ÿWPCT /# ¢UN­ %û 0ñUNòw@@4€”£ 0J« 0Tõ 0^I 0h§ 0r 0| 0†ý 0ƒ 1u 0dˆ U>ì B)* 0@S D3“ BÆ DCã AM& U*s { v~vÓ– AQiƺ 0D€ 0DÄ D/ B7˜HP LaserJet 4SiHPPCL5MS,ü,,,,,ü0nLHÎ(ÈhH  Z 6Times New Roman RegularX(Ɇ$¡¡Ñ°°ÑѰ°ÑÒ°°ÒÒ°°ÒÓ  ÓÑTR[  AØ'ÿ Legal[  AØ'ÿ Legal AØ'ÿ Legal AØ'ÿ LegalTÑÓÓÔ€X”XXXÔ(ÖÃ9 Z ‹6Times New Roman Regular ¾¿DÀDÁÂEÃDÄDÅÓ€ÑÔB\J#úÿÿú, ú3|xÔ2 ÿÿ0Indent1Ô2ÔÔ3  Ô2" ÿÿ0Indent2à0 àÔ2ÔÔ3  Ô2, ÿÿ0Indent3à0 àà0 àÔ2ÔÔ3  Ô26 ÿÿ0Indent4à0 àà0 àà0 àÔ2ÔÔ3  Ô2@ ÿÿ0Indent5à0 àà0 àà0 àà0 àÔ2ÔÔ3  Ô2J ÿÿ0Indent6à0 àà0 àà0 àà0 àà0 àÔ2ÔÔ3  Ô2T ÿÿ0Indent7à0 àà0 àà0 àà0 àà0 àà0 àÔ2ÔÔ3  Ô2^ ÿÿ0Indent8à0 àà0 àà0 àà0 àà0 àà0 àà0 àÔ2ÔÔ3  Ô ÿÿ?AGMSYaioIndent0I.A.1.a.(1)(a)i)a)P ÿÿ8Mac DefaultMac DefaultÓ ` °šXÓ< Œ 9p`(&Times New Roman% Line 7 d("ÿÿ$££Ò  ÒÒ  Ò""""'ÿÿdxd d7Border 1dd* #Cþÿ << Gÿÿ< Œ 9p`(Arial qÝ ƒ!ÝÔ€ÔÓ  ÓÑ\R AØ'\ÑÓÓÝ  ÝÝ ƒ+"ÝÝ  ÝÔ€%ÔÔ€%ÔÓ  ÓÔ YYY ÔFILEDÔ€%XÔÌÌò òDecemberÏ4,€1997ÌÌCecilÏCrowson,ÏJr.ÌÔ€%ôÔAppellateÏCourt€Clerkó óPtPtHHÚ(ÿáÿâùFG(üHHØ(d'`Styl{WP}01•ÃÃÃÃÃÃÃÃÃÃÃÃÃÃÃÃÃÃà Ãà Ãà Ãà Ãà ÃÃÃÃÃÃÃÃÃÃÃÐ ÐÐHHÐÐ  ÐÐ2ÐÐÿÿ¸æ$ÿÐÐHHÐÐÐÐÐÐÐÐ  ÐÐ ÐÐ ÐÑÑÑGenevaÑÑ ÑÑ € ÑÑ<Px–ÈÑÒÒÒ443!#4ÒÒ$ *$ÒÒ$*$ÒÒ ÿKK ÒÒ  Geneva ÒÒ  Geneva ÒÓ.,ÓÓÓÓ6ÓÓ ÓßßßßßßßßßßßßßßßßßßÑGenevaÑÑ ÑÒ  ion-F Geneva ÒÒ  ion-F Geneva Ò*+ ,-Cþÿ<< CÿÿƒLevel 1Level 2Level 3Level 4Level 5(3¯$¢¢Ý ƒ!ÝÝ  Ý($$””ò òÚ  Ú1Ú  Úó ó..'÷ÿ dxdüÿP PdÝ ƒ!ÝÔ . ÔÔ€ÔÓ  ÓÑ\R AØ'\ÑÓÓÝ  ÝÓÓ›Þ ÞÌà@ àò òIN€THE€COURT€OF€APPEALS€OF€TENNESSEEÌà@ àWESTERN€SECTION€AT€JACKSONÌ€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€òò€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€ÌÌóóÌDAVID€McALISTER,€€€€€€à àà àà à)Ìà àà àà àà àà àà à)Ìà àó óPlaintiff/Appellee,à àà àà àò ò)à àó óShelby€Equity€No.€105879Ìà àà àà àà àà àà àò ò)Ìvs.à àà àà àà àà àà à)Ìà àà àà àà àà àà à)à àó óAppeal€No.€02A01„9610„CH„00262ò òÌÙ€*ÙœßR€$&#A1-j|«ù` ­ `€€@ÿRß›PEREGRINE€ENTERPRISES,€INC.,à à)Ìformerly€known€as€EMPIRE€à àà à)ÌENTERPRISES,€INC.,€€€€€€€€€€€€à àà à)Ìà àà àà àà àà àà à)Ìà àó óDefendant/Appellant.à àà àà àò ò)ÌÌÌÌó óÌÌà0 àà àà@ àAPPEAL€FROM€THE€CHANCERY€COURT€OF€SHELBY€COUNTYÌà@ àAT€MEMPHIS,€TENNESSEEÌÌÌÌÌà@ àTHE€HONORABLE€D.€J.€ALISSANDRATOS,€CHANCELLORÌÌÌÌòòÌÌFor€the€Plaintiff/Appelleeóó:òòà àà àà àFor€the€Defendant/Appellantóó:ÌÌDavid€M.€Dunlap€€€€€à àà àà àà àMichael€A.€RobinsonÌMemphis,€Tennesseeà àà àà àà àJames€S.€Strickland,€Jr.Ì€€€€€€€€€€€€€€€€€€€€à àà àà à€€€€€€€€€€€€€€€€€€€€€€€à àMemphis,€TennesseeÌÌÌÌà àà àà àà àà àà àœò òREVERSED€AND›€REMANDEDó óÌÌÌà àà àà àà àà àà àHOLLY€KIRBY€LILLARD,€J.ÌÌÌCONCUR:ÌÌÌW.€FRANK€CRAWFORD,€P.J.,€W.S.ÌÌÌDAVID€R.€FARMER,€J.€ÇØØÙ  ÙÓÓÑ7€ÜÇXXdðXXdì7ÑÑ  Ñà@ àò òOPINIONó óÌà àThis€suit€involves€an€action€for€the€redemption€of€preferred€stock.