Stockholder-plaintiffs have filed a number of complaints in the Delaware Court of Chancery challenging at least five mergers involving Delaware special purpose acquisition companies (SPACs) in the last four months alleging that the SPAC’s failure to solicit a “class vote” of the SPAC’s Class A Common stockholders in connection with certain amendments to the SPAC’s certificate of incorporation violates the requirements of Section 242(b)(2) of the Delaware General Corporation Law (the DGCL). This article explains the technical issue that is the focus of this recent litigation and the various ways deal counsel can address or avoid it.
Understanding this new spate of litigation requires a high-level understanding of Section 242, which sets forth the steps required to amend a corporation’s charter—including the necessary filing, board approvals, and stockholder vote(s) (if any). Section 242(b)(1) requires most charter amendments to be approved by both holders of a majority in voting power of outstanding stock entitled to vote on the amendment and any additional vote required by Section 242(b)(2). Section 242(b)(2), in turn, provides, among other things, that a charter amendment to increase or decrease the number of authorized shares of a class of stock requires a separate vote of the affected class unless the charter contains a so-called “242(b)(2) opt-out” provision stating no such class vote is necessary. Importantly, Section 242(b)(2) does not require separate votes of each series of stock to increase or decrease the number of authorized shares of either a class or a series.