Stock, Options, and Other Rights to Purchase Stock
Sections 152, 153, and 157 of the DGCL have been amended to harmonize the rules governing the board’s ability to delegate to persons or bodies other than a board committee (such as officers or a sales or placement agent) the authority to issue stock under Section 152 of the DGCL and to make grants of rights or options to purchase stock under Section 157 of the DGCL.
Specifically, the 2022 Amendments to Section 157 of the DGCL expand the board’s power to delegate the authority to issue options or other rights to purchase stock using the framework that applies to the delegation of issuance of stock under Section 152 of the DGCL.
With respect to grants of rights or options to purchase stock, the board resolutions must establish (i) the maximum number of rights or options that may be granted, and the maximum number of shares issuable upon exercise thereof, (ii) a time period during which such rights or options, and during which the shares issuable upon exercise thereof, may be issued, and (iii) a minimum amount of consideration (if any) for which such rights or options may be issued and a minimum amount of consideration for the shares issuable upon exercise thereof. Assuming the board sets these broad parameters, the board may delegate to any person or body the authority to determine the precise timing of the grants, the exercise price, and the number of options or rights to be granted, as well as the other terms of the grants, such as the vesting schedule or expiration date. Under the prior version of Section 157 of the DGCL, the board could not delegate to any officer the authority to determine any of the terms of the grants other than the total number of options or rights to be awarded to officers and employees other than such officer subject to a cap set by the board.
In addition, the consideration paid for options or rights to purchase stock may be set by reference to a formula provided in the board resolution, such as by reference to the trading price of the company’s stock. Amended Section 157 of the DGCL also eliminates the requirement that the terms of a right or option be set forth or incorporated by reference in a written instrument, paving the way for electronic forms of rights and options.
The DGCL limitations on a corporation’s ability to delegate the power to grant rights and options to officers and others do not apply to board committees. Properly empowered board committees may exercise the full power and authority of the board to make grants of rights and options to purchase stock. It was common practice prior to the 2022 Amendments for the board to constitute the chief executive officer as a one-person board committee (provided such person was also a director) for the purposes of making grants under equity compensation plans. Given the complexity of the new delegation rules under amended Section 157 of the DGCL, many corporations are continuing the practice of delegating the authority to make grants of equity awards to a one-person board committee.
Stockholder Meetings and Notices
The 2022 Amendments effect a number of changes that facilitate stockholder meetings, including by eliminating some impediments to virtual meetings. During the pandemic, many public corporations held their meetings virtually but found it difficult to comply with Section 219 of the DGCL, which required that the stockholder list be available on the virtual meeting platform or at the corporation’s principal place of business for a period of at least ten days prior to the meeting, as well as during the whole time of the meeting. The 2022 Amendments eliminate the requirement that a corporation make the list of stockholders available for inspection during the stockholders’ meeting.
The 2022 Amendments also clarify that a notice of a meeting of stockholders may be given in any manner permitted by Section 232 of the DGCL, which specifies that notice of a meeting may be given by electronic transmission, including by e-mail, and generally deems such notice to be given when directed to a stockholder’s electronic mail address. Other amendments to Section 222 of the DGCL facilitate the adjournment of a meeting due to a technical failure such as a crash of the virtual meeting platform. In such event, the meeting may be adjourned to another time and virtual space not only by oral announcement during the meeting but also by virtual display on the meeting platform or in advance, as specified in the original meeting notice.
The 2022 Amendments to the DGCL modify Section 262 of the DGCL in a number of important respects. Under the 2022 Amendments, (1) beneficial owners may demand appraisal rights in their own names without having to cause the record owner (i.e., Cede & Co., in most cases) to demand appraisal rights on their behalf, (2) stockholders will now be able to exercise appraisal rights in connection with the conversion of the corporation to another entity or a foreign corporation unless the market-out exception applies (which generally denies appraisal rights for holders of public company stock in certain all-stock mergers), and (3) domestications under Section 388 of the DGCL no longer give rise to appraisal rights. The decision to make appraisal rights available in connection with the conversion of Delaware corporations to other entities was made in tandem with amendments to reduce the voting threshold necessary to effect such a conversion from unanimous to majority stockholder approval.
Corporations may now include in a notice of appraisal rights information directing stockholders to a publicly available electronic copy of Section 262 of the DGCL, including the website maintained on behalf of the State of Delaware, in lieu of including a copy of Section 262 of the DGCL. The revisions are intended to help reduce the unintentional inclusion of outdated versions of the appraisal statute in notices of appraisal rights. If a corporation mistakenly includes an outdated copy of Section 262 of the DGCL in a notice of appraisal rights, stockholders have the right to bring a breach of fiduciary duty claim against the corporation’s directors and are generally entitled to quasi-appraisal rights as a remedy for breach of such fiduciary duty. The 2022 Amendments will help to eliminate these risks.
In response to the increased popularity of special purpose acquisition companies (SPACs) as a vehicle to take a private company public through a business combination with a public shell company, amendments have been made to the dissolution provisions of the DGCL. A SPAC typically includes in its certificates of incorporation a provision authorized by Section 102(b)(5) of the DGCL, limiting the corporation’s existence to a specific period during which the SPAC seeks to effect an initial business combination. However, prior to the 2022 Amendments, the DGCL did not require a SPAC to file any document with the secretary of state of the State of Delaware confirming that its existence had ceased. Under new Section 275(f) of the DGCL, the SPAC must file a certificate of dissolution with the secretary of state within ninety days of the date on which the corporation’s existence ceased. However, a SPAC’s failure to file a certificate of dissolution does not operate to extend the corporation’s existence.