Opinion ID: 2402127
Heading Depth: 1
Heading Rank: 9

Heading: Warrants' Anti-Destruction Clause

Text: In Count II of the Amended Complaint, the plaintiffs assert that the anti-destruction clause in Section 2(c) of the Warrants affords them the right to receive fair value in connection with the Merger. The resolution of this claim turns on the meaning of Section 2(c) in the Warrants, which provides: In case of any reclassification or change of the outstanding securities of the Company or ... any reorganization of the company ... or any similar corporate reorganization on or after the date hereof, then and in each such case, the Registered Holder of this Warrant, upon the exercise hereof at any time after the consummation of such reclassification, change, reorganization, merger or conveyance, shall be entitled to receive, in lieu of the shares or other securities and property receivable upon the exercise hereof prior to such consummation, the shares or other securities or property to which such holder would have been entitled upon such consummation if such holder had exercised this Warrant immediately prior thereto ... [17] The Court of Chancery held that the most obvious reading of the Warrants is that they grant Warrantholders the right to receive the same merger consideration that they would have received if they had converted immediately before the Merger. The `property' that common stockholders of United Artists were entitled to under the Merger Agreement was $14 per share, and [t]his is the same property that the plaintiffs would receive as Warrantholders, as § 2(c) contemplates. [18] The plaintiffs rely upon this Court's opinion in Continental Airlines [19] to support their assertion that they are entitled under Section 2(c) to a determination of the fair value of their Warrants in connection with the Merger. In Continental, we held that a warrantholder (American General) had a contractual right to receive the same fair price established in [the] post-merger proceedings for its warrants that the stockholders had actually received as merger consideration: Under [the anti-destruction clause] of the Warrants, American General is entitled to receive the same fair price established in post-merger proceedings as did the other Continental shareholders.... American General's right to the same fair price for its shares payable to other shareholders is based solely on its contractual rights under [the anti-destruction clause] .... [20] In this case, there were no post merger proceedings and no common stockholder of United Artists received more than $14 per share in the Merger. Unlike the warrantholders in Continental, the plaintiffs did not contend that they should receive some higher price that some other common stockholders actually received as consideration in the Merger in post-merger proceedings. Nonetheless, the plaintiffs in this case argue that they are entitled to an award of fair value as judicially determined through a quasi-appraisal right analogous to a Section 262 proceeding. In support of that argument, the plaintiffs submit that this Court should draw from our decision in Continental a broad lesson which is that warrantholders who are entitled to receive the same merger consideration as common stockholders are thereby guaranteed all the rights (contractual, statutory or common law ) that would have belonged to them had they actually converted their warrants into common stock before the merger. Accordingly, the plaintiffs contend that, because the statutory right to receive fair value through an appraisal proceeding was received by common stockholders of United Artists in connection with the Merger, they have the right to receive fair value for their Warrants via a quasi appraisal proceeding. The foregoing argument was specifically considered and rejected by the Court of Chancery.