                            COURT OF CHANCERY
                                  OF THE
                            STATE OF DELAWARE

                                                                   417 S. State Street
 JOSEPH R. SLIGHTS III                                          Dover, Delaware 19901
 VICE CHANCELLOR                                               Telephone: (302) 739-4397
                                                               Facsimile: (302) 739-6179

                          Date Submitted: July 10, 2018
                          Date Decided: August 10, 2018


Rudolf Koch, Esquire                         William Lafferty, Esquire
Sarah A. Clark, Esquire                      John DiTomo, Esquire
Ryan P. Durkin, Esquire                      Elizabeth Mullin, Esquire
Richards, Layton & Finger, P.A.              Morris, Nichols, Arsht & Tunnell LLP
920 North King Street                        1201 N. Market Street
Wilmington, DE 19801                         Wilmington, DE 19899-1347

      Re:    Fortis Advisors LLC v. Stora Enso AB
             C.A. No. 12291-VCS

Dear Counsel:

      This case arises from a contractual dispute between Plaintiff, Fortis Advisors

LLC (“Fortis”), and Defendant, Stora Enso AB (“Stora Enso”), under an agreement

dated June 18, 2014 (the “Merger Agreement”) by which Stora Enso acquired non-

party, Virdia, Inc. (“Virdia”) (the “Merger”). The Merger Agreement provides for

two forms of payment: (1) a $25.27 million purchase price (subject to certain

adjustments) to be paid upon closing; and (2) two post-closing payments to be paid

only upon the achievement of designated milestones (the “Milestone Payments”).

Fortis, as shareholder representative, has filed a complaint in which it alleges that
Fortis Advisors LLC v. Stora Enso AB
C.A. No. 12291-VCS
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Stora Enso breached the Merger Agreement by not making the Milestone Payments.

More specifically, Fortis alleges that the Merger Agreement bound Stora Enso to a

specific performance timeline meant to facilitate its achievement of the two

milestones that would trigger the Milestone Payments. According to Fortis, Stora

Enso failed to comply with that timeline in breach of the Merger Agreement.

         Stora Enso has moved to dismiss Fortis’ complaint on the ground that the

Merger Agreement unambiguously did not obligate it to perform under any set

timeline. According to Stora Enso, because the milestones were not achieved as

prescribed in the Merger Agreement, it has no obligation, contractual or otherwise,

to make the Milestone Payments. For the reasons that follow, Stora Enso’s motion

to dismiss must be denied.

                                   I. BACKGROUND

         The following facts are drawn from the allegations in Plaintiff’s Verified

Amended Complaint (the “Complaint”), documents incorporated therein by

reference and those matters of which I may take judicial notice.1 As I must on a

motion to dismiss under Court of Chancery Rule 12(b)(6), I accept as true the



1
    In re Gen. Motors (Hughes) S’holder Litig., 897 A.2d 162, 169 (Del. 2006).
Fortis Advisors LLC v. Stora Enso AB
C.A. No. 12291-VCS
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Complaint’s well-pled factual allegations and draw all reasonable inferences from

these allegations in the light most favorable to Plaintiff.2

          A. Parties and Relevant Non-Parties

          Plaintiff, Fortis, is a Delaware limited liability company headquartered in San

Diego, California.3 It represents the interests of Virdia’s pre-merger Common

Stockholders, Option Holders and Warrant Holders (collectively, the “Equity

Holders”), and is pursuing this action on their behalf.4

          Defendant, Stora Enso, is a Swedish private limited liability company with its

principal place of business in Stockholm, Sweden.5 It “is a leading provider of

renewable solutions in packaging, biomaterials, wood and paper, with a focus on

replacing non-renewable materials.”6

          Prior to the Merger, non-party, Virdia, pursued the business of biorefining,

which is the process of “extracting and refining various products from biomass as a


2
    Id. at 168.
3
    Compl. ¶ 20.
4
    Compl. ¶¶ 1–2.
5
    Compl. ¶ 21.
6
    Id.
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feedstock or raw material.”7 As a result of the Merger, Virdia became Stora Enso’s

wholly-owned subsidiary.8

         B. The Milestones and Other Relevant Contractual Provisions

         The parties’ dispute regarding the Milestone Payments implicates several

provisions of the Merger Agreement.9 I discuss each in turn below.

