and basis of converting the shares of each corporation into shares or other securities or obligations of the surviving or new corporation, and such other details and provisions as are deemed necessary. In this respect, the merger statute now in force does not materially differ from the merger statute in effect when the corporation was organized in 1922, i.e., the Act of May 3, 1909, 15 P.S. §§ 421, 425, which provided that the plan of merger shall set forth the manner and basis of converting the shares of each corporation into stock of the new corporation.
It is elementary law that the statutory provisions as to merger are written into every corporate charter. Every one who buys shares in a corporation is charged with notice of the statutory provisions as to merger with another corporation. See Federal United Corporation v. Havender, Del.Sup., 11 A.2d 331, 338.
Under the plan in the instant case, each preferred share (including accrued but unpaid dividends) was to be converted into, and exchangeable for one-half share of new preferred stock Series A, one-half share of new preferred stock Series B, and one and one-quarter shares of new common stock. It is our opinion that in a merger, preferred stock with its arrearages, may be legally converted into other securities, if the requisite number of shares thereof is voted in favor of such conversion. Where that is done, as in the instant case, the merger agreement may lawfully provide the terms on which the corporation's stock may be issued. Preferred stock has only such preferences or priorities as are expressly given to it under the corporate charter. In the instant case, it is merely provided that the preferred dividends "shall be paid or set apart for payment before any dividends on any other stock of the corporation shall be paid or set apart." There is no covenant to pay accumulated dividends on such stock in cash before a merger may take place. A contract of merger which provides for a conversion of shares of stock of merging corporations, and all rights appertaining thereto, is authorized by statute, and is not the taking of property without the due process of law. A dissatisfied shareholder can always secure the fair value of his shares under the provisions of Section 908 of the merger statute by petition to the Court of Common Pleas, in equity, within the county in which surviving corporation has its registered office, to have the fair value of his shares appraised. If that award is not paid, provision is made for judgment against the surviving corporation for the amount of such appraised fair value. By Pennsylvania Act of March 31, 1941, amending Section 908 of the Merger Statute, the remedy by appraisal is the only remedy the plaintiffs have in the instant case. The Act of 1941 adds the following clause to Section 908 of the Merger Statutes: "The rights and remedies at law or in equity of any shareholder who desires to object to, or to dissent from, any merger or consolidation shall be limited to those prescribed under this section, and such rights and remedies under this section shall be exclusive." Subd. C.
It is our opinion, therefore, that merger in the instant case was valid, and that the plaintiffs' only remedy is that afforded by the statutory appraisal proceedings.
This view is supported by the following cases: Beechwood Securities Corp. v. Associated Oil Co., 9 Cir., 104 F.2d 537; Windhurst v. Central Leather Co., 101 N.J.Eq. 543, 138 A. 772; Id., 105 N.J.Eq. 621, 149 A. 36; Id., 107 N.J.Eq. 528, 153 A. 402; MacFarlane v. North American Cement Corp., 16 Del.Ch. 172, 157 A. 396; Federal United Corporation v. Havender, Del.Sup., 11 A.2d 331.
As to the contention of the plaintiffs that the plan of merger should be invalidated because it is unfair, we cannot find that it is unfair. The financial history of the defendant, as shown by the evidence, indicates that from its organization in 1922 to December 31, 1930, the Company was prosperous, earning substantial profits and paying each year the preferred dividends in full.The total net profits during this period, after payment of $32,000,000 preferred dividends, was $69,000,000, of which $16,000,000 was distributed in common stock dividends, and the balance retained in the business. In the next ten years, however, conditions changed. The corporation lost money in six of these years; its operations were way below its operating capacity; and it had a net loss of $300,000 not including payments on preferred dividends. On December 31, 1940, the arrears on accumulated preferred dividends amounted to $45 per share, or $26,421,255. During the last half of 1936, and the first half of 1937, business began to improve; and the Company was faced with the problem of paying off or funding the dividend arrears. It made a study of the problem, securing advice from the Mellon Securities Corporation and of others, including the Metropolitan Life Insurance Company; Moddy's; Morgan, Stanley & Company, Inc.; National City Bank; and Standard Statistics Corporation. The Company then proposed the plan here under consideration, which was carefully weighed and studied, and which was approved by the requisite majority of all the stockholders of the corporations involved. We cannot say the plan in unfair, just because it does not provide for the payment in cash of the deferred dividends.
The plaintiffs contend the plan confiscates their vested rights to have the preferred dividends paid in cash. With this contention we cannot agree, because the plaintiffs have adequate protection in the Pennsylvania appraisal statute.The remedy afforded by that statute is exclusive.
The plaintiffs further contend that at least nothing has occurred to disturb the position of the preferred stockholders; that therefore the stock of the dissenting preferred stockholders should be left outstanding and unimpaired as the senior stock issue of the Company. The answer to that proposition is that there is no statutory provision for that kind of a merger, and that this court would have no authority to set up by court decree a superior preferred stock for any corporation.
We therefore conclude that the complaint in this case should be dismissed. Findings of fact and conclusions of law in accordance with this opinion may be submitted by defendant's counsel on notice to opposing counsel.
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