Current Month (September 2025)
Delaware Court of Chancery Dismisses Case Challenging SPAC Lock-Up Provisions
By Lisa R. Stark, Hirschler Fleischer
Trading lock-ups are commonly imposed upon the shares of the new public company following a de-SPAC merger to restrict stock sales that might otherwise cause volatility and downward pressure on the stock price. In a recent decision, the Delaware Court of Chancery dismissed a complaint challenging (i) the validity of standard lock-up restrictions imposed upon the legacy holders of stock in Trump Media and Technology Group Corp. (“TMTG”), which runs the social media site Truth Social, following its merger with the SPAC Digital World Acquisition Corp (“DWAC”), and (ii) the TMTG board’s decision to impose the lock-up as a fiduciary duty matter. The Court’s decision interprets Delaware’s transfer restriction statute—Section 202 of the General Corporation Law of the State of Delaware (“DGCL”)—and also determines that stock issued as merger consideration is not “issued” under the DGCL, until a transfer agent actually delivers the new shares of stock to the legacy stockholder of the target corporation.
This case arose from a soured business relationship between United Atlantic Ventures (“UAV”) and TMTG. In February 2021, then-former President Donald J. Trump hired UAV to consult on TMTG’s launch in exchange for an 8.6 percent stake in the company. UAV’s primary task was to position TMTG to access public markets. To that end, UAV identified DWAC as a merger partner. Under an October 2021 merger agreement, legacy TMTG stockholders would receive shares in the newly public combined company as merger consideration. The board and stockholders of DWAC approved the amendment to DWAC’s certificate of incorporation (the “Amendment”) that would impose the lock-up provisions as transfer restrictions on the stock issued by new TMTG as merger consideration, and the parties filed the Amendment with the secretary of state in Delaware four minutes after the merger became effective. The Amendment restricted the transfer of new TMTG stock held by legacy TMTG holders for the earlier of (i) six months from closing and (ii) the date that the trading price of new TMTG stock equaled or exceeded $12 for twenty trading days.
Plaintiff, UAV, challenged the adoption of the lock-up provisions on statutory and fiduciary grounds. Specifically, UAV alleged that the lock-up restrictions were not enforceable against UAV because the Amendment did not become effective until four minutes after the merger became effective (at which time UAV alleged its shares were actually issued). Section 202(b) of the DGCL provides, in pertinent part, as follows:
A restriction on the transfer or registration of transfer of securities of a corporation, or on the amount of a corporation’s securities that may be owned by any person or group of persons, may be imposed by the certificate of incorporation or by the bylaws or by an agreement among any number of security holders or among such holders and the corporation. No restrictions so imposed shall be binding with respect to securities issued prior to the adoption of the restriction unless the holders of the securities are parties to an agreement or voted in favor of the restriction.
Under the literal terms of Section 202(b), “no [transfer] restriction . . . shall be binding with respect to securities issued prior to the adoption of the restriction” absent stockholder consent to the restriction. According to UAV, its TMTG stock was “issued” to it at the effective time of the merger, which was prior to the “adoption of the restriction” (which UAV argued was synonymous with the effectiveness of the Amendment) and therefore the transfer restrictions were not binding on UAV absent its consent.
The Court rejected UAV’s argument on two fronts. First, the Court held that the word “adopted” as used in the last sentence of Section 202(b) refers to the time of stockholder approval of an amendment to the certificate of incorporation that imposes the transfer restrictions, not the effective time of such amendment. Second, the Court held that UAV’s shares in new TMTG were not issued at the effective time of the merger, but rather much later—when new TMTG’s transfer agent delivered the shares to UAV. UAV also argued that the stock transfer restrictions were not reasonable under the common law on the basis that they served no legitimate purpose other than to restrict legacy TMTG stockholders from selling their shares. The Court disagreed, noting that “[t]ransfer restrictions on SPAC insiders and target securityholders are common in de-SPAC mergers. Such restrictions can prevent an oversupply of stock on the market after closing, stabilizing the company’s stock price during a period of volatility.” The Court also rejected UAV’s claim for alleged breach of fiduciary duty asserted against the directors of legacy TMTG because the complaint contained no allegations that such directors actually took any action in connection with the adoption of the transfer restrictions, which were approved by the board and stockholders of DWAC.
