As John and Liz shared on TheCorporateCounsel.net, the Delaware General Assembly passed this year’s amendments to the Delaware General Corporation Law in May, and Delaware Governor Matt Meyer signed the amendments into law in mid-June. They will, as usual, go into effect on August 1st. Everything about this year’s amendments – from process to substance – is far less controversial than the last few years. As John noted, nobody’s been running around with their hair on fire about proposed changes to the DGCL this year. It was kind of nice that at least this one thing was a bit back to business as usual.
In fact, this Greenberg Traurig alert — their annual alert on the ways the DGCL changes are relevant to drafting corporate and M&A documents — characterizes the changes as relatively minimal. The relevant changes include:
– An important clarification regarding the voting standard for class votes required to change the amount of authorized stock of that class.
– A required agreement by a dissolving corporation for service of process after dissolution.
Here’s what the alert says about the class votes clarification:
Section 242(b)(2) provides that a class vote is required to increase or decrease the authorized number of shares of that class, unless the certificate of incorporation includes a provision that such change in authorized shares may be approved by holders of a majority of the total outstanding shares irrespective of Section 242(b)(2). For decades, such “opt-out” provisions were relatively common in certificates of incorporation. In 2023, however, subsection (d) was added to Section 242, and subsection (d)(2) provides that, under certain circumstances for corporations with publicly listed stock and unless otherwise expressly provided in the certificate of incorporation, approval by only a majority of votes cast is required for those votes on changes to authorized shares of a class.
Some uncertainty arose in practice and case law over whether provisions in certificates of incorporation opting out of the class vote requirement under subsection (b)(2) would also operate to opt out of the votes cast standard under subsection (d)(2). As a result, Section 242(d)(2) has been amended to clarify that only a provision that expressly states that the corporation is not to be governed by Section 242(d)(1) or (2) (or both) or requires a greater or additional vote than the majority of total outstanding voting standard contemplated by subsection (b)(2) will effectively opt out of the subsection (d)(2) votes cast standard. This amendment should provide greater clarity and comfort for corporations with certificates of incorporation that include traditional Section 242(b)(2) opt-out provisions, while providing a roadmap for language to include in newly adopted and amended certificates of incorporation.
This D&O Diary blog from Kevin LaCroix discusses last week’s decision from the Delaware Superior Court in MSG Networks v. Federal Insurance Co. (Del. Superior; 6/26) that a policy’s ‘bump-up’ provision precluded coverage for the settlement of a shareholder suit related to the acquisition of Madison Square Garden Networks. The bump-up provision read as follows:
Loss does not include any portion of such amount that constitutes any: … (3) amount that represents, or is substantially equivalent to, an increase in the consideration paid (or proposed to be paid) in an acquisition (or proposed acquisition) of more than 50% of the outstanding securities or other ownership interest of an entity, including an Organization, or in the right to vote for election of, or to appoint, more than fifty percent (50%) of the directors or limited liability company managers or members, or the equivalent of such positions, of an entity, including an Organization; except for any amount otherwise covered under Insurance Clause (A).
Madison Square Garden Networks had settled two shareholder suits related to the merger, alleging that the merger process was unfair and that their stock was undervalued in the transaction. After the insurers argued that the “bump-up” precluded coverage, Madison Square Garden Networks brought this action, seeking a judicial declaration that the settlement amounts were covered by its D&O insurance.
Judge Wallace first determined that the settlement represents both an increase in consideration and the substantial equivalent of an increase of consideration. In concluding that the settlement amount represents an increase in consideration, Judge Wallace considered four factors: (1) the Settlement’s language; (2) indications that the Settlement amount represents consideration for an inadequate deal price; (3) the stage of the litigation at the time of the settlement; and (4) the settlement class’s composition. Judge Wallace found that each of these factors supported the conclusion that the settlement represented an increase of the deal consideration, though also noting that “none are dispositive.” [. . .]
