                           COURT OF CHANCERY
                                 OF THE
                           STATE OF DELAWARE

 JOHN W. NOBLE                                              417 SOUTH STATE STREET
VICE CHANCELLOR                                            DOVER, DELAWARE 19901
                                                           TELEPHONE: (302) 739-4397
                                                           FACSIMILE: (302) 739-6179

                                  January 29, 2016



Richard P. Rollo, Esquire                   Kurt M. Heyman, Esquire
Richards, Layton & Finger, P.A.             Proctor Heyman Enerio LLP
One Rodney Square                           300 Delaware Avenue, Suite 200
920 North King Street                       Wilmington, DE 19801
Wilmington, DE 19801

      Re:   Knoll Capital Management L.P. v. Advaxis, Inc.
            C.A. No. 11417-VCN
            Date Submitted: January 11, 2016

Dear Counsel:

      In November 2014, Plaintiff Knoll Capital Management L.P. (“KCM”) and

Defendant Advaxis, Inc. (“Advaxis”) orally agreed, or so it is alleged, that KCM

would purchase more than 1.66 million shares of unregistered Advaxis common

stock for $3 per share. Even though KCM was already an Advaxis shareholder,

Advaxis found a preferable acquirer of the shares and refused to complete its

transaction with KCM. Instead, on December 19, 2014, it issued Advaxis stock to

another group at a price of $4.25 per share. Because of a non-disclosure agreement

that KCM had signed in reliance upon an Advaxis commitment that its transaction
Knoll Capital Management L.P. v. Advaxis, Inc.
C.A. No. 11417-VCN
January 29, 2016
Page 2



would be consummated, KCM was not able to buy Advaxis’s publicly traded

stock. By late June 2015, shares of Advaxis stock were trading for more than

$30 per share. KCM seeks to compel Advaxis to complete the transaction or an

award of damages caused by its failure to do so.

      Advaxis has moved to dismiss the First Amended Verified Complaint (the

“Complaint”) under Court of Chancery Rule 12(b)(6).         It contends that the

agreement, if there in fact was an agreement, was never memorialized by a writing

and that its board of directors never approved the issuance of Advaxis stock to

KCM. Its motion, of course, may only be granted if, from the proper allegations of

the Complaint (including documents properly incorporated), it is not “reasonably

conceivable” that it could prevail.1

      Advaxis has framed a disarmingly straightforward issue: may $5 million (or

more than 1.6 million shares) of stock of a Delaware corporation be sold orally

without a written agreement to convey the stock or a board resolution approving




1
 Cent. Mortg. Co. v. Morgan Stanley Mortg. Capital Hldgs. LLC, 27 A.3d 531,
535 (Del. 2011).
Knoll Capital Management L.P. v. Advaxis, Inc.
C.A. No. 11417-VCN
January 29, 2016
Page 3



the sale?2 It starts its analysis by invoking Grimes v. Alteon, Inc. which teaches

that the “Delaware General Corporation Law requires board approval and a written

instrument evidencing an agreement obligating the corporation to issue stock either

unconditionally or conditionally.”3 KCM, however, has alleged “[o]n information

and belief, [that] the Advaxis board of directors authorized [its Chief Executive

Officer] to enter into the Agreement, or ratified the Agreement.”4 This allegation,

meager as it is and approaching conclusory as it does, is factual in nature and

provides notice to Advaxis as anticipated by Court of Chancery Rule 8(a).5 How

this happened, when it happened, and maybe where it happened would have been

helpful information, but the pleading with particularity requirements of Court of

Chancery Rule 9(b) do not apply to KCM’s claims. Whether KCM will be able to

prove this allegation is not known at this stage. The contention that Advaxis’s


2
  See Def. Advaxis, Inc.’s Reply Br. in Supp. of its Mot. to Dismiss First Am.
Verified Compl. 1.
3
  804 A.2d 256, 266 (Del. 2002).
4
  Compl. ¶ 18. The “Agreement” is defined as “a November 17, 2014 agreement
for the sale of 1,666,666.67 shares of Advaxis unregistered common stock to KCM
at a price of $3 per share, for a total purchase price of $5 million.” Compl.
introductory paragraph.
5
  RBC Capital Mkts., LLC v. Educ. Loan Trust IV, 87 A.3d 632, 639 (Del. 2014).
Knoll Capital Management L.P. v. Advaxis, Inc.
C.A. No. 11417-VCN
January 29, 2016
Page 4



board approved the sale alleviates the need, for the moment at least, to consider

KCM’s arguments that the Advaxis board had a pattern of authorizing its Chief

Executive Officer to make such deals on his own but with the understanding that

the board would support or approve them as necessary, or more specifically, that

the board viewed an agreement as final when this Chief Executive Officer made

his commitment.

      Next, the Court must consider whether a failure to satisfy the Grimes

requirement of a writing can be treated as a defective corporate act that could be

cured under 8 Del. C. § 205 (“Section 205”).6 For example, the Court “may . . .

