Greenmont Capital Partners, I, L.P. v. Mary’s Gone Crackers, Inc., C.A. No. 7265-VCP (Del. Ch. Sept. 28, 2012).
This opinion addresses the interpretation of the rights of the holders of preferred shares as well as the terms of a certificate of incorporation. The opinion also provides drafting tips for those who craft corporate charters. (For purposes of a typical Chancery decision, this 23-page opinion is a short one.)
In the context of competing cross-motions for judgment on the pleadings, the following useful nuggets can be gleaned from this ruling:
- general principles of contract construction apply to the interpretation of a corporate charter.
- the certificate of incorporation, or corporate charter, “must expressly and clearly state any rights, preferences, and limitations of the preferred stock” that distinguish it from common stock. The same is true in connection with the rights of holders of different series of preferred stock. Slip op. at 7-8. See also footnote 27 and accompanying text.
- Drafting tips for those who draft certificates of incorporation were provided in the Delaware Supreme Court decision of Elliott Associates, L.P v. Avatex Corp., 715 A.2d 843 (Del. 1998), which is referenced in this opinion. The Avatex court instructed that in order to grant the right to vote on an “amendment, alteration, or repeal”, a drafter must “additionally indicate that the class vote applies when a merger results in an amendment, alteration or repeal.” Slip op. at 10. One way to accomplish this is to include the words “whether by merger, consolidation, or otherwise” in the appropriate provision in the certificate. See footnotes 17-18 and accompanying text. That was not enough to save the day in the instant case, however.
- Relying on the “bedrock doctrine of independent legal significance“, the court noted that satisfaction of the merger requirements of DGCL Section 251 was independent of the automatic conversion under the charter–and occured before the charter amendment. Thus, DGCL Section 242(b)(2) does not require a class vote on the charter amendment