Case Title: Grimes v Alteon, Inc.

Citation: 

Docket Number: 

State: delaware

Court: Delaware Supreme Court

Date: 2002-07-19T00:00:00Z

Document:
IN THE SUPREME COURT OF THE STATE OF DELAWARE

CHARLES L. GRIMES and 5
JANE GILLESPIE GRIMES, §
§ No. 194, 2001
Plaintiffs Below, §
Appellants, § Court Below: Court of Chancery
$ of the State of Delaware in and for
v. § New Castle County
5
ALTEON INC., § — C.A. No. 18442-NC
§
Defendant Below, §
Appellee. §

‘Submitted: April 23, 2002
Decided: July 19, 2002

Before VEASEY, Chief Justice, WALSH, HOLLAND, BERGER and STEELE,
Justices, constituting the Court en Banc.

Upon appeal from the Court of Chancery. AFFIRMED.

David A. Jenkins, Esquire (argued) and Michele C. Gott, Esquire, of Smith,
Katzenstein & Furlow LLP, Wilmington, Delaware, for the Appellant.

Vernon R. Proctor, Esquire, Kurt M. Heyman, Esquire, and Patricia L.
Enerio, Esquire of The Bayard Firm, Wilmington, Delaware; Of Counsel: Adam
D. Cole, Esquire (argued), Karen Y. Bitar, Esquire, and David Neier, Esquire of
Greenberg Traurig, LLP, New York, New York, for the Appellee.

VEASEY, Chief Justice:
The issue in this case

 

whether an alleged oral promise made toa
stockholder by the CEO of a corporation to sell 10% of the corporation's future
private stock offering to the stockholder, when coupled with a corresponding oral
promise by the stockholder to buy that 10%, is enforceable where there has been no
‘approval of the agreement by the board of directors and the agreement is not
memorialized in a written instrument. The Court of Chancery held that the oral
agreement between the stockholder and the CEO is unenforceable. We agree.

We so conclude on several grounds that are consistent with the holding of the
Court of Chancery that the bilateral oral agreement creates a “right” to require the
corporation to issue stock to the plaintiff within the meaning of Section 157 of the
Delaware General Corporation Law, and is invalid under that section for lack of
board approval and a writing. The relevant statutory scheme, including Section 157
and other provisions of the Corporation Law, establishes a policy that commitments
regarding the issuance of stock must be approved in writing by the board of
directors. This policy seeks to preserve the board’s broad authority over the
corporation and to protect the certainty of investors’ expectations regarding stock.

Thus, based on the statutory structure of the Corporation Law as a whole, we

affirm the judgment of the Court of Chancery.
Facts!

Alteon Inc., defendant below and appellee, is a pharmaceutical company
specializing in drugs for cardiovascular and renal diseases, Charles L. Grimes,
plaintiff below and appellant, is a lawyer and an investor who, along with his wife,
Jane Gillespie Grimes, often purchases large blocks of stock (but below 10% to
avoid insider obligations) in small technology-based companies. Grimes and his
wife had held approximately 9.9% of Alteon’s stock at the time of the events that
have given rise to this litigation. ‘Those events, as set forth in the complaint, may
be summarized as follows.

Kenneth I. Moch, the President and Chief Executive Officer of Alteon, told
Grimes that Alteon needed additional funds, and that Alteon was considering a
Private placement stock offering, Grimes told Moch that he was concerned about
his holdings being diluted, and that he would buy 10% of any such offering.
According to Grimes, Moch promised orally that he would offer Grimes 10% of the
offering. In return, Grimes promised orally to buy 10% of the offering. Grimes
admits that there is no writing memorializing these promises. He also admits that
Alteon’s board did not approve this transaction.

£ Teese proceedings are ona matin dismiss wader Court of Chancery Rule 1206), Ths, the only
‘ctl recor i this ues Grimes’ compli, he alegtins of which ae taken a tue fx plpose ofthe motion,

 

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‘Subsequently, Alteon publicly announced a private placement offering.* Itdid
not allow Grimes to participate in this private placement, which presumably was
fully taken by other purchasers. The stock market reacted positively to the
placement, and Alteon’s stock price increased ftom $3 to as high as $5-5/16 per
share.

