Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

In re Appraisal of Goodcents Holdings, Inc.

Court of Chancery of Delaware

June 7, 2017

IN RE APPRAISAL OF GOODCENTS HOLDINGS, INC.

          Date Submitted: March 9, 2017

          Marcus E. Montejo, Kevin H. Davenport, and John G. Day, PRICKETT, JONES & ELLIOTT, P.A., Wilmington, Delaware; Attorneys for Petitioners.

          Brock E. Czeschin and Sarah A. Galetta, RICHARDS, LAYTON & FINGER, P.A., Wilmington, Delaware; Charles E. Elder, IRELL & MANELLA LLP, Los Angeles, California; Attorneys for Respondent.

          MEMORANDUM OPINION

          MONTGOMERY-REEVES, Vice Chancellor.

         This is an 8 Del. C. § 262 appraisal action stemming from a 2015 merger. The preferred stockholders of the target company were entitled to an approximately $73 million liquidation preference, [1] but the merger valued the target at approximately $57 million. According to the company's interpretation of its certificate of incorporation, the merger triggered the preferred stockholders' liquidation preference. As such, the preferred stockholders were paid the entire merger consideration, and the common stockholders received nothing. Petitioners are common stockholders who argue that the merger did not trigger the liquidation preference in the certificate of incorporation. Instead, they assert that the certificate of incorporation provides the preferred stockholders with a class vote or blocking right in the case of a merger. Petitioners, thus, contend that the fair value of the company should be allocated pro rata among the common stockholders and the preferred stockholders on an as-converted basis.

         Petitioners and Respondent both move for partial summary judgment on the question of the proper allocation of the fair value of the company among the preferred and common stockholders. Based on the plain meaning of the certificate of incorporation, and because this Court previously considered nearly identical language and deemed it a voting provision rather than an entitlement to a liquidation preference, I hold that the certificate of incorporation provides only a voting right. Thus, I grant Petitioners' motion for partial summary judgment.

         I. BACKGROUND

         The facts in this opinion are undisputed and derive from the documents attached to the affidavits of Marcus E. Montejo and Charles E. Elder. The parties have not argued that there exists a genuine dispute of material fact. As such, under Court of Chancery Rule 56(h), I consider these cross motions for summary judgment on a stipulated record.[2]

         A. Parties

         Respondent GoodCents Holdings, Inc. ("GoodCents") is a privately held Delaware corporation that works with utility companies to optimize both residential and commercial consumption of power. It merged into AM Conservation Group, Inc. ("AMCG") in 2015.

         Dalford Lynn England is the founder and a common stockholder of GoodCents. England was originally a petitioner in this case, but he has since been substituted by Chapter 11 bankruptcy trustee Janet G. Watts.[3]

         Petitioner Clayt Mason is the only other common stockholder of GoodCents.

         B. Facts

         England founded GoodCents approximately 16 years ago. In 2007, GFI Energy Ventures, LLC ("GFI") acquired GoodCents through a merger. Under the terms of the merger, England and Mason collectively reinvested $8.7 million into GoodCents and became the sole owners of GoodCents common stock. Their common stock represented 18.21% of the voting power of GoodCents. Also in connection with the merger, GoodCents issued Series 1 Cumulative Convertible Preferred Stock (the "Preferred Stock") to OCM/GFI Power Opportunities Fund II, L.P. and OCM/GFI Power Opportunities Fund II (Cayman), L.P., two GFI affiliates (the "Preferred Stockholders"). Together, the Preferred Stockholders control the other 81.79% of GoodCents's voting power.

         In the summer of 2015, the common stockholders received from GoodCents a Notice to Stockholders of Appraisal Rights and of Action by Written Consent of Less Than All of the Outstanding Shares of Capital Stock, dated July 24, 2015 (the "Notice").[4] The Notice indicated that GoodCents had been sold to AMCG. The merger consideration was $33 million in cash, subject to a working capital adjustment, [5] and GoodCents was permitted to use approximately $24 million in cash on hand to redeem shares of the Preferred Stock.[6] The common stockholders seek appraisal because they received none of the approximately $57 million in cash paid to the Preferred Stockholders.

         The GoodCents Amended and Restated Certificate of Incorporation (the "Certificate of Incorporation" or "Certificate") contains the Preferred Stockholders' rights and preferences.[7] Under the Certificate of Incorporation, the Preferred Stockholders are entitled to cumulative dividends as follows:

Subject to clause 2.b below, the holders of shares of the Series 1 Cumulative Convertible Preferred Stock shall be entitled to receive dividends, out of any assets legally available therefor, prior and in preference to any declaration or payment of any cash dividend on the Common Stock or any other Junior Stock of this corporation, dividends per share computed at the rate of 8% per annum, compounded annually based on the Original Issue price . . . .[8]

         But generally, the Preferred Stockholders cannot be paid a dividend unless the common stockholders receive an equal dividend per share on an as-converted basis. Clause 2.b states, in part, that:

[E]xcept in a transaction governed by Section B.6 of this Article V, the corporation shall not declare, pay or set aside any dividends on shares of Series 1 Cumulative Convertible Preferred Stock unless the holders of the Common Stock then outstanding simultaneously receive a dividend on each outstanding share of Common Stock equal to the per share dividend (determined on an as if converted basis) to be declared, paid or set aside for the Series 1 Cumulative Convertible Preferred Stock.[9]

         The exception to that rule is for transactions governed by section B.6 of article V, which includes the Preferred Stockholders' right to a liquidation preference (the "Liquidation Preference"). Section B.6 states, in part, that:

a. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the corporation, the holders of shares of Series 1 Cumulative Convertible Preferred Stock then outstanding shall be entitled to be paid out of the assets of the corporation available for distribution to its stockholders, before any payment shall be made to the holders of shares of Junior Stock [including Common Stock], by reason of their ownership thereof, an amount equal to the greater of (x) the Original Issue Price per share . . . plus any dividends declared and/or accrued but unpaid thereon . . ., or (y) such amount per share as would have been payable had each such share been converted into Common Stock pursuant to Section B.4 immediately prior to such liquidation, dissolution or winding up.
b. If upon any such liquidation, dissolution or winding up of the corporation, the remaining assets of the corporation available for distribution to its stockholders shall be insufficient to pay the holders of shares of Series 1 Cumulative Convertible Preferred Stock the full amount to which they shall be entitled, the holders of Series 1 Cumulative Convertible Preferred Stock . . . shall share ratably in any distribution of the remaining assets and funds of the corporation in proportion to the respective amounts which would otherwise be payable in respect of the shares held by them upon such distribution if all amounts payable on or with respect to such shares were paid in full.
c. Without the affirmative vote of the holders of a majority of the Series 1 Cumulative Convertible Preferred Stock, the corporation [i.e. GoodCents] 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 . . . shall be distributed to the holders of capital stock of the corporation in accordance with Sections B.6.a. and B.6.b above.[10]

         This dispute focuses on the meaning of article V, section B.6.c.

         C. Procedural History

         Petitioners filed the petition for appraisal in this case on November 18, 2015, and Respondent answered on December 18, 2015. The parties conducted discovery, and Respondent moved for partial summary judgment on August 26, 2016. Petitioners cross moved for partial summary judgment on January 19, 2017, and the Court heard oral argument on the motions on March 9, 2017. This opinion resolves the ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.