July 14, 2021

Is the Intro to a Merger Agreement a “Resolution”? It is in Nevada!

Keith Bishop recently flagged an interesting Nevada Supreme Court decision in which the Court held that a minute book isn’t the only place you might find a board resolution. In Pope Investments v. China Yida Holdings, (Nev.; 7/21), the Court found that the board’s statement approving a merger set forth in the merger agreement itself was a “resolution” sufficient to confer appraisal rights on shareholders under Nevada law.  This excerpt from Keith’s blog explains:

Nevada’s market-out exception provides that there is no right to dissent in favor of any class of securities that is a “covered security” as defined in Section 18(b)(1)(A) or (B) of the Securities Act of 1933, 15 U.S.C. § 77r(b)(1)(A) or (B), as amended., unless the articles of incorporation of the corporation issuing the class or series or the resolution of the board of directors approving the plan of merger, conversion or exchange expressly provide otherwise.  CY’s articles did not provide otherwise.  Thus, the only question was whether a board resolution expressly provided otherwise.  The Nevada Supreme Court found such a resolution not in the minutes of a board meeting but in the introduction to the merger agreement:

What constitutes the board’s resolution is not limited by any particular formal requirements, and here,  the statement of the board’s approving the merger agreement in the introduction to the merger agreement constitutes the relevant board resolution.  The resolution here provided the shareholders with a right to dissent because the merger agreement envisioned that there was authority to dissent that could be validly exercised. In so doing, the resolution provided a right to dissent.  This reading is supported by contemporaneous representations to shareholders that they had rights to dissent and by all of the directors that the transaction was fair because objecting shareholders had a right to dissent.

Oh yeah, about those “contemporaneous representations” – despite the company’s decision to object ot the dissenters’ assertion of appraisal rights, the proxy statement was apparently full of disclosure to the effect that appraisal rights would be available in connection with the merger.

John Jenkins