Decision of the Court of Chancery

Grimes sued Alteon in the Delaware Court of Chancery for damages and
specific performance of the oral agreement between Grimes and Moch. Alteon
moved to dismiss the complaint under Court of Chancery Rule 12(6)(6) for failure
to state a claim on which relief may be granted. The motion made three arguments.
First, Alteon argued that any agreement between Grimes and Moch constituted a
"right" under 8 Del. C. § 157, and is thus invalid because it is not written and was
‘not approved by the board of directors. Second, Alteon argued that the agreement
was a "preemptive right” under 8 Del. C. § 102(b)(3) and is thus invalid because it
was not expressly provided in Alteon’s certificate of incorporation. Third, Alteon

argued that the agreement is too indefinite as to time, quantity, and price to

 

 

* eon publicly announced that it had entered im an agreement raise $6,235,000 through private
placement of 2,834,088 ares of common stock at $2.20 pet thar, ‘The purchavery als received wertts 1
‘uschase certain sional shares at $3.40 per sare.

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constirure an enforceable contract. The Court of Chancery accepted the first ground
‘and granted the motion to dismiss on that basis. The Court rejected the second
‘round, but stated that it is “highly questionable whether or not this would constitute
valid common law contract."? Because of our disposition of this case, we need not
reach the second and third issues.

The Vice Chancellor's rationale is expressed in a brief bench ruling holding
that the agreement constituted a “right” within the meaning of 8 Del. C. § 157, and
thus fails for lack of board approval and a written document evidencing it. ‘The
essence of the Vice Chancellor's bench ruling is as follows:

Ido agree with the defendants, however, that the right that is sought
to be enforced here is a “right” within the meaning of Section 157. I
am also satisfied that the intent of Section 157 - that is, that the overall
statutory scheme that's contemplated by Section 157 and also by
Section 161 ~ is that whenever investors are contracting to invest
capital in a company or to purchase stock either directly or rights or
options in stock, that the statutory scheme requires board approval and
that there be a written instrument that evidences those arrangements.
The reason is that where the overall capital structure of the corporation
is concerned, it is a vitally important command of the law that the
corporation know precisely what its capital stock is and what the
Potential calls on that capital will be. And it is for that reason the
statute elevates that type of transaction to the level of requiring board
approval and of requiring a writing. Only then will everyone know

 

 

 

* Grimes». Altea, Del. Ch, C.A. No. 1842-NC. st 60 (Apel 11,2001) bench rag)
+ 16,6051
‘what claims on the capital will be, who has rights to invest capital, and
‘what rights the corporation has with respect to actual or potential
investors ~ that i, investors who have entered into contracts with the
‘company
Grimes has appealed to this Court the judgment of the Court of Chancery
dismissing his complaint. We agree with the essential holding of the Court of
Chancery that the agreement is invalid because it was not approved by the board of
directors and was not memorialized in a written instrument. We do so based on the
Statutory scheme of the Corporation Law pertaining to stock issuance, with
Particular emphasis on Sections 152 and 157,
‘Stock Issuance and the Delaware General Corporation Law Statutory Scheme
Grimes argues that his arrangement with Moch does not constitute a right"
within the meaning of 8 Del. C. § 157 and, therefore, need not be approved by the
board or evidenced by a written instrument as required by that statute. Alteon
argues that it does. Grimes argues that Section 157 applies only to options and
“option like” rights. The fatal defect in Grimes’ claim is that the agreement purports

‘o grant aright that was not expressly approved by the board of directors as required

 

 

+d 0.
by the statutory scheme of the Delaware General Corporation Law exemplified by
Section 152 and Section 157.

‘Tae agreement purports to bind the corporation to issue to Grimes 10% of a
future issuance of stock. Grimes’ right to require the issuance of stock to him arises
only if and when there is a public or private offering of newly issued stock. Because
Grimes =laims a right to require the issuance to him of 10% of any such offering,
the Corporation Law applies and requires that the agreement and the issuance of the
stock must be approved by the board of directors and evidenced by a written
instrument.

Ose must read in pari materia the relevant statutory provisions of the
Corporation Law. First there is the fundamental corporate governance principle set
forth in 3 Del. C. § 141(a) that the "business and affairs of every corporation . . .
shall be managed by and under the direction of” the board of directors. One then
turns to the board's role in stock issuance set forth in the relevant sections of
Subchapter V of Title 8. ‘The provisions in this Subchapter relate to the issuance of
capital s:ock, subscriptions for additional shares, options and rights agreements.
‘Taken together, they are calculated to advance two fundamental policies of the

Corporation Law: (1) to consolidate in its board of directors the exclusive authority

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to govern and regulate a corporation's capital structure; and (2) to ensure certainty
in the instruments upon which the corporation’s capital structure is based.¢

As this Court has stated in requiring strict adherence to statutory formality in
‘matters relating to the issuance of capital stock, the “issuance of corporate stock is
an act of fundamental legal significance having a direct bearing upon questions of
Corporate governance, control and the capital structure of the enterprise. The law
Properly requires certainty in such matters.” Delaware's statutory structure
implements these policies through a "clear and easily followed legal roadmap” of
statutory provisions.* This statutory scheme consistently requires board approval
and a writing.