MSGN had tried to argue that the settlement agreement itself stated that the parties had settled solely to avoid the costs and burden of litigation. Judge Wallace said that this “doesn’t wholly foreclose the conclusion that the Settlement represented an increase in consideration.” Judge Wallace also noted that the shareholders had, in fact, sued for an increase in consideration, and that the class that received the benefit of the settlement consisted exclusively of persons who sought an increase in consideration. Judge Wallace noted that “upon a hard look at what the Settlement represents, the Insurers have shown it constitutes an increase in consideration.”
Judge Wallace also concluded, consistently with the Delaware Supreme Court’s opinion in its recent Harman decision, that the reverse triangular merger transaction was an “acquisition” within the meaning of the Bump-Up provision, as it is “an acquisition effectuated via a merger mechanism.” MSGN had tried to argue that the transaction was not an acquisition, because the Dolans controlled both companies before and after the transaction, and therefore there was no change in control. Judge Wallace rejected this argument because it depended on a “change in control” requirement that was not in fact in the Bump-Up provision.
These cases don’t always come out this way, as Kevin notes, even with the same judge.
As I noted at the outset, the potential preclusive effect of the Bump-Up provision may be one of the most hotly and frequently contested issues in the world of D&O insurance coverage. The provision is so frequently disputed for several reasons: the amount of money at stake is often huge; and the transactions involved are often highly complex, allowing room for the parties to argue about what the transaction represented. Moreover, there is almost always an argument about what the underlying settlement represents – is it really an increase in consideration?
That means, Kevin concludes, that “the outcome of a Bump-Up dispute is going to be a reflection of the policy wording, the deal structure, and the governing law.”
Last week, Reuters reported that the SEC’s Division of Enforcement is investigating potential conflicts of interest for private equity firms and other money managers related to continuation vehicles as well as “how managers are valuing the assets, and whether investor disclosures are sufficient and consistent.” CVs have been particularly popular recently, with PE firms having a hard time finding buyers willing to pay purchase prices that match their expected valuations.
Traditional private equity funds have a finite life cycle, usually about a decade. CVs allow managers to find new investors and transfer assets from older funds into a new vehicle, extending the holding period while giving existing investors the option to cash out.
As a result, the vehicles give managers a way to return cash to investors without being forced to sell assets at a deep discount in weak markets or to a competitor — or realize potential losses. CVs predominantly deal in equity assets, although the share of credit assets is growing.
Starting last year, the SEC expanded their intra-division coordination on the private credit market.
While SEC examiners have been scrutinizing private fund issues, including continuation vehicles, for some time, the escalation to the enforcement division and the cross-division collaboration underscore growing concerns among watchdogs over potential problems in private markets.
This Yahoo! Finance article says “only about 11% of continuation fund deals in 2025 were set against a competing, arm’s-length bid,” even though there can be major conflicts when the sponsor is the seller and continuing manager.
Gibson Dunn & Crutcher partner Kate Timmerman said, “The structure of CV deals is unlikely to change. Sponsors are considering how to best manage the core conflict of a continuation vehicle in light of the ongoing SEC attention.”
“Now more than ever, sponsors need to demonstrate defensibility and be able to demonstrate a fair, well-documented, arm’s-length-like CV process,” she said.
The May-June issue of the Deal Lawyers newsletter was just sent to the printer and is also available online to members of DealLawyers.com who subscribe to the electronic format. This issue includes the following articles:
– Dual-Track Processes: How to Turbocharge Your Exit
– Earn-Outs and Other Forms of Contingent Consideration: Recent Delaware Decisions and Drafting Takeaways
The Deal Lawyers newsletter is always timely & topical – and something you can’t afford to be without to keep up with the rapid-fire developments in the world of M&A. If you don’t subscribe to Deal Lawyers, please email us at info@ccrcorp.com or call us at 800-737-1271.
In Energy Founders Fund v. Daskevich, (Tex. Bus.; 5/26), the Texas Business Court rejected a minority investor’s claim that drag-along rights contained in Energy Founders Funds’ (EFF) LLC agreement were not triggered by the controller’s sale of its interests to a third party.
