Session Laws

Whereas, The deferred operation of this act would tend to defeat its purpose, which is to provide protection to Massachusetts corporations, including their shareholders, employees, suppliers and customers and the communities in which the corporation's facilities are located, it is hereby declared to be an emergency law, necessary for the immediate preservation of the public convenience.

Be it enacted by the Senate and House of Representatives in General Court assembled, and by the authority of the same, as follows:

SECTION 1. Chapter 156B of the General Laws, as appearing in the 1988 Official Edition, is hereby amended by inserting after section 50 thereof the following section:-

Section 50A. (a) Except as provided in paragraph (b) of this section and notwithstanding anything to the contrary in this chapter or in the articles of organization or by-laws of any registered corporation, the directors of a registered corporation shall be classified, with respect to the time for which they severally hold office, into three classes, as nearly equal in number as possible; the term of office of those of the first class ("Class I Directors") to continue until the first annual meeting following the date such registered corporation becomes subject to this paragraph (a) and until their successors are duly elected and qualified; the term of office of those of the second class ("Class II Directors") to continue until the second annual meeting following the date such registered corporation becomes subject to this paragraph (a) and until their successors are duly elected and qualified; and the term of office of those of the third class ("Class III Directors") to continue until the third annual meeting following the date such registered corporation becomes subject to this paragraph (a) and until their successors are duly elected and qualified. At each annual meeting of a registered corporation subject to this section, the successors to the class of directors whose term expires at that meeting shall be elected to hold office for a term continuing until the annual meeting held in the third year following the year of their election and until their successors are duly elected and qualified. On or prior to the date on which a registered corporation first convenes an annual meeting following the time at which such registered corporation becomes subject to paragraph (a), the board of directors of such registered corporation shall adopt a vote designating, from among its members, directors to serve as Class I Directors, Class II Directors and Class III Directors. Notwithstanding this paragraph (a), the articles of organization may confer upon holders of any class or series of preference or preferred stock the right to elect one or more directors who shall serve for such term, and have such voting powers, as shall be stated in the articles of organization; provided, however, that no such provision of the articles of organization which confers upon such holders any such right and which is filed with the state secretary after the effective date of this paragraph (a) shall become effective unless prior to its adoption it was approved by a vote of a majority in number of the directors of such registered corporation.

(b)(i) The provisions of this section shall apply to every registered corporation (whether or not notice of an annual meeting of such registered corporation has been given on or prior to the effective date of this section), unless the board of directors of such registered corporation, or the stockholders of such registered corporation by a vote of two-thirds of each class of stock outstanding at a meeting duly called for the purpose of such vote which meeting occurs after January 1, 1992, shall adopt a vote providing that such corporation elects to be exempt from the provisions of paragraph (a) of this section. Upon adoption of any such vote, the provisions of paragraph (a) of this section shall, unless otherwise provided in such vote, become immediately ineffective with respect to such registered corporation and the provisions of section 50 of this chapter shall become immediately effective with respect to such registered corporation as soon as the provisions of paragraph (a) of this section are no longer effective.

(ii) In the event that any registered corporation shall so elect by vote of the board of directors to be exempt pursuant to clause (i) of this paragraph (b) such registered corporation may at any time thereafter adopt a vote of its board of directors electing to be subject to the provisions of paragraph (a) of this section. In the event that any registered corporation shall so elect by vote of 2/3 of the shareholders adopted after January 1, 1992 to be exempt pursuant to clause (i) of this paragraph (b) such registered corporation may at any time thereafter adopt a vote of 2/3 of the shareholders electing to be subject to the provisions of paragraph (a) of this section. Upon adoption of any such vote, the provisions of this section shall, unless otherwise provided in such vote, immediately become effective.

(c) Notwithstanding anything to the contrary in this chapter or in the articles of organization or by-laws of any registered corporation, in the case of directors of a registered corporation who are classified with respect to the time for which they severally hold office pursuant to paragraph (a) of this section, stockholders may effect, by the affirmative vote of a majority of the shares outstanding and entitled to vote in the election of directors, the removal of any director or directors or the entire board of directors only for cause.

