## Facts

- Charles L. Grimes and Jane Gillespie Grimes were stockholders of Alteon Inc., holding approximately 9.9% of its shares.
- Alteon’s President and CEO, Kenneth I. Moch, told Grimes the company needed additional funding and was considering a private placement stock offering.
- Grimes allegedly expressed concern about dilution and orally agreed to buy 10% of any such offering if it occurred.
- Moch allegedly orally promised that Alteon would offer Grimes 10% of the future private placement, and Grimes allegedly promised to purchase that allotment.
- The alleged agreement was never put in writing and was never approved by Alteon’s board of directors.
- Alteon later announced a private offering but did not offer Grimes any portion of it; after the announcement, Alteon’s stock price increased.
- Grimes sued in the Delaware Court of Chancery seeking specific performance and damages based on the alleged oral agreement.
- The Court of Chancery dismissed under Rule 12(b)(6) on the ground that the alleged agreement created a stock purchase “right” under 8 Del. C. § 157 and was invalid without board approval and a written instrument.

## Issues

1. Whether a bilateral oral promise by a corporation’s CEO to sell a stockholder 10% of a future private offering, coupled with the stockholder’s oral promise to buy, constitutes a “right or option” within the meaning of 8 Del. C. § 157.
2. If so, whether the alleged stock purchase right is enforceable absent approval by the board of directors and memorialization in a written instrument.

## Decision

- The Delaware Supreme Court affirmed the dismissal of the complaint.
- The court held the alleged bilateral oral agreement created a “right” to require the corporation to issue stock within the meaning of 8 Del. C. § 157.
- Because the alleged right was not approved by the board and was not set forth in a written instrument, it was invalid and unenforceable under Delaware law.

## Legal Principles

- A commitment that gives a stockholder an entitlement to acquire corporate stock in the future can constitute a “right or option” under 8 Del. C. § 157.
- Rights or options to purchase stock under § 157 require board authorization and must be reflected in a written instrument.
- Delaware corporate law assigns control over stock issuance and related commitments to the board of directors; officers acting alone cannot create enforceable stock issuance commitments that bypass board action and statutory formalities.
- The statutory requirements serve to preserve board authority over capital structure and to provide certainty to stockholders and the market regarding equity-related commitments.

## Conclusion

The court held that an alleged oral agreement with a CEO for participation in a future private placement created a statutory stock purchase right under § 157 and was unenforceable without board approval and a written instrument, so dismissal for failure to state a claim was proper.


Grimes v. Alteon Inc., 804 A.2d 256 (Del. 2002)