The drag-along provision did not apply to transactions with an affiliate of EFF, and the plaintiff claimed that the substantial contractual control rights that EFF would acquire with respect to the buyer following the sale made the buyer an “Affiliate” of EFF. The agreement used the following common formulation to define the term “Affiliate”:
“Affiliate” means, when used with reference to a specified Person, any other Person that directly, or indirectly through one or more intermediaries, controls, is controlled by or is under common control with the Person specified. For purposes of the foregoing, “control,” “controlled by” and “under common control with” with respect to any Person shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person . . . whether through the ownership of voting securities, partnership interests or other equity interests, or by contract or otherwise.
Analyzing this language, Judge Brian Stanger pointed to three factors that led to the conclusion that the buyer should not be regarded as an Affiliate prior to the closing. First, he observed that the definition speaks in the present tense. In order to be an Affiliate, the entity must “control”, be “controlled by” or be “under common control with” the specified person. In order to for such control to exist under the agreement, Judge Stanger concluded that the party must presently have “possession” of the power to direct management and policies. In the Judge’s view, the term “possession” means “current, existing authority, not a future or contingent entitlement to it.”
The second factor Judge Stanger identified was that the definition focused on actual operational governance, and that the relevant inquiry was “therefore straightforward: before closing, who could actually run [the buyer],” and that under the terms of the contract, it was clear that any rights EFF had with respect to the buyer’s business did not arise until after the closing.
Finally, the Judge noted that the plaintiff placed significant weight on the language indicating that the control necessary to be regarded as an Affiliate could exist “by contract or otherwise.” While he agreed that this kind of catch-all language was intended to prevent parties from concealing affiliate relationships “behind clever labels or corporate subterfuge,” it did not override the need for the specified person to current have control. Such a conclusion would have the result of reading the term “possession” out of the definition entirely.
Accordingly, Judge Stanger granted the defendant’s motion for summary judgment and dismissed the plaintiff’s claims.
Yesterday, Corp Fin posted new Securities Act Sections CFI 142.01, which addresses the contents of a registration statement of securities underlying rights that are to be listed on an exchange. Here’s the text of the CFI:
Question: A company seeks to list rights on a national securities exchange in connection with a business combination transaction without the underlying securities also being listed. As required by the exchange, the company must have an effective registration statement, prior to the rights being listed, that registers the issuance of the underlying securities upon exercise of the rights. Must the registration statement contain information regarding the specific transaction and the business to be acquired?
Answer: Yes. The registration statement must contain information about the contemplated business combination transaction and the business to be acquired. [June 23, 2026]
I don’t have a lot of experience in this area, but I think some practitioners have argued that if an issuer is only listing rights and not the underlying stock, it could file a “generic” registration statement to satisfy exchange listing requirements and defer detailed disclosures about the potential business combination until the rights were exercised. To my knowledge, the Staff has never signed off on that approach, and this new CFI appears to effectively foreclose it.
In a market where it seems like anyone who sprinkles the magical AI fairy dust on their start-up immediately attracts a swarm of VC interest, it isn’t surprising that founders of promising AI start-ups have a lot of leverage with potential VC investors. This Goodwin memo says they aren’t afraid of using it when it comes to negotiating the economic and governance terms of these investments.
The memo notes that while there’s nothing new here, founders are seeking favorable terms in earlier rounds than in the past, and they’re also not content to settle for concessions on just one or two points. This excerpt discusses some of the governance terms that founders are negotiating for:
The core objective for founders in venture financing is to maintain operational control — over the CEO role, board composition, and overall voting. The governance mechanisms they use to maintain that control vary by deal, but the most commonly negotiated provisions include:
– Board composition and voting rights: founder-majority or founder-designated board configurations that give founders effective control over the board’s decisions, whether through a majority of seats or super-voting rights attached to founder-held seats. These protections don’t require continued service, so they survive a founder’s transition out of an operating role.
– Super-voting structures: typically, 10 votes per share on founder-held common stock, allowing founders to exert structural vetoes through voting power alongside any explicit protective provisions.
