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[Music] please be advised that this reported webinar has been edited from its original format which may have included a product demo to set up a live demo or to request more information please complete the form to the right or if you are currently not on CSE global there is a link to the website in the description of this video thank you hello everyone and welcome to today's webinar first date update 2019 case law developments and updates to Delaware's LLC app my name is Annie Tribble any and I will be your moderator joining us today our guest speakers Christopher Kelly and Michael Maxwell of Potter Anderson and karoon and with that let's welcome Chris and Mike good morning everyone and thank you for attending this first state update webinar on Delaware LLC's are owned by our great host CSC in conjunction with LexisNexis my name is Christopher Kelly and I'm a partner in the corporate group at Potter Anderson and Corrine practicing primarily corporate and alternative energy litigation in the Delaware Court of Chancery I'm joined by my partner Mike Maxwell is in the business group of Potter Anderson and who among other things devises clients on Delaware corporate and alternative entity law and transactions involving Delaware entities regrettably our partner Matt O'Toole co-author the treatise Simmons and O'Toole on Delaware limited liability companies published by CFC LexisNexis couldn't be here today so it'll just be Mike and me as we've done in the past I'll lead off with an overview of recent case law developments involving Delaware LLC's and then Mike will jump in and discuss the latest updates Delaware LLC act the three cases we'll look at today are appellate decisions by the Delaware Supreme Court addressing implied covenant of good faith and fair dealing alleged breaches of LLC agreements and related issues contract interpretation as well as contractual fiduciary duties but turn to our first case today the Oxbow carbon case note that lawyers that our firm were involved in the case but not us the statements today solely are based on a review of the court opinions and they're my views alone and not the views of the firm any of the other firm lawyers or any firm client the same goes for the rest of the webinar so this dispute centered on Oxbow carbon LLC who all referred to as oXXO or the company and the desire of certain minority members to force an exit sale of the company underexpose LLC agrees the minority members claim to compel an exit sale followed their exercise of a put right and the company's rejection thereof the LLC agreement contained a number of requirements for an exit sale to occur including that it must exceed the fair market value of the company may not require any other member to engage in an exit sale unless the resulting proceeds to every member when combined with all prior distributions equal to at least 1.5 times the members aggregate cost capital contribution and must apply the same terms and conditions stocks those members so those are the fair market value requirement the 1.5 times capital contribution requirement and then an equal treatment requirements after commencing a sale process Oxbow received a letter of intent from a third party that valued the company at 177 dollars per unit an amount that exceeded the company's fair market value as defined in the LLC the parties however disagreed whether in terms of third parties offer satisfied the other exit sale requirements under the LLC agreement ultimately leading the litigation in the litigation the central question was whether an exit sale could proceed notwithstanding the fact that the third party's bid did not satisfy the 1.5 times requirement as to to small investors who were affiliated with majority member and you invested in Oxbow four years after it was organized at a price of $300 per unit the small holders held approximately 1.4 percent of the company's equity the majority member argued that an exit sale cannot proceed unless all exit sale requirements were met ie that all members participated that the consideration paid Cetus fair market value that each member received at least 1.5 times of capital contributions and that all members were offered the same terms and conditions which would require consideration of four hundred and fourteen dollars per unit the highest amount interpretation was the coined term in the opinion given then market conditions that that price appeared unlikely the minority members in contrast argued that the third-party bid satisfied the exit sale requirements because one the small holders could be left behind that Bell is what was referred to as the leave-behind theory or a top-off payment could be paid to small holders in addition to the exit sale consideration such as the small holders received one and a half times their capital contributions that's what was referred to as the cop off option or the seller top off the court of chancery ultimately rejected to leave behind theory finding that the plain language of the LLC agreement foreclose that interpretation trial court next determined that when read together with the equal treatment requirement the 1.5 times clause called for reading the LLC agreement to implement the highest amount interpretation and therefore the highest amount interpretation was the only reading that gave effect to the LLC agreement as a whole despite finding that the highest amount interpretation reflected a plain reading of the LLC agreement the trial court found that it produced an extreme and unforeseen result because of the failure to address the small holders rights when the company admitted them according to the court of chancery issues of compelling fairness calls for deploying the implied covenant to fill the gap created when the company admitted the small holders because without it the fortuitous admissions the small holders gutted the exit sale right in applying the implied covenant the trial court determined that the parties intentionally left the gap in the provision and the LLC agreement governing admission and new members which left it to the board to determine the terms and conditions for new members the court of chancery found that the majority member created a gap regarding the terms on which the smallholders became members because the board never established the terms of their admission in 2011 having determined that a gap existed the trial