## Facts

- STAAR Surgical Company, a Delaware corporation, faced severe financial distress and sought to secure a bank credit facility.
- To induce its president and CEO, Thomas Waggoner, to personally guarantee corporate debt and remain involved, the board agreed to issue him preferred stock with special voting rights and a conversion feature into common stock.
- The preferred stock was authorized at a hastily convened board meeting, but STAAR did not comply with statutory issuance formalities for a preferred series under 8 Del. C. § 151, including adopting a proper resolution and filing a certificate of designation.
- The Waggoners exercised the conversion feature and received two million shares of STAAR common stock.
- After earlier litigation invalidated the preferred stock’s super-majority voting provision, the Court of Chancery assumed the preferred stock was invalid under § 151 but nonetheless held the Waggoners equitably entitled to own and vote the two million common shares.
- STAAR appealed the Chancery Court’s equitable validation of the two million common shares.

## Issues

1. Whether shares of common stock obtained through conversion of preferred stock issued in violation of 8 Del. C. § 151 can be treated as valid based on equitable entitlement.
2. Whether equity may validate or “resuscitate” stock that is void under the Delaware General Corporation Law.

## Decision

- The Delaware Supreme Court reversed the Court of Chancery.
- Stock issued in violation of 8 Del. C. § 151 is void, not merely voidable.
- Because the preferred shares were void, the two million common shares issued upon conversion were likewise void and without legal effect.
- Equitable remedies cannot be used to validate void stock or to confer voting and ownership rights in such shares.

## Legal Principles

- Failure to comply with DGCL § 151’s mandatory requirements for creating and issuing a series of preferred stock renders the stock void.
- Void stock is a legal nullity; it cannot be ratified, validated, or enforced through equitable doctrines such as specific performance or equitable ownership.
- Shares “derived from” void stock—such as common shares issued upon conversion of void preferred shares—are also void.
- Courts may not use equity to override explicit statutory formalities governing corporate capitalization and stock issuance.

## Conclusion

The court held that noncompliance with DGCL § 151 makes preferred stock void, and common shares issued solely through conversion of that void stock are also void; equity cannot recognize, validate, or enforce rights in such shares.


STAAR Surgical Co. v. Waggoner, 588 A.2d 1130 (Del. 1991)