Topic: SPACs

Defective Corporate Action by Delaware Corporations ‎ with Multiple Classes of Common Stock

A 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.

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Delaware Court Addresses De-SPAC Merger Claims

In an important decision, the Delaware Court of Chancery, in In re Multiplan Corp. Stockholders Litigation, 2022 WL 24060 (Del. Ch. Jan. 3, 2022), in denying the defendants’ motion to dismiss, addressed claims against the sponsor and other insiders of a special purpose acquisition company or “SPAC” for breach of fiduciary duties in connection with a de-SPAC merger. As we mentioned in our QuickStudy, “SPACs and the Implications for D&O Insurance, the Multiplan decision was highly anticipated and is significant because it was the first time the Delaware courts had to grapple with the unique structure of SPACs and determine how to apply fundamental principles of Delaware fiduciary duty law to them.

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