court held that the top off option should be implied to fill that gap the trial court reasoned that if the parties address the issue when the small holders were issued units in the company the minority members never would have consented to admitting small holders if they had understood that the admission would reset the 1.5 times clause and that the majority member would not have insisted on the highest amount interpretation rather the trial court found that the most likely outcome is that the parties would have agreed to a seller topple because the trial court found that the top off option was viable and because the third party letter of intent otherwise satisfied the requirements for a negative sale the trial court ruled that the transaction that the minority members have secured met the requirements for negative cells following supplemental briefing on the appropriate remedy the trial court awarded a decree specific performance that the parties complete the exit sale process initiated by the minority members on appeal the Supreme Court affirmed in part 4 version pardon vacated in part in the anonymous unbox decision pertinently the Supreme Court held the trial court correctly interpreted an operating agreement but earned in finding a contractual gap concerning the admission of the small holders and in applying a seller topple through the implied covenant the Supreme Court agreed the trial court with the trial court that the highest amount interpretation was the only reading of LLC agreement that gave meaning to all of the exits sale requirements but the Supreme Court parted ways with the Court of Chancery in its application of the implied covenant holding this trial court erred in finding that a gap existed in the LLC agreement relating to the terms on which the small holders became members the Supreme Court found that the record showed that the forward admitted the small holders without imposing a different set of rights the Supreme Court found that the LLC agreement delegated responsibility to the board to set the terms of admission and permitted but did not require the board the issue units with different rights and classes thus absent the imposition of different rights the newly admitted members would have the same rights as all members in addition the Supreme Court noted that it's declined in other cases to imply new contract terms merely because the contract grants discretion to a board of directors and that such a grand discretion is more appropriately viewed as a contractual choice and not a gap further the Supreme Court found that there was no argument that the board has exercised its discretion in bad faith in admitting the new members and at the time of contracting the parties expressly contemplated that new members could be admitted later on thus no gap existed for the implied covenant to fill and the court concluded by reiterating that the implied covenant should not be used as an equitable remedy for rebalancing economic interests particularly where as here the parties were sophisticated business persons and entities our next case today is the leaf inventor G case which primarily involved the issue of a company's breach requirement in its LLC agreement that at first obtain the plaintiff members consent to a substantial asset sale or else redeem the members interest in the company for specified target multiple of its capital invested by way of background in 2008 the venner G was raising money for in a series B investment round and leaf invested 30 million in Series B note the node agreement gave leaf and other note holders the right to convert the equity and the node agreement incorporated an LLC agreement that the note holders and his energy would execute on conversion both the node agreement and the incorporated LLC agreement contained provisions prohibiting of energy from conducting what was defined as material partial sale which referred to for our purposes of sale of a significant portion and energies assets without obtaining Leafs consent where else and energy was required to pay leave a target multiple of the capital investment in late 2014 and energy began to explore an asset sale but did not want to have to obtain Leafs consent or pay if the target multiple inventor G tried to keep Reef in the dark relief soon discovered that in venner G was considering an asset sale and in June 2015 Leif exercised its right to convert its notes into equity of energy however did not complete the conversion and instead sought regulatory approval for it then in early July of energy and terraform the buyer executed a purchase agreement pursuant to which terraform would buy a material portion lose Energy's assets although in venner G rush to finalize terraform deal reporting the Supreme Court it dragged its feet when it came to completing Leafs conversion from the note stack wa tea leaf was out admitted as a member of the LLC until late September then in December 2015 in venner G and terraform entered into an amended and restated purchase agreement and they closed the deal the next day in venner G did not receive Leafs consent to the transaction nor did in venner Jeep a lease to target multiple in an initial ruling the Court of Chancery found that in venner G breached the LLC agreement by not obtaining Leafs consent or paying lease to target multiple the trial court held that the operative time for determining leaf status as a member was at closing and in the alternative leap was still a member of prior to the signing of the amended and restated purchase cream after that ruling on liability leaf sought final judgment in its favor in the amount of the target multiple which lead calculated as 126 million in response in venner G claimed that leaf was not entitled to any damages because the asset sale had a harmed leaf a post trial decisions the court of chancery agreed with in venner g and held that leaf had failed to prove actual damages this was despite the contemporaneous record evidence showing that all the parties the LLC agreement understood that leaf would receive its target multiple if inventor G conducted a material partial sale such as the sale to terraform without Leafs consent the trial court awarded Leif $1 as nominal damages on appeal beyond Bach supreme court reversed and awarded Leif the target multiple the Supreme Court rejected the trial court's interpretation of the LLC agreements the payment of the target multiple in the absence