Various provisions in Subchapter V set forth the formal requirements for the
issuance of capital stock, the establishment of classes of stock, the consideration for
the issuance of stock, and formalities regarding rights, options and subscriptions
relating to capital stock. ‘The statutes relating to the issuance of stock that provide

the policy context that is relevant here are 8 Del. C, §§ 151, 152, 153, 157, 161

 

* Se Kalegeorlv. Victor Kambin, In, 750 A.2¢ $31, 38-39 Del. Ch. 1999) calling capital sock “a
‘ecies of property right” thats of “foundational imporance.. 10 oar eoooasc system), aff, 748 A 24913
(at 200)

” SAAR Surgical Co, », Waggoner, $8 A.26 1130, 1136 (Del 1991); accondKalagcorgi, 790 A.24 a 538.

* Relageorel, 790 A.24 0 538.
and 166. Taken together, these provisions confirm the board's exclusive authority
to issue stock and regulate a corporation's capital structure, To ensure certainty,
these provisions contemplate board approval and a written instrument evidencing the
relevant transactions affecting issuance of stock and the corporation's capital
structure,

Section 151(a), relating to classes and series of stock, states that “the
resoluticn or resolutions providing for the issue of such stock {must be] adopted by
the board of directors pursuant to authority expressly vested in it by the provisions
of its certificate of incorporation.” Section 152, relating to the issuance of stock,
states, “The consideration . . . for subscriptions to, or the purchase of, the capital
stock to be issued by a corporation shall be paid in such form and in such manner
as the board of directors shall determine.” Section 153, relating to the consideration
for the issuance of stock, requires that such consideration shall be determined from
time to t-me by the board of directors. Section 157, relating to rights and options
respecting stock, requires board approval and a written instrument to create such
rights or options. Section 161, relating to the issuance of additional stock, allows
the directors to "issue or take subscriptions for additional shares of its capital stock

‘upto the amount authorized in its certificate of incorporation.” Section 166, relating
t© the formalities required of stock subscriptions, provides that subscription
agreements are not enforceable against the subscriber unless in writing and signed
by the subscriber.

‘The requirement of board approval for the issuance of stock is not limited to
the act of transferring the shares of stock to the would-be stockholder, but includes
‘an antecedent transaction that purports to bind the corporation to do so. As noted,
Section 152 requires the directors to determine the "consideration... for
subscriptions to, or the purchase of, the capital stock” of a corporation. Thus,
Girector approval of the transaction fixing such consideration is required. Moreover,

it is well established in the case law that directors must approve a sale of stock.”

 

4 See Fe v. Carlsie, 68 4.24 817, 818 (Dal. Ch. 1949) Going that a board of directors could et
‘etegnte he silty t fix he amount of anther comporion’s tock to be exchanged fora wn, a Fling ha "De
boant of dteciors of & Delaware corporation {may not] validly execute 2 contact which provide for» binding
‘etermizaion by a ton-rectr ofthe vale ofthe consideration tobe received forthe \auance of ts ack, Bowe
 Imperat Thecres, In. 115 A. 918, 929 (De. Ch. 1922) (a coxporaon's board of directors mas place 8 vue

26 D.C) (eppying Delaware aw and holding that aboard of directors “is statoiyprebibited from dleping he
‘exciton of coaideraion for which the voc sw be lamed >) ee alto Melvin ton Elexberg, Comporaons
and Other Business Organczatons 10809 (Be. 2000) ("A sleof ck by te corporation i owe a ouoree
of soc"); Model Bos. Corp. Act. § 6.206) (1993) (°A subctpon agreement eared ito ar Incoaporation
‘contract Beween he subscriber andthe corporaon wobec secon 6.1 (ested. “asuane of Shares") ), The
board of dreciors may not need to approve both the werns of tue sale t a stockholder u» well ast aca
russe erat. See Ralagcorgi, 750 A.24 a $39 1,10 (I, ofcourse, the directors valiy bound be Company 10
{Lsoarrac fo sll tock then the board o the Company could be equtably compelled to perform he mise
sof ising the promised shares to tov parties. ”)

“9.
This duty is considered so important that the directors cannot delegate it to the
corporation's officers."