            1. The Milestone Payments

         The Merger Agreement, at § 2.14, defines Stora Enso’s contingent obligation

to make the Milestone Payments. Under Section 2.14(a), “[i]f following the Closing

Date and prior to December 31, 2015 . . . the milestones set forth in Annex B-1 [to

the Merger Agreement] shall have been completed, [Stora Enso] shall pay to

[Fortis] . . . $12,000,000,”10 less certain bonuses owed to former Virdia executives




7
    Compl. ¶ 2.
8
    Compl. ¶¶ 1, 31.
9
    Compl., Ex. A (“Merger Agmt.”).
10
  The Merger Agreement defines “Closing Date” as “within three (3) Business Days after
the last of the conditions set forth in Article VI [‘Conditions Precedent’] is satisfied or
waived . . . or at such other date, time or place as the parties hereto shall agree in writing.”
Merger Agmt. § 2.9(a). The Merger closed on June 19, 2014. Compl. ¶ 31.
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(the “First Milestone Payment”).11         Under Section 2.14(b), “[i]f following the

Closing Date and prior to June 30, 2017 . . . the milestones set forth on Annex B-2

shall have been completed, [Stora Enso] shall pay to [Fortis] . . . $17,300,000” (the

“Second Milestone Payment”).12

           Annex B-1 and Annex B-2, in turn, set forth the requirements for achievement

of each of the two milestones. The first milestone (“Milestone 1”), outlined in

Annex B-1, required Stora Enso to complete three principal steps by December 31,

2015: (1) the construction and “commission”—defined as “the process of assuring

all systems and components are designed, installed, tested, operated and maintained

properly”—of a “pilot plant” in Danville, Virginia (the “Danville Pilot Plant”);

(2) the completion of three seventy-two-hour extraction campaigns from two

biomass feedstocks—sugar cane bagasse and eucalyptus13; and (3) the production of

three products that meet certain specifications.14 The parties understood that the



11
     Merger Agmt. § 2.14(a).
12
     Id.
13
  Compl. ¶ 36. One extraction “was aimed at separating hemi-sugars from ligno-cellulosic
biomass,” while the other “was aimed at separating lignin from cellulose.” Compl. ¶ 25.
14
     Merger Agmt., Annex B-1.
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“centerpiece” of the Danville Pilot Plant would be a piece of equipment called a

“Skid,” a machine designed to extract certain materials from biomass.15 As provided

in Section 2.14(a), if Stora Enso completed Milestone 1 by December 31, 2015, it

would be required to make the First Milestone Payment ($12 million) to Fortis for

distribution to the Equity Holders.

         The second milestone (“Milestone 2,” together with Milestone 1, the

“Milestones”), as defined in Annex B-2, required Stora Enso to complete two steps

by June 30, 2017: (1) the construction and commission of a “commercial plant” in

Raceland, Louisiana (the “Raceland Plant”), and (2) “the production of 7,000 US

tons of liquid xylose (a sugar isolated from wood) at a variable cost at or below $650

per ton.”16 If Milestone 2 was completed by June 30, 2017, Stora Enso would be

obliged to pay out the Second Milestone Payment ($17.3 million) to Fortis for

distribution to the Equity Holders.17




15
   Compl. ¶ 7. The “Skid” is “an integrated modular system” used “to separate lignin from
[] lignocellulosic material.” Compl. ¶ 28.
16
     Compl. ¶ 14–15.
17
     Compl. ¶ 2.
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              2. Stora Enso’s Merger Agreement Representations

           In Section 4.2 of the Merger Agreement, Stora Enso represented that, at the

time of execution, it had “the requisite corporate power and authority and ha[d] taken

all corporate action necessary to execute and deliver [the Merger] Agreement, to

perform its obligations hereunder and to consummate the transactions contemplated

hereby.”18 Stora Enso further represented that “[n]o other corporate action . . . [was]

necessary to authorize the execution, delivery and performance of [the Merger]

Agreement . . . and consummation of the transactions contemplated hereby.”19

              3. Merger Agreement § 5.15 and Schedule 5.15

           Section 5.15(a) states that Stora Enso “shall conduct the business of [Virdia,

post-close,] as provided in the financial and human resource plan attached [to the