of Leafs consent was not a contractual obligation but simply an exception since energies need to pain weeks consent the Supreme Court observed that the way the trial court has interpreted the LLC agreement would mean that Leafs consent right would simply vanish upon a venner G's election to ignore it without any consequence instead the Supreme Court held that the LLC agreement unambiguously required is energy to pay leave the target multiple if it conducted a material partial sale without obtaining Leafs consent because in venner G conducted a non-consensual material partial sale Supreme Court ruled that the calculation of Leafs damages was simple it was entitled and imparted multiple the Supreme Court also stated that the trial court ignored the contractual expectations of the parties in determining damages earning in deciding that a hypothetical negotiation was the framework for analyzing leaks damages the Supreme Court explains that the trial court's analysis failed to consider the entirety of inventor G's breach because inventor G's breach was only complete when it failed to obtain Leafs consent and when it failed to pay the target multiple the trial court's damages analysis however only focused on the former enough folks considering the breach as a whole the Supreme Court concluded that what would most aptly repair that breach is in venner G's payment now in satisfaction of a damages award of the amount is agreed to pay for the right to engage in material partial sale without Leafs consent accordingly the supreme court awarded leaf to target multiple as contractual damages on condition that it surrender its membership interest in the company starting to a third case of the day the Shorenstein pays neederlander theatres feels this case is a lengthy procedural background but the principal issue in the trial court and in this appellate decision was whether one of the two members of a 50/50 owned theatre partnership to ornithine hayes Nederlander theatres which was organized as an LLC could stage competitive theater productions SHN began in the 1970s in San Francisco to stage productions in theatres in the city including the Tron theater which FHN at least since the beginning of the partnership in 2000 SHN was converted to a Delaware LLC at the times relevant to the case FHN was owned 50-50 by two members Nederlander and CSH in 2010 the CSH affiliate purchased the current and 2014 did not extend the lease with shn when it expired thereafter the SH is owners the Haze's began staging productions of the current in early 2014 CSH sued Nederlander in the court of chancery for declaratory judgment that is no legal obligation to renew the current lease Nederlander asserted counterclaims against CSH and third-party claims against the Haze's for breaches of fiduciary and contractual obligations among other things the litigation implicated several provisions of the governing LLC agreement including a provision by which the member entities agreed to devote their efforts to maximize the economic success of the company and avoid conflicts of interest a provision that generally prohibited member entities from staging any production be controlled within a hundred miles of San Francisco and a provision that authorized the parties general ability to engage in non shn business in July 2018 the court of chancery issued an opinion that there was no enforceable promise to renew the lease if CSH did not breach the LLC agreement and that the Haze's breach their common law fiduciary duties of loyalty then in September of 2018 Nederlander sought a preliminary injunction in the court of chancery against CSH and the Haze's prevent them from staging productions at the current based on breach of contractual fiduciary duties owed to FHN and its members under the LLC agrees the trial court denied the injunction and the appeal followed the Supreme Court found in part and reversed in part impertinent pertinently the Supreme Court held that the trial court misinterpreted the LLC agreement and ruled that the Haze's cannot stage competitive productions at the current to violate their contractual duty to maximize as hmm economic success accordingly the court reversed that aspect of the court of chancery decision the Supreme Court first held that the LLC green of provisions that restricted members from competing with FHN also covered affiliates of members and thus cfh affiliates were bound by the contractual restriction in the LLC agreement the court explains that permitted transferees was defined as quote affiliate of any member and not an affiliate of any member who's received or will receive transfers membership interests and thus the restriction was not contingent on a transfer of interest the court further reasoned that limiting the restriction to only members would do nothing the limit competition because either member could simply set up a shell entity down the street to the other theaters and then compete with shn the Supreme Court next found that the trial court misinterpreted the LLC agreement provision that required members to devote their efforts to maximizing si Chen's economic success the Supreme Court interpreted that provision as imposing a contractual duty on shn members and their affiliates to refrain from competitive activities that would undermine shn economic success or give rise to conflicts of interest between the members the Supreme Court viewed the LLC agreement provision permitting outside business activities as saying nothing about the right to compete against FHN and therefore the SH could not itself or through affiliates use the Curan to compete with FHN as such competition was not maximized as a gems economic success lastly the Supreme Court agreed with the Court of Chancery that Nederlander failed the shell likelihood of success this CSH with Hayes's breach the LLC agreement provision prohibiting staging of controlled productions because CSH and Hayes's did not have the right or the authority to cause productions to play at the crime theatre or to set the terms there all which were negotiated with the producers of the plays in question who negotiated with multiple other venues rather the CSH affiliate in the Haze's where mere lessors of the current theater as to those particular plays and lacks control early productions with that I'll turn it over to Mike to talk about the legislative updates to the yellow or LLC Act thanks Chris good morning so as Chris