Court Opinion

ID: 9722357
Source: CourtListenerOpinion
Date Created: 2023-08-26 09:26:44.072671+00
Date Added: 2024-06-11T18:24:34.429062
License: Public Domain

K. N. Sanborn, J.
(dissenting). I respectfully dissent from the majority conclusion that the "powers, preferences or special rights” of the preferred shareholders would not be affected by the amendment. The specific provisions of the amendment affecting conversion rights provide:_
*456"A. 1. In addition to any affirmative vote required by law or these Articles of Incorporation, and except as otherwise expressly provided in paragraph B:
"(c) the issuance or transfer by the Corporation or any Subsidiary (in one transaction or a series of related transactions) of any securities of the Corporation or any Subsidiary to any Interested Shareholder or any Affiliate of any Interested Shareholder in exchange for cash, securities or other property (or a combination thereof) having an aggregate fair market value of $1,000,000 or more * * *
«* * * shall require the affirmative vote or consent of the holders of at least a majority of the outstanding non-Interested shares of Common Stock and Preferred Stock of the Corporation considered for the purposes of this Article as one class * *
Thus, the transfer by the corporation of securities (common stock) for securities (preferred stock) to any interested shareholder or their affiliate, in excess of $1,000,000, requires a majority vote of the outstanding noninterested shares of common and preferred stock. Plaintiffs’ shares are valued in excess of $1,000,000. If they become interested shareholders or affiliated with interested shareholders and attempt to convert their preferred stock for common stock, a majority of the vote of the noninterested shareholders would be required.
I recognize that plaintiffs’ right to convert is not denied. However, that right is restricted under the provisions of the amendment. The "special right” of conversion is "altered or changed” so as to adversely affect the class of preferred shareholders. The entire class is affected since only preferred shareholders have conversion rights. Plaintiffs therefore were entitled to vote as a class on the proposed amendment.
Contrary to defendant’s contention that some *457future right is involved, the proposed amendment would presently alter the conversion rights although the changes may not actually be invoked by an exercise of conversion rights until some future time.
This conclusion is bolstered by § 301 of the Michigan Business Corporation Act, MCL 450.1301; MSA 21.200(301). Subsection (3) provides that "each share shall be equal to every other share of the same class”, subject to § 302 (MCL 450.1302; MSA 21.200[302]) which allows division of a class of stock into series. Sections 301 and 302, when read together, require that if a class of stock is not divided into series, each share within the class must possess the same rights and powers, while if the class is divided into series, each share within the series must possess the same rights and powers. In the case at bar, plaintiffs are the holders of Preferred Series A, the series of preferred stock having conversion rights. As shown above, under some circumstances, the proposed amendment could operate to take away plaintiffs’ right to vote their shares while leaving the other holders of the same series free to vote their shares. The amendment would have the same effect on holders of common stock, creating an inequality between those common shareholders who were the "beneficial owners” of 10 percent or more of the outstanding common stock and other holders of common stock. Accordingly, since the proposed amendment attempts to create an inequality within the series of preferred stock possessing conversion rights, and within the class of common stock, it violates § 301 and § 302, and is, therefore, invalid.
Defendant in its brief cites the Delaware case of Providence & Worcester Co v Baker, 378 A2d 121 (Del, 1977), in an effort to avoid this interpretation *458of MBCA §§ 301, 302. Defendant’s reliance on this case is misplaced. Delaware’s Business Corporation Act contains no counterpart to MBCA § 301. Providence & Worcester was decided on the basis of the Delaware counterpart of MBCA § 441 (MCL 450.1441; MSA 21.200[441]), which provides that "unless otherwise provided in the articles of incorporation” each outstanding share is entitled to one vote. Obviously, the amendment involved in the case at bar does not violate § 441, as the inequality in voting rights is to be included in the articles of incorporation. The inequality in voting rights involved in Providence & Worcester was valid for the same reason. But § 301 of the Michigan Business Corporation Act requires a different result when an inequality in voting rights within a class or series is established by amendment of the articles or otherwise.
Since plaintiffs were entitled to vote as a class, the amendment was defeated. I would reverse the trial court.