STARBULK MARINE SPAC TRANSACTION UPDATE
STARBULK MARINE SPAC TRANSACTION PRO

The drag along is usually tied to a DLE or a COC stock sale. In this way, the company can require those stockholders subject to the drag along to waive their statutory appraisal rights in the de-SPAC. In a de-SPAC transaction, a company may seek to use the drag-along provisions included in most preferred stock financing voting agreements.

STARBULK MARINE SPAC TRANSACTION UPDATE

To ensure this option is available, companies should review and potentially update the mandatory conversion provisions in the charter to include a de-SPAC transaction as a triggering event. Since a de-SPAC transaction is akin to an IPO, liquidation preference can be avoided by converting all preferred stock to common stock, pursuant to the mandatory conversion provision in the charter.

However, if a startup has a more complicated liquidation structure involving participating preferred or a liquidation preference in excess of deal value, the company should consider whether the holders of preferred stock should be entitled to their liquidation preference or be treated on a pari passu basis to common stock.

STARBULK MARINE SPAC TRANSACTION PRO

Although a de-SPAC transaction is typically accomplished through a statutory merger, it would not trigger the standard DLE definition since the company’s stockholders would continue to hold a majority of the company’s capital stock after the merger.Īs a result, if a late-stage startup has an opportunity to amend its charter in connection with a financing or other event, it should consider updating the DLE definition to cover “a business combination involving the Company and a publicly listed special purpose acquisition company, whether by merger, consolidation, stock purchase, asset sale or otherwise.” Simply updating the DLE definition should suffice if the pro rata allocation of the consideration in the de-SPAC transaction exceeds the liquidation preference of the preferred stock. The standard DLE definition included in the charter captures a merger that results in a change of control (COC), or a sale of all or substantially all assets. Accordingly, late-stage startups should consider amending their preferred financing documents, warrants, convertible notes and EIP as they near a potential a de-SPAC transaction to ensure all stakeholders have a common understanding of the consequences of the de-SPAC transaction.Ī startup’s certificate of incorporation, or charter, adopted after a preferred stock financing includes a definition of Deemed Liquidation Event (DLE). A company’s warrants, convertible notes and equity incentive plan (EIP) also may not contemplate a de-SPAC transaction.

While standard venture financing forms include provisions for an exit through a merger or IPO, these documents typically do not contemplate a de-SPAC transaction. Instead, the private company’s stockholders will receive shares in the public company on a pro rata basis, barring any specific considerations of stockholders with economic rights that would result in holders of preferred stock receiving a different allocation of consideration than common stock (such as the liquidation preference exceeding a pro rata share of consideration, participating preferred or special waterfall return requirements). As with most initial public offerings (IPOs), the company’s majority stockholders do not change after a de-SPAC transaction. A de-SPAC transaction enables a company to go public by merging with a SPAC.

Starbulk marine spac transaction