€€The€trial€court€foundÏthat€the€stock€could€be€redeemed€even€though€the€redemption€would€render€the€corporation€unableÏto€pay€its€debts€in€the€normal€course€of€business.€€We€œreverse›€œand›€remand.€€€€Ìà àIn€1992,€in€an€attempt€to€increase€its€capitalization€Defendant/Appellant€PeregrineÏEnterprises,€Inc.€(ð ðPeregrineðð),€a€Tennessee€corporation,€authorized€the€designation€of€two€seriesÏof€preferred€stock€and€the€private€placement€of€520,000€shares€of€common€stock.€€PeregrineððsÏRestated€Charter€indicates€that€Series€A€Preferred€Stock€(ð ðSeries€A€stockðð)€is€cumulative€andÏconvertible€and€has€priority€over€all€other€equity€securities.€€At€the€time€of€this€suit,€Peregrine€hadÏ2000€shares€of€Series€A€stock€outstanding€with€a€par€value€of€$100.00€per€share.Ìà àShareholders€of€Series€A€stock,€as€well€as€Peregrine,€retained€redemption€rights€in€theÏstock.€€To€exercise€this€option,€Series€A€Shareholders€were€required€to€provide€notice€within€sixÏmonths€plus€thirty€days€from€the€final€closing€of€the€offering€of€the€common€stock.€ÏPlaintiff/Appellant€David€McAlister€(ð ðMcAlisterðð)€held€1000€shares€of€Series€A€stock.Ìà àThe€offering€of€the€common€stock€was€apparently€unsuccessful.€€McAlister€timely€gaveÏnotice€of€his€intent€to€exercise€his€right€of€redemption.€€Peregrine€refused€this€request€on€theÏgrounds€that:€1)€the€right€of€redemption€was€conditioned€on€the€successful€offering€of€the€commonÏstock;€and€2)€redemption€would€make€the€corporation€unable€to€pay€its€debts€as€they€become€due€inÏthe€usual€course€of€business€and,€thus,€is€barred€by€Tennessee€Code€Annotated€ðð€48„16„401Ï(1995).ò òòò€€ó óóóMcAlister€then€filed€this€lawsuit,€seeking€damages€for€Peregrineððs€refusal€to€redeem€theÏstock.€€òòò òÌó óóóà àMcAlister€filed€a€motion€for€summary€judgment,€arguing€that€McAlister€had€an€undisputedÏcontractual€right€to€demand€redemption€of€the€stock.€Peregrineððs€response€included€the€affidavit€ofÏits€Chief€Executive€Officer,€Charles€Beech.€€Beech€indicated€that€Peregrine€had€sought€to€raiseÏ$1.3€million€through€the€offering€of€common€stock,€but€instead€raised€only€$275,000.€€BeechÏstated€that,€if€Peregrine€redeemed€McAlisterððs€stock,€Peregrine€would€be€unable€to€pay€its€debts€inÏthe€normal€course€of€business.€€Peregrine€argued€that€McAlisterððs€right€of€redemption€wasÍconditional€upon€a€successful€offering€of€the€common€stock,€and€that,€under€Tennessee€CodeÏAnnotated€ðð€48„16„401(c)(1),€redemption€is€not€permitted€if€it€renders€the€corporation€unable€toÏpay€its€debts.Ìà àThe€trial€court€found€that€Tennessee€Code€Annotated€ðð€48„16„401(c)€did€not€prohibit€theÏredemption€of€McAlisterððs€stock.