IN THE COURT OF CHANCERY FOR THE STATE OF DELAWARE
IN RE BERKSHIRE GREY, INC.
C.A. No. 2023-0171-LWW
VERIFIED PETITION FOR RELIEF UNDER 8 DEL. C. § 205
Petitioner Berkshire Grey, Inc. (“Berkshire” or the “Company”) brings this petition (the “Petition”) for relief under Section 205 of the Delaware General Corporation Law (the “DGCL”):
NATURE OF THE ACTION
a. No Class Vote Was Obtained. The Company did not obtain a separate class vote of its Class A Common Stock to adopt the Charter, even though the Charter increased the number of shares of Class A Common Stock authorized for issuance.
b. Overissued Shares. The Company has issued shares well in excess of the share limit in its predecessor certificate of incorporation (the “Old Charter”), and has reserved for issuance yet more shares. Of the 236,090,452 shares of Class A Common Stock purportedly issued as of
February 9, 2023, no more than 75 million shares are clearly valid (being the maximum share number authorized by the Old Charter).
c. Section 204 is not available because of share tracing issues. The Class A Common Stock trades publicly and the clearly valid shares cannot be traced and segregated from the questionably valid shares.
d. Timing Exigencies. The Company is obligated to file its form 10K annual report in March 2023, and its outside auditor has raised concerns regarding the validity of its capital structure and may be unwilling to certify its financial results absent a validation of the Charter before then. The Company also disclosed on February 10, 2023 that it had received a non-binding indication of interest from SoftBank Group Corp. to acquire all of the Company’s outstanding capital stock, and is currently evaluating various alternative options.
a. Increase the number of shares of Class A Common Stock that the Company was authorized to issue to 385 million (from 75 million).
b. Effect a provision to provide that future increases to the number of authorized shares of “the class of Common Stock” (defined as the Class A Common Stock and Class C Common Stock) would not require a separate vote pursuant to Section 242(b)(2) of the DGCL.
b. Eliminate the Company’s SPAC provisions and its Class B Common Stock, change the Company’s name and make certain other changes disclosed to stockholders.
a. Many SPACs interpreted their charters as designating two or more series of common stock that were part of a single class, and therefore no separate class votes were required by Section 242(b)(2) of the DGCL.
b. At least one SPAC, in response to a stockholder demand, supplemented its proxy materials to obtain the separate vote of its Class A shares to effect an authorized share increase in connection with its business combination. The SPAC later resisted the fees requested by the stockholder’s attorney who made the demand that a separate vote of the Class A was required. The Court of Chancery decided the issue of the appropriate amount of fees in Garfield v. Boxed, Inc.
c. In connection with awarding fees, the Court of Chancery assessed the merits of the plaintiff’s claims and read the charter as establishing two classes of stock, which would mean that a class vote of the Class A was required by Section 242(b)(2) of the DGCL.
d. Many SPAC charters contain provisions substantially similar (or identical) to the charter at issue in Boxed. And many de-SPAC transactions were implemented, with share increase amendments, without seeking separate class votes pursuant to Section 242(b)(2) of the DGCL.
The Company retained Delaware counsel on February 7, 2022 to prepare and file this petition.
a. Upon that closing, the Company listed as issued and outstanding on its records 222,597,413 shares of Class A Common Stock. To consummate the Business Combination, the Company issued a total of 147,597,413 shares of Class A Common Stock at closing and reserved for issuance at closing a total of 197,556,175 shares of Class A Common Stock that are committed to be issued for the conversion of Class C Common Stock into Class A Common Stock and the exercise of options, restricted stock units, and warrants to purchase Class A Common Stock.
b. The shares of Class A Common Stock reflected as issued and outstanding following the Closing exceeded the 75 million share limit by 147,597,413 shares at closing, rendering that number of shares potentially invalid. As of closing, all of these shares became publicly traded on NASDAQ. Accordingly, the Company cannot with certainty segregate valid shares and share commitments from invalid shares and share commitments.
