## Facts

- Mary’s Gone Crackers, Inc. had a charter authorizing common stock, Series A preferred, and Series B preferred.
- The charter granted Series B a separate class vote, for so long as any Series B remained outstanding, to approve any charter change or other action that altered Series B voting powers, preferences, rights, or restrictions.
- The charter also provided for automatic conversion of all preferred stock into common stock upon an affirmative election of holders of at least 51% of the outstanding preferred stock, voting together as a single class on an as-converted basis.
- The company obtained written consents from holders of more than 51% of all preferred stock (voting as a single class) to approve the automatic conversion, but did not obtain consent from a majority of Series B as a separate class.
- After the conversion approval, the board filed an amended and restated charter eliminating references to preferred stock to reflect the post-conversion capital structure.
- Greenmont Capital Partners I, L.P., a Series B holder, challenged the conversion and the charter amendment as invalid for lack of a separate Series B vote.

## Issues

1. Whether the charter required separate approval by a majority of Series B, in addition to the 51% single-class preferred vote, to effect the charter’s automatic conversion of preferred stock into common stock.
2. Whether the post-conversion charter amendment eliminating references to preferred stock required separate Series B approval under the charter’s Series B protective provisions.

## Decision

- The Court of Chancery entered judgment for the company.
- The automatic conversion was valid because the charter’s conversion provision required only the specified 51% single-class preferred vote and did not require a separate Series B vote.
- The charter amendment was valid because, after a valid conversion, no Series B remained outstanding and the Series B protective vote applied only while Series B shares were outstanding.

## Legal Principles

- A certificate of incorporation is construed as a contract; unambiguous terms are enforced as written and read as a whole to harmonize provisions.
- Rights and preferences of preferred stock are strictly construed; preferred holders possess only rights clearly expressed in the charter, and courts do not imply additional consent or veto rights.
- A general protective-vote provision will not be read to override a specific conversion mechanism expressly set out in the charter.
- Implementing a conversion right expressly provided in the charter is not treated as an amendment or alteration triggering additional series consents unless the charter clearly imposes that condition.
- Protective provisions limited to the period “so long as” a series remains outstanding cease to operate once the series has been eliminated through a valid conversion, and cannot be used to invalidate subsequent conforming amendments.

## Conclusion

The court upheld an automatic preferred-to-common conversion approved by the charter’s specified single-class preferred vote and refused to infer an additional Series B veto; once the conversion extinguished Series B, the Series B protective-vote clause no longer applied to a conforming charter amendment.


Greenmont Cap. Partners I, L.P. v. Mary’s Gone Crackers, Inc., 2012 WL 4479999 (Del. Ch. Sept. 28, 2012)