IN THE COURT OF CHANCERY FOR THE STATE OF DELAWARE
| INREBTRSHOLDINGS INC. | ) ) ) |
C.A.No.2023- |
VERIFIED PETITION FOR RELIEF UNDER 8 DEL. C. § 205
Petitioner BTRS Holdings Inc. (“BTRS” 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
- This is another Petition for relief under Section 205 relating to a de-SPAC transaction. The Company seeks to validate amendments to its Certificate of Incorporation effected by a Certificate of Amendment and by a Second Amended and Restated Certificate of Incorporation that were both filed in Delaware on January 12, 2021 (the “Amendments”) and to validate the securities issued in reliance thereon. Ex. A.
- As a comparison to similar petitions the Court has addressed:
- The Company Is Not Publicly Traded. Following the de-SPAC merger that was consummated in January 2021, the Company was purchased in December 2022 and is now a privately held subsidiary of EQT X fund (“EQT”). The purchase was effected by a merger of an EQT subsidiary with the Company, and the merger converted all of the de- SPAC common stock of the Company into the right to receive cash.
- No Class Vote Was Solicited. The Company did not solicit a separate class vote of its Class A Common Stock to adopt the Amendments, even though the Amendments increased the number of shares of Class A
Common Stock authorized for issuance and reclassified the shares of Class A Common Stock outstanding into shares of a new Class 1 Common Stock. The Company’s records, however, indicate that it did obtain the Class A vote for the first of the two Amendment proposals.
- No Overissued Shares To Date. The Company has not issued shares in excess of the share limit in its predecessor certificate of incorporation and had not done so at the time of the acquisition by EQT. This petition nevertheless seeks to validate the securities issued in reliance on the Amendments, to confirm that the stock (and securities convertible into stock) that have been issued since effecting the Amendments were validly issued and had the attributes provided for as a result of the Amendments. The Company is not seeking validation of the merger transaction with EQT, but the Court’s validation of the Amendments will help the Company confirm that the EQT merger was validly effected. The EQT merger required a vote of the de-SPAC common stock of the Company, and both the Company and EQT relied on the validity of the shares of the de-SPAC common stock in determining that the holders of those shares delivered the requisite stockholder vote necessary to effect the merger with EQT. Validation of the Amendments will therefore confirm that EQT owns what it paid for: 100% of the post-merger stock of the Company.
- Prompt Relief Is Necessary. The Company’s agreements with its lenders require it to provide the lenders with audited financials by no later than May 31, 2022. Absent validation of the Amendments, the Company’s auditor recently has indicated that it will not sign-off on the Company’s financials, which would arguably cause a breach of the Company’s agreements with its lenders.
BACKGROUND
- SPAC Formation. The Company was originally incorporated on February 28, 2019 as a SPAC known as South Mountain Merger Corp. It filed an amended and restated certificate of incorporation on June 24, 2019 (the “Old
Charter”). Ex. B. The Old Charter was in effect at the time the Company sought
stockholder approval for the de-SPAC Merger described below. See Ex. B.
- de-SPAC Merger. On October 18, 2020 the Company entered into a merger agreement with BT Merger Sub I, Inc., BT Merger Sub II, LLC and Factor Systems, Inc. (which did business under the name “Billtrust”). The merger
with Billtrust (the “de-SPAC Merger,” or the “Business Combination”) was
consummated on January 12, 2021. Upon consummation of the de-SPAC Merger, the combined company changed its name to BTRS Holdings, Inc. and became a NASDAQ listed company.
- On September 28, 2022, BTRS announced that it had entered into an agreement to be acquired by EQT (the “EQT Merger”). On December 16, 2022,
a Certificate of Merger was executed and BTRS became a wholly-owned subsidiary of EQT.
- The Relevant Charters. The Old Charter authorized 221,000,000 shares of Capital Stock. That capital stock was comprised of 220,000,000 shares of common stock (the “Common Stock”), including (i) 200,000,000 shares of Class A
common stock (the “Class A Common Stock”), and (ii) 20,000,000 shares of Class
B common stock (the “Class B Common Stock”), and (b) 1,000,000 shares of
preferred stock (the “Preferred Stock”). In connection with the de-SPAC Merger,
the Company sought approval for two proposals to amend the Old Charter.
- Thefirstproposedcharteramendment(the“Pre-Mergers
Charters Proposal”), sought to amend the Old Charter to increase the outstanding
shares to 541,000,000 shares, consisting of (i) 540,000,000 shares of common stock, including 493,000,000 shares of Class A Common Stock, 20,000,000 shares of Class B Common Stock and 27,000,000 shares of Class C common stock, par value
$0.0001 per share (“Class C Common Stock”), and (ii) 1,000,000 shares of Preferred
Stock). This amendment was referred to as the “Existing Charter Amendment.” See
Ex. C (Form 8-K, January 12, 2021, at 2). Shares of Class A Common Stock and the new Class C Common Stock were issued to the stockholders of Billtrust. The Existing Charter Amendment is the first amendment to the Old Charter later filed on January 12, 2021, which is the first action that the Company is asking the Court to validate.
