Alcon Research, LLC v. Aurion Biotech, Inc., C.A. No. 2024-1102-KSJM (Del. Ch. Jan. 27, 2025)

In this post-trial opinion, the Court of Chancery addressed three conflicts between a preferred stock investor and a corporation seeking to complete an IPO. The Court ruled that (i) the investor’s claims were not barred by laches, (ii) the investor’s consent rights could not stop the company from effecting a reverse stock split, and (iii) the investor could revoke a voting proxy set forth in a voting agreement.

Background

In 2022, defendant Aurion Biotech, Inc. (“Aurion”) pursued a Series C financing. Among the Series C investors was plaintiff Alcon Research, LLC (“Alcon”). In total, Alcon agreed to invest $40 million for approximately 36% of the Series C Preferred Stock. The amended and restated certificate of incorporation (the “Certificate of Incorporation”) adopted in connection with the Series C financing also gave Alcon consent rights for certain decisions.

On the eve of closing, Alcon realized it might have a “potential accounting issue” if it possessed more than 20% of Aurion’s voting power. To address the issue, the parties agreed to a voting proxy for Aurion’s CEO or CFO to vote all of Alcon’s shares in excess of 19% in the same proportion as all other shares of Series C Preferred Stock (the “Voting Proxy”). The Voting Proxy was set forth in a voting agreement between the Aurion and several of its stockholders (the “Voting Agreement”).

In June 2024, the Aurion Board of Directors established a Special Committee to negotiate an IPO or alternative financing transaction. Alcon did not support an IPO and began negotiations to acquire Aurion. During negotiations, the Special Committee continued to pursue an IPO. When Alcon learned this, it informed Aurion that it would not consent to any IPO. Alcon then revoked the Voting Proxy so it could vote with all of its shares.

In mid-October, the Aurion Board of Directors voted to proceed with an IPO over the objections of Alcon. However, without Alcon’s support, there were not enough existing authorized shares of Common Stock to complete the IPO. And, per the Certificate of Incorporation, Aurion could not increase the number of shares without Alcon’s consent.

On October 28, 2024, Alcon filed for declaratory judgment in the Court of Chancery. It sought findings affirming that Aurion needed its consent to increase the number of authorized shares and that Alcon lawfully revoked the Voting Proxy. Aurion then sought a counterclaim declaration that Alcon did not validly revoke the Voting Proxy.

On December 16, 2024—during litigation—Aurion effected a reverse stock split (the “Reverse Stock Split”). The Reverse Stock Split reduced Alcon’s percent control and created the headroom Aurion needed to complete an IPO. In response, Alcon sought an additional declaration that the Reverse Stock Split required its consent under the Certificate of Incorporation.

Analysis

Laches

The Court of Chancery made quick work of Aurion’s laches defense. Aurion argued that Alcon was on notice of an imminent IPO in June 2024 (when the Aurion board voted to explore an IPO through a Special Committee). But Alcon sought information and invoked its consent rights within weeks, was excluded from the Special Committee, had no reason to believe the IPO was imminent because Aurion continued to negotiate an acquisition by Alcon, and any delay after Alcon learned the IPO was imminent could be attributed to Alcon’s efforts to resolve the disagreement out of court.

Consent to the Reverse Stock Split

Alcon argued that the Reverse Stock Split required its consent under the Certificate of Incorporation. The Certificate of Incorporation required the consent of Alcon to, directly or indirectly, (i) increase the number of shares or (ii) acquire any shares of capital stock. The Court of Chancery rejected each argument in turn. The Court also explained stock preferences are in “derogation” of the common law and therefore must be strictly construed.

First, the Court found that the Reverse Stock Split did not increase the number of authorized shares, directly or indirectly. The total number of authorized shares remained the same before and after the reverse stock split. But Alcon argued that executing the Reverse Stock Split was the “functional equivalent” of increasing the number of shares because it reduced Alcon’s percent ownership. The Court rejected this argument. Even if the substantive outcome of a share increase and a reverse stock split was similar—Alcon lost the share ownership it needed to prevent the IPO—the forms of corporate action leading to that outcome differed. The Delaware General Corporation Law (the “DGCL”) distinguishes between an amendment to change the number of authorized shares and an amendment that combines issued stock into “lesser numbers.” Because a share increase and a reverse stock split are separate mechanisms under the DGCL, they have independent legal significance.

Second, the Court found that Aurion did not acquire shares through the Reverse Stock Split. Alcon argued that Aurion effectively “acquired” the Common Stock shares because Aurion gained possession or control of additional shares of Common Stock through the Reverse Stock Split. The Court rejected that argument because the Reverse Stock Split was a reclassification of existing shares under Section 242 of the DGCL, so it had independent legal significance from an acquisition of shares under Section 160 of the DGCL.

Alcon also argued that the Reverse Stock Split’s cash out of fractional shares constituted a purchase or redemption of those shares. However, under Section 155 of the DGCL, Aurion did not purchase or redeem the fractional shares—it merely cancelled and converted them into the right to receive equivalent value in cash.

Revocation of the Voting Proxy

Finally, the Court of Chancery found that Alcon was entitled to revoke the Voting Proxy. Delaware courts apply a presumption against disenfranchisement, so proxies are revocable unless expressly made irrevocable. The plain language of the Voting Agreement did not provide clear and convincing evidence that the parties intended for the Voting Proxy to be irrevocable.

The parties structured an irrevocable proxy elsewhere in the Voting Agreement, so the Court inferred that the parties knew how to create an irrevocable proxy but chose not to with the Voting Proxy.

Aurion also argued that Alcon needed its consent because the Voting Agreement required Aurion to consent to any amendments. But the Court determined that a consent requirement for amendments did not extend to revocations. Alcon had the authority to revoke the Voting Proxy.

Resolution

Alcon and Aurion filed a joint stipulation of dismissal with prejudice on April 4, 2025.

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