CONSIDERATIONS WARRANTING RELIEF UNDER SECTION 205
It is possible that 161,090,452 shares of Class A Common Stock are potentially invalid. Only 3,735,333 shares of Class A Common Stock
are held by a SPAC stockholder who discloses share ownership pursuant to Schedule 13D under the Securities Exchange Act of 1934. The balance of the valid shares cannot be traced because the Class A Common Stock is publicly traded. With only 75 million shares clearly valid, compared to the total of 236,090,452 shares listed on the Company’s records as issued and outstanding as of February 9, 2023, the Company cannot obtain the approval of a majority of the clearly valid shares of Class A Common Stock. Section 204 of the DGCL is therefore practicably unavailable.
a. Based upon information provided by the Company’s counsel, many SPACs read their charters as creating separate series of common stock, rather than separate classes of common stock. This view is based in part on the provisions of the Old Charter referencing two lettered paragraphs (a) and (b), which practitioners believed denoted two classes of stock: common stock and preferred stock. According to this view, references to “Class A,” “Class B” and “Class C” merely identified three series that were part of the same class. Furthermore, the provision in the (post-Business Combination) Charter opted out of the class vote under Section 242(b)(2) of the DGCL with respect to changes in the number of the “class of Common Stock” (i.e., the Class A Common Stock and Class C Common Stock), showing a consistent treatment of the groups of common stock as series of the same class.
b. In the transaction documents for the Business Combination, the Company (as the pre-Business Combination SPAC) made representations and warranties to Private Berkshire that the merger consideration to be issued to the stockholders of Private Berkshire (i.e., the stock with the rights set forth in the Charter) would be duly and validly issued, fully paid and nonassessable, which would require the combined vote of the Class A Common Stock, Class B Common Stock and Class C Common Stock to approve the Charter.
c. As noted above, the SPAC management team was replaced with the Private Berkshire management team in connection with the Business Combination. The current management team was not ultimately
responsible for ensuring the required stockholder votes had been obtained.
a. The stockholders of Private Berkshire received Class A Common Stock of questionable validity, and will not have received stock with the attributes they bargained for in the Business Combination (including the ability to issue up to 385 million shares of Class A Common Stock).
b. The third parties who purchased Class A Common Stock or options, warrants or other securities convertible or exercisable for Class A Common Stock will not receive the securities for which they bargained and paid consideration.
c. If securityholders seek to rescind or pursue damages for securities that are invalid as a result of the Charter, the Company’s stockholders will suffer a diminution in the value of the Company.
a. Under Securities and Exchange Commission (“SEC”) rules, the Company is required to file audited financial statements as part of its Form 10-K by March 31, 2023 (the “Form 10-K”). Prior to issuing the Form 10-K, the Company needs to resolve any uncertainty as to capitalization. If the Company delays the filing of its Form 10-K, it risks breaching its covenants in its existing financing arrangements.
b. In addition, the Company disclosed on February 10, 2023 that it had received a non-binding indication of interest from SoftBank Group Corp. to acquire all of the outstanding capital stock of the Company,
and that it was evaluating various alternative options. The Company’s ability to timely consider the indication of interest and its options will be uncertain without prompt relief from the Court.
(Validation of the Amendment Under 8 Del. C. § 205)
(Validation of Issuances of Securities Under 8 Del. C. § 205)
PRAYER FOR RELIEF
WHEREFORE, the Company respectfully requests that this Court enter a proposed Final Order Granting Relief Under 8 Del. C. § 205 in the form attached hereto:
MORRIS, NICHOLS, ARSHT
& TUNNELL LLP
/s/ S. Mark Hurd
S. Mark Hurd (#3297)
Sara Barry (#6703)
1201 N. Market Street
Wilmington, DE 19801
Attorneys for Petitioner Berkshire Grey, Inc.
February 13, 2023