Recent Amendments To The Delaware General Corporation Law

Beginning August 1, 2024, the Delaware General Corporation Law ("DGCL") includes certain amendments related to merger agreements and other related topics. These amendments allow for, among other acts, (i) boards of directors to approve merger agreements in only "substantially final form," rather than final or essentially final form; (ii) parties in a merger agreement to agree that a breaching party pay any penalties described in the agreement; (iii) stockholder representatives may be appointed to represent all of the corporation's stockholders under a merger agreement; and (iv) authorizing corporations to enter into governance agreements with stockholders in exchange for "minimum consideration," as determined by the board.

The amendments

The amendments to the DGCL can be broken down into three broad categories: (i) approval of merger agreements and other documents; (ii) penalties for breached merger agreements and stockholder representatives; and (iii) governance agreements with stockholders.

Approval of merger agreements and other documents

• Section 147 of the DGCL now provides that when a board of directors needs approval of any agreement, instrument, or other document, the board may approve it in "substantially final form."
• Section 232(g) now clarifies that any document enclosed with, or annexed or appended to, a notice will be deemed part of the notice.
• Section 268(a) now provides that when stockholders do not receive stock in the surviving company as part of the merger consideration, the board of directors is not required to approve the surviving company's certificate of incorporation.
• Section 268(b) now states that disclosure schedules and related documents are not part of the merger agreement unless the merger agreement expressly provides otherwise, therefore, no submission to or approval by the board of directors is required.

Consequences for breaching merger agreements and stockholder representatives

• Section 261 of the DGCL now expressly permits parties to a merger agreement to agree:
  • that a party who fails to perform its obligations pay such penalties or consequences as set forth in the agreement;
  • that if a corporation is entitled to receive that penalty, the corporation is also entitled to retain the payment and it does not need to be distributed to stockholders;
  • the appointment of one or more representative stockholders who have the authority to enforce the rights of all stockholders;
  • the appointment of a stockholder representative may be irrevocable;
  • the appointment of a stockholder representative may be amended after the merger only with the consent or approval of persons specified in the agreement; and
  • stockholder representatives may only represent the stockholders in connection with the enforcement of the merger agreement, not with respect to any appraisal rights or claims for breach of fiduciary duty.

Governance agreements

• Section 122(5) confirms the corporation cannot delegate board-level functions under Section 141(a) to an officer or agent.
• Section 122(18) now provides that, notwithstanding Section 141, the corporation may enter agreements with stockholders: (i) restricting the corporation from taking action under circumstances specified in the contract; (ii) requiring specific approvals before taking corporate action; and (iii) agreeing that the corporation or other persons (e.g., the board of directors) will take or refrain from taking specific actions.
• Section 122(18) also now:
  • requires the corporation receive "minimum consideration," as determined by the board, for entering into governance agreements;
  • allows the corporation to enter into a governance agreement without authorization in the certificate of incorporation;
  • permits a governance document to include a forum selection clause outside of Delaware;
  • allows for remedies against the corporation for breach of a governance agreement;
  • prohibits a governance agreement from imposing personal liability on a director or binding directors as a party to the agreement;
  • states that any provision in a governance agreement is unenforceable if it is contrary to the certificate of incorporation or Delaware law; and
  • does not eliminate any fiduciary duties that are owed to the corporation or its stockholders when entering into or deciding whether to cause the corporation to comply with the agreement's terms.

This article is presented for informational purposes only and is not intended to constitute legal advice.