Guam’s New Merger Law

While the Government of Guam, the U.S. Federal Government, and many businesses’ focus on the infrastructure changes that will be necessary to facilitate the anticipated military expansion in Guam has been well-documented in the media, there have been several less-publicized changes to the structure of Guam’s general corporate law that will govern the various corporations that will register to do business in Guam related to this expansion. One example is Public Law 28-180, An Act Relative to Updating the General Corporations Law of Guam, which was enacted on January 29, 2007. Prior to the enactment of Public Law 28-180, Guam’s corporate law only permitted short form corporate mergers of parent and subsidiary corporations and contained no statutory provisions pertaining specifically to mergers of independently-owned corporations.

The legislative intent supporting the Public Law states that Guam’s corporate and business-related laws should be consistent with those of other U.S. jurisdictions, which would enable Guam to accommodate the anticipated expansion of Guam’s business community and to attract off-island investors. Many jurisdictions, particularly those in smaller states, have modeled their corporate statutes after the Model Business Corporation Act, one of the many model sets of laws prepared and published by the American Bar Association. Through Public Law 28-180, Guam followed suit by adopting a merger law that mirrors the provisions of the Model Business Corporation Act concerning mergers, sales of corporate assets and dissenters’ rights. The main sections of Guam’s new merger law are highlighted below.

The Effect of a Merger

When a merger takes effect, every corporation that is a party to the merger merges into the surviving corporation and the separate existence of every other corporation ceases. The title to all real estate and other property owned by each corporation to the merger is vested in the surviving corporation without reversion or impairment. The surviving corporation assumes all liabilities of each corporation that is a party to the merger.

The shares of each corporation that is party to the merger are converted into shares, obligations, or other securities of the surviving corporation, and the former stockholders of the shares are entitled only to the rights provided in the articles of merger or to their rights under Guam’s dissenters’ rights statutes. The Articles of Incorporation of the surviving corporation are amended to the extent provided in the plan of merger.

When a Merger Requires Stockholder Approval

After the Board of Directors of a corporation has adopted a plan of merger, the Board of Directors must submit the plan of merger for approval by its stockholders. For a plan of merger to be approved, the Board of Directors must recommend the plan of merger to the stockholders and the stockholders entitled to vote must approve the plan.

The Board of Directors may condition its submission of the proposed merger on any basis. The corporation must notify each stockholder, whether or not entitled to vote, of the proposed stockholders’ meeting. The notice must also state that the purpose, or one of the purposes, of the meeting is to consider the plan of merger and contain or be accompanied by a copy of the plan. The plan of merger to be authorized required the approval of the stockholders by a majority of all the votes entitled to be cast on the plan, unless the Articles of Incorporation require a greater vote or a vote by voting groups or if the Board of Directors conditions it submission of proposed merger on a greater vote.

When Board of Directors Approval is Sufficient to Effectuate a Merger

Notwithstanding the above, under certain limited circumstances enumerated in Guam’s new merger law, stockholder approval is not required to effectuate a merger. The approval of a merger by the Board of Directors is sufficient if the Articles of Incorporation of the surviving corporation will not differ from its Articles of Incorporation before the merger except for the following amendments: (1) to extend the duration of the corporation if it was incorporated at a time when limited duration was required by law; (2) to delete the names and addresses of the initial directors; (3) to delete the name and address of the initial registered agent or registered office, if a statement of change is on file with the Director of the Department of Revenue and Taxation; (4) to change each issued and unissued authorized share of an outstanding class into a greater number of whole shares if the corporation has only shares of that class outstanding; (5) to change the corporate name by substituting the words or abbreviations such as “corporation,” “corp.,” “inc.,” or “ltd.” or to change a geographical attribution for the corporation’s name; or (6) to change the name of the surviving corporation, provided the name does not otherwise violate general corporate law (these amendments are referred to below as the “Permitted Amendments”).

Additionally, in order for a merger to be effective with only Board of Directors approval, each stockholder of the surviving corporation whose shares were outstanding immediately before the effective date of the merger will hold the same number of shares, identical designations, preferences, limitations, and relative rights immediately after the merger. Finally, stockholder approval of a merger is not required if the number of participating and voting shares outstanding immediately after the merger, plus the number of participating and voting shares issuable as a result of the merger (either by the conversion of securities issued pursuant to the merger or the exercise of rights and warrants issued pursuant to the merger) will not exceed by more than twenty percent (20%) the total number of participating and voting shares of the surviving corporation outstanding immediately before the merger.

Merger of Foreign Corporation with Guam Corporation

The new merger law also allows foreign corporations to merge with Guam corporations. One or more foreign corporations may merge with one or more Guam corporations if: (1) the merger is permitted by the law of the state or country under whose law each foreign corporation is incorporated and each foreign corporation complies with that law in effecting the merger; (2) the foreign corporation obtains the necessary approval from its Board of Directors and stockholders, if required, if the foreign corporation is the surviving corporation of the merger; and (3) each domestic corporation complies with the applicable provisions for mergers.

Upon the effectiveness of a merger in which the surviving corporation of a merger is a foreign corporation, the surviving corporation is deemed to have appointed the Director of the Department of Revenue and Taxation as it agent for service of process in a proceeding to enforce any obligation or the rights of dissenting stockholders of each domestic corporation party to the merger. The merger also implies the foreign corporation’s agreement that it will promptly pay to the dissenting stockholder of each domestic corporation to the merger the amount, if any, to which he is entitled under Guam’s dissenters’ rights statutes.

Parent and Subsidiary Mergers

Guam’s new merger law repealed the former short form corporate merger statute and added several new provisions which govern these types of mergers. A parent corporation owing at least 90% of the outstanding shares of each class of a subsidiary corporation may merge the subsidiary into itself, or itself into the subsidiary. Such parent-subsidiary mergers may be completed approval of the stockholders of either corporation if the corporation adopts a plan of merger that sets forth: the names of the parent and subsidiary and the manner and basis of converting the shares of the disappearing corporation into shares, obligations, or other securities of the surviving corporation or any other corporation into cash or other property in whole or in part. Articles of merger for a parent-subsidiary merger may only contain the Permitted Amendments mentioned above to the Articles of Incorporation of the surviving corporation, as is required for ordinary merger of two or more Guam corporations.

If you would like any further information regarding Public Law 28-180, or Guam’s general corporate law, please contact our office.