mentioned will now discuss recent amendments to the LLC Act so we're now going to turn our attention to the recent amendments to the Delaware LLC act now the amendments enacted this year were not nearly as extensive as those that were enacted last year and many of the amendments this year focused on the additional revisions to some of those amendments that were adopted last year including updates to the newly effective series provisions as well as to the concept of division this year additionally a new section was added to the act to address electronic signatures and delivery of documents and the amendments adopted this year by the legislature became effective August 1st 2019 let's turn first to registered agent resignations so sections 18 104 C and D of the LLC act provides circumstances in which a registered agent may resign specifically section 18 104 D provides circumstances in which a registered agent may resign when there's not another registered agent appointed in its place whenever a Delaware LLC is registered agent resigns and does not appoint a successor the Act provides that the effectiveness of the resignation is delayed until 30 days after the certificate of resignation is file now these delay periods are intended to afford a reasonable amount of time for remedy the resignation to the appointment of a successor registered agent and to avoid the negative consequences that could result from the failure to do so so this year section 18 104 D of the Act has been amended to provide that the registered agent of the LLC including one whose certificate of formation has been cancelled pursuant to section 18 1108 of the Act which is a failure to pay annual tax may resign without appointing a successor registered agent by filing a certificate of resignation so it's just some vacation around the circumstances when a registered agent may resign in that context specifically if the prohibitive formation has been cancelled pursuant to 18 1108 the amendment also adds requirements regarding the content and form of such a certificate that is a certificate of resignation the typically a certificate of resignation or a resignation requires a filing the certificate of resignation with the Delaware Secretary of State as I discussed before it's it's effective 30 days after the certificate is filed they contains a statement that the written notice of resignation was given to the LLC at least 30 days prior to the filing of the certificate by mailing or delivering such notice to the LLC at its address last known to the registered agent it's must set forth the date of such notice now the Act was amended this year to provide that the requirements of such certificate must also include information that was last provided to the registered agent regarding an LLC's communications contact and the amendments provide that such information will not be deemed public that just as by way of reminding everyone whether communications contact with the information that's required for that it's information required under Section 18 104 G which includes the name email address business address which would snow Pio boxes and business telephone number of someone at the company a member manager that can act for the company and provide the information that a registered agent provides to the company finally a certificate file pursuant to section 18 104 D must be on the form prescribed as a Delaware Secretary of State moving on to electronic signatures and delivery of documents the amendments the Act this year includes the addition of provisions relating to the execution of documents by electronic signature and delivery of documents by electronic transmission a new section 18 113 has been added to the Act establishing non-exclusive safe harbor methods to reduce certain acts or transactions to a written or electronic document and to sign and deliver document manually or electronically specifically any act or transaction contemplated or governed by the LLC Act or an LLC agreement may be provided for in a document and an electronic transmission will be deemed the equivalent of a written document near section 18 113 a permits LLC transactions such as entering into an agreement of merger that's not filed with the Delaware Secretary of State to be documented signed and delivered to DocuSign and similar electronic means and these safe harbor provisions apply solely for the purposes of determining whether an act or transaction has been documented whether a document has been signed and delivered in accordance with the LLC act and the LLC agreement now along with these this new provision new terms document and electronic transmission were added to the act as well term document is defined to mean any tangible medium or which information is inscribed and includes handwritten typed printed or similar instruments in copies of such instruments and to an electronic transmission the term electronic transmission is defined as any form of communication not directly involving the physical transmission of paper including the use of or participation in one or more electronic networks or databases including one or more distributed electronic networks of databases ie blockchain that creates a record that may be retained retrieved and reviewed by recipient thereof and that may be redirect leary produced and paper form by such a recipient to an automated process so whenever the LLC act or an LLC agreement requires or permits a signature electronic signature will be a permissible mode of executing a document electronic signature is defined as an electronic symbol or process that is attached to or logically associated with a document an executed or adopted by a person with an intent to authenticate or adopt the document these provisions further form a high debt unless otherwise provided in an LLC agreement or agreed to between the sender and recipient electronic transmission is delivered to a person at the time it enters an information processing system that the person is designated for the purpose of receiving electronic transmissions from the type delivered the law is the electronic transmission is in a form capable of being processed by that system and the person is able to retrieve it so furthermore in Section 18 113 a does not prohibit the conduct of a transaction in accordance with the Delaware Uniform electronic transactions Act so long as the party is a transaction that are governed by the LLC acts or parts