Recent DGCL Amendments of Note
The Delaware General Assembly recently amended Delaware’s corporate statutes in several respects of interest to public companies.
Boards may delegate stock issuances to non-directors.
Section 152 of the DGCL now expressly allows a board of directors to generally authorize future stock issuances and then delegate to non-directors the authority to determine the specific issuance times and numbers of shares to be issued. In order to do so, however, the board must:
- fix the maximum number of shares that may be issued,
- fix a time period within which the shares must be issued, and
- set the minimum amount of consideration to be paid for the shares, which may be calculated by a formula based on market price or other extrinsic factors.
DGCL Section 157 was likewise amended to allow restricted stock grants without board approval so long as similar conditions are met.
These changes obviate the “committee of one director” workaround that companies have employed over the years to avoid continuous board action for “at-the-market” offerings, equity compensation grants and other logistically challenging stock issuances.
Forum selection is permitted.
Amended DGCL Section 115 now permits companies to adopt charter or bylaw provisions requiring that “internal corporate claims” be brought solely in a Delaware court. It prohibits, however, any such provisions that would preclude internal corporate claims from being brought in Delaware or that designate a non-Delaware jurisdiction as the exclusive jurisdiction for any such claims.
“Internal corporate claims” means claims that:
- are based on a violation of a duty by a current or former director, officer or stockholder, or
- come within the jurisdiction of the Delaware Court of Chancery pursuant to some other DGCL provision.
This amendment effectively reverses the decision in City of Providence v. First Citizens Bancshares, Inc., which allowed a Delaware corporation based in North Carolina to designate North Carolina as its exclusive forum for internal corporate claims. (See this Doug’s Note.)
Fee shifting is prohibited.
The DGCL also was amended to invalidate any charter (Section 102) or bylaw (Section 109) provision of a stock corporation that purports to shift attorneys’ fees or expenses to a stockholder in connection with an internal corporate claim (as defined above). This will particularly impact stockholder litigation related to M&A transactions, which is now pervasive.
These amendments follow on the heels of the much-publicized Delaware Supreme Court decision in ATP Tour, Inc. v. Deutscher Tennis Bund, which expressly permitted fee shifting for a non-stock corporation and was interpreted by some to possibly permit stock corporations to adopt such provisions. (See this Doug’s Note.)
It is unclear at this time whether fee-shifting provisions adopted by stock corporations following the ATP decision and before the June 24, 2015 adoption of the DGCL amendments (which became effective on August 1, 2015) will be enforceable.