Grimes argues that the contract provides “only that if Alteon's board should
exercise its authority to issue additional Alteon stock in a future private placement
(as it did here in the private placement of 2,834,088 shares of common stock), then
Mr. and Mrs. Grimes were obligated to purchase a certain percentage of that stock
‘at whatever price Alteon’s board set, That contract does not give Mr. and Mrs.
Grimes the ability to force Alteon to issue additional stock (at any price), and thus
does no: implicate the board's right to regulate the company's capital structure."!!

This argument begs the fundamental policy question behind the statutory
scheme requiring director approval for steps taken in connection with stock issuance.
If the corporation is required by the Grimes agreement to issue to Grimes 10% of
an offering to sell stock, the board's business judgment is or may be significantly
encumbered. For example, the board would not be able to sell 91%-100% of the
stock it chooses to issue to another willing purchaser or purchaser in a private

placement or otherwise, It may offer those purchasers only 90% of the offering,

 

9 meld, 66 A.24 20818,
 Appeliant’s Rep. Br. at 2.

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‘That constraint may limit the universe of prospective investors to those who would
bbe content to have only 90% of the stock to be issued.

‘An agreement that binds a company to allow a 10% stockholder to remain at
2 10% holding level may be a considerable sacrifice for a corporation, or it may be
‘@ good business decision for the board to consider. Focusing, however, on the
Problematic aspect of such a business decision, it would seem that a 10% holding in
‘ corporation is large enough that the investor may have considerable leverage over
the corporation, Such an agreement is tantamount to an agreement to permit Grimes
to have a continuing influence over the future direction of the corporation.
Moreover, potential investors might be deterred from investing in a corporation that,
hhad made such a commitment. Therefore, the agreement might actually decrease
‘the capital potentially available to a company in a future stock offering. A business
decision weighing the advantages and disadvantages of the Grimes transaction would
‘be within the discretion of the board of directors. But that choice lies only in the
board's province, not that of the CEO without express board approval

‘There is an important policy basis for this requirement, Shares of stock are

“a species of property right" that is of “foundational importance . . . to our

 

“ue
economic system. "!?

Thus, it is “critical that the validity of those securities,
especially those that are widely traded, not be easily or capriciously called into
question." Explicit board approval of a stock issuance or a commitment to issue
stock makes it more likely that the board will have considered thoroughly the
‘reasons for and against the issuance. Thus, director approval of stock issuance or
agreements affecting the respective rights of the corporation and a putative purchaser
of stock reduces later disputes about their propriety and enhances corporate stability
and certainty. This policy can be demonstrated by focusing on two of the applicable
Provisions inthe statutory scheme of Subchapter V of the Corporation Law, Sections
152 and 157.
Section 152

‘This transaction fixed the "form" and “manner” of the consideration Alteon
could receive from Grimes, thereby implicating 8 Del. C. § 152. That provision
states, "The consideration . . . for subscriptions to, or the purchase of, the capital
stock to be issued by a corporation shall be paid in such form and in such manner
as the board of directors shall determine.” Regardless of what label is put on the

‘transaction entered into between Grimes and Moch, the transaction contemplated that

 Kalageorgi, 750 A.24 x 538,

oa

 

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Grimes would eventually "purchase" the “capital stock" of Alteon, and the
‘grecment constrains the board's determination of the consideration for the issuance
of the stock.

This transaction has two features fixing “consideration.” First, Alteon bound
itself to offer 10% of its stock to Grimes as part of any offering. Second, Alteon
Could not charge Grimes any more for this 10% than it charged other investors for
the remainder.

Both of these features of the transaction served to “cap” the value of the cash
consideration Grimes was to give Alteon on the transfer of the stock. This
transaction restricted the manner of payment of consideration for Alteon's stock,
because it required that it come from Grimes. Because Grimes was a 10%
stockholder already, such a commitment could well have tangible negative effects
for Alteon's raising of capital from sources other than Grimes. In essence, the
Promise to Grimes cost Alteon a certain freedom in raising capital, and could well
have lowered the ultimate price Alteon could have charged for its capital stock,
‘Section 152 mandates board approval for such promises relating to consideration,

‘and that approval was absent in this case.

