Digital World Acquisition Corp (NASDAQ: DWAC), a wholly-owned subsidiary of Digital World, has been embroiled in a legal battle following its merger agreement with Trump Media & Technology Group Corp.
The recent ruling in the ARC Global Investments II, LLC v. Digital World Acquisition Corp case sheds light on the ongoing legal proceedings and their potential implications.
Background of the Merger Agreement
Digital World Acquisition Corp (DWAC), a subsidiary of Digital World, entered into an Agreement and Plan of Merger with Trump Media & Technology Group Corp.
The merger agreement, dated October 20, 2021, outlines the Business Combination, wherein DWAC would merge with TMTG, with the latter surviving as a wholly-owned subsidiary of Digital World.
The agreement has seen several amendments, including the most recent ones on May 11, 2022, August 9, 2023, and September 29, 2023.
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Overview of the Lawsuit
ARC Global Investments II, LLC (ARC), Digital World’s sponsor, filed a lawsuit on February 28, 2024, against Digital World Acquisition Corp.
The lawsuit, titled ARC Global Investments II, LLC v. Digital World Acquisition Corp., centers on alleged violations of the Digital World Charter.
ARC, controlled by Mr. Patrick Orlando, Digital World’s former chairman and CEO, claims that Digital World failed to commit to issuing the correct number of conversion shares upon the completion of the Business Combination. ARC asserts its entitlement to a conversion ratio of 1.78:1.
Motion for Expedited Case Schedule
In addition to filing the lawsuit, ARC submitted a motion to expedite the case schedule to ensure an injunction hearing before the shareholder vote scheduled for March 22, 2024. Digital World opposed this motion on March 3, 2024, and ARC filed a reply on March 4, 2024.
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The Chancery Court’s Ruling
On March 5, 2024, the Chancery Court conducted a hearing to decide on ARC’s motion to expedite the case schedule. Following oral arguments, the Vice Chancellor ruled against ARC’s motion, stating that there would be no merits or injunction hearing before March 22, 2024.
The court denied ARC’s request to delay the shareholder vote on the Business Combination.
The ruling was based on Digital World’s proposal to place disputed shares into an escrow account upon the merger’s closing, thereby preventing irreparable harm related to ARC’s share conversion.
Additionally, the court found Digital World’s public disclosures regarding ARC’s claims and potential conversion scenarios sufficient to address concerns about inadequate disclosure.
Implications and Future Proceedings
In its ruling, the Chancery Court mandated that ARC and Digital World must propose a schedule by March 8, 2024, to resolve the action within 150 days following the Business Combination.
The court also requested a stipulation regarding ARC’s standing post-vote and the establishment of an escrow account for disputed shares. Furthermore, the court sought clarification on how the litigation would proceed alongside the Florida litigation filed by Digital World.
CEO’s Response
Eric Swider, CEO of Digital World, expressed gratitude for the court’s decision, emphasizing the importance of protecting shareholders’ interests.
He acknowledged the challenges ahead but highlighted the ruling’s significance in moving forward with the shareholder vote scheduled for March 22, 2024.
The ruling in the ARC Global Investments II, LLC v. Digital World Acquisition Corp case underscores the complexities surrounding the Business Combination and the legal hurdles Digital World faces.
Despite the court’s decision, uncertainties remain regarding the outcome of the litigation and its impact on Digital World’s future.
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