With another week passing, we have another two public companies announcing moves to Nevada in the last week. My first two posts in this series are available here and here. My post-SB21 running total is now at 10 departures. Nine to Nevada and one to Texas.
This week’s proxies come from:
I cover each proxy below.
Fidelity National
Notably, Fidelity National held a vote on this last year and, although a majority of votes cast were for Nevada, it wasn’t enough to meet the threshold with the number of broker-non-votes. The proxy explains that Fidelity National talked to its major shareholders and decided to propose a different charter. These are the differences:
From these discussions, we understand that there is a desire to preserve, after the Redomestication, certain stockholder rights that are currently in our current Fifth Amended and Restated Certificate of Incorporation (the Delaware Charter). Since the Board of Directors continues to believe there are many important reasons the Redomestication is advisable and in the best interests of the Company and its stockholders, we have updated the proposed Nevada Charter to preserve certain stockholder rights under our Delaware Charter within the statutory framework established by Nevada law. In particular, the updated Nevada Charter provides that:
- The limitation on individual liability afforded to our directors and officers under the Nevada Revised Statutes (as amended from time to time, the NRS) does not apply to any breach of fiduciary duty that (i) constitutes a breach of the duty of loyalty, (ii) involves acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, or (iii) results in a transaction from which a director or officer derived an improper personal benefit;
- The Company is prohibited from effectuating any reverse split of our capital stock (that otherwise would not require stockholder approval pursuant to NRS 78.207) without stockholder approval; and
- The exception to dissenter’s rights provided under NRS 92A.390(1) will not apply (if dissenter’s rights would otherwise be available) to any stockholders who are required in the relevant transaction to accept cash-only consideration for their shares.
Here’s my reactions on these.
Individual Liability
Nevada differs from Delaware in that corporations may opt out of the statutory business judgment rule if desired. The statute provides that the default exculpation rule applies “unless the articles of incorporation or an amendment thereto . . . provide for greater individual liability.” In Delaware, corporations have to opt in to 102(b)(7) and essentially everyone opts in.
One of the concerns people sometimes have about Nevada is that the business judgment rule does not explicitly state that you have liability for breaches of the duty of loyalty under Nevada law. Of course, Nevada preserves liability for intentional breaches of fiduciary duty. Most breaches of the duty of loyalty are likely to be intentional. The expansion here may make liability possible for unintentional breaches of the duty of loyalty. This is probably a very small slice of potential additional liability for unintentional disloyalty.
If it isn’t a significant difference, why bother? It probably matters for institutional investors trying to decide how to vote. Investors do not yet have the same familiarity with Nevada law as they do with Delaware law. This sort of charter provision probably makes it easier to address shareholder concerns without needing to spend a whole lot of time discussing the differences between Nevada and Delaware on this point.
It also makes clear that liability is retained for transactions where an officer or director derives an improper personal benefit.
Reverse Splits
Nevada allows companies to effectuate reverse stock splits without stockholder approval (authorizing corporations to “do so by a resolution adopted by the board of directors, without obtaining the approval of the stockholders”).
Nevada’s flexibility here is probably important for corporations that will need to do some kind of reverse split to comply with listing standards. Fidelity National isn’t anywhere near that. It just means that Fidelity will need to go to shareholders should it want to do this for some reason in the future.
Dissenters Rights
This shift protects the right to seek an appraisal remedy if a stockholder is required to accept cash for their shares. Rather than break this one down myself, I’m going to borrow from Wendy Gerwick Couture‘s fantastic Nevadaware article. She explains it this way:
The Nevada market-out exception diverges from both Delaware and the MBCA. In
1991, Nevada retained and expanded its existing market-out exception despite the
omission of a market-out exception in the 1984 version of the MBCA. Under the
current version of the Nevada market-out exception, there is no appraisal right if (1)
the shares impacted by the triggering event satisfy a liquidity test (i.e., were (a) covered
securities under the Securities Act of 1933 or (b) traded in an organized market with
at least 2,000 holders and a market value of at least $20 million); and (2) the holders
receive cash and/or shares satisfying the liquidity test. Thus, in Nevada, cash-out
mergers of publicly traded stock are excepted from the appraisal remedy, even in
interested transactions.