€€It€also€rejected€Peregrineððs€argument€that,€under€the€RestatedÏCharter,€the€failure€to€fund€the€escrow€account€through€the€common€stock€offering€prohibitedÏredemption.€€Therefore,€the€trial€court€granted€McAlisterððs€motion€for€summary€judgment.€€FromÏthis€order,€Peregrine€now€appeals.€€Ìà àOn€appeal,€Peregrine€asserts€that€redemption€was€contingent€upon€the€successful€placementÏof€the€common€stock,€and€that€Tennessee€Code€Annotated€ðð€48„16„401€prevents€such€a€redemptionÏbecause€it€will€jeopardize€the€interest€of€creditors.Ìà àA€motion€for€summary€judgment€should€be€granted€when€the€movant€demonstrates€thatÏthere€are€no€genuine€issues€of€material€fact€and€that€the€moving€party€is€entitled€to€a€judgment€as€aÏmatter€of€law.€€Tenn.€R.€Civ.€P.€56.03.€€Summary€judgment€is€only€appropriate€when€the€factsÏand€the€legal€conclusions€drawn€from€the€facts€reasonably€permit€only€one€conclusion.€€ò òòòCarvellÏv.€Bottomsó óóó,€900€S.W.2d€23,€26€(Tenn.€1995).€€Since€only€questions€of€law€are€involved,€thereÏis€no€presumption€of€correctness€regarding€a€trial€court's€grant€of€summary€judgment.€€ò òòòId.ó óóó€ÏTherefore,€our€review€of€the€trial€courtððs€grant€of€summary€judgment€is€ò òòòde€novoó óóó€on€the€recordÏbefore€this€Court.€€ò òòòId.óóó óÌà àPeregrine€first€contends€that€McAlisterððs€redemption€rights€were€conditioned€on€the€successÏof€the€common€stock€offering.€€In€support€of€this€assertion,€Peregrine€cites€the€ð ðunderstandingðð€ofÏthe€parties,€the€fact€that€the€redemption€period€is€determined€by€the€final€closing€of€the€commonÏstock€offering,€and€the€fact€that€the€funds€for€the€Series€A€stocksðð€redemption€were€to€come€fromÏan€escrow€account€consisting€of€proceeds€of€the€successful€common€stock€offering.€€PeregrineÏmaintains€€that€Peregrine€therefore€cannot€redeem€the€stock€since€the€common€stock€placement€wasÏunsuccessful€and,€as€a€result,€the€escrow€account€was€not€funded.Ìà àPeregrine€also€argues€that€a€provision€in€the€Restated€Charter€indicates€that€redemptionÏcannot€be€mandated.€€This€provision€states:ÌÓÓà8 à(c)€òòFailure€to€Effect€Redemptionóó.€€In€the€event€that€the€Corporation€fails€to€timelyÏmake€any€payment€in€connection€with€a€properly€requested€Mandatory€Redemption,Ïdividends€(and€interest€thereon,€if€any)€shall€continue€to€be€payable€on€the€Series€AÏPreferred€Stock€as€provided€for€in€Section€3€above.ÌÌÓÓPeregrine€contends€that€this€provision€demonstrates€that€Series€A€stockholders€cannot€force€aÏredemption,€but€that€they€will€continue€to€receive€accrued€interest€and€cumulative€dividends.€€€Ìà àTo€determine€this€issue,€we€must€review€the€ð ðentire€contractðð€according€to€its€ð ðplain€terms.