of the transgenics are documented sign is delivered in accordance with section 113 a or otherwise in accordance with the LLC Act in Section 113 a also does not preempt any statute of frauds or other law that might require actions to be documented or documents to be signed or delivered in a specified manner in particular thinking of real estate transactions into that context moving on through the the news section section 18 113 B enumerates specifically certain documents and actions that are not governed by section 18 113 a these include a document filed with or submitted to the Delaware Secretary of State the register and Chancery or court or other judicial or governmental body of the state of Delaware if you're taken of limited liability company interest or partnership interest when I think of a certificate of LLC interest a partnership interest other certificates that represent such LLC interests or partnership interest and normal in the government acts or transactions affecting affected pursuant to respective provisions of the LLC Act relating to the requirements to maintain a registered office a registered agent in the state of Delaware service of process foreign entities or derivative actions 113 B also provides but it does not create any presumption that such excluded items are prohibited from being affected by electronic or other means even though they're excluded it doesn't it's not intended to create creating presumption but these are prohibited from being affected by electronic other means pursuant to other statutes are under law if an exclusion applies however 18 113 may not be relied on as a basis for documenting an inactive transaction for signing or delivering a document now a limited liability company agreement may limit the application of section 113 a by expressly restricting one or more of the statutorily permitted means of documenting an act or transaction or signing or delivering a document that said a provision of the LLC agreement providing only that an act or transaction will be documented in writing or that a document will be signed or delivered manually will not preclude the application section 113 8a prohibit are using a prohibition the extent that you want it to be effective to prohibit application 113 a should be expressed and must expressly limits the means of documenting an act or transaction Presley set forth in 113 a moving on to Section 113 C 113 C addresses the interaction between the Act the LLC act that is and the federal electronic signatures in global and national commerce act or formally known as the e-sign act evidencing is an intent C LLC Act governed the documentation of actions and the signatory and delivery of documents to the fullest extent permitted by section 7 0 0 2 a 2 of the e-sign act in general the e-sign act provides that with respect to a transaction in or affecting interstate or foreign commerce it's subject to specified exceptions of limitations signature contract or other record relating to the transaction may not be denied legal effect validity or enforce ability only because it's in an electronic form any contract relating to such transaction may not be denied legal effects validity or enforceability totally because an electronic signature or an electronic record was used in its formation specifically section seven zero zero two A two of the e-sign act provides that a state statute regulation or other rule of law may modify limit or supersede the provisions of section seven zero zero 1 of the assign act with respect to state law only a such statute regulation rule of law a specifies the alternative procedures or requirements for the use for acceptance or both what electronic records or electronic signatures to establish the legal effects validity or force ability of contracts for other records if one such alternative procedures and requirements are consistent with subchapters wanted to the e sign Act and to set alternative procedures or requirements to not require or cord greater legal status or effect to the implementation or application of a specific technology or technical specification for performing the functions of creating storing generating receiving communicating or authenticating electronic records or electronic signatures and B if enacted or adopted after June 30th 2007 to esa' Act that's a mouthful fighting the statute there but essentially the provisions of the of section 113 expressly confirm an intent to allow the LLC act to govern the documentation of actions and the signature and delivery of documents to the fullest extent that the LLC acts not preempted by the e-sign act so with that we'll move on to contractual appraisal rights so the LLC Act currently contemplates the contractual appraisal rights may be provided with respect to an LLC interest or another interest in the Delaware LLC in connection with any amendment of an LLC agreement any merger or consolidation in which an LLC is a constituent party any conversion of an LLC to another business form any transfer to or domestication continuance in any jurisdiction by an LLC or a sale of all or substantially all of an LLC assets now notably these are rights that must be contractually provided in an LLC agreement or an agreement or planet merger consolidation these are not default appraisal rights that you might find in the D G C L so for appraisal rights to apply in the context of an LLC have to be contractually provided so section 18 to 10 has been amended this year to provide their contractual appraisal rights may also be available in connection with any division of a limited liability company as well as any merger or consolidation which a registered series is constituent party a conversion of a protected series to a registered series of such LLC and any conversion of a registered series to a protected series of such LLC I will talk a little bit more about series later in this presentation but suffice it to say for now it's worth for calling that conversion of mergers of registered and protected series must be accomplished within the same LLC so this concept of appraisal rights would apply with respect to those limited transactions as well as expanding it to this concept of division that was enacted last year now speaking of division we're not going to talk about some amendments opted this year adopted this year related to divisions but in that regard I think it makes sense to review generally the concept of division