MOHAWK CARPET MILLS, Inc., a corporation of the State of New York, Plaintiff,
DELAWARE RAYON COMPANY, a dissolved corporation of the State of Delaware, Defendant.
New York corporation brought action against dissolved Delaware corporation. The Court of Chancery, in and for New Castle County, Marvel, Vice Chancellor, held that provision of corporate charter that in case of liquidation or dissolution of Delaware corporation, after payment of full par value of preferred stock, holders of Class A stock shall be entitled to receive cash to amount of par value of their Class A stock before any payment in liquidation is made to holders of Class B stock, is clearly exhaustive, and means that Class A stock shall have its par preference on liquidation and nothing more, and that remaining assets of corporation must be distributed among holders of Class B stock.
Order in accordance with opinion.
William S. Potter and John P. Sinclair of Berl, Potter & Anderson, Wilmington, and Coleman Taylor, Amsterdam, N. Y., for trustees in dissolution of Delaware Rayon Co.
William H. Foulk and Robert W. Wakefield, Wilmington, and Nathan Kosseff, New York City, for holders of 2195 shares of Class A stock objecting to plan of trustees for distribution of surplus on liquidation.
[35 Del.Ch. 52] MARVEL, Vice Chancellor.
In October 1954, Delaware Rayon Company was dissolved and trustees in dissolution were appointed to wind up the affairs of the company. The trustees filed a petition and report setting forth a liquidation plan, which was set down for hearing on objections and exceptions. Certain A stockholders have objected. The capital structure of Delaware Rayon Company originally consisted of authorized stock as follows: 4,500 shares of preferred stock of the par value of $100 per share, 150,000 shares of Class A stock of the par value of $15 per share and 150,000 shares of Class B stock of the par value of $15 per share.
The holders of the preferred stock under the terms of the corporate charter were entitled to a non-cumulative 7% preferred dividend, the balance of surplus and net profits after such dividends being payable to the Class A and Class B stock as hereinafter set forth. The corporate charter further provided that on liquidation the preferred stock was entitled to be paid its par value; thereafter
‘ Any amount of the assets of the company remaining after the payment of the par value of the preferred stock shall be paid to and distributed among the holders of the Class A Stock and the holders of the Class B Stock, in the manner hereinafter provided.’
The Class A stock was entitled to receive, after the payment of the preferred dividend, a dividend of 10% ‘ before any dividend shall be set apart or paid on the Class B Stock’ . After the payment of the 7% preferred dividend and the 10% dividend on the Class A stock ‘ any further amount declared
in dividends * * * shall be paid to the holders of the Class B stock, to the extent of 10% and should there be any further amount declared in dividends * * *, said further amount shall be divided pro rata among the holders of the Class A Stock and the holders of Class B Stock, in accordance with their holdings.’
Following the last quoted language appears the liquidation clause:
‘ In case of liquidation or dissolution of the company, after the payment of the full par value of the preferred stock, as hereinbefore [35 Del.Ch. 53] provided, the holders of the Class A Stock shall be entitled to receive cash to the amount of the par value of their Class A Stock before any payment in liquidation is made to the holders of the Class B Stock’ .
The charter also provides that the holders of the preferred and Class A Stock ‘ shall not be entitled * * * to any voice or vote in the management of the affairs of the corporation, nor shall they be entitled to notice of any meeting of the stockholders. The voting powers shall be confined to the holders of the Class B Stock’ .
At dissolution, the outstanding capital of the company consisted of 88,000 shares of Class A and 54,500 shares of Class B stock, all of the ...