Francke v. Axton-Fisher Tobacco Co.

• Decision Date: 03 March 1942
• Citation: 289 Ky. 687
• Court: United States State Supreme Court — District of Kentucky
• Parties: Francke et al. v. Axton-Fisher Tobacco Co.

289 Ky. 687

Francke et al. v. Axton-Fisher Tobacco Co.

Court of Appeals of Kentucky. Chancery Branch, First Division.

March 3, 1942.

1. Pleading. — Plaintiffs, by demurring generally to defendant's answer, thereby admitted the facts set out in the answer.

2. Corporations. — Proposed plan for recapitalization of corporation by amending corporation's articles of incorporation so as to authorize the issuance of a specified number of shares of new prior preferred stock with priority over outstanding preferred and common stock in exchange for preferred stock and one type of common stock, did not violate the constitutional provisions that no corporation may issue stock except for an equivalent in money paid, labor done, or property actually received and applied to the purposes for which the corporation was created (Constitution, sec. 193).

3. Corporations. — Proposed plan for recapitalization of corporation by amending corporation's articles of incorporation so as to authorize the issuance of a specified number of shares of new prior preferred stock with priority over outstanding preferred and common stock in exchange for preferred stock and one type of common stock, does not violate the statutory provision that no preferred

stock of a corporation can be issued except for cash or its equivalent, nor for less than the par value of the shares (Ky. Stats., sec. 564-1).

4. Constitutional Law. — Proposed plan for recapitalization of corporation by amending corporation's articles of incorporation so as to authorize the issuance of a specified number of shares of new prior preferred stock with priority over outstanding preferred and common stock in exchange for preferred stock and one type of common stock, did not violate the vested rights of the holders of preferred stock and the type of common stock that was to be exchanged for the new preferred stock.

5. Corporations. — That provision of corporation's articles of incorporation that so long as any preferred stock or common stock of a certain type should remain outstanding, no other stock should be created, ranking on a parity with or in priority over such preferred stock and common stock of that type, without affirmative vote or written consent of holders of at least two-thirds of preferred stock and common stock of such type, did not prohibit amendments to articles of incorporation so as to authorize issuance of new stock in exchange for old preferred stock and common stock of such type further than to require written consent or affirmative vote of at least two-thirds of holders of stock affected.

Appeal from Jefferson Circuit Court.

Wilbur Fields for appellants.

Woodward, Dawson & Hobson for appellee.

Before Churchill Humphrey, Judge.

OPINION OF THE COURT BY JUDGE RATLIFF.

Affirming.

The appellants, who are the owners of certain stock of appellee, a corporation, hereinafter called the company, brought this action under the provisions of the Declaratory Judgment Act, Civil Code of Practice, Section 639a — 1 et seq., seeking a declaration of the rights of the parties with respect to the right of the company to carry into effect a proposed plan of recapitalization of the company by amending the Articles of Incorporation so as to authorize the issuance of a specified number of shares of new prior preferred stock with priority over the present outstanding preferred stock, Class A common stock and Class B common stock as to dividends, etc. One of the appellants is the owner of 52 shares of the preferred stock of the company; another one is the owner of 50 shares of Class A common stock; and the other one is the owner of 852 shares of Class B common stock, thus representing all classes of present outstanding shares of stock of the company. The facts set out in the petition and admitted in the answer are substantially these:

The authorized capital stock of the defendant company consists of 20,000 shares of preferred stock of the par value of $100 per share of which 14,136 shares are presently outstanding; 50,000 shares of Class A common stock of the par value of $10 per share of which 45,465 shares are presently outstanding; and 200,000 shares of Class B common stock of the par value of $10 per share, of which 112,012 shares are presently outstanding. The preferred stock carries an annual six per cent cumulative dividend rate payable quarterly and no dividend can be paid on or set apart to Class A common stock or Class B common stock until all accrued and unpaid dividends on the preferred stock have been fully paid or set apart for payment. The Class A common stock carries an annual cumulative dividend rate of $3.20 per share payable quarterly, and which must be paid on or set apart to said stock before any dividend can be paid on or set apart to the Class B common stock. After there had been paid on or set apart to Class B common stock in any one year a cash dividend of $1.60 per share or a stock dividend at the rate of seven per cent then the Class A common stock is entitled to participate equally as a class with the Class B common stock as a class in all additional dividends declared or paid in that year.

The Class B common stock has full voting power, but the preferred stock and Class A common stock have voting power only in event the company is in arrears in the payment of as many as four quarterly dividends, in which event the class of stock in respect of which such arrearage exists has equal voting power, share for share, with the Class B common stock, which voting power continues until all of said defaulted dividends have been paid. The whole or any portion of the preferred stock is subject to redemption on any quarterly dividend payment date at the price of $105 per share together with all unpaid and accrued dividends thereon; and the whole or any part of the Class A common stock is subject to redemption on any quarterly dividend payment date at the price of $60 per share together with all unpaid and accrued dividends thereon. In event of dissolution, liquidation, merger or consolidation of the company, or the sale of substantially all of its assets, there must be paid in respect of the outstanding preferred stock the sum of $105 per share together with all unpaid and accrued dividends thereon before any sum can be paid to or any assets distributed among the holders of the Class A common stock and Class B common stock, and after such payment in respect of the preferred stock and after the payment of all accrued and unpaid dividends on Class A common stock, the remaining assets and funds of the company must be distributed among and paid to the holders of the Class A common stock and the holders of the Class B common stock in the ratio of two to one; that is to say, there must be paid in respect of each share of Class A common stock twice the amount paid in respect of each share of Class B common stock.

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