Merger Agreement] as Schedule 5.15, other than as would, in the good faith belief

of [Stora Enso], increase the likelihood that the [M]ilestones set forth on Annex B-

1 and Annex B-2 will be achieved, and [Stora Enso] shall not Willfully take any

action or omit to take any action in order to avoid paying the Milestone Payments in



18
     Merger Agmt. § 4.2(a) (emphasis supplied).
19
     Id.
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accordance with Section 2.14.”20 Section 5.15(b) provides that, in the event Stora

Enso “materially breaches” Section 5.15(a), “any remaining funds due under the

Milestone Payments shall become due and payable in full.”21

           Schedule 5.15, referenced in Section 5.15, contains four tabs. Tab one,

labeled “Summary Headcount,” sets forth a chart displaying each step of the

milestone process through Milestone 2 with corresponding employee headcounts.22

Tab two, labeled “Team Assignments,” lists employees, their location, as well as

current and planned assignments as related to the Milestones.23 Tab three, labeled

“Virdia Quarterly Budget,” depicts Virdia’s quarterly budgets during the relevant

timeframe.24 Finally, Tab four, labeled “Q2_2014 Detail,” lists salary, rental and

lease costs and other expenses.25


20
   Merger Agmt. § 5.15(a). The Merger Agreement defines “Willful” as “an act or failure
to act by any party with the actual knowledge that the taking of such act or failure to take
such act would cause a breach of this Agreement.” Merger Agmt. § 1.1 (defining Willful).
21
     Merger Agmt. § 5.15(b).
22
     Merger Agmt., Schedule 5.15.
23
     Id.
24
     Id.
25
     Id.
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           C. Procedural Posture

           Fortis initiated this action on May 3, 2016, to recover the First Milestone

Payment, asserting Stora Enso failed to achieve Milestone 1 due to material breaches

of the Merger Agreement. Fortis filed the now-operative amended complaint on

September 27, 2017, alleging the same for Milestone 2 and the Second Milestone

Payment. On November 27, 2017, Stora Enso filed its motion to dismiss, pursuant

to Court of Chancery Rule 12(b)(6), for failure to state a viable breach of contract

claim.

                                       II. ANALYSIS

           Under Court of Chancery Rule 12(b)(6), a complaint must be dismissed if the

plaintiff would be unable to recover under “any reasonably conceivable set of

circumstances susceptible of proof” based on the facts as pled in the complaint.26

In considering a motion to dismiss, the court must accept as true all well-pled

allegations in the complaint and draw all reasonable inferences from those facts in

Plaintiff’s favor.27



26
     Gen. Motors, 897 A.2d at 168.
27
     Id.
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       Generally, the interpretation of a contract is a question of law that is suitable

for determination on a motion to dismiss.28 The court may grant a motion to dismiss

based on contractual language, however, only if the contractual language is

unambiguous—meaning, the language is susceptible of only one reasonable

interpretation.29 “Even if the [] Court considered the defendants’ interpretation more

reasonable than the plaintiffs’, on a Rule 12(b)(6) motion, [the Court may not] select

the ‘more reasonable’ interpretation as legally controlling.”30 Thus, to prevail on its

motion, Stora Enso must demonstrate that its proffered interpretation of the Merger

Agreement is the only reasonable interpretation.31




28
  Micro Strategy Inc. v. Acacia Research Corp., 2010 WL 5550455, at *5 (Del. Ch.
Dec. 30, 2010).
29
   VLIW Tech., LLC v. Hewlett-Packard Co., 840 A.2d 606, 615 (Del. 2003) (denying
motion to dismiss where contractual provisions were ambiguous); Kaiser Aluminum Corp.
v. Matheson, 681 A.2d 392, 395 (Del. 1996) (holding that ambiguity exists “when the
provisions in controversy are reasonably or fairly susceptible of different interpretations”).
30
   Appriva S’holder Litig. Co., LLC v. EV3, Inc., 937 A.2d 1275, 1292 (Del. 2007)
(citing Vanderbilt Income & Growth Assoc. v. Arvida/JMB Managers, Inc., 691 A.2d 609
(Del. 1996)) (emphasis supplied).
31
   VLIW, 840 A.2d at 615 (“Dismissal, pursuant to Rule 12(b)(6), is proper only if the
defendants’ interpretation is the only reasonable construction as a matter of law.” (emphasis
in original)).
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         As I explain below, Defendant has not proffered the only reasonable

interpretation of the contractual provisions in controversy.       Consequently, the

motion to dismiss must be denied.

