Effective August 1, 2022, the Delaware General Corporation Law (the DGCL)—the statutory code that governs Delaware corporations—has been amended to make several significant changes. Among other things, the amendments will allow Delaware corporations to adopt charter provisions to exculpate officers from personal liability in certain contexts, and the amendments will also give corporations greater flexibility in delegating authority to officers and others to grant stock options and other rights to acquire stock. These amendments are in addition to the statutory amendments adopted earlier this year permitting Delaware corporations to provide their own D&O insurance through a wholly owned subsidiary. The new amendments are described below.

Exculpation of Officers

In recent years, stockholder plaintiffs have increasingly named officers as defendants in fiduciary duty litigation. This is in part because officers have historically lacked certain protections that directors have—including insofar as the DGCL long provided that a corporation's charter could exculpate directors from personal liability for breaches of the fiduciary duty of care but did not authorize such exculpation for officers. Effective August 1, Delaware corporations now can adopt charter provisions that will, in effect, allow officers to be exculpated from breaches of the fiduciary duty of care in certain contexts. Notably, under the amendments, officers now can be exculpated for direct claims by stockholders, which commonly arise in the M&A context. The new amendments will not permit such exculpation of directors in the context of derivative claims, brought by or in the right of the corporation. The statute further provides that the officers who may be exculpated in this manner are only officers who at the time of an act or omission as to which liability is asserted are deemed to have consented to service of process to the registered agent of the corporation as contemplated by 10 Del. C. § 3114(b) (generally, executive officers, officers identified in the corporation's SEC filings as one of the corporation's most highly compensated executive officers at the time of alleged wrongdoing, and officers that have agreed in writing to constitute an officer for this purpose). Despite these limitations, the incremental protection available under the amendments should be helpful for officers and in mitigating certain types of stockholder litigation.

To adopt the new protection for officers, newly formed corporations will be able to include a charter provision allowing for such protection. Existing corporations will need to amend their charter, which will generally require both board and stockholder approval.

Delegation of Authority to Grant Stock Options and Other Rights

In recent years, the DGCL has permitted boards and board committees to delegate limited authority to officers to grant stock options or other rights to acquire stock, but within certain parameters set forth by the board or a board committee. In particular, so long as the board or a board committee set a numerical "ceiling" within which such grants could be made and approved the terms of the awards, officers could select other officers and employees who would receive such awards and the size of their grants. Although the DGCL was expanded in recent years to allow officers or other delegatees fairly broad authority to issue stock outright, these narrower limitations remained in place with respect to stock options and other rights to acquire stock.

The new DGCL amendments harmonize the statutory provisions for issuing stock and granting options and other rights. Under the amendments, boards and board committees can now permit officers and other agents to have expanded authority in the context of granting options and rights—including to select a broader universe of recipients than officers and employees and to vary the terms of the grants. Importantly, however, that delegation to officers or others must set forth certain parameters, in particular: 1) the maximum number of shares, rights, or options (including the maximum number of shares that can be issued pursuant to such rights or options) that can be granted, 2) the time period during which the issuance of shares, rights, or options (including the shares issuable upon exercise pursuant to such rights or options) may take place, and 3) the minimum amount of consideration to be received for the issuance of shares, rights, or options (and the shares issuable upon exercise pursuant to such rights or options). The minimum amount of consideration may still be based upon a formula or other "facts ascertainable" such as the average trading price on a specific date or dates.

The statutory changes in this context should provide welcome flexibility for corporations, particularly in designing or redesigning their equity award programs. That said, it is important to continue to be attentive to technical requirements in the context of issuing stock and granting equity awards because, under a long line of Delaware cases, foot faults in this context can result in invalidity of equity grants.

Other Statutory Changes

Although the above two sets of amendments will have the most impact for many corporations, the amendments also introduce several other noteworthy changes:

• A corporation's stocklist no longer will need to be made available for examination during a meeting of stockholders. The stocklist will still need to be available for inspection for a 10-day period prior to the meeting. This change may be a reaction to the continuing expanded use of virtual meetings and the fact that making the list available for inspection during such a meeting can be a logistical challenge. The DGCL has also been amended to allow corporations to include provisions in their stockholder meeting notices to allow for adjournments in the event of a technical failure at virtual meetings. Companies should keep these changes in mind when considering updates to their bylaws, which often address meeting mechanics.
• The appraisal statute—Section 262 of the DGCL, which allows stockholders to seek the "fair value" of their shares following a merger—has been amended to allow a beneficial owner of stock to demand appraisal directly instead of relying on the record holder. Certain other procedural aspects of Section 262 have also been amended or clarified. For example, the expenses of a stockholder or beneficial owner who participated in an appraisal proceeding may be charged pro rata against the value of all the shares entitled to an appraisal award, and an unconditioned dismissal under amended Section 262(k) ends the Delaware Court of Chancery's jurisdiction over a person that has demanded appraisal under Section 262. Additionally, amended Section 262(d) provides that, in lieu of including in a notice of appraisal rights a copy of Section 262, a corporation may instead include in the notice information directing the persons entitled to appraisal to a publicly available electronic resource to access Section 262 (and Section 114, if applicable), including the website maintained on behalf of the State of Delaware on which those statutes are posted. The ability to provide a link to Section 262, rather than attaching a copy of the statute, should help avoid foot faults that have shown up in the case law when a company attaches an out of date or incomplete copy of Section 262. These changes to the appraisal section will only be effective with respect to mergers consummated pursuant to agreements adopted or entered into on or after August 1, 2022.
• The stockholder approval required to convert a Delaware corporation to a foreign corporation or any other entity has been lowered from unanimous approval to majority approval. If the corporation is converting to a partnership with one or more general partners, each stockholder who will become a general partner of such partnership must also approve the conversion. Decreasing this approval threshold will make it easier for Delaware corporations, if they so choose, to convert to a different form. Prior to this amendment, the unanimity requirement included non-voting stock and the new majority vote requirement will only include shares entitled to vote. Because stockholder approval of a conversion no longer must be unanimous, non-consenting stockholders will now have appraisal rights in connection with a conversion. These amendments also take effect only with respect to conversions approved by the board of directors on or after August 1, 2022. Notably, if a corporation is incorporated before August 1, 2022, any charter provisions or any provisions in a separate written agreement between such corporation and one or more of its stockholders restricting or conditioning mergers will be deemed to apply equally to conversions, unless the charter or other agreement expressly provides otherwise. That said, we would expect that corporations and investors may implement changes in stockholder agreements and protective provisions to address these changes in the conversion context.
• The DGCL amendments also make various adjustments to ease the process for non-United States entities to domesticate to Delaware.