Nevada’s market-out exception is broader than both Delaware’s and the MBCA’s; in
short, it rejects the anti-opportunism goal of appraisal in favor of a singular focus on
liquidity. Unlike Delaware, the Nevada market-out exception applies to cash-out
mergers. Unlike the MBCA, the Nevada market-out exception applies to interested
transactions. Thus, the above critiques of Delaware’s market-out exception as an
outdated furtherance of the liquidity goal at the expense of the anti-opportunism goal
are even more trenchant when applied to Nevada’s market-out exception. Although
Nevada’s triggering events for the appraisal remedy are drafted more broadly than Delaware’s, the appraisal remedy is effectively foreclosed to public stockholders in
Nevada via the market-out exception.
I’m going to be on the lookout for how proxy advisory firms respond to these proposed Nevada charter provisions. If this little bit of private ordering and tailoring switches them to recommend votes in favor of moving to Nevada, I’d expect more firms to adopt similar charter provisions and attempt to move.
Reasons for Moving
Fidelity National explains that it seeks to move to Nevada for a range of reasons:
- Cost Savings (Moving to Nevada cuts costs from $250,000 in franchise fees to about $900). This is how they put it “if we redomesticate in Nevada, our current annual fees will consist of an annual Nevada state business license fee of $500, and the current fee for filing the Company’s annual list of directors and officers, based on the number of authorized shares and their par value, would equal to $400.”
- Potential D&O Insurance savings.
- Avoiding Opportunistic Litigation (“the Board believes that in recent years there has been an increased risk of opportunistic litigation for Delaware public companies, which has made Delaware a less attractive place of incorporation due to the substantial costs associated with defending against such suits. These costs are often borne by the Company’s stockholders through, among other things, indemnification obligations, distraction to Company management and employees, and increased insurance premiums.”).
- Strong Local Connections.
- “More Predictability and Certainty in Decision Making.”
Fidelity National also detailed its experience with Delaware litigation and the impact of that litigation on its D&O insurance costs (emphasis added):
Two separate but integrally-related lawsuits recently involving the Company, now both resolved, illustrate the challenges public companies in Delaware can face. More specifically, in August of 2020, a Company stockholder filed a derivative lawsuit, purportedly on behalf of the Company, alleging breach of fiduciary duty claims and conflicts of interest against certain directors and officers on the purported basis that, among other things, the Company overpaid in acquiring FGL Holdings, Inc. (F&G). At the same time as the Delaware lawsuit was pending, former stockholders of F&G filed an appraisal petition in the Cayman Islands (F&G’s place of incorporation), alleging that the price the Company paid for F&G was too low.
With respect to the Delaware derivative litigation, the Board determined that although the Board believed the price the Company paid for F&G was fair to, and in the best interests of, the Company and its stockholders, the Delaware court was unlikely to dismiss the action at the pleading stage, and, accordingly, the Board appointed a special litigation committee to investigate the claims and determine how the Company should respond. In addition to the Company indemnifying the directors and officers who were named as defendants in the lawsuit for their legal fees and expenses in defending the litigation and responding to the special litigation committee, the special litigation committee also retained its own independent legal and financial advisors at considerable expense to the Company. Ultimately, to avoid the time, burden, expense (estimated to be millions of additional dollars to take the case to trial), and uncertainty of litigation in Delaware, the matter was settled for, among other things, a payment of $20 million to the Company (see the Company’s Form 8-K dated April 5, 2022). The settlement payment was largely funded through D&O insurance proceeds, and the plaintiff’s counsel who filed the claims recovered a Fee and Expense Award of $4.4 million. Although the Company received the net proceeds of the settlement in this matter, except for the legal fees paid to plaintiff’s counsel, the Company’s D&O premium increased when subsequently renewed, in part, because of this settlement, increasing from approximately $3.68 million in 2021-22 to a high of approximately $4.87 million in 2022-23 (followed by slight decreases in 2023-24 and 2024-25 to $4.33 million and $4.13 million, respectively, due to a more favorable market for such coverage).
With respect to the Cayman Island appraisal litigation, the Company determined to handle the litigation differently. After a trial on a complete factual record, the Cayman Island court issued a post-trial decision finding that the price paid by the Company for F&G was fair and entered judgment in favor of the Company.