ðð€Ïò òòòCocke€County€Bd.€of€Highway€Commððr€v.€Newport€Utilities€Bd.,ó óóó€690€S.W.2d€231,Ï237€(Tenn.€1985).€€The€language€relied€upon€by€Peregrine€simply€does€not€prohibit€McAlisterÏfrom€demanding€€the€mandatory€redemption€of€his€stock.€€We€affirm€the€trial€courtððs€determinationÏof€this€issue.€€Ìà àNevertheless,€Peregrine€argues€that€Tennessee€statutes€prohibit€the€mandatory€redemptionÏof€McAlisterððs€stock€when€the€redemption€would€render€the€corporation€unable€to€pay€its€debts€inÏthe€normal€course€of€business,€citing€Tennessee€Code€Annotated€ðð€48„16„401(c).€€Ìà àTitle€48€of€the€Tennessee€Code€governs€corporations€and€securities.€€Section€48„16„401Ïaddresses€ð ðdistributions€to€shareholders.ðð€€Section€48„11„201(8)€(1995)€defines€ð ðdistributionðð€asÏœfollows:ÌÓÓ›à8 àà àð ðDistributionðð€means€a€direct€or€indirect€transfer€of€money€or€other€propertyÏ(except€its€own€shares)€or€incurrence€of€indebtedness€.€.€.€by€a€corporation€to€or€forÏthe€benefit€of€its€shareholders€in€respect€of€any€of€its€shares.€€A€distribution€may€beÏin€the€form€of€a€declaration€or€payment€of€a€dividend;€a€purchase,òò€redemptionóó,€orÏother€acquisition€of€shares;€a€distribution€of€indebtedness€.€.€.€or€otherwise.Ìòòò òÌÓÓó óóó(emphasis€added).€€Therefore,€the€term€ð ðdistributionðð€includes€the€redemption€of€stock.€€Ìà àMcAlister€argues€that€Section€48„16„401(f)€sanctions€the€redemption.€€This€provisionÏstates:€ÌÓÓà8 àA€corporationððs€indebtedness€to€a€shareholder€incurred€by€reason€of€a€distributionÏmade€in€accordance€with€this€section€is€at€parity€with€the€corporationððs€indebtednessÏto€its€general,€unsecured€creditors€except€to€the€extent€subordinated€by€agreement.Ì€ò òòòÌÓÓóóó óTenn.€Code€Ann.€ðð€48„16„401(f).ò òòò€€ó óóóThus,€McAlister€argues€that€once€his€request€for€redemptionÏwas€delivered,€he€had€the€same€status€as€a€general,€unsecured€creditor.Ìà àPeregrine€notes€that€this€provision€refers€to€a€distribution€ð ðmade€in€accordance€with€thisÏsection.ðð€€ò òòòId.€€ó óóóTennessee€Code€Annotated€ðð€48„16„401(c)(1)€states:ÌÓÓà8 à(c)€No€distribution€may€be€made€if,€after€giving€it€effect:ÌÌà8 àà à(1)€The€corporation€would€not€be€able€to€pay€its€debts€as€they€become€due€inÏthe€usual€course€of€business;€.€.€.€ÌÌÓÓFor€the€purpose€of€determining€whether€the€trial€court€correctly€granted€McAlisterððs€summaryÏjudgment,€we€accept€as€true€Peregrineððs€assertion€that€Peregrine€would€not€be€able€to€pay€itsÏordinary€debts€to€its€creditors€if€it€redeems€McAlisterððs€shares.€€à àMcAlister€contends€that€thisÏstatute€only€contemplates€voluntary€distributions€as€opposed€to€distributions€mandated€by€contract.