(d) Notwithstanding anything to the contrary in this chapter or in the articles of organization or by-laws of any registered corporation, in the case of directors of a registered corporation who are classified with respect to the time for which they severally hold office pursuant to paragraph (a) of this section, (i) vacancies and newly created directorships, whether resulting from an increase in the size of the board of directors, from the death, resignation, disqualification or removal of a director or otherwise, shall be filled solely by the affirmative vote of a majority of the remaining directors then in office, even though less than a quorum of the board of directors, (ii) any director elected in accordance with clause (i) of this paragraph (d) shall hold office for the remainder of the full term of the class of directors in which the vacancy occurred or the new directorship was created and until such director's successor shall have been elected and qualified, (iii) no decrease in the number of directors constituting the board of directors shall shorten the term of any incumbent director, and (iv) the number of directors of a registered corporation subject to paragraph (a) of this section shall be fixed only by vote of its board of directors.

(e) As used in this section, the following words shall have the following meanings:-

(1) "Annual meeting", any annual meeting of stockholders and any special meeting of stockholders in lieu of an annual meeting provided for by law, the articles of organization, by-laws or otherwise.

(2) "Cause", with respect to the removal of any director of a registered corporation, only (i) conviction of a felony, (ii) declaration of unsound mind by order of court, (iii) gross dereliction of duty, (iv) commission of an action involving moral turpitude, or (v) commission of an action which constitutes intentional misconduct or a knowing violation of law if such action in either event results both in an improper substantial personal benefit and a material injury to the registered corporation.

(3) "Registered corporation", any corporation to which the provisions of paragraph (a) of section three of this chapter apply, and which has a class of voting stock registered under the Securities Exchange Act of 1934, as amended; provided, that if a corporation is subject to paragraph (a) of this section at the time it ceases to have any class of voting stock so registered, such corporation shall nonetheless be deemed to be a registered corporation for a period of twelve months following the date it ceased to have such stock registered.

(f) Nothing in this section shall be deemed to amend, modify or otherwise effect the validity of any provision of the articles of organization or by-laws of any corporation during any period that it elects not to be subject to paragraph (a) of this section, whether or not currently in effect, providing for the division of directors into classes as contemplated by section fifty of this chapter. No provision of the articles of organization or by-laws of any registered corporation that is subject to paragraph (a) of this section, whether or not currently in effect, shall render inapplicable any provision of this section or require the board of directors of such corporation to adopt any vote pursuant to paragraph (b) of this section. No vote adopted by a board of directors electing not to be subject to paragraph (a) of this section shall render invalid, or prevent adoption of, any amendment to such corporation's articles of organization as contemplated by section fifty of this chapter.

SECTION 2. Chapter 149 of the General Laws, as most recently amended by chapter 242 of the acts of 1989, is hereby amended by inserting after section 183 thereof the following new section:-

Section 184. (a) As used in this section, the following words, unless the context clearly requires otherwise, shall have the following meanings:-

"Commissioner", the commissioner of the department of labor and industries.

"Control", the beneficial ownership of fifty percent or more of the outstanding voting securities of a control transferor; provided, however, that for the purposes of making percentage calculations outstanding voting securities shall include any voting stock underlying convertible securities.

"Control transferee", the person or persons who assume control following a transfer of control as defined herein.

"Control transferor", the person or persons who exercise control, including the power to hire and fire, before a contested meeting date; provided, however, that such person or persons are a registered corporation subject to the provisions of paragraph (a) of section 50A of chapter one hundred and fifty-six B and are subject to a contested meeting.

"Contested meeting date", the date any contested meeting takes place.

"Contested meeting", a contested meeting for the election of directors of a registered corporation, the purpose of which contest is to facilitate an acquisition of 50% or more of the outstanding voting securities of the registered corporation.

"Department", the department of labor and industries.

"Employee", any person employed for hire by an employer in any lawful employment.