that was adopted last years it's still a fairly new concept to the practitioners are adapting to and getting used to as you may recall section 18 to 17 was added to the Act last year to permit a Delaware LLC to divide into two or more separate and distinct LLC's now this enables LLC's with various assets to separate the assets apart similar to what you call maybe a reverse merger unlike a classic asset transferred to another entity it llows an LLC to be split apart into smaller freestanding LLC's according to a plan of division adopted by the original LLC now the law does not require a tentacle ownership or management by design pools of assets can be reduced into smaller pools without needing to transfer assets out of the LLC our division is effective pursuant to the adoption of a plan of division and a filing with the Secretary of State of a certificate of division and a certificate of formation for each new LLC form pursuant to the division whether or not an LLC can be divided is subject to its LLC or Katrina if the all of the agreement of a dividing company specifies the manner of adopting a plan of division a plan of division shall be adopted as specified in the LC bring out the LLC agreement silent then the manner of adopting a plan of division is the same vote for authorizing a merger assuming that a division is not expressly prohibited in the LLC dream now if the LLC agreement is silent on what it takes to adopt or authorize a merger then a division is authorized by holders of over 50% of these LLC interests essentially the 50% of the majority of profits interest when an LLC decides to divide the amendments adopt adopt an effective this year made clear that the defining LLC must file a certificate vision and a certificate of formation with the Secretary of State previously there was some general references to dividing LLC or the division company generally and then the statute part of the amendments this year made clear that the dividing LLC is the one that will file the standard division the original LLC has the option to either continuous existence or terminate as a result of the division now following a division each division LLC will be liable for the debts liabilities of duties of the original dividing LLC as are allocated to a pursuant to the plan of division and no other division LLC will be liable for such obligations lots of planet evasion constitutes fraudulent transfer under applicable law and any allocation of assets or liabilities is determined by a court of competent jurisdiction to constitute a fraudulent transfer each division LLC will be jointly and severally liable on account of such fraudulent transfer a debts and liabilities on the original dividing LLC that are not allocated by the plan of division will be the joint several debts and liabilities of all Division LLC's with that general background in mind about the concept of division and how it works again in a high-level amendments to section 18 217 the division provision of the LLC Act address various matters related to division these include clarification in amended section 18 217 be that obligations and liabilities of a dividing company will be allocated to and enforceable against the division company or companies to which such obligations and liabilities have been allocated pursuant to the plan of division again I believe this is the intent all along that this has just been clarified in 18 to 17 feet also as discussed previously in addition of a provision in Section 18 to 17 H that the certificate of division shall be executed on behalf of filed by the dividing company the revision for that provision additionally there's clarification and confirmation in Section 18 to 17 l 9 providing that section 18 217 l4s operative even though a pending action or proceeding may be continued against the surviving company as if the division did not occur so recall that 18 217 L 4 provides that each of the debts liabilities and duties of a dividing company shell without further action be allocated to and B the debts liabilities of duties of such division company as as specified in the plan of division that's having such debt liabilities and duties allocated to in such a manner and basis and with such effect as a specified in the plan of division and no other division company shall be liable therefore so long as the plan the division does not constitute a fraudulent transfer under applicable law all liens upon any property in the dividing company shall be preserved unimpaired and all debts liabilities and duties of the dividing company shall remain attached to the division company to which such debts liabilities and duties have been allocated in the plan of division and may be enforced against such division company to the same extent as if said debt liabilities duties had originally been incurred or contracted by it this capacity as a domestic limited life company so really this amendment is just clarifying that any actual proceeding pending against the dividing company may be continuing against the surviving company as if the division did not occur but it will be subject to the allocation of debts liabilities of duties to a division company provided in Section al for that we just discussed in connection with the revisions just discuss regarding division an additional amendment was adopted this year to section 18 301 so while not amending section 18 217 which expressly deals with division 18 301 was amended which deals with admission of members to deal with admission of members in connection with the division so some clarifying changes to this section the new subsection 4 was added to section 18 301 B of the LLC act clarify the mechanics for the admission of a member to a division company or to an LLC that is not a division company in a division so if a person is being emitted as a member of a division company pursuant to a division an admission would occur as providing the LLC agreement of such division company or in the plan of division and in the event of any inconsistency the terms of the plan of division shall control now I'll note that this is similar to the approach taken in 1801 with respect to mergers as well where the merger agreement can control this LLC dreaming with respect to admission remember now in the case of a person being admitted as a member of an LLC pursuant to a division which such LLC is not a division company in the division then the admission will occur is