         A. Merger Agreement § 4.2 is Ambiguous

         Fortis alleges Stora Enso breached Merger Agreement § 4.2 because, at the

time Stora Enso made the representations in that section, it had not obtained internal

authorization to order and purchase the “Skid,” the key piece of equipment required

for the timely completion of Milestone 1.32 As alleged in the Complaint, in order to

meet Milestone 1, Virdia “understood that the Skid had to be, and would be, ordered

[by Stora Enso] promptly upon the closing of the [M]erger.”33 Because Stora Enso

had not obtained internal authorization for the purchase prior to the Merger, it failed

to order the Skid promptly. This delay, in turn, caused Stora Enso to fail to meet the

Milestone 1 deadlines.34




32
     Compl. ¶¶ 35–39.
33
  Compl. ¶ 39. Schedule 5.15 “provided for the Skid to be commissioned by the end of
June 2015.” Tr. of Hr’g Apr. 16, 2018, 16:10–11.
34
     Compl. ¶¶ 50–57.
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         Stora Enso counters that Section 4.2 is nothing more than a standard corporate

authorization provision that simply acknowledged Stora Enso’s legal authority to

enter into and consummate the Merger.35 According to Stora Enso, any construction

of this provision that would require it to have obtained pre-closing authorization for

each post-closing purchase required for achievement of the Milestones is not

reasonable.36

         There is more than one reasonable construction of Section 4.2.             One

reasonable construction is, as Stora Enso posits, that Stora Enso merely

acknowledged its authority to enter into the Merger and that it had received all

necessary approvals to consummate that transaction.37              Another reasonable

construction, however, is that the language in Section 4.2, in light of the particular



 Def.’s Opening Br. in Supp. of Its Mot. to Dismiss Pl.’s Verified Am. Compl. (“Def.’s
35

Opening Br.”) 13.
36
     Def.’s Opening Br. 14.
37
   See Lou R. Kling, Eileen T. Nugent & Brandon A. Van Dyke, Negotiated Acquisitions
of Companies, Subsidiaries and Divisions § 11.04[6] (1992) (2018 update) (explaining that
a corporate authorization clause may include language representing that the company has
the power and authority “to perform its obligations under th[e] Agreement” or “to perform
the transactions provided [in the Agreement]” and that “whether such nuances in language
have any meaningful effect will vary from case to case,” depending in part “on whether
there are ancillary documents of importance”).
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circumstances, reflected Stora Enso’s representation that it had received

authorization to order the Skid pre-closing. Specifically, in Section 4.2, Store Enso

represented not only that it had authority “to consummate the [merger],” but also

that it had “taken all corporate action necessary . . . to perform its obligations” under

the Merger Agreement and that “[n]o other corporate action . . . [was] necessary to

authorize its . . . performance obligations under [the Merger] Agreement.”38 This

provision can reasonably be construed to reflect that Stora Enso was representing

that it had received approval to order the Skid—the centerpiece of Milestone 1—

such that it could timely acquire the Skid post-closing in order to allow the Danville

Pilot Plant to be operational in time to meet Milestone 1. Thus, Defendant’s

interpretation is not the only reasonable interpretation.

         B. Merger Agreement § 5.15 is Ambiguous

         According to Fortis, Merger Agreement § 5.15 and Schedule 5.15 together

required Stora Enso to complete certain steps within the timeframes designated in

Schedule 5.15.39 Specifically, Fortis contends that “[b]oth [Schedule 5.15’s] number



38
     Merger Agmt. § 4.2(a) (emphasis supplied).
39
     Compl. ¶¶ 45–46.
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and timing of personnel [] were inextricably linked or correlated with specific

milestone phases and the timing of those phases.”40 With this construction in mind,

Fortis alleges that Stora Enso’s delay in ordering the Skid, failure to comply with its

commitments under Schedule 5.15, and the consequent failure to allow sufficient

time for the completion of Milestone 1’s extraction campaigns constitute a breach

of Section 5.15.41 These failures, along with unauthorized changes in the design and

engineering of the Raceland Plant, also caused Stora Enso’s failure to achieve

Milestone 2.

