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Business Planning Keyed to Gevurtz
Honigman v. Green Giant Co.
Citation:
208 F. Supp 754 (1961)Facts
Green Giant Company had an unusual capital structure with 44 shares of Class A common stock holding all voting rights (26 of which were owned by Edward B. Cosgrove) and approximately 429,000 shares of non-voting Class B common stock. Despite the company’s business success, the Board determined this structure limited corporate growth and flexibility. After consulting investment bankers, they proposed a recapitalization plan where each Class B share would be exchanged for one share of new voting common stock, and each Class A share would be exchanged for ten shares of convertible common stock, each convertible over ten years into 100 shares of new voting stock. This would ultimately give Class A shareholders 44,000 shares (9.3% of equity) while diluting their voting control from 100% to 9.3%. The plan was approved by all Class A shareholders and 92.3% of Class B shareholders. Following implementation, the market value of the former Class B shares increased by over 33%, and the company successfully completed a merger that would have been impossible under the previous structure.
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