February 20, 2024

Even More on: A Charter Amendment Fix for Con Ed Clause Enforceability Issues

At the beginning of the year, John blogged about a charter amendment contemplated in a merger agreement to fix the Con Ed clause enforceability issues highlighted by Chancellor McCormick’s latest decision in Crispo v. Musk. We followed up with the proposed language and promised to alert you about disclosures in the proxy statement.

The proxy has been filed, and Proposal 3 seeks approval of the adoption of “an amendment to the Amended and Restated Certificate of Incorporation of PGTI […] designating PGTI as the agent of PGTI stockholders to pursue damages in the event that specific performance is not sought or granted as a remedy for MITER’s fraud or material and willful breach of the merger agreement.” Here’s how PGTI explained the reasons for the proposal:

The certificate of incorporation amendment is intended to address recent case law from the Delaware Chancery Court that could be construed to, in effect, limit the remedies available to PGTI and its stockholders under the merger agreement absent the certificate of incorporation amendment.

Under the merger agreement, PGTI and MITER agreed that, in the event of MITER’s fraud or material and willful breach of the merger agreement, PGTI’s damages would not be limited by the terms of the merger agreement and may include the premium reflected in the merger consideration.

In the event that the certificate of incorporation amendment is approved and adopted by the PGTI stockholders and PGTI, acting as agent of the PGTI stockholders, were to recover damages in the event of MITER’s fraud or material and willful breach of the merger agreement, whether through judgment, settlement or otherwise, the certificate of incorporation amendment provides that the PGTI board of directors shall, in its sole discretion and subject to its fiduciary duties, distribute such damages to PGTI stockholders by dividend, stock repurchase or buyback or in any other manner.

If the certificate of amendment looks a little different, it is a little different (but no substantive changes were made). The language we previously shared was appended to a merger agreement that PGTI terminated after receiving a superior proposal.

As we’ve shared previously, a charter amendment isn’t a perfect solution and, today, Keith Bishop of Allen Matkins blogged about questions of agency law. We also shared the possibility of amending the DGCL to address these Con Ed clause enforceability issues, which, of course, doesn’t address the problem confronting practitioners doing deals today.

Meredith Ervine