"Registered corporation", any corporation subject to the provisions of paragraph (a) of section fifty A of chapter one hundred and fifty-six B which has a class of voting stock registered under the Securities Exchange Act of 1934, as amended (hereinafter referred to as the "act"); provided, however, that if a corporation is subject to paragraph (a) of such section at the time it ceases to have any class of voting stock so registered, such corporation shall nonetheless be deemed to be a registered corporation for a period of twelve months following the date it ceased to have such stock so registered.

"Termination of employment", the involuntary termination of an employee's employment consistent with the eligibility standards for unemployment benefits under section twenty-five of chapter one hundred and fifty-one A.

"Transfer of control", a transaction or series of transactions as a result of which any person, as such term is used in section 13(d) and 14(d) of the act, is or becomes the "beneficial owner", as defined in Rule 13d-3 under the act, directly or indirectly, of securities of a control transferor representing fifty percent or more of the control transferor's then outstanding voting securities; provided, however, that a change in control will not be deemed to have occurred solely because of the acquisition of securities of a control transferor, or any reporting requirement under the act relating thereto, by an employee benefit plan maintained by the control transferor for its employees.

"Weekly compensation", an employee's base compensation in effect on the last payroll period ending prior to the contested meeting.

"Year of service", each full year during which the employee has been employed by the control transferor as defined herein.

(b) Any employee of a control transferor whose employment is terminated within the shorter of either: (i) a period of twelve calendar months following a contested meeting date of such control transferor or (ii) the period between a contested meeting date of such control transferor and a transfer of control of such control transferor is entitled to a one time lump-sum payment from the control transferor equal to the product of twice his weekly compensation multiplied by each completed year of service. Such severance pay to eligible employees shall be in addition to any final wage payment to the employee and shall be made within one regular pay period after the employee's last day of work.

(c) There shall be no liability for the one time payment to an otherwise eligible employee if:

(1) The employee is covered by an express contract providing for such payment in the event of termination of employment in excess of that provided by this section;

(2) the employee has been employed by the control transferor for less than three years;

(3) A transfer of control as defined herein is the result of the transfer of securities or the beneficial interest therein, directly or indirectly, by sale, gift, bequest or otherwise, in one transaction or a series of transaction, between:

(i) an individual and that individual's spouse;

(ii) an individual and that individual's sibling or the sibling's spouse;

(iii) an individual and that individual's lineal descendants or their spouses; or

(iv) an individual or a fiduciary who holds the securities or the beneficial interest therein for the benefit of any of the foregoing persons.

(4) The control transferee obtained control through the enforcement of rights under pledge or other security interest created in good faith and not for the purpose of circumventing the purposes of this section or as a result of an assignment for the benefit of creditors, receivership, bankruptcy, enforcement by judicial process or other similar proceeding, including a transferee obtaining its interest from the person enforcing such rights or in connection with such proceeding.

(d) Any amounts paid to an employee pursuant to subsection (b) of this section shall be credited against any amounts payable by a control transferee to such employee pursuant to section one hundred and eighty-three of this chapter. The control transferor is responsible for maintaining such records as may be required for adequate implementation of this provision.

(e) The control transferor shall be responsible for providing written notice to each employee of the control transferor and the collective bargaining representative, if any, of the rights of employees under this section within ten business days of the occurrence of a contested meeting. Such control transferor shall also provide written notice to the department that a contested meeting has occurred. The department shall assess a fine in an amount up to one thousand dollars for failure to provide such notification.

(f) In the event any eligible employee is denied a lump-sum payment in violation of this section, such employee shall have available, in addition to private civil and other remedies available at law or equity, the remedies provided under sections one hundred and forty-eight to one hundred and fifty inclusive, of this chapter. The department of labor and industries may take any and all appropriate actions to enforce the provisions of this section under the authority provided in said sections one hundred and forty-eight to one hundred and fifty inclusive, of this chapter.

(g) For purposes of determining eligibility under subsection (b), all determinations shall be as of the contested meeting date, unless specifically stated otherwise in this section.

(h) The commissioner may promulgate such rules and regulations as may be required for the implementation of this section with the approval of the secretary of labor.