Valid Issuance of Capital Stock
September 7, 2011
In recent months, the Delaware Court of Chancery has issued two opinions, Olson v. ev3, Inc. and Blades v. Wisehart, dealing with the validity of capital stock. While each arose in a unique factual setting, the principles the court articulated may be relevant to corporations considering stock issuances, particularly those outside of the traditional underwritten offering context, such as at-the-market offerings and other equity programs. Since these programs typically contemplate a series of individual decisions, made over a fixed horizon, regarding the issuance of a number of shares at prices based on prevailing market rates, in each case within pre-established parameters, it would be nearly impossible to run such programs effectively if the full board of directors were required to meet to authorize each issuance. For that reason, boards of directors, when establishing such programs, frequently delegate the authority necessary to implement the programs.