Many SPACs, in connection with a de-SPAC merger, have approved charter amendments authorizing an increase in the number of their authorized shares of Class A Common Stock to facilitate the issuance of shares required for the merger, notes Harvard Law. Based on widely accepted legal advice at the time, such amendments typically were approved by vote of the Class A and Class B Common Stock voting together.
However, in a December 2022 decision, Garfield v. Boxer, which came as a surprise to corporations and legal practitioners, the Delaware Court of Chancery indicated that such amendments require, in addition, a separate vote of the Class A common shares.
Many SPACs (and potentially other Delaware corporations) may not have validly adopted charter amendments increasing their authorized Class A common shares, nor have validly issued Class A common shares, if such amendment was approved by a combined vote of all common shares and not a separate vote by the Class A shares. Approval only by a combined vote has been the norm, based on widely accepted legal advice, prior to Garfield, that a separate vote of the Class A shares was not required.
In Lordstown, the court has indicated that, to resolve the uncertainty for companies that took such potentially defective corporate acts, the court is likely to grant requests under DGCL Section 205 for judicial validation of these acts, absent unusual circumstances.
In response to the uncertainty created by Garfield as to the validity of such charter amendments that were approved only by a joint vote, as well as the validity of the billions of shares that have been issued based on such amendments, the court now has indicated, in In re Lordstown Motors Inc. (Feb. 22, 2023) that, absent unusual circumstances, it will grant requests for judicial validation of such amendments and share issuances.
In bench rulings last month, the court granted petitions on this issue that had been submitted by Lordstown and five other companies; hearings on the additional 30 petitions the court has received are being scheduled for the coming weeks; and the court expects to receive more petitions. Read more.