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Section 157
Section 157(a) permits a corporation to "create and issue, whether or not in
connection with the issue and sale of any shares of stock or other securities of the
corporation, rights or options entitling the holders thereof to purchase from the
corporation any shares of its stock,” provided that “such rights or options [are]
evidenced by or in such instrument or instruments as shall be approved by the board
Of directors."'* Because it is indisputable that Alteon’s board of directors never
Passed any such resolution approving this transaction, this agreement is invalid if it
is a "right" or an “option.”
‘The predecessor provision to Section 157 was first passed in 1929." the first
Statute in the nation expressly to authorize the issuance of options."* Although the

Delaware Court of Chancery had recognized the validity of options before the

* spec 5197,

6 Det. Laws, c. 138, §6 (192%),

See Model Bus. Corp, Act § 6.24, ent. 400 (1969) (1967 supplement) ("The fit sant expressly
usorning te isuance of options, waa, or sighs was enacted in Delaware in 1929, tad oe eas felons

‘ort thereat"). The 1927 revision ote Delaware Gencral Corporation Law dd nx cons s proviaionlatag
‘onghis or options. 3$ Det Laws c.85, $8 (1927)

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‘enactment of that provision,” the statute was intended to ensure that validity."
From the origin of the provision, it was worded to authorize the creation and
issuance of "rights or options . . . .""” Later revisions have not made any changes
to the provisions that are relevant to the present issue.”

Delaware courts have put various types of transactions within the framework
provided by Section 157. One common use of options is to compensate officers,
directors, and employees of the corporation. Section 157(c) specifically addresses,
this use of the option. The Court of Chancery has observed that "stock option

plans are an acceptable and necessary means by which corporations gain the services

 

"See Kington. Home Life Ins. Co. ofAm.,101 A. $96 De. Ch. 1917). In Kingston, acter corporation
{ve the defendant corporation moncy in return for “a perpetual and exclusive igh to wbecrbe to the stock of he
(Getendant corporation) a par..." Ud. 21 900. The Coun of Ceancery held Ua te “sack option was ot ved

“Id. 505. Other cours had, however, ruled the opin contrat unlawl. See Wall. Utah Capper Co,
GA. 53, 538 (NJ. Ch. 1905) holding tat the “optional charac of coatrct at se) is vicious in eel, and
‘nt warranted by that clause i the satite which autoraes the creation and ue of new noc’),

“* Frama alot & Jesse A. Finklstcn, Delaware Law of Corporations & Business Orgniatoes §
5.17, $36 Qld ef. 1998) (2002 supplement)

6 Det. Laws, e. 135, 46.4929

 

1 ‘See 56 Det, Laws, 50, § 157 (1967 (giving the provision tt own section); 73 Del. Lana c 8. 68
(2001 giving te provision four sbuections,andorizing the dieser to determine te opcon price va foray at
‘ding provision dealing wits the dstrbuion of righ of options to directors and employes of the corporation.

2 See 8 Del. C § 157) (allowing the board of dircctors to “éesignate ofiers end employees of te
‘corporation «to be repens of such ight or optices created by tbe corporation”).

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of new employees and retain the services of valued employees." The Grimes
agreement is not, however, an option.

‘This Court has also found the authority to adopt a shareholders’ rights plan
within Section 157. In Moran v. Household International, Inc.,” the appellants
argued that Section 157 was merely a “corporate financing” stanute.* We declined
to so limit Section 157,” noting that the General Assembly did not expressly limit
Section 157 to such a purpose. We observed that "‘corporate law is not static,"* but
‘must grow and develop in response to, indeed in anticipation of, evolving concepts
and needs,""*

In arguing that this transaction did not bestow upon Grimes a “right, Grimes
cites commentary that defines an option by "the right of the optionee to buy or not,
{0 buy at the optionee’s election.” Section 157, however, does not concern only

“options.” It also concerns "rights." Thus options and rights in Section 157 must

 

 Michetwonv, Duncan, 386 A.24 L148, 1150 (De. Ch. 1978
* 500 0.24 1346 et 1985),

* ta a3,

me

™ 1. (quting Unocal Corp. Mesa Ptroleam Co. 83 A.24 946 (Del. 1985),

1 Wiliam Meade Fecha ot. Fecher Cyclopedia ofthe Law of Private Corporations § 57S (perm.

4. ev. yo 2001)

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have two different meanings. This Court will avoid interpreting terms as mere
surplusage.” The term "right" has a plain English meaning that is broader than the
‘erm “option.” A right is “[sJomething that is due to a person by just claim {that is)
legally enforceable" according to one dictionary definition; an option is more
narrowly focused, requiring the power of choice.” Thus, even if the power to
choose the time of exercise isan integral component of an “option,” by including the
term “rights” in Section 157 the drafters of that statute presumably intended for
other transactions to be included.

