Elliott Associates, LP v. Avatex Corporation

Supreme Court of Delaware · 1998 · Corporations

715 A.2d 843 (Del. 1998)

Updated August 22, 2026

CorporationsPreferred stockMergersClass voting rightsCertificate of incorporationclass votemergercertificate of designations

Facts

Avatex had outstanding common stock and two series of preferred stock, including First Series Preferred, whose certificate gave no voting rights except, as relevant here, a two-thirds class vote for any amendment, alteration, or repeal of the certificate, 'whether by merger, consolidation or otherwise,' that would materially and adversely affect First Series rights. Avatex formed Xetava as a wholly owned subsidiary and proposed to merge into Xetava, with Xetava surviving and Avatex's preferred stock converting into Xetava common stock. The merger would eliminate Avatex's certificate of incorporation, including the certificate provisions creating and protecting the First Series Preferred. The merger terms did not provide for a class vote of the preferred stockholders.

Issue

Whether Avatex's proposed merger into Xetava triggered the First Series Preferred stockholders' contractual right to a two-thirds class vote under certificate language requiring such consent for any amendment, alteration, or repeal, 'whether by merger, consolidation or otherwise,' that would materially and adversely affect their rights. More specifically, the question was whether the merger's nullification of the Avatex certificate counted as a repeal causing the adverse effect.

Rule

When a certificate of incorporation expressly grants preferred stockholders a class vote in the event of any 'amendment, alteration or repeal, whether by merger, consolidation or otherwise,' a merger requires that class vote if the merger nullifies and thereby repeals the certificate provisions protecting the preferred stock and the transaction would materially and adversely affect the preferred stockholders' rights, preferences, privileges, or voting power. By contrast, absent that additional merger-specific language, a mere merger-triggered stock conversion does not itself create a class vote under amendment-only provisions.

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Pine Harbor Textiles, a Delaware corporation based in Raleigh, has a series of preferred stock whose certificate requires approval by two-thirds of that series for any "amendment, alteration or repeal, whether by merger, consolidation or otherwise," that would materially and adversely affect the series’ rights. Pine Harbor proposes to merge into its wholly owned subsidiary, with the subsidiary surviving and the preferred shares converting into the survivor’s common stock; the old certificate, including the preferred protections, will cease to exist.

Is the preferred class entitled to a separate class vote on the merger?

Explanation. The governing rule is contractual. When the certificate expressly grants a class vote for any amendment, alteration, or repeal "whether by merger, consolidation or otherwise," a merger triggers that vote if the transaction nullifies the certificate provisions protecting the preferred and materially and adversely affects their rights. Here, the disappearing corporation’s certificate becomes a legal nullity, which counts as a repeal, and the conversion plus elimination of the protections triggers the vote.