€ÏIn€interpreting€statutes,€the€Tennessee€Supreme€Court€recently€reaffirmed€that€ð ðcourts€are€restrictedÏto€the€ððnatural€and€ordinaryðð€meaning€of€a€statute€unless€an€ambiguity€necessitates€resortingÏelsewhere€to€ascertain€legislative€intent.ððòòò ò€€Westland€West€Community€Assoc.€v.€KnoxÏCounty,€ó óóó948€S.W.2d€281,€283€(Tenn.€1997).€€On€their€face,€neither€Section€48„16„401€orÏSection€48„16„103(b)€distinguish€between€voluntary€distributions€and€distributions€mandated€byÏcontract.€€McAlister€can€point€to€nothing€indicating€such€a€legislative€intent.€€Indeed,€the€purpose€of€Ïthis€statute€appears€to€be€to€protect€creditors.€€McAlister€has€failed€to€articulate€any€sound€basis€forÏmaking€a€distinction€which€endangers€creditorsðð€interests€in€the€event€of€contractual€rights€vested€inÏholders€of€equity€instruments.€€This€interpretation€would€clearly€work€to€the€detriment€of€creditors.€€Ìà àOther€states€have€concluded€that€a€preferred€shareholder€may€not€enforce€a€redemptionÏcontract€if€such€redemption€would€render€the€corporation€insolvent.€€In€ò òòòRider€v.€John€G.ÏDelker€&€Sons€Co.,€ó óóó140€S.W.€1011€(Ky.€App.€1911),€the€court€considered€whether€aÏpreferred€shareholder€could€enforce€a€redemption€contract€when€the€corporation€was€insolvent.€ÏRefusing€to€enforce€the€contract,€the€court€stated,€ð ð[i]t€is€only€in€cases€where€the€corporation€isÏsolvent€and€the€rights€of€creditors€will€not€be€injuriously€affected€thereby€that€agreements€as€toÍpreferences€among€themselves€may€be€enforced.ðð€€ò òòòId.€ó óóóat€1012.Ìà àKentucky€considered€this€issue€again€in€ò òòòWesterfield„Bonte€Co.€v.€Burnettó óóó,€195ÏS.W.€477€(Ky.€App.€1917).€€The€court€reasoned€as€follows:ÌÓÓà8 à[T]here€does€not€appear€any€sufficient€reason€why€[a€preferred€shareholder€seekingÏto€enforce€a€redemption€contract]€should€not€be€treated€as€a€creditor,€where€he€has€aÏdemand€against€the€corporation,€which€can€only€be€enforced€as€a€debt.€€It€is€onlyÏwhere€the€carrying€out€of€an€agreement€made€between€the€stockholders€and€theÏcorporation€will€injuriously€affect€the€rights€of€the€creditors€of€the€corporation€thatÏthe€agreement€becomes€in€contravention€of€a€sound€public€policy.Ìò òòòÌÓÓId.ó óóó€at€480.€€The€court€reiterated:ÌÓÓà8 àA€judgment€should€not€be€rendered,€by€which€any€of€the€assets€of€a€corporation€areÏappropriated€to€the€payment€of€any€claim€of€a€stockholder€growing€out€of€a€contractÏfor€a€preference€among€the€stockholders,€if€such€appropriation€would€endanger€theÏcollection€of€corporate€debts.Ìò òòòÌÓÓId.ó óóó€at€481.