Mergers, sales of substantially all assets, dissolution, and appraisal rights (Delaware)

Black-letter propositions

1. 01

   Two or more Delaware corporations may merge into a single surviving corporation, and the board of each corporation that wants to merge must adopt a resolution approving an agreement of merger and declaring its advisability.

2. 02

   The merger agreement must be submitted to the stockholders of each constituent corporation at a meeting on notice given at least 20 days before the meeting to each holder of stock, whether voting or nonvoting, with a copy or brief summary of the agreement.

3. 03

   A merger is adopted if a majority of the outstanding stock of the corporation entitled to vote is voted for adoption of the agreement.

4. 04

   A corporation may sell, lease or exchange all or substantially all of its property and assets on the terms its board deems expedient and in the corporation's best interests, when authorized by a resolution adopted by the holders of a majority of the outstanding stock entitled to vote, at a meeting on at least 20 days' notice stating that the resolution will be considered.

5. 05

   Notwithstanding stockholder authorization of a sale of substantially all assets, the board may abandon the sale without further stockholder action, subject to the rights of third parties under any contract.

6. 06

   For purposes of the asset-sale section, the property and assets of a corporation include the property and assets of its wholly-owned subsidiaries.

7. 07

   A corporation may be dissolved if the board adopts a resolution by a majority of the whole board and a majority of the outstanding stock entitled to vote votes for dissolution, or without board action if all the stockholders entitled to vote consent in writing.

8. 08

   A stockholder of a Delaware corporation who holds shares on the date of the demand, continuously holds them through the effective date of the merger, has complied with the demand procedure, and has neither voted in favor of the merger nor consented to it in writing is entitled to an appraisal by the Court of Chancery of the fair value of the shares in the circumstances the statute describes.

9. 09

   Appraisal rights are available in a merger under section 251 for the shares of a constituent corporation, but not for shares of a class listed on a national securities exchange or held of record by more than 2,000 holders as of the record date, and not for shares of the surviving corporation in a merger that did not need the vote of the surviving corporation's stockholders.

10. 10

    Even where the market exception would apply, appraisal rights are available if the holders are required by the merger agreement to accept anything other than shares of the surviving corporation, shares of another corporation that will be listed or held of record by more than 2,000 holders, cash in lieu of fractional shares, or a combination of those.

11. 11

    If not all the stock of a subsidiary is owned by the parent immediately before a parent-subsidiary short-form merger, appraisal rights are available for the shares of the subsidiary.

12. 12

    A corporation may provide in its certificate of incorporation that appraisal rights will be available for the shares of any class or series as a result of an amendment to its certificate, a merger or consolidation, or a sale of all or substantially all of its assets.

Use this attack sequence under time

Common wrong turns

• A stockholder who votes for the merger loses appraisal rights.
• The market exception for listed stock does not apply if holders must take consideration such as cash.
• The board may abandon an asset sale after stockholder approval without another vote.

Worked example

A Delaware corporation with stock listed on a national exchange agrees to be acquired in a merger in which each stockholder will receive $50 in cash per share. A stockholder who voted against the merger demands appraisal.

Practice this topic

Mergers and asset sales

Section 251 of the Delaware General Corporation Law provides that two or more corporations may merge into a single surviving corporation, that the board of each must adopt a resolution approving an agreement of merger and declaring its advisability, and that the agreement is submitted to the stockholders of each constituent corporation at a meeting on notice given to each holder of stock, voting or nonvoting, at least 20 days before the meeting, with a copy or summary of the agreement. Under section 251(c) the agreement is adopted if a majority of the outstanding stock entitled to vote is voted for it.

Section 271(a) allows a corporation to sell, lease or exchange all or substantially all of its property and assets on terms its board deems expedient and for the best interests of the corporation, when authorized by a resolution adopted by the holders of a majority of the outstanding stock entitled to vote at a meeting called on at least 20 days' notice stating that the resolution will be considered. Section 271(b) lets the board abandon the sale without further stockholder action, subject to third parties' contract rights, and section 271(c) counts the assets of subsidiaries for this purpose.

Dissolution

Section 275 provides that if the board deems dissolution advisable it must adopt a resolution by a majority of the whole board at a meeting called for the purpose and give stockholders notice of a meeting to act on it, and that if a majority of the outstanding stock entitled to vote votes for dissolution, a certificate of dissolution is filed with the Secretary of State.

Section 275(c) provides that dissolution may also be authorized without action of the directors if all the stockholders entitled to vote consent in writing and a certificate of dissolution is filed.

Appraisal rights

Section 262(a) gives a stockholder who holds shares on the date of the demand, continuously holds them through the effective date of the merger, complies with the demand procedure, and has neither voted in favor of the merger nor consented to it in writing an entitlement to an appraisal by the Court of Chancery of the fair value of the shares in the circumstances described in the section.

Section 262(b) makes appraisal rights available in mergers under section 251 and others, but section 262(b)(1) denies them for shares of a class listed on a national securities exchange or held of record by more than 2,000 holders at the record date. Section 262(b)(2) restores appraisal rights where the holders must accept anything other than shares of the surviving corporation, shares of another corporation that will be so listed or widely held, cash in lieu of fractional shares, or a combination. Section 262(b)(3) gives appraisal rights to minority holders of a subsidiary in a parent-subsidiary short-form merger, and section 262(c) lets a corporation's certificate extend appraisal rights to other transactions.

Frequently asked questions