Understanding Changes in Shareholder Consent Requirements

Five Years Later, Cigna v. Audax Drives Buyer Requirements for Supermajority Shareholder Approvals

In November 2014, the Delaware Court of Chancery raised new and difficult questions about how to bind stockholders to post-merger obligations in its decision in Cigna Health and Life Ins. Co. v. Audax Health Solutions, Inc.¹ In that decision, the Court declared that a stockholder of the target company who has not signed the merger agreement is not bound by the indemnification obligations therein simply by virtue of the merger having been approved by a majority vote of the stockholders. The Court also determined that merger parties cannot require shareholders to sign a Letter of Transmittal that contains a release as a condition to receiving merger proceeds.²

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^{[1] 107 A.3d 1082 (Del. Ch. 2014).}

^{[2] The Court also ruled that an uncapped indemnity provision including a clawback right over an indeterminate time period was not sufficiently definite to comply with DGCL §251(b)(5). For purposes of this article we concentrate on how to bind non-signing stockholders to otherwise-valid indemnities.}