Ina similar vein, Grimes argues that the term “rights” includes only options
 option-like transactions, We rejected this argument in Moran. In that case, the
appellants argued that a shareholder rights plan was not permitted under Section 157,
labeling Section 157 as merely "a corporate financing statute..." This Court,
‘however, refused "to impose such a limitation upon the section that the legislature

fhas not."”

 

 

"WS. Fidelity & Guar, Co.» Neighbors, 421 5.24888, 91:92 (Del. 1980)
9 Backs Law Dictionary 152 (of. 199)

™ td 2101 (ing “option
% 500 6.24 9 132,

me

  

the right or power o choose)
Alteon urges us to adopt a definition of “right,” as a “legally enforceable
claim that another will do or will not do a given act . .. ." Grimes responds that
this broad definition of right logically includes any transaction that includes as a
Component an obligation to sell. We need not decide that such a broad definition is
appropriate, Accordingly we express no opinion whether the term "tights" would
include, for example, an executory stock purchase or a subscription. Even at the
time Section 157 was first enacted, in 1929, there were provisions governing both
types of transactions.” When interpreting provisions dealing with a series of
discrete transactions, it is reasonable that this Court will not interpret one provision
to overlap others without some indication that the legislature intended such
treatment.” We therefore do not decide anything beyond the narrow issue presented.
here: Is the agreement that Grimes relies on to purchase 10% of a future stock

offering a “right” under Section 157? We agree with the Court of Chancery that it

 

Black's Law Dictionary 1322 (te. 1999)

% See 36.Det. ons, ¢. 138 § 6 (1929) refering to “sbecripions wo, othe purchase price of, de cap
‘Hock of any corporation” and requiring the issuance of shares "for Such consideration as may be fined fm tie 0
lime by the Board of Directs tere).

2 Scg2A Noten J. Singer, Sutherland on Stattory Coastrcion § 46:05 (2000) (“E}sch pr or section
{ef 4 start} should be construed ia conssction with every ober par or section 40 at fo produce's harmonious
whole")

  

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is, and we expressly do not go beyond that holding to define “rights” under Section
157 any more broadly or for any other purpose.

Grimes’ argument on appeal is based on the contention that his transaction
does not fall within any of the categories the Delaware General Corporation Law has

created for stock transactions, such as "purchase" or “subscription.” If the

 

transaction is not a “subscription,” @ "purchase," or any other commonly-known
type of transaction involving stock, it does not follow that it is valid under the
General Corporation Law. We cannot conclude that the General Assembly intended
that the use of the broad term "rights" in Section 157 would have such a cramped
meaning that it would exclude the Grimes transaction. Accordingly, we conclude
‘that an agreement, like the one in question here, is a "right" under Section 157 if it
purports to grant the obligee (Grimes) the ability to require the obligor Alteon) to
issue 10% of a stock offering to the obligee—even though the corporation's
obligation is conditioned upon the correlative duty on the part of the obligee to buy
10% of the offering.

This reading of Section 157, to require all stock transactions not specifically
dealt with in other provisions of the Corporation Law to require board approval

under Section 157, serves two complementary purposes that Delaware Courts have

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found in the statutory scheme of our Corporation Law. The first is that the
corporation should have the freedom to enter into new and different forms of
transactions. Indeed, that was exactly the purpose for which Section 157 was
originally created. ‘The second is that, to the extent such transactions obligate the
board concerning stock issuance, the board must approve them in writing. Certainty
in investor expectations emphasizes the need for written board approval of any such
transaction, Grimes’ contention that his transaction, because of its sui generis
nature, need not receive board approval does not comport with this policy.
Conclusion

We agree with the conclusion of the Court of Chancery that the Grimes
agreement is unenforceable for lack of both board approval and a written agreement,
One must read together the various statutes in Subchapter V, particularly Sections
152 and 157, because the statutory scheme of the Delaware General Corporation
Law requires board approval and a written instrument evidencing an agreement
obligating the corporation to issue stock either unconditionally or conditionally.

Accordingly, we affirm the judgment of the Court of Chancery.

 

CY. Rocchi Corp, Liggett Group, In. £14 A.24 133.196 (Del 1984) (concerning te doctrine
ot independas lp sigiicance): Smith v. Van Gorkom. #88 A.24 858, 873 (Del. 1984) ("The buna jadgient
‘eens to protec and promo te fll and fee exercise of th managerial power granted Delaware ects.)

 

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