APPEAL from the Superior Court of Cook County; the Hon. JOHN
A. SBARBARO, Judge, presiding.
MR. JUSTICE HERSHEY DELIVERED THE OPINION OF THE COURT:
Rehearing denied September 22, 1959.
This is an equity proceeding for a declaratory judgment seeking to determine the validity of a 1954 amendment to the articles of incorporation of the defendant, Armour and Company, an Illinois corporation. The plaintiffs-appellants here seek to have the amendment declared invalid and further seek a declaration that action taken pursuant to that amendment be declared ineffective.
The original plaintiffs, as well as the intervenors, are owners of cumulative convertible prior preferred stock of Armour and Company, hereinafter referred to as "Armour." The stock will, in this opinion, be referred to as the "prior stock." The plaintiffs assert that the 1954 plan of recapitalization contained in the amendment operates to deprive them of rights and privileges as holders of the prior stock contrary to constitutional inhibitions.
The case was heard below on an agreed statement of facts, documents, and testimony. The trial court, in a written opinion, found the issues for the defendants and held the recapitalization plan as embodied in the amendment to the articles of incorporation to be valid and further held that the applicable sections of the Business Corporation Act that were construed as the statutory basis for the authorization of the amendment were constitutional.
Constitutional questions having been presented below and decided, this court has jurisdiction on direct appeal.
In 1954, prior to the plan of recapitalization here under attack, the capital structure, debt and surplus of Armour and Company, in thousands of dollars, were:
Long-term debt .......................... $124,699 Prior stock ............................. 50,000 Common stock ............................ 20,329 Capital and paid-in surplus ............. 33,619 Earned surplus .......................... 134,079 ________ $362,726
The prior stock had, by the terms of the stock certificates and the articles of incorporation, these material features: It had a stated value of $100 per share. Cumulative dividends of $6 per year were to be paid when and if declared and each share was convertible for six shares of common stock and could, at the option of the company, be redeemed at a price of $115 per share plus accumulated dividends. Each share of the prior stock had one vote in corporate matters and enjoyed certain preferences in the event of liquidation, whether voluntary or involuntary.
The plan of recapitalization proposed to amend the articles of incorporation by a vote of two thirds of the holders of each class of stock providing that the board of directors would be authorized to redeem the prior stock "at a price of $120.00 per share, payable in (i) debentures of like principal amount of the company, maturing November 1, 1984, bearing interest at the rate of 5% per annum cumulative from November 1, 1954, and to be subordinated to other indebtness of the Company, and having such sinking fund provisions and other terms and conditions as the board of directors of the company may determine, (ii) one transferable warrant for the purchase of one share of common stock of the Company, at such price or prices and having such other terms and conditions as the board of directors of the company may determine, (iii) and no more."
The debentures were to mature in 30 years and the stated interest rate of 5 per cent was payable out of earnings. The redemption as authorized by the amendment would, upon the exercise of the power to redeem as contained in the amendment, be compulsory. The amendment was voted upon by the shareholders and adopted by a vote of more than two thirds of each class of outstanding stock, the shareholders voting by class.
Questions relating to the necessity of the recapitalization, the tax advantages to the corporation, the fairness of the plan, the financial consequences of its adoption on the prior stockholders and the infringement of "contractual" or "vested" rights, as well as constitutional rights, have been ably presented on the appeal of this case. However, in view of the fact that our interpretation of the applicable provisions of the Business Corporation Act is determinative of this appeal, it is unnecessary to consider the question of fairness or, in fact, to consider any question other than statutory interpretation and laches.
The charter or articles of incorporation of an Illinois corporation is a contract of a three-fold nature. It is operative as between the corporation and the State and it creates rights and duties as between the corporation and its shareholders, as well as between the shareholders themselves. (Western Foundry Co. v. Wicker, 403 Ill. 260.) The express nature of the contract is not limited to the specific language found in the articles of incorporation but the contract in its entirety includes the statutory provisions in force when the charter is granted as though those statutory provisions were literally recited in the contract. (Kreicker v. Naylor Pipe Co. 374 Ill. 364; Tennant v. Epstein, 356 Ill. 26.) The holders of the prior stock thus held rights and privileges as expressed in the articles prior to the amendment subject at all times to variation, modification or change to the extent that the articles could be amended from time to time as authorized by the Business Corporation Act.
Section 52 of the Business Corporation Act (Ill. Rev. Stat. 1957, chap. 32, par. 157.52,) ...