[d]etermine the validity of any corporate act or transaction and any stock, rights or

options to acquire stock.”7 As a result, the Court “may . . . [v]alidate and declare

effective any defective corporate act.”8 A “defective corporate act” includes “any

act or transaction purportedly taken by or on behalf of the corporation that is, and

at the time such act or transaction was purportedly taken would have been, within

the power of a corporation . . . but is void or voidable due to a failure of

6
  Advaxis has not challenged KCM’s standing to pursue a claim under Section 205.
7
  8 Del. C. § 205(a)(4).
8
  Id. § 205(b)(2).
Knoll Capital Management L.P. v. Advaxis, Inc.
C.A. No. 11417-VCN
January 29, 2016
Page 5



authorization.”9 Here, Advaxis’s Chief Executive Officer undertook on behalf of

Advaxis a transaction to issue and sell to KCM common stock of Advaxis; at the

time, had it been done properly, Advaxis could have issued that stock. Advaxis

claims that the transaction is ineffective—whether void or voidable does not matter

in this instance—“due to a failure of authorization.” Again, the board did not

authorize, or so Advaxis claims, the issuance and sale of shares to KCM.

Furthermore, “failure of authorization” includes “the failure to authorize or effect

an act or transaction in compliance with the provisions of this title,” or the “failure

of the board of directors . . . to authorize or approve any act or transaction taken by

or on behalf of the corporation that would have required for its due authorization

the approval of the board of directors.”10 As set forth, Advaxis’s argument against

being bound by the alleged agreement with KCM turns on a failure of

authorization. As pled, KCM’s claim conceivably falls within Section 205 and the

two definitions—defective corporate act and failure of authorization—that are

drawn from 8 Del. C. § 204.


9
    Id. § 204(h)(1).
10
     Id. § 204(h)(2).
Knoll Capital Management L.P. v. Advaxis, Inc.
C.A. No. 11417-VCN
January 29, 2016
Page 6



      Thus, the question becomes: whether the Court may validate the defective

contract for the sale of stock and require Advaxis to comply with its terms. If the

board, as alleged in paragraph 18 of the Complaint, authorized the sale of stock,

the question becomes less difficult. However, even if the board did not authorize

the sale of stock, the defective corporate act arguably falls within the remedial

scope of Section 205.

      The recent legislation empowering the Court to validate ineffective (void or

voidable) corporate acts is broad in scope. Advaxis has not explained why a

failure to satisfy Grimes should not be treated as any other failure to comply with

the DGCL or governing common law.

      Perhaps as a matter of discretion, the Court would not, in effect, order the

consummation of an oral agreement for the sale of corporate stock. Because of the

breadth of discretion accorded the Court, motions to dismiss in this context may be

problematic. For instance, Advaxis points to one instance where a board’s long-

term acknowledgement of (or acquiescence in) a stock issuance was given

significant weight in determining that a defective corporate act reflected the
Knoll Capital Management L.P. v. Advaxis, Inc.
C.A. No. 11417-VCN
January 29, 2016
Page 7



board’s intentions and understanding.11     Here, the Advaxis board rejected the

notion of a KCM transaction no more than a few days after it was allegedly made.

By Section 205(d)(2), the Court, in deciding whether to validate a defective

corporate act, “may consider . . . [w]hether the corporation and board of directors

has treated the defective corporate act as a valid act or transaction.” Thus, the

decision to consider how the corporation treated the defective corporate act over

time is committed to the Court’s discretion. Long-term acknowledgement of the

act is not a statutory requirement. Accordingly, the prompt turnaround (if that is

what happened) in corporate thinking about the KCM transaction may be a

pertinent consideration, but it is not necessarily determinative and offers Advaxis

no comfort in the context of its motion to dismiss.

        In sum, the Complaint alleges a defective corporate act and Advaxis has not

demonstrated that it is not reasonably conceivable that KCM could obtain the relief




11
     See In re Numoda Corp., 2015 WL 6437252, at *3 (Del. Oct. 22, 2015).
Knoll Capital Management L.P. v. Advaxis, Inc.
C.A. No. 11417-VCN
January 29, 2016
Page 8



which it seeks under Section 205.12 Accordingly, Advaxis’s motion to dismiss is

denied.13

      IT IS SO ORDERED.

                                       Very truly yours,

                                       /s/ John W. Noble
JWN/cap
cc: Register in Chancery-K

12
   KCM sponsors other theories supporting its claim to a right to purchase the
Advaxis shares. Those contentions tend to coalesce into a mix of equitable factors
that might inform the Court’s exercise of discretion under Section 205, even if the
factors are not outcome determinative on their own. Moreover, those theories, if
KCM is successful in its Section 205 efforts, would be enhanced and KCM might
be entitled to recovery under several different theories. As pled, KCM’s other
theories may not be dependent upon relief under Section 205, but they become
viable, even if ultimately unnecessary, following success under Section 205.
   Advaxis may be frustrated because the Court must accept the well-pled (even if
barely) allegations made by KCM. The key component of a Section 205 analysis
involves the discretion of the Court, and, in the context of a motion to dismiss, the
Court not only takes the facts as alleged in the Complaint, but it also, on these
facts, cannot conclude how it would exercise its discretion after assessing the facts.
If it is reasonably conceivable that the exercise of discretion would lead to a
balancing in Plaintiff’s favor, the motion to dismiss fails. It appears that KCM’s
factual pathway to the relief it seeks may be narrow and that there are at least some
factors that might induce an exercise of discretion in favor of Advaxis.
Nonetheless, the standard for a motion to dismiss is not whether the plaintiff may
have a rocky road ahead.
13
   With this conclusion, the stay of discovery, entered on October 12, 2015, is
vacated.