         Fortis maintains that any other construction of Section 5.15 and Schedule 5.15

would allow Stora Enso, without recourse, to drag its feet, sit on the technology

acquired in the Merger and delay performance beyond the deadlines for triggering

the Milestone Payments. According to Fortis, “when read in full and situated in

commercial context between the parties,”42 particularly given that the contingent




40
  Pl.’s Br. in Opp’n to Def’s. Mot. to Dismiss Pl.’s Verified Am. Compl. (“Pl.’s Answering
Br.”) 43.
41
     Compl. ¶¶ 70–74.
42
  Chicago Bridge & Iron Co. N.V. v. Westinghouse Elec. Co., 166 A.3d 912, 926–27
(Del. 2017).
Fortis Advisors LLC v. Stora Enso AB
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nature of the merger consideration was a prominent feature of this transaction, the

Merger Agreement cannot reasonably be construed to allow this result.

         In response, Stora Enso contends that the Complaint lacks any allegation that

Stora Enso “failed to have the required number of employees or make the required

expenditures as set forth in the ‘financial and human resource plan,’” and that the

timeframes depicted in Schedule 5.15 were merely guidelines, not mandatory

requirements or “binding commitments.”43 This, according to Stora Enso, is the only

reasonable interpretation of Schedule 5.15 because Fortis’ construction would

nullify the contingency of Section 2.14’s Milestone Payments and would require

Stora Enso to make the Milestone Payments regardless of whether or not the

Milestones were actually achieved.44

         Having considered the various provisions relating to the Milestone Payments

alongside Schedule 5.15, I am unable to render a definitive “four corners”

construction of Section 5.15. When interpreting a contract, “it is helpful to look at

the transaction from a distance [in order to give] sensible life to a real-world



43
     Def.’s Opening Br. 22–23.
44
     Def.’s Opening Br. 21.
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contract.”45 Here, the Equity Holders sold technology to Stora Enso in exchange for

which they received $25.27 million at closing (subject to certain adjustments) as

well as the prospect of receiving an additional $12 million to approximately

$30 million if Virdia’s technology delivered as promised by the negotiated

Milestone due dates. This structure contemplated that, if the technology performed

as Virdia had promised, the Equity Holders would receive the remainder of their

bargained-for consideration (potentially more than was paid at closing); if the

technology did not deliver, they would receive no further payments. The Merger

Agreement also contemplated, however, that Stora Enso would deploy its enhanced

resources to move the project forward in order to test the deal thesis (that Virdia’s

technology would work as promised) with the understanding that a failure to do so

could, under certain circumstances, expose Stora Enso to a breach of contract

claim.46 Against this backdrop, it is reasonable to construe the time markers in




45
   Heartland Payment Sys., LLC v. Inteam Assocs., LLC, 171 A.3d 544, 557 (Del. 2017)
(internal quotation and citation omitted); see also Chicago Bridge & Iron Co. N.V., 166
A.3d at 927 (“The basic business relationship between [contracting] parties must be
understood to give sensible life to any contract.”).
46
     See Merger Agmt. § 5.15.
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Schedule 5.15 as deadlines with which Stora Enso was required to comply or, at

least, as deadlines from which Stora Enso could not materially deviate.

      On the other hand, Stora Enso’s interpretation is also reasonable. To the

extent Fortis’ construction of Section 5.15 would allow Fortis to recover the

Milestone Payments in all events when the Milestones are not achieved by the

established deadlines, even if that failure is due to issues with the technology or other

matters beyond Stora Enso’s control, this construction would seem contrary to the

contingent nature of the Milestone Payments. Read in this light, Stora Enso’s

construction of Section 5.15 and Schedule 5.15 as setting guidelines for the

performance of certain steps along the pathway towards achieving the Milestones,

but not as mandatory performance deadlines, is also a reasonable construction.

                                III. CONCLUSION

      The meaning of Section 4.2 and Section 5.15 (with its accompanying

schedule) cannot be discerned as a matter of law from the language within the four

corners of the Merger Agreement. Accordingly, the parties will be afforded the

opportunity to discover and present extrinsic evidence in support of their competing

constructions of these provisions.
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      Stora Enso’s Motion to Dismiss is DENIED.

      IT IS SO ORDERED.

                                        Very truly yours,

                                        /s/ Joseph R. Slights III
