Thank You For Submiting Feedback!
When any corporation desires to issue any shares of stock of any class or of any series of any class of which the powers, designations, preferences and relative, participating, optional or other rights, if any, or the qualifications, limitations or restrictions thereof, if any, shall not be set forth in the certificate of incorporation or in any amendment thereto but shall be provided for in a resolution or resolutions adopted by the board of directors pursuant to authority expressly vested in it by the certificate of incorporation or any amendment thereto, a certificate of designations setting forth a copy of such resolution or resolutions and the number of shares of stock of such class or series as to which the resolution or resolutions apply shall be executed, acknowledged, filed, recorded and shall become effective,. 8 Del. Code Ann. § 151(g).
The outside directors had agreed to provide their personal guarantee on certain debts in exchange for control of the company while the guarantees were outstanding. The issue before the court was the validity of the outside director's common shares of stock. The corporation asserted that the court of chancery erred in deciding that the outside directors were entitled to vote their common shares despite the assumption that their preferred shares were technically invalid. The corporation also contended that the court of chancery erred in its award of specific performance to the outside directors, even assuming that they were entitled to some form of equitable relief.
Did the court of chancery err in deciding that the outside directors were entitled to vote their common shares despite the assumption that their preferred shares were technically invalid?
The court determined that it was error to award any type of equitable relief after the trial court essentially concluded that the preferred shares were invalid. The court concluded that the court of chancery had no basis to grant equitable relief akin to specific performance after it concluded that the outside director's shares were invalid.