Action by Tessie Gottlieb against Heyden Chemical Corporation, etc., to enjoin the effectuation of a restricted stock option plan and to have amendment to certificate of incorporation exempting certain stock from preemptive right declared invalid. On cross-motions for summary judgment, the Court of Chancery, Seitz, Chancellor, held that shares of stock issued to officers and employees pursuant to stock options could be exempted from preemptive right by amendment of certificate of incorporation over objection of minority stockholders, but that question of whether sole purpose of stock option plan was to enable employees to acquire a proprietary interest in corporation or whether ultimate objective behind such purpose was calculated to benefit the corporation to such an extent that it would constitute legal consideration could not be resolved on cross-motions for summary judgment.
Amendment to certificate of incorporation declared valid and cross-motions for summary judgment otherwise denied.
[32 Del.Ch. 232] Robert C. Barab, Wilmington, for plaintiff.
Richard F. Corroon, of Berl Potter & Anderson, Wilmington, Harmon Duncombe and George Rowe, Jr., New York City, for defendant.
This is an action by a minority stockholder seeking to enjoin a restricted stock option plan adopted by the defendant corporation with the approval of a majority of stockholders. Plaintiff seeks also to have declared invalid an amendment to the certificate of incorporation divesting the stockholders of preemptive rights with respect to certain stock.
[32 Del.Ch. 233] At a directors' meeting held March 14, 1951 the defendant's Board of Directors adopted a restricted stock option plan subject to ratification by the stockholders at the forthcoming annual meeting.
The Board of Directors at the same meeting also proposed an amendment to the certificate of incorporation exempting from the preemptive right up to a total of not exceeding 50,000 shares of stock issued to officers and employees pursuant to stock options.
Both the plan and the amendment were approved by an affirmative vote of the holders of a majority of the common stock at a meeting held April 26, 1951.
Plaintiff seeks to enjoin the effectuation of the stock option plan and the amendment to the certificate. She makes the following contentions:
(1) The amendment to the certificate eliminating the preemptive rights is invalid because it deprives non-assenting stockholders of vested rights;
(2) The stock option plan is invalid because it contemplates the transfer of corporate assets without consideration; and
(3) The plan being invalid for lack of consideration it cannot be adopted over minority dissent.
Both sides have filed motions for summary judgment and this is the decision thereon.
Plaintiff first argues that the amendment seeking to deprive non-assenting stockholders of their preemptive rights is invalid because it deprives her and other stockholders of their ‘ vested’ rights.
It is conceded that under Sec. 5 of the General Corporation Law of Delaware, Rev.Code 1935, § 2037, the provision here sought to be enacted by amendment could have been included in the certificate originally. The question [32 Del.Ch. 234] is whether it ...