Opinion ID: 2075806
Heading Depth: 1
Heading Rank: 3

Heading: The Board's Alleged Approval and Issuance of Convertible Preferred Stock to Waggoner

Text: We thus return to the December 13 board meeting, at which the arrangements with Waggoner to guarantee certain STAAR debts were first proposed. This was followed by the board meeting on December 17. The trial court described this latter meeting as follows: The December 17 meeting was conducted by telephone with little or no advance notice, and lasted for approximately 25 minutes. Dr. Utrata, a Board member of only four days' standing, participated between performing surgical operations. Mr. Ford, a trial attorney, participated while speaking from his car phone and while traveling between court appearances. According to the minutes, Mr. Silverman was absent for a portion of the discussion, and Mr. Sodero, a fourth director, intended to (and did) resign at the conclusion of that meeting, to be replaced by Dr. Brown. Laster, slip op. at 8. The minutes of the December 17 meeting, prepared by Lutzker, recite that the Board approved the following resolution: RESOLVED, that pursuant to the authority granted to the Board of Directors in the Certificate of Incorporation, as amended, the Board hereby authorizes the creation of a series of Convertible Preferred Stock, all of which shall be held by Tom Waggoner, or his designees, which shall be converted into two million shares of Common Stock after January 16, 1988, unless all of the personal guarantees and stock pledges of Common Stock by Tom Waggoner now or hereafter in effect are removed, or a binding agreement to such effect is in place by January 16, 1988. In the event that all of the Waggoner guarantees are removed by January 16, 1988, all of the shares of Convertible Preferred Stock shall be redeemed by the Company at $.01 per share. In the event that the two million shares of Common Stock are issued to Tom Waggoner, all of the remaining Convertible Preferred Stock shall be redeemed if all of the Waggoner guarantees and stock pledges are removed. Holders of the Convertible Preferred Stock shall be entitled to elect a majority of the Company's directors and to otherwise vote a majority of the Shares of Common Stock outstanding at any time. The shares of Convertible Preferred Stock, in accordance with the provision of the SEC's safe-harbor rule, shall have a liquidation preference however, [sic] not entitle the holder to any dividends. The trial court found that this resolution was never formally approved by the board. Only Waggoner signed the minutes of the December 17 meeting. Nevertheless, on December 18, 1987, Waggoner was issued 100 shares of preferred stock with the following special rights and preferences. [7] First, Waggoner was authorized to convert one share of the preferred stock into two million shares of common stock unless all of his personal guarantees and pledges were cancelled by January 16, 1988. [8] Second, even after converting one share of the preferred stock into two million shares of common stock, Waggoner retained voting control by virtue of the preferred stock's super-majority voting rights so long as any of his personal guarantees remained outstanding. The Certificate of Designations was signed by Waggoner and Lutzker, but subsequently the rights and preferences were detailed in press releases, memoranda, and Securities and Exchange Commission filings sent to, and in some cases signed by, the directors.