- The second proposal (the “Post-Mergers Charter Proposal”) sought to amend the Old Charter (as amended by the Existing Charter Amendment) to increase the number of authorized shares to 575,000,000, consisting of 538,000,000 shares of Class 1 common stock (“Class 1 Common Stock”), par value
$0.0001 per share, 27,000,000 shares of Class 2 common stock (“Class 2 Common Stock”), par value $0.0001 per share, and 10,000,000 shares of undesignated preferred stock. See id. The Post-Mergers Charter Proposal also reclassified the existing Class A and Class C shares into shares of Class 1 and Class 2 Common
Stock, respectively. The Post-Mergers Charter Proposal was effected by the Second Amended and Restated Certificate of Incorporation filed on January 12, 2021, which is the second action that the Company is asking the Court to validate.
- Voting Standard Disclosed to Stockholders. The Notice of Solicitation of Written Consent for the October 2020 Stockholder Meeting used to solicit Company stockholder approval of the Business Combination and the Amendments described above stated that the Amendments required approval by “affirmative vote of the holders of a majority of the outstanding shares of South Mountain Common Stock voting together as a single class,”1 which the Company believed to be the correct standard.
- Stockholder Adoption and Votes Obtained. At a special meeting held on January 12, 2021, with a record date of December 17, 2020, the Charter amendment proposals and Business Combination Proposals were approved by holders of the Class A and Class B shares voting together.2 However, the
1 Ex. D at 10. Exhibit D is an excerpt of the proxy materials distributed to Company stockholders in connection with the Business Combination and de- SPAC. The entire document is available at: https://www.sec.gov/Archives/edgar/data/1774155/000114036120029188/nt10016102x16_424b3.htm#tQVR.
2 See Ex. C. The Pre-Mergers Charter Proposal passed receiving 26,288,723 votes in favor, 507,070 against, and 77 abstentions. The Post-Mergers Proposal passed receiving 24,020,228 votes in favor, 2,775,464 votes against,
Company’s records indicate that a majority of the holders of the Company’s Class A shares approved the Pre-Mergers Charter Proposal, even though a separate Class A vote was not solicited.
- Issues Related to the Boxed Decision. The shares of Class A Common Stock and Class B Common Stock were authorized in Section 4.1 of the Old Charter, using substantially the same words as the charter at issue in the Court of Chancery’s decision in Garfield v. Boxed.3 It is therefore unclear whether the Class A Common Stock should have been considered a separate class for purposes of the DGCL. If so considered, there was no “opt out” in the Old Charter to the class voting requirement for share increases set forth in Section 242(b)(2) of the DGCL. Accordingly, a class vote of the Class A Common Stock might have been required under Boxed but was not sought.
- Applying the Boxed Decision. As with the other companies that have recently filed Section 205 petitions, a separate class vote of the Class A Common Stock may have been required under Boxed to increase the number of authorized shares of Class A Common Stock with respect to the Pre-Mergers Charter Proposal. In addition, a class vote may have been required by Section 242(b)(2) in
and no abstentions. The Business Combination Proposal passed unanimously with 26,795,870 votes in favor.
3 2022 WL 17959766 (Del. Ch. Dec. 27, 2022).
connection with the Post-Mergers Charter Proposal because they reclassified the Class A Common Stock into Class 1 Common Stock. A reclassification might be viewed as adversely affecting the rights, powers or preferences of the Class A Common Stock for purposes of Section 242(b)(2).4
- Share Issuances. If the Amendments did not validly increase the number of shares of Class A Common Stock authorized for issuance, then (absent validation by this Court) the Company is limited to validly issuing only 200,000,000 shares of Class A Common Stock (the maximum number fixed in the Old Charter). To date, the Company has neither issued, nor reserved for issuance, shares in excess of the Old Charter’s authorized number. However, because the effectiveness of the Amendments was cross-conditioned on the effectiveness of the other Amendments, it is unclear whether the share increase (if ineffective) is severable from the other Amendments. If it is not severable, then the share increase might call into question the Existing Charter Amendment, which the Company relied on to issue shares of a new Class C Common Stock to certain of the Billtrust stockholders. And, in turn, the share increase might call into question the reclassification of Class A Common
4 For example, no provision in the terms of the Class A Common Stock denied the shares of that class a separate vote on future increases to its authorized share number, whereas the Class 1 Common Stock that the Class A was reclassified into included a provision denying a class vote on future share increases.
Stock and Class C Common Stock, respectively, into Class 1 and Class 2 Common Stock. If the shares resulting from these reclassifications were invalid, then the vote the Company obtained to effect the EQT merger may also be called into question.
