As many of you already know, several amendments to the Delaware General Corporation Law (DCGL) were adopted and became effective as of August 1, 2004. Here is a refresher on the substance of those amendments.
Section 102: Contents of Certificate of Incorporation -- new subsection (d) allows provisions of the certificate of incorporation to be dependent on facts ascertainable outside of the certificate, with a few exceptions that include the corporation's name and address, provisions limiting the life of a corporation and limiting directors' liability and provisions specifying the classes, number and par value of shares. Since the DGCL already has similar provisions in Sections 151 and 251, this amendment and the "facts ascertainable" concept is new only as to certificate provisions other than stock terms and merger agreement provisions.
Section 141(c)(2): Boards of Directors -- this amendment clarifies that a Board committee may recommend the election and removal of directors to its stockholders. Some practitioners apparently felt that a literal reading of the prior wording of the statute might preclude committees from approving matters that also required a stockholder vote (thus prohibiting the use of nominating committees, as directors nominated by such committee are also voted on by the stockholders). Section 141(c)(2) only applies to corporations incorporated on or after July 1, 1996 or corporations incorporated prior to July 1, 1996 if the board, by a majority vote, opted to be governed by the provisions of Section 141(c)(2).
Section 152: Consideration for Stock -- perhaps the most important amendment, Section 152 broadens the form of consideration to include not only cash and tangible property, but also intangible property and any benefit received by a corporation in exchange for its stock. Section 3 of Article IX of the Delaware constitution was also amended to remove the constitutional consideration requirement. Delaware counsel has advised us that, as a result of these amendments, consideration my include future services. Stock issued for any of the foregoing types of consideration or any combination thereof will be deemed fully paid and nonassessable upon receipt by the corporation of such consideration. Section 153 of the DGCL was not amended and shares with a par value must still be issued for consideration not less than such par value (but such consideration may be in any of the forms allowed under Section 152).
Sections 154 and 157: Determination of Amount of Capital/Rights and Options Respecting Stock -- conforming amendments to these sections have been made to be consistent with new Section 152. Section 154 now uses the word "consideration " in lieu of "property." Section 157 has been amended to remove any implication that the consideration received for rights and options associated with a corporation's stock is required to be cash or property.
Section 303: Proceedings under Federal Bankruptcy Code -- this amendment clarifies that the section applies to any type of bankruptcy proceeding (whether by liquidation or reorganization) and also clarifies that the validity of corporate action taken under Section 303 is not dependent on the existence of a confirmed plan or reorganization.