independent review of the case and
determines that it is not in the bests interests of the
corporation. Note that this does not mean that the test is not
whether it is meritorious or not. */