provided in the LLC agreement of such LLC okay now we're we're not going to turn to amendments to the series provisions of the LLC Act again as we did with the vision I think it may be helpful for a short review regarding series LLC's generally so you might recall that section 18 to 15 was added to the LLC Act I think roughly around 1996 and provided that an LLC may establish or provide for one or more series of members managers LLC interests or assets now series is essentially an internal cell within an LLC that may have a separate business purpose for an investment objective separate rights powers and duties with respect to specified assets and liabilities of the LLC now a goal of setting up a series LLC is generally to have inter series liability protections this means that the debts liabilities obligations and expenses incurred contracted for or otherwise existing with respect to a series shall be enforceable against the assets of that series only and not against the assets of the LLC generally or any other series their own additionally none of the debt liabilities obligations and expenses incurred attractive or otherwise existing with respect to the LLC generally or any other series they'll be enforceable against the assets of such series this provides for concepts similar to as if there were a number of separate LLC's under one LLC but they are not separate legal entities so although a series of members interests or assets that complies with 18 to 15 B is not a separate legal entity that series will be treated in many important respects as if it were a separate LLC I've properly structured and implemented a series of members LLC interests or assets under the LLC Act they possess further attributes that under the statute pertain uniquely to series and that offer to business organizers and planners benefits that are a relatively novel but with that general background in mind recall that it last year in 2018 the LLC Act was amended to provide for the concept of protected and registered series now these provisions were adopted last year by the legislature took effect and became effective just this year on August 1st 2019 again I think it's helpful to review these concepts as part of these amendments a new definition of series was added to the LLC act so that the term series refers to a designated series of members managers LLC interests or assets which may but need not be a protected series or registered series but what do we mean by protected series of registered series a protected series is a designated series of members manager's LLC interests of assets established in accordance with 18 to 15 B so in effect this provision in conjunction with the revisions to section 18 to 15 essentially changes the nomenclature used to refer to series established in accordance with 18 to 15 B as we discussed previously that's a protected series is a series established in accordance with 18 to 15 with a few significant updates first 18 to 15 B expressly provides that a member of manager of a protected series shall not have personal liability for debts obligations or liabilities of the protected series solely by reason of being a member they're up for acting as a manager there additionally section 18 to 15 B 12 was added to provide that irrespective of the number of members or managers of a protected series a protected series is an association for all purposes of Delaware law including the Delaware UCC this helps with some of the financing UCC issues that series previously encountered now a new concept of registered series was added to the LLC Act with the addition of section 18 to 18 now a registered series has the same rights and powers in the same inner series limitation liability as a protected series established in accordance with section 18 to 15 B it is also an association under Delaware law however the registered series is distinct in other ways including in how its formed a registered series is formed by the filing of a certificate certificate of registered series with the Delaware Secretary of State and accordingly a registered series qualifies not only as an association but also as a registered organization under the Delaware UCC again addressing some of the financing and UCC related issues as to whether a Sears can be a veteran in debt and take on debt in lending transaction now just quickly to recap section 18 to 19 was added last year and became effective this year to address conversion of a protected series to a registered series of the same LLC as we previously discussed section 18 to 20 was added in addresses conversion of a registered series to a protected series on the same LLC and Section 18 to 21 was added and addresses a merger of consolidation of one or more registered series we or into one or more registered series again of the same LLC I just reminded these provisions were adopted last year became effective August 1st of this year now this year the 2019 amendments to the Act were adopted and became effective August 1st as well these are further address certain matters relating to protective series and registered series building on these 2018 amendments that substantially revised the LLC acts treatment series now section 18 101 12 and 13 of the LLC acts were amended this year to confirm that the definition of a manager includes a manager of the LLC generally and a manager associated with a series of the LLC and the definition of member includes a member of the LLC generally and a member associated with a series of the LLC further section 18 to 15 B has been amended to provide that with respect to protected series that neither the limited liability company agreement nor the certificate of formation with respect to its notice of limitation of liabilities or protected series again a formation or formality required in the certificate of formation with respect to protected series the Act was amended this year provides it neither of those the LLC green or different information must refer to section 18 to 15 of the Act or use the term protected when referencing series the volume apply with the formalities of 18 to 15 and creating a protected series you don't have to expressly reference 215 or protected to create a protected series again a clarification of these further amendments to section 18 - 18 18 to 19 and 18 to 20 and to 21 of the Act were adopted to make really just technical changes regarding certain certificates filed with respect to