The recent decision in In re Appraisal of GoodCents Holdings, C.A. No. 11723-VCMR (Del. Ch. June 17), illustrates that courts are reluctant to imply preferred stockholder rights that are not clearly set forth in the documents containing the preferred stock terms. In GoodCents, Vice Chancellor Tamika Montgomery-Reeves held that a disputed provision in a company's certificate of incorporation granted preferred stockholders the right to a class vote, but not the right to a liquidation preference in lieu of a class vote, in the event of a merger.

Background

In July 2015, GoodCents entered into a merger transaction. Because the merger consideration was less than the liquidation preference GoodCents believed its preferred stockholders were entitled to in the event of a merger, the preferred stockholders received all of the merger proceeds and the common stockholders, the two founders of GoodCents' predecessor entities, received no consideration. In November 2015, the two former common stockholders brought an appraisal action, arguing that, for purposes of the appraisal, the holders of common stock and preferred stock should be treated pro rata, with the preferred stock entitled to consideration on an as-converted-to-common basis. The parties subsequently cross-moved for partial summary judgment on the proper allocation of the fair value of GoodCents among common and preferred stockholders.

Under Article V, Section B.2b of GoodCents' amended and restated certificate of incorporation, “except in a transaction governed by Section B.6,” the preferred stockholders of GoodCents cannot be paid a dividend unless the common stockholders receive an equal dividend per share on an as-converted basis.

Sections B.6.a and B.6.b set forth a liquidation preference in the event of a “liquidation, dissolution or winding up of the corporation.” Section B.6.c provides: “Without the affirmative vote of the holders of a majority of the series 1 cumulative convertible preferred stock, the corporation shall not … effect any merger or consolidation … unless the agreement or plan of merger … shall provide that the consideration payable to the stockholders of the corporation … or consideration payable to the corporation … shall be distributed to the holders of capital stock of the corporation in accordance with Sections B.6.a and B.6.b above.