On February 14, we reported that a number of Delaware corporations, mostly those resulting from deSPAC transactions, have petitioned the Court of Chancery to validate their increases in authorized shares and other corporate actions due to their failure to seek, and in many cases to obtain, the class vote that the Court of Chancery held in Garfield v. Boxed, Inc.[1] was required by DGCL section 242(b)(2).
Read MoreA number of Delaware corporations with two or more classes of common stock, especially SPACs (special purpose acquisition companies) that have completed deSPAC transactions, are discovering that they may not have properly approved charter amendments that increased their authorized shares of common stock. In Garfield v. Boxed, Inc. (Del. Ch. Dec. 22, 2022), the Delaware Court of Chancery ruled that under section 242(b)(2) of the Delaware General Corporation Law (DGCL) a SPAC with Class A and Class B Common Stock needed to have a separate Class A vote on a charter amendment that increased its authorized shares of Class A Common Stock. A Class A stockholder raised the issue before the stockholder vote and in response the company added a separate Class A vote. The court decided that the stockholder added a substantial benefit by raising the issue, so its attorney was entitled to a fee award.
Read MoreThe Delaware General Corporation Law (§ 102(b)(7)) has been amended, effective August 1, 2022, to permit exculpation of corporate officers, but in a more limited way than the exculpation of directors that has long been permitted.
Read MoreControlling stockholders sometimes seek to limit the ability of new investors in their company to interfere with future exit transactions. They may do this by requiring the new investors to agree to vote in favor of a transaction proposed by the controlling stockholder (a “drag-along agreement”) or to expressly waive any appraisal rights because those rights can create uncertainty for an exit transaction.
Read MoreDerivative actions play an important role in policing corporate insider conduct and compliance by directors and controlling stockholders with their fiduciary duties. A derivative action enables a stockholder, upon satisfaction of applicable requirements, to bring litigation on behalf of the corporation challenging, for example, conflict of interest transactions, the adequacy of consideration in a merger or the board’s attention to the corporation’s legal compliance.
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