Three years of Delaware General Corporation Law amendments: A working guide to the 2024, 2025, and 2026 amendments

In Sjunde AP-Fonden v. Activision Blizzard, Inc., C.A. No. 2022-1001-KSJM (Del. Ch. Feb. 29, 2024), the court reasoned that a merger agreement may not have been validly approved because the board approved a draft that was missing key terms. New Section 147 provides that any agreement, instrument, or document requiring board approval under the DGCL (e.g., a merger agreement or amendment to the certificate of incorporation) may be approved in final or substantially final form. Approval is valid as long as the board knows all material terms or those terms are determinable from the information and materials presented to the board.

Section 147 also supplies a cure. Where the board has acted on a document that must be filed with (or referenced in a certificate filed with) the Delaware secretary of state, the board may ratify its earlier approval at any time before the filing becomes effective, and the ratification is deemed effective as of the original board action. Section 147 addresses board approval only; it does not authorize submission of documents to stockholders in only substantially final form, and it does not affect fiduciary duties or equitable remedies.

Section 232 was amended to provide that materials attached to or enclosed with a notice to stockholders are deemed part of that notice for purposes of the DGCL, the certificate of incorporation, and the bylaws. This addresses the technical notice deficiency identified in Activision, where defendants allegedly failed to comply with Section 251(c) in connection with the company’s merger proxy because the merger agreement attached to the proxy statement omitted the surviving company’s certificate of incorporation and was therefore incomplete, and the proxy statement itself (which contained a summary of the merger agreement) was not the requisite notice.

New Section 261(a)(1) responds to Crispo v. Musk, 304 A.3d 567 (Del. Ch. 2023), which questioned whether a target corporation could enforce a provision defining damages to include the premium lost by its stockholders. Under Section 261(a)(1), a merger agreement may provide for penalties or other consequences for a pre-closing breach or a failure to close, expressly including damages measured by reference to a lost premium, and the corporation is entitled to enforce those provisions and retain the amounts recovered. So-called “Con Ed” provisions and reverse termination fee constructs are therefore back on firm statutory footing.

New Section 261(a)(2) confirms that a merger agreement may appoint a stockholders’ representative with exclusive authority to enforce stockholders’ rights under the agreement (indemnification and escrow arrangements being the typical use). The new section’s scope is limited to enforcement; it does not empower a representative to waive appraisal rights or fiduciary claims, or to bind stockholders to restrictive covenants.

Section 268(a) addresses the Section 251(b) requirement that a merger agreement address changes to the surviving corporation’s certificate of incorporation. Where all shares of a constituent corporation are being converted into or exchanged for cash, property, rights, or securities other than stock of the survivor, the merger agreement need not include such a provision as to that constituent corporation. Amendments to the surviving corporation’s certificate of incorporation adopted in the merger may instead be approved by or at the direction of the board and are not treated as amendments to the merger agreement.

Section 268(b) provides that disclosure schedules and similar documents delivered in connection with a merger agreement are not part of the agreement for DGCL purposes unless the agreement expressly says otherwise (the agreement should make it clear that schedules are not part of the agreement to ensure the agreement fits squarely in new Section 268(b)). Officers may therefore prepare and finalize schedules at the board’s direction without a separate board or stockholder approval of such schedules for statutory purposes.

Amended Section 220 defines the universe of records subject to inspection:

• The certificate of incorporation and bylaws, including documents incorporated by reference.
• Annual financial statements for the preceding three years.
• Stockholder agreements entered into under Section 122(18).
• Minutes and written consents of stockholders, and communications to stockholders, in each case for the preceding three years.
• Minutes and records of actions by the board and its committees, together with the materials provided to directors in connection with those actions.
• Director and officer independence questionnaires.

In order for a stockholder to be entitled to inspect any records beyond this list will require either that the corporation does not maintain the specified categories of records, or the stockholder showing, by clear and convincing evidence, a compelling need – and, in either case, that the additional records are necessary and essential to the stockholder’s purpose.

The demand itself now carries express conditions:

• It must be made in good faith and for a purpose reasonably related to the stockholder’s interest as a stockholder.
• It must describe the purpose and the records sought with reasonable particularity.
• The records sought must be specifically related to that purpose.

On the production side, the statute codifies the corporation’s right to impose reasonable confidentiality, use, and distribution restrictions; to redact material not specifically related to the stated purpose; and to condition production on the stockholder’s agreement that produced information be incorporated by reference into any resulting complaint, which allows the court to consider that material on a motion to dismiss without converting the motion into one for summary judgment.

The existing prohibition on certificate of incorporation and bylaw fee-shifting provisions, previously limited to internal corporate claims, now extends to any other claim brought by a stockholder acting as a stockholder or in the right of the corporation. The sections do not address privately negotiated fee-shifting arrangements outside the organizational documents.

Other changes are administrative but consequential in practice:

• Section 103(f) confirms the power to file a certificate of correction nullifying a previously filed instrument that inaccurately records the action taken or was defectively executed (as has been common practice).
• Section 132 prohibits a registered agent from performing its duties solely through a virtual office or a mail forwarding service, and Section 132 and the franchise tax provisions of the DGCL no longer treat the registered office as the corporation’s principal office or place of business.
• Section 155 no longer permits fractional shares in bearer form.
• Sections 252(c) and 311 update the required contents of certificates of merger and of revocation of dissolution or restoration.
• Sections 312 and 377 and the franchise tax provisions of the DGCL tighten the payment and annual report obligations of revived corporations, forfeited foreign corporations, and corporations filing certificates of correction or validation.

Sections 275(d) and (f) now require a certificate of dissolution to include an agreement that the corporation may be served with process in Delaware by service on the Delaware secretary of state, and to specify the address to which the secretary of state will forward copies of process. New Section 275(h) provides that the registered agent’s authority and responsibilities terminate when the dissolution becomes effective, except as to process the agent received before that time. New Section 275(i) supplies the mechanics:

• Service may be made by electronic transmission as prescribed by the secretary.
• Process must be served in duplicate and plaintiff must pay a fee, which fee is taxed as costs in the proceeding if the plaintiff prevails.
• The secretary must promptly forward process to the designated address by mail or courier and keep records of mailing and delivery.
• The secretary must retain a record of service for at least five years.

Section 312(j) governs revival of a nonstock corporation whose certificate of incorporation has become forfeited or void for failure to file reports or pay franchise taxes. The amendment deletes the reference to action by members entitled to vote on a dissolution and clarifies that member action is required only if any is necessary – read with Section 312(h), that means only where there are no persons then serving on the governing body. In the ordinary case, the governing body may authorize revival on its own.