January 3, 2024

Merger Agreements: A Charter Amendment Fix for Con Ed Clause Enforceability Issues?

Over on The Business Law Prof Blog, Prof. Ann Lipton flagged a recent transaction that came up with a fix for the Con Ed clause enforceability issues highlighted by Chancellor McCormick’s recent decision in Crispo v. Musk. Ann noted the possibility of amending the DGCL to address the enforceability issues, but then pointed out that the parties to at least one transaction are proposing a different fix:

One possibility that’s being floated is to amend the DGCL.  After all, Crispo is simply a common law contract holding; no reason the law can’t be changed by statute. In the meantime, though, a little birdie alerted me to this private ordering solution by PGT Innovations.  PGTI entered a merger agreement, and when shareholders vote on it, well:

At the PGTI Stockholders Meeting, PGTI expects to submit for the approval or adoption by PGTI’s stockholders an amendment to the Amended and Restated Certificate of Incorporation of PGTI (as amended from time to time) designating PGTI as the agent of stockholders of PGTI to pursue damages in the event that specific performance is not sought or granted as a remedy for Masonite’s fraud or material and willful breach of the Merger Agreement (the “PGTI Organizational Document Amendment”). The PGTI Organizational Document Amendment is intended to address recent caselaw from the Delaware Chancery Court that, could be construed to, in effect, limit the remedies available to PGTI under the Merger Agreement absent the PGTI Organizational Document Amendment.

See?  The merger agreement itself – to which shareholders are not a party – can’t unilaterally make PGTI into shareholders’ agents, but, the theory goes, the charter, which increasingly is treated as a contract between shareholders and managers under Delaware law, can.

The company hasn’t filed its proxy statement yet, so we don’t know the language of the proposed charter amendment. However, Ann raises a couple of potential issues associated with designating the company to serve as the stockholders’ agent, including whether the same kind of deference ordinarily paid to the board’s decisions should apply when they’re acting in a different capacity.

John Jenkins