– Common stock protective provisions: founder veto rights — exercised as a stockholder rather than as a board member, which reduces fiduciary duty concerns — over M&A, future financings, material changes in company direction, executive hiring and firing, and other key governance controls. These provisions are often negotiated to be narrower in scope than what investors would typically receive as standard preferred stock protections, but their mere existence as common stock veto rights is atypical when viewed in historical context.
– Limits on investor protective provisions: the converse of the common stock protective provisions, investor protections are often scaled back or limited by explicit economic thresholds — for example, limiting the veto on an exit transaction to situations in which a transaction would return less than a defined multiple of invested capital, effectively removing the investor check on exits that generate meaningful returns.
Economic terms sought by founders include terms providing them with structured secondary liquidity opportunities, participation in investor secondaries, and multiple-round structures with valuation step-ups for a subsequent tranche baked into the initial deal documents.
In Premca Extra Income Fund v. Angle, (1st. Cir.; 6/26), the First Circuit Court of Appeals refused to dismiss securities fraud claims arising out of Amazon’s aborted acquisition of iRobot. What makes the case interesting is that the statements alleged to be false and misleading that the Court refused to dismiss involved statements of opinion concerning the likelihood of the deal obtaining necessary regulatory approvals.
Following the abandoned merger, the plaintiffs filed a class action lawsuit against iRobot, its CEO, and its CFO challenging various disclosures made in connection with the transaction. The district court dismissed the plaintiffs’ lawsuit for failing to state a claim. On appeal, the First Circuit upheld the district court’s decision with respect to all challenged disclosures except for those relating to statements concerning the likelihood of regulatory approval contained in an amended proxy statement filing.
Under the SCOTUS’s Omnicare decision, in order for a plaintiff to successfully allege that a statement of opinion is actionable under the securities laws, it must establish that the statement in question omits material facts about the issuer’s inquiry into, or knowledge about, the statement of opinion. In this case, the opinion disclosure challenged by the plaintiffs involved statements in amended proxy materials that the defendants “expect[ed] that all applicable regulatory approvals [would] be obtained” and that “the merger [would] not violate the antitrust or foreign investment laws.”
The Court concluded that iRobot’s failure to disclose the regulatory challenges that the deal was facing in the EU – including the EU’s rare decision to elevate its investigation of the transaction to “Phase II” – as well as Amazon’s unwillingness to comply with certain information requests, made these disclosures potentially misleading:
iRobot’s rosy prediction of regulatory success, which had not appeared in any public filing since the original proxy statement in September 2022, could reasonably be understood as reassurance to investors as it came on the heels of the EC’s Phase II announcement. But iRobot did not include information about Amazon’s refusal to provide information on the search engine, which was critical to the EC’s publicly expressed concerns. Including that information could be found to have “significantly altered the total mix of information” available to investors by undermining iRobot’s message of reassurance.
The Court also concluded that the plaintiffs had adequately alleged scienter with respect to these disclosures. In doing so, it pointed to allegations that iRobot was a declining company that depended on completion of the merger to secure its financial future, and that this supported an inference that the defendants were paying close attention to regulatory details and were unlikely to “merely neglect to provide the troubling information about the merger while expressing optimism about it.”
Yesterday, in Grower v. Trux, Inc. (Del. Ch.; 6/26), the Delaware Chancery Court addressed a minority stockholder’s challenges to Viking’s acquisition of a majority of the outstanding stock of Trux on the basis that the selling stockholders breached a right of first refusal and co-sale agreement. The plaintiff stockholder’s claims were dismissed with prejudice in 2023, but one of the selling stockholders had intervened seeking a declaratory judgment that the purchase was void under the terms of the ROFR, and, though he stipulated to the dismissal, he filed cross-claims for breach of contract.
The company’s amended certificate of incorporation provided that a “sale, transfer or other disposition, in a single transaction or series of related transactions, by the stockholders of the [Company] of a majority of the outstanding shares of capital stock of the [Company] (determined on an as-converted basis)” was a “Deemed Liquidation Event.” This is relevant because Viking was a minority stockholder when the amended certificate was approved, and the ROFR made certain exceptions and gave Viking certain rights in connection with a Deemed Liquidation Event.
