On July 17, 2024, Delaware Governor John Carney signed Senate Bill 313 into law, amending Title 8 of the General Corporation Law. It is generally believed that the bill came about in response to the Delaware Chancery Court’s decision in the case, West Palm Beach Firefighters’ Pension Fund v. Moelis & Company, a case that invalidated parts of a stockholder agreement. Below is a summary of some of the significant changes set forth in the bill.
Powers
The bill expands a corporation’s authority to take specific actions whether provided in the certificate of incorporation. Appointment and compensation of officers and directors is made subject to a provision that any contract, other appointment or delegation of authority that empowers an officer or agent to act on the corporation’s behalf is subject to directors’ and officers’ other statutory powers. The bill also provides that a corporation’s powers to adopt, amend and repeal bylaws is to be done according to statute.
An important section is added. Notwithstanding a separate powers section for officers and directors, a corporation is empowered to make contracts with one or more current or prospective stockholders (or one or more beneficial owners of stock) in its or their capacity as such, in exchange for such minimum consideration as determined by the board of directors (which may include inducing stockholders or beneficial owners of stock to take, or refrain from taking, one or more actions). Without limiting the provisions that may be included in the contracts, the corporation may agree to: Restrict or prohibit itself from taking actions specified in the contract, require the approval or consent of one or more defined persons or bodies before the corporation may take actions specified in the contract, and covenant that the corporation or one or more person or bodies will refrain from taking specified actions.
Authorization of Agreements and Other Documents
The new law adds that whenever a board of directors is expressly required by law to approve or take other action with respect to any agreement, instrument or document, it may be approved in final form or substantially final form. The board may, at any time after approving or taking other action before the effectiveness of filing with the Secretary of State, adopt a resolution ratifying the agreement, instrument or document.
Notice Delivery
A provision is added that if notice is given to stockholders under the section, each document enclosed with the notice or annexed or appended to the notice will be considered part of the notice only for purposes of determining whether the notice was duly given under law, certificate of incorporation or bylaws.
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Remedies-Merger and Consolidation Agreement
The bill adds remedies for failure to perform obligations under an agreement. If a party fails to perform or comply with its obligations or terms or conditions under an agreement either before the merger or consolidation becomes effective or fails to cause to the merger or consolidation, waiver of all conditions subject to the consummation will be subject, in addition to other remedies available at law or equity to such penalties or consequences included in the agreement of merger or consolidation. If under the agreement’s terms, a corporation is entitled to receive payment from another party to an agreement of merger or consolidation representing a specified penalty or consequence, the corporation will be entitled to enforce the other party’s payment obligation and keep the payment upon receipt.
The bill provides for appointment of representatives of stockholders at or after the time of agreement or merger or consolidation is adopted by the stockholders of a constituent corporation to such merger or consolidation. It specifies that any appointment will be irrevocable and binding on all stockholders from the adoption of the agreement by the requisite stockholder vote. Any provision adopted may not be amended after the merger and consolidation has become effective or may be amended only with the consent of persons specified in the agreement of merger or consolidation.
Amendments and Disclosure
A new section relating to amendments to certificate of incorporation of a surviving corporation and disclosure is included. Generally, if an agreement of merger provides that all of a constituent corporation’s shares of stock issued and outstanding immediately before the time at which the merger becomes effective will be converted into or exchanged for cash, property, rights or securities (excluding the surviving corporation’s stock), then the board of directors’ approved agreement of merger does not need to include any provision regarding the certificate of incorporation of the surviving corporation in order for the agreement to be considered in final, or substantially final, form. Any amendment or amendment or restatement of the survivor’s certificate of incorporation may be adopted by the board of directors of the constituent corporation (or any person acting at its direction). No alteration or change of such certificate of incorporation will be considered to constitute an amendment to the merger agreement.
The bill also adds that unless otherwise expressly provided by an agreement of merger or consolidation, any disclosure letter, disclosure schedules or similar documents or instruments delivered in connection with the agreement that modify, supplement, qualify or make exceptions to representations, warranties, covenants or conditions contained in the agreement will not be considered to be part of the agreement for purposes of Delaware law but will have the effects stated in the agreement.
The bill becomes effective on August 1, 2024 (except for any civil action or proceeding completed or pending on or before such date).
Learn more about Delaware Senate Bill 313.
Please see our companion article for a discussion of Delaware business entity changes.
This article is provided for informational purposes only and should not be considered, or relied upon, as legal advice.
