Class Voting in Delaware – The Saga Continues
Just a few weeks ago, I wrote about the Garfield v. Boxed, Inc. case in Delaware questioning whether Class A and Class B common stock in a SPAC structure were different series of a same class or different classes of stock requiring separate class voting in certain circumstances (see HERE). The Delaware Chancery court in Garfield v. Boxed, found that in that particular case, the Class A and Class B were separate classes requiring a separate class vote to increase the total outstanding common stock as required by the Delaware General Corporate Law (DGCL) Section 242(b)(2).
Following the Garfield decision, there has been a run on the Chancery Court by post-business-combination SPACs seeking to ratify shareholder approvals obtained during the de-SPAC process, in reliance on DGCL Section 205. Although the wording has varied, in essence each of the companies have asked the Chancery court to (i) validate and declare effective the company’s current certificate of incorporation
Class Voting In Delaware And The Impact On SPACs
In December 2022, the Delaware Chancery Court entered a ruling sending the SPAC world spiraling, for what seems like the 10th time in the last couple of years. As is always the case in a SPAC (or at least 99% of the time), common stock is broken into two series, Class A and Class B. The Class A common stock is issued to the public shareholders in the underwritten initial public offering and the Class B common stock is issued to the sponsor. Upon closing a business combination transaction, the sponsor Class B common stock automatically converts into Class A common stock, leaving one Class of common stock. Also, in the majority of SPAC transactions, the shareholder approval for the business combination transaction involves other changes to the charter documents for the SPAC, including a name change, and changes in authorized capital stock, etc. The term “charter” in this blog refers to the certificate of incorporation and any amendments
