Opinion ID: 2075806
Heading Depth: 1
Heading Rank: 2

Heading: STAAR's Reincorporation in Delaware and Proposal 2

Text: STAAR's California certificate of incorporation authorized the board to issue twenty million shares of common stock; it contained no authority to issue preferred stock. By contrast, STAAR's Delaware certificate of incorporation expressly authorized the board to issue both common and preferred stock. Article Fourth of the Delaware certificate provides: (a) The Corporation shall be authorized to issue THIRTY MILLION (30,000,000) shares, consisting of TWENTY MILLION (20,000,000) shares of Common Stock, each of the par value of $.01 (Common Stock) and TEN MILLION (10,000,000) shares of Preferred Stock, each of the par value of $.01 (Preferred Stock). (b) The designations and the powers, preferences and rights, and the qualifications or restrictions thereof are as follows: Except as otherwise required by statute or provided for by resolution or resolutions of the Board of Directors, as hereinafter set forth, the holders of the Common Stock of the Corporation shall possess the exclusive right to vote for the election of directors and for all other corporate purposes. The Preferred Stock shall each be issued from time to time in one or more series, with such distinctive serial designations as shall be stated and expressed in the resolution or resolutions providing for the issue of such shares from time to time adopted by the Board of Directors; and in such resolution or resolutions providing for the issue of shares of each particular series the Board of Directors is expressly authorized to fix the annual rate or rates of dividends for the particular series and the date from which dividends on all shares of such series issued prior to the record date for the first dividend payment date shall be cumulative; the redemption price or prices for the particular series; the rights, if any, of holders of the shares of the particular series to convert the same into shares of any other series or class or other securities of the Corporation or of any other corporation, with any provisions for the subsequent adjustment of such conversion rights; and to classify or reclassify any unissued Preferred Stock by fixing or altering from time to time any of the foregoing rights, privileges and qualifications. Notably absent from the various powers, preferences and rights enumerated in the third paragraph of subsection (b) of the Delaware certificate was any reference to voting rights or super-majority voting rights. The decision to reincorporate in Delaware and to authorize the Board to issue preferred stock stemmed from two proposals presented to shareholders at the annual meeting on March 17, 1986. Proposal 2 is the significant issue here. It purported to amend STAAR's articles of incorporation to authorize ten million shares of preferred stock at $1.00 par value per share. Proposal 3 was to reincorporate STAAR in Delaware. The parties do not dispute that Proposal 3 was adopted. Both recognize that STAAR filed a valid certificate of incorporation in Delaware on April 3, 1986, approximately two weeks after the annual meeting. The parties' disagreement focuses on Proposal 2. The trial court concluded that [t]he record does not disclose whether [Proposal 2] was adopted. Laster, slip op. at 34. The evidence at trial centered on the testimony of STAAR's corporate counsel, Elliot H. Lutzker (Lutzker), who prepared the Delaware certificate. At his deposition, Lutzker testified that he used and relied upon Proposal 2 in preparing the new certificate, but his testimony as to whether Proposal 2 was adopted and meant to apply to the Delaware certificate was equivocal. Before looking at the proxy materials he stated that there was no action ... taken vis-a-vis the California certificate of incorporation. After examining the proxy materials, he stated that the proposed amendment (Proposal 2) was approved by the stockholders, although he remained uncertain whether it applied to the California or the then unformed Delaware corporation. Adding to the confusion, Lutzker repeatedly testified that there was no error in the Delaware certificate as originally filed. [6] The other evidence of record is no clearer than Lutzker's testimony. The proxy statement for the annual meeting did not state whether Proposal 2 related only to the then-existing California certificate or also to a new Delaware certificate (in the event Proposal 3 was adopted). Moreover, aside from Lutzker's testimony, there is no evidence that Proposal 2 was adopted. Although the California certificate authorized the issuance of preferred shares, it did not use the language of the amendment in Proposal 2. Proposal 2 authorize[d] the Board of Directors to determine, among other things, with respect to each series of Preferred stock which may be issued ... whether, and to what extent, the holders of the series would have voting rights in addition to those prescribed by law. By contrast, the Delaware certificate made no reference to the Board's authority to determine the voting rights of preferred shareholders. It also contained the paragraph under Article FOURTH, subsection (b) beginning Except as otherwise required, yet the original Proposal 2 had no such paragraph.