Just for speculation on the OS increase proposal:
2. Capital Structure Issues
The first issue one might encounter is that the Public Shell might not have enough authorized shares of common stock to enable it to issue 80%-85% of common shares to the shareholders of the Private Company. For instance, the Public Shell might already have 50% of its authorized common shares issued to its current shareholders. There are several possible solutions to this problem:
a) Increase of Number of Authorized Common Shares or Reverse Stock Split Pre-Closing
The easiest ways to enable Public Shells to issue enough common shares to the shareholders of the Private Company to accomplish the reverse shell merger are: (i) the increase in the number of its authorized common shares; or (ii) a reverse stock split before the merger is consummated. Pursuant to Section 242 of the Delaware General Corporation Law (“DGCL”),[3] each of these alternatives requires an amendment to the certificate of incorporation (CoI) of the Public Shell. Pursuant to the same provision, shareholder approval is necessary to amend the CoI. Whether such shareholder approval can be obtained by written consent of the majority shareholder(s) depends on the applicable corporate statute and the Public Shell’s by-laws. For instance, under DGCL 228, majority shareholder consent is possible unless the by-laws state otherwise; under Section 615 of the New York Business Corporation Law, generally unanimous shareholder consent is required, unless the CoI provides otherwise. Depending on the outcome of the analysis of the applicable corporate law, the CoI, and the by-laws, a shareholders’ meeting might be required prior to closing. However, both a shareholders’ meeting and a majority shareholder written consent will trigger time consuming procedures mandated by federal securities laws as set forth in Section III.1., which will delay a closing substantially.
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