The Delaware Chancery Court ruled against a preferred stockholder that objected to the conversion of the preferred stock into common stock. The company had issued common stock and two series of preferred stock—Series A Preferred and Series B Preferred. Under the company's charter, the holders of the Series B Preferred held a class voting right on any (i) action that would "alter or change" the Series B holders' rights and (ii) amendment to the company's charter. The company's charter further provided that the Series A Preferred and Series B Preferred would be converted automatically into common stock upon the approval of a majority of the Series A Preferred and Series B Preferred voting as a single class.
The conversion was approved by a majority of the Series A Preferred and Series B Preferred voting as a single class, but by less than a majority of the Series B Preferred. The objecting preferred stockholder claimed that the conversion required the separate approval by a majority of the Series B Preferred due to the conversion having the effect of "altering" the rights of the Series B Preferred.
In upholding the conversion, the court found that since the automatic conversion provision and the Series B Preferred approval rights existed on "equal footing" in the company's charter. As a result, the conversion was viewed as the exercise of an existing right that did not alter or change any of the Series B Preferred rights.
Greenmont Capital Partners I, LP v. Mary's Gone Crackers, Inc., C.A. No. 7265-VCP (Del. Ch. Sept. 28, 2012)