€€The€Kentucky€court€concluded€in€ò òòòWesterfield„Bonteó óóó€that€the€redemption€contractÏshould€be€enforced€since€€the€corporation€failed€to€demonstrate€that€the€creditorsðð€interests€wouldÏbe€endangered.€€ò òòòId.ó óóó€at€481„82.€€ò òòòSee€also€Gunther€Grocery€Co.€v.€Hazel,ó óóó€201€S.W.€336Ï(Ky.€App.€1918);ò òòò€In€re€Phoenix€Hotel€Co.,ó óóó€13€F.Supp.€229€(D.€Ky.€1935).Ìà àThe€Ninth€Circuit€reached€the€some€conclusion€œin€ò òòòIn›€re€Culbertsonððsó óóó,€54€F.2d€753€(9thÏCir.€1932).€€Applying€Washington€law,€the€court€found€that€a€preferred€shareholder€does€notÏbecome€a€creditor€simply€due€to€a€right€of€redemption.€€ò òòòId.ó óóó€at€757.€€The€court€held€that€redemptionÏcould€not€be€mandated€since€the€corporation€would€become€insolvent.€€ò òòòId.ó óóó€at€760.Ìà àIn€a€similar€case€Maryland€found€that€the€corporationððs€ð ðobligation€to€redeem€was€at€allÏtimes€subject€to€the€implied€condition€that€it€would€not€render€the€corporation€insolvent€in€the€senseÏthat€it€would€be€unable€to€meet€its€debts€as€they€mature€in€the€usual€course€of€business.ðð€€ò òòòKraft€v.ÏRochambeau€Holding€Company,€Inc.,ó óóó€123€A.2d€287,€290€(Md.€App.€1956).€€Other€statesÏare€in€accord.€€ò òòòSee,€e.g.,€€Browder€v.€Mutual€Tool€&€Die,€Inc.,ó óóó€263€N.E.2d€785€(OhioÏApp.€1970);€ò òòòHurley€v.€Boston€R.€Holding€Co.,ó óóó€54€N.E.2d€183€(Mass.€1944);€ò òòòBooth€v.ÏUnion€Fibre€Co.,€ó óóó171€N.W.€307€(minn.€1919);€ò òòòKoeppler€v.€Crocker€Chair€Co.,€ó óóó288ÏN.W.€130€(Wis.€1929);€òòò òSee€also€óóó óAnnotation,€òòRights€of€Creditors€of€Corporation€with€Respect€toÍits€Purchase€or€Acquisition€of€its€own€Stockóó,€47€A.L.R.2d€758,€792„795,€ðð€16€(1956);€18A€Am.ÏJur.€2d€òòCorporations€óóðð€547€(1985);€11€Fletcherððs€Cyclopedia€Corporations€òòStock€and€StockholdersÏóóðð€5310€(1995).Ìà àIn€this€case,€we€find€that€Tennessee€Code€Annotated€ðð€48„16„401(c)(1)€prohibits€theÏredemption€of€McAlisterððs€stock€if€doing€so€would€render€the€corporation€unable€ð ðto€pay€its€debtsÏas€they€become€due€in€the€usual€course€of€business.€.€.€.ðð€€Therefore,€the€trial€courtððs€grant€ofÏsummary€judgment€in€favor€of€McAlister€must€be€reversed,€and€the€matter€remanded€for€furtherÏproceedings.Ìà àThe€decision€of€the€trial€court€œis€reversed›œ›€and€remanded€for€further€proceedings€consistentÏwith€this€Opinion.€€Costs€on€appeal€are€taxed€to€Appellee,€for€which€execution€may€issue€ifÏnecessary.€€ÌÌÓÓà àà àà àà àà àòò€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€Ìà àà àà àà àà àò òóóHOLLY€KIRBY€LILLARD,€J.Ìó óà àò òÌCONCUR:ÌÌÌòò€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€ÌóóW.€FRANK€CRAWFORD,€P.€J.,€W.S.ÌÌÌó óòò€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€€Ìóóò òDAVID€R.€FARMER,€J.ó óÌÌ