The proxy also addresses the recent Delaware amendments. It explains that they didn’t change the Board’s evaluation that Nevada’s statutory approach made better sense for Fidelity National:
The Board is aware of, and has considered, recent amendments to the DGCL that appear to be designed to address, at least in part, some of the uncertainty that has been created by recent Delaware court decisions and to reduce litigation risk for Delaware corporations, but the DGCL amendments are untested, subject to judicial interpretation and may not fully mitigate a variety of litigation and business planning concerns for the Company, and the Board believes that Nevada’s statute-based approach provides greater certainty for corporate decision making, which, in turn will benefit our stockholders.
AMC Networks
Much of AMC’s proxy appears similar to other firms, but this portion stood out to me (emphasis added in places):
Like many corporations, AMC Networks Inc. was originally incorporated in Delaware. A large portion of U.S. corporations have historically chosen Delaware as their state of incorporation due to its reputation for having a well-defined legal environment. Because of the extensive experience of the Delaware courts and considerable body of judicial decisions, Delaware has garnered the reputation of offering corporations greater guidance on matters of corporate governance and transaction liability issues.
However, the increasingly litigious environment facing corporations, especially ones with controlling stockholders, has created unpredictability in decision-making. For example, in 2024, the Delaware Supreme Court determined in In re Match Group, Inc. Derivative Litigation, 315 A.3d 446 (Del. 2024) that all transactions involving a controlling stockholder receiving a non-ratable benefit are presumptively subject to entire fairness review (i.e., Delaware’s most stringent standard) unless the transaction complies with the strictures set out in Kahn v. M&F Worldwide Corporation, 88 A.3d 635 (Del. 2014) (“MFW”). The Match Group decision confirmed what corporate and legal communities had viewed in recent years as an expansion in Delaware of the application of MFW, a case originally establishing the requirements that must be followed to lower the standard of review for freeze-out merger transactions between a controlled corporation and its controlling stockholder from entire fairness to the deferential business judgment standard. In March 2025, Delaware lawmakers amended the DGCL to provide that a controlling stockholder transaction that does not constitute a “going private transaction” is entitled to statutory safe harbor protection if it is approved in good faith by a committee consisting of a majority of disinterested directors or approved or ratified by a majority of the votes cast by the disinterested stockholders and the material facts regarding the transaction have been disclosed to the committee approving, or the disinterested stockholders voting on, the transaction. Although these amendments are intended to enable boards of directors and controlling stockholders to negotiate and structure transactions with more legal certainty, interpretative questions will remain as prior doctrines are reconciled with the new statutory mandates.
In contrast, in Guzman v. Johnson, 137 Nev. 126 (2021), a case relating to the Company’s acquisition of RLJ Entertainment Inc., the Supreme Court of Nevada affirmed that Nevada’s statutory business judgement rule is the sole standard for analysis involving fiduciary duty claims against corporate directors and officers in Nevada, regardless of the circumstances or the parties involved in the transactions (including the presence of a controlling stockholder). Guzman also clarified that Nevada law does not impose conditions related to the use of a committee of disinterested directors or approved by a majority of the votes cast by disinterested stockholders in order to benefit from the protection of the business judgment rule. This is unlike the heightened entire fairness test applicable to certain transactions and board actions in Delaware that do not qualify for the statutory safe harbor protection under the DGCL.
Further, the Company’s franchise tax obligations to Delaware have become significant, amounting to approximately $250,000 in the most recent year, whereas annual business license and filing fees in Nevada are approximately $3,000.
By redomesticating the Company from Delaware to Nevada, we believe we will be better suited to take advantage of business opportunities and that Nevada law can better provide for our ever-changing business needs and lowers our ongoing administrative expenses. Accordingly, our Board believes that it is in our and our stockholders’ best interests that our state of incorporation be changed from Delaware to Nevada and has recommended the approval of the Nevada Redomestication to our stockholders.
This post is already far too long, but I think it’s worth noting that AMC is concerned that even with the amendments, the Delaware process to cleanse stockholder transactions isn’t enough to keep them in Delaware.
We’ll see what happens in the next week!