registered series or protected series such as certificates amendments or convinced of merger or certificate conversion and recall that a registered series may be issued a certificate of good standing that's again one of those unique characteristics of a register series when you file are speculative registers Furies and and all of those formalities the possibility exists for a register series to be issued a certificate standing so this year an amendment was adopted to section 18 1107 a n excuse me clarifying and confirming that a protected series or registered series when LLC is not liable for the debts obligations or liabilities of the LLC or any other series their own solely by reason of another series neglect refusal or failure to pay an annual tax or ceasing to be in good standing and what's that we are finished with the primer area of our presentation all right so now we'll take a look at anyone's questions and talk about some some key takeaways from today so from the three cases that we discussed the overarching point to be focused on is that Delaware is a contractarian state and that LLC's are fundamentally creatures of contract the Delaware LLC act is intended to give maximum effects to the principle freedom of contract and that's exemplified in in all of the decisions we we looked at today for example in the Oxbow case the key takeaway is that the implied covenant will not override the Express terms of the contract implied covenant is applied cautiously as a narrow gap filler and it's rarely invoked successfully it can't be used to save a party from a bad deal so while it it's ever present in every contract it's under Delaware law it's limited and narrow in in application so how about the relief inventor G case what's the key takeaway from from that one well while it's an LLC case it's in my memory one of the only or first wins for what in essence was a preferred stockholder in Delaware in recent years a a line of cases in the last several years such as thought works trading screen od and holding they've they've suggested that contract rights of preferred investors may not be ironclad and those cases even could be viewed by by Samas as suggesting that boards can breach preferred investor contract rights with with little consequence the Supreme Court's decision in leaf and venner G however indicates that there can be meaningful consequences in the form of a significant damages award from a company's breach of contractual covenants such as in that case a redemption obligation where consent was not obtained from the investor in favor of preferred Bester's and what about the Shorenstein Hays Nederlander theaters case well the key takeaway from that is the fundamental proposition that goes back was well established in in Delaware law that that fiduciaries cannot compete against the entity and that doing so very likely will violate the duty of loyalty be it a common law duty of loyalty or a contractual duty of loyalty like the one in SH n LLC agreement of course LLC agreements are our contracts and can have the spoke features and provisions so the the language in the particular LLC agreement is key but as a general matter competing against the entity that you're a a fiduciary of really very likely be a duty of loyalty / to the extent that LLC planners wish to eliminate fiduciary duties Delaware law affords the parties to an LLC agreement wide latitude to do so through the use of clear and unambiguous language that's section 18 101 or 1101 see that allows drafters to expand restrict or eliminate fiduciary duties and then there's 18 1101 which which allows drafters of LLC agreements believe duties in place but eliminate or limit monetary liability for from breaches so those those are some of the key takeaways from the three cases we looked at I'll turn it over to Mike for one of the key takeaways fr m the statutory amendments yeah and and you know as we discussed the the statutory amendments were not extensive this year you know we we did adopt electronic signatures of documentation provisions um but I think overall again as Chris mentioned the policy the LLC access frame of contracting and the enforceability of of the parties all C agreements and I think the amendments to me at least even though not extensive this year just are further evidence of Delaware's overarching goal of making the LLC act as current as possible and and is these are friendly for businesses and members and managers of the Constituent parties now a couple notes on division you know division the new concept which still requires I think further understanding of how those provisions work but with respect to lenders and commercial transactions dealing with LLC's I think the division requires vigilance for reviewing loan documents organizational documents of LLC's when you're dealing with financings and really just understanding the extent that you do not want a division to be effective you know there's some safer provisions that we didn't get into in detail under the division statute but I really want to make sure that your loan documents are updated or organizational restriction sees that you're using single member LLC's or other LLC you know lenders are making comments LLC agreements making sure that those address the concept of division and finally with respect to the series you know treatment of serious thought a lot of questions outstanding but with the amendments those statutes including those issues making further adjustments I think we're getting closer to solutions that will allow these to be more widely used you know it's a registered organization of the Uniform Commercial Code which helps with policies being debtors in financings as series become more popular than hinder series liability protections will likely be respected by other jurisdictions and bankruptcy laws may developed for meta filing by a single series without putting the LLC or other series in bankruptcy again bankruptcy is another one of those areas of the law that we don't know how a series would be treated but many states have now adopted serious provisions and a uniform protective series Act was adopted it is being considered by a number of jurisdictions I think Delaware you know the amendments really reflected it's modern modernized as provisions to allow for the proliferation of series as soon as these problems are eliminated again there are issues but I think we're moving ever closer to resolution live