CONSIDERATIONS WARRANTING RELIEF UNDER SECTION 205
- Recourse Available to the Company. The Company considered ratification of the Amendments pursuant to Section 204 of the DGCL, especially given that the Company is now privately held, but concluded that Section 204 ratification is not workable. Section 204 requires that the Amendments be ratified by the holders of valid stock of the Company. As explained above, if the Amendments were not valid, then the EQT Merger may not be valid. And, if the EQT Merger is not valid, then all of the shares held by the public stockholders pre- merger may still be outstanding, even though they received the cash consideration provided for in the EQT Merger.
- The Company filed the Amendments with the belief that they had been approved in accordance with the DGCL.
- Based upon information provided by the Company’s counsel, and as noted in this Court’s opinion regarding the Lordstown petition, many SPACs read their charters as creating separate series of common stock, rather than separate classes of common stock.
- In the transaction documents for the Business Combination, the Company (as the pre-Business Combination SPAC) made representations and warranties to Billtrust that the merger consideration to be issued to the stockholders of Billtrust (i.e., the stock with the rights set forth in the Amendments) would be duly and validly issued, fully
paid and nonassessable, which would require the combined vote of the Class A Common Stock and Class B Common Stock to approve the Amendments. The SPAC counsel issued an opinion with the S-4 registration statement concerning the de-SPAC that the shares issued to stockholders will be validly issued, fully paid and non-assessable.
- With the exception of one board member, the SPAC board and management team was replaced in connection with the Business Combination. The current board and management team was not ultimately responsible for ensuring the required stockholder votes had been obtained.
- The Company and third parties have treated the Amendments as valid. EQT, as well as the stockholders of the Company when it was publicly traded, relied on the validity of the Amendments because they set forth the terms of the securities that the Billtrust stockholders received as a result of the Business Combination.
- Harm resulting from no Validation. The Company will be harmed if it cannot finalize its audited financial statements in accordance with its agreements with its lenders.
- Harm resulting from Validation. The Company is not aware of any harm that will result from the validation of the Amendments. As explained above, the Company is currently a privately-held company. All the prior public stockholders received cash for their shares and none challenged the acquisition by EQT. And, unlike some other SPACs, before the closing of the Business Combination the Company never received a single demand letter complaining about
the proper stockholder vote necessary to approve any components of the Business Combination.
- For all of these reasons, the Company respectfully requests the relief it seeks herein pursuant to Section 205.
COUNT ONE
(Validation of the Amendment Under 8 Del. C. § 205)
- The Company repeats and reiterates the allegations above as if set forth fully herein.
- Because of the potential defects described above, there is uncertainty as to the validity of the Amendments, which are potentially defective corporate acts.
- This Court has the authority under Section 205(a)(4) to determine the validity of any corporate act, which includes the filing and effectiveness of the Amendments.
- The Company lacks the ability to ratify the Amendments under Section 204 in a timely fashion.
- The Company effected the Amendments with a good faith belief that they were validly approved by the stockholders of the Company.
- The Company has treated the Amendments as valid.
- On information and belief, following the public disclosure of the voting results of the special meeting called to approve the Business Combination
and the filing of the Amendments, market participants and other third parties, including EQT, relied on the validity of the Amendments, and no persons would be harmed by the validation thereof.
- The Company and its stockholders will be irreparably harmed absent relief from this Court.
- The Company has no adequate remedy at law.
COUNT TWO
(Validation of Issuances of Securities Under 8 Del. C. § 205)
- The Company repeats and reiterates the allegations above as if set forth fully herein.
- Because of the potential defects described above, there is uncertainty as to the validity of the Amendments, which are potentially defective corporate acts, and there may be questions as to the shares of capital stock, and securities convertible into or exercisable for capital stock thereunder, which were intended to have the attributes provided in the Amendments.
- This Court has the authority under Section 205(a)(4) to determine the validity of any “stock, rights or options to acquire stock.”
- The Company lacks the ability to ratify these issuances in a timely fashion.
- As stated above, the Company has treated the Amendments as valid, and has issued securities in reliance thereon.
- On information and belief, purchasers and recipients of the securities relied on the validity of such securities, and no persons would be harmed by the validation of the issuances thereof.
- The Company and its stockholders will be irreparably harmed absent relief from this Court.
- The Company has no adequate remedy at law.
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:
- Validating and declaring effective the Amendments, retroactive to the date of filing of the Amendments with the Office of the Secretary of State of the State of Delaware on January 12, 2021, and all amendments effected thereby;
- Validating and declaring effective the securities (and the issuance of the securities) described herein and any other securities issued in reliance on the validity of the Amendments; and
- Granting such other and further relief as this Court deems proper.
MORRIS, NICHOLS, ARSHT & TUNNELL LLP
/s/ Kevin M. Coen
Kevin M. Coen (#4775)
Alec Hoeschel (#7066)
1201 N. Market Street
Wilmington, DE 19801
(302) 658-9200
Attorneys for Petitioner BTRS Holdings, Inc.
May 10, 2023