The decision responds to the summary judgment motions filed by both Trux and Viking to the intervening selling stockholder’s cross-claims. Trux and Viking pointed to the ROFR’s exceptions for a Deemed Liquidation Event and argued that the ROFR was not breached. And even if it was, they argued that the selling stockholder released his claims in the purchase agreement. Vice Chancellor Fiorvanti found the defendants’ arguments persuasive:
Richard’s Cross-Claims rise or fall on the applicability of Section 2.4. Under Section 2.4(a), a Proposed Transfer that is “not made in compliance with the requirements of [the ROFR] Agreement shall be null and void ab initio.” According to Richard, his transfers of stock to Viking and those of the Selling Stockholders are void. As a consequence, he argues that the Seller’s Release in his Stock Purchase Agreement is unenforceable, and all equitable defenses are inapplicable. Richard goes so far as to contend that he could invoke his own breach of the ROFR Agreement—several years after the Transaction—as a basis to void his sale to Viking along with those of the other Selling Stockholders.
Richard’s Cross-Claims fail as a matter of law. First, the Transaction was a series of sales of Transfer Stock pursuant to a Deemed Liquidation Event. Under Section 3.2 of the ROFR Agreement, “the provisions of Section 2 shall not apply to the sale of any Transfer Stock . . . pursuant to a Deemed Liquidation Event.” Because Richard’s voidness theory relies on the application of Section 2.4(a), Section 3.2 forecloses his claim. Second, even if Section 3.2 did not foreclose Richard’s theory, the Defendants did not breach Section 2.5 or Section 2.1(b). Third, and finally, Richard released his claims when he executed the Stock Purchase Agreement.
VC Fiorvanti also agreed with the defendants that the selling stockholder released his claims when he executed the stock purchase agreement since it included a release of any and all claims “based on acts, events or omissions occurring on or prior to this Agreement” and “relating to the Seller’s ownership of the Shares.” Since the purchase wasn’t void, neither was his release of claims, and his claims regarding the ROFR “fall squarely within this category of released, ownership-related claims.”
Earlier this month, the Council of the EU adopted a new framework for screening foreign direct investments. The press release notes that these rules replace the existing FDI screening framework that’s been in place since 2020. It explains:
The revised regulation requires all member states to establish screening mechanisms covering a common minimum scope of sensitive sectors, technologies and infrastructure (such as dual-use items and military equipment, critical raw materials, artificial intelligence, energy, transport and digital infrastructure), including foreign investments made through EU-based subsidiaries, while maintaining sole national responsibility for screening decisions.
The regulation also improves cooperation between member states and the European Commission, increases transparency and consistency across national screening systems, and streamlines procedures for investors and public authorities. In addition, it introduces new tools to facilitate information exchange and prevent circumvention of the rules.
The regulation will be published in the official journal and enter into force 20 days after publication. The new rules will start applying 18 months after the entry into force of the regulation.
This Gibson Dunn alert shares some color on what this means for U.S. investors in Europe:
The reform lands amid a changing stance vis-à-vis U.S. investors and mounting European sensitivity around foreign influence over the digital infrastructure underpinning core governmental functions. A case in point: On May 25, 2026, the Dutch government prohibited U.S.-based Kyndryl’s acquisition of Solvinity, the cloud provider hosting the Netherlands’ digital identity platform for accessing government services – the Netherlands’ first FDI prohibition of a U.S. acquirer. The message is unambiguous: U.S. investments in Europe enjoy no safe harbor, and that message is now being reinforced in the new EU FDI Screening Regulation.
One theme that runs throughout the reform: The new Regulation provides a floor, not a ceiling – it harmonizes a minimum standard but allows Member States to go further. Therefore, significant divergence between national FDI regimes in Europe is expected to persist.
The alert describes the “good,” the “bad,” and the “not-so-pretty” aspects of the new framework, which it characterizes as a “mixed bag” for investors who value predictability. It also says:
As most of the new regime hinges on national implementation over the next 18 months, the practical contours, including the application of risk factors and the call-in power, will emerge only after this. Investors active in the covered sectors in the EU should map their filing footprint and closely monitor national implementation over the coming months.