On March 16, 2023, Nikola Corporation (“Nikola”) and Romeo Power, Inc. (“Romeo”, formerly known as RMG Acquisition Corp.) filed a petition in the Delaware Court of Chancery (the “Court of Chancery”) pursuant to Section 205 (the “Section 205 Petition”) of the Delaware General Corporation Law (“DGCL”), seeking validation of (i) the Romeo Second Amended and Restated Certificate of Incorporation (the “Second Amended Charter”), (ii) securities that Romeo issued in reliance on the Second Amended Charter, and (iii) a certificate of merger (the “Certificate of Merger”) filed with the Delaware Secretary of State on October 14, 2022 effecting a merger that resulted in Romeo becoming a wholly-owned subsidiary of Nikola and an amendment and restatement of the Second Amended Charter. Nikola’s filing is in response to uncertainty created by a recent Court of Chancery holding in Garfield v. Boxed, Inc., 2022 WL 17959766 (Del. Ch. Dec. 27, 2022) that potentially affects Nikola as a result of its acquisition of Romeo, the latter of which was initially a special purpose acquisition company (“SPAC”) and then merged with a company known as Romeo Systems, Inc. (“Legacy Romeo”) in a de-SPAC transaction.
Out of an abundance of caution, Nikola and Romeo have elected to pursue the remedial actions described below. Concurrently with the filing of the petition, Nikola and Romeo filed a motion to expedite the hearing of the Section 205 Petition, which was subsequently granted on March 17, 2023.
Background
At a special meeting of stockholders of RMG Acquisition Corp. (“RMG”), held on December 28, 2020 (the “de-SPAC Special Meeting”), a majority of the then-outstanding shares of RMG class A common stock and class B common stock, voting together as a single class, voted to approve the Second Amended Charter, which, among other things, increased the authorized shares of combined common stock to 250,000,000, which had previously been authorized as 100,000,000 shares of class A common stock and 10,000,000 shares of class B common stock (the “Authorized Share Charter Amendment”).
Following completion of Legacy Romeo’s merger with RMG, Romeo (formerly known as RMG) issued additional shares of common stock in reliance on the validity of the Authorized Share Charter Amendment that exceeded the 100,000,000 shares of class A common stock authorized under the Amended and Restated Certificate of Incorporation (the “First Amended and Restated Charter”).
On July 30, 2022, Nikola, Romeo and J Purchaser Corp., a Delaware corporation and a wholly owned subsidiary of Nikola, entered into an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”) whereby Romeo became a wholly-owned subsidiary of Nikola on October 14, 2022. The Merger Agreement contemplated a two-step acquisition. In the first step, Nikola commenced an exchange offer for any and all outstanding shares of Romeo in exchange for shares of common stock of Nikola at an exchange ratio of 0.1186 (the “Exchange Ratio”). In the second step, Romeo and Nikola effected a merger of J Purchaser Corp. with and into Romeo, resulting in the holders of Romeo’s common stock receiving shares of Nikola’s common stock at the Exchange Ratio. On October 14, 2022, 50.1% of the issued and outstanding shares of Romeo were tendered and consequently, pursuant to the DGCL, the merger was approved and the Certificate of Merger was filed with the State of Delaware.
The aforementioned Boxed decision has created uncertainty as to whether Section 242(b)(2) of the DGCL would have required the Authorized Share Charter Amendment to be approved by a separate vote of the majority of the then-outstanding shares of RMG’s Class A common stock, voting as a separate class. As a result, there is uncertainty as to the validity of Romeo’s additional share issuances that were in excess of the number of shares of class A common stock authorized under the First Amended and Restated Charter and whether the transactions effectuating the merger with Nikola were validly approved.
To remove uncertainty created in light of the Boxed decision, Nikola and Romeo filed a petition in the Court of Chancery pursuant to Section 205 of the DGCL seeking validation of the Second Amended Charter, the shares issued in reliance on the validity of the Second Amended Charter, and the Certificate of Merger, including the merger effected thereby and the Third Amended and Restated Certificate of Incorporation attached to the Certificate of Merger. Section 205 of the DGCL permits the Court of Chancery, in its discretion, to validate potentially defective corporate acts and stock after considering a variety of factors.
