Opinion ID: 1750252
Heading Depth: 1
Heading Rank: 1

Heading: the warrants

Text: The stock subscription warrants are dated December 16, 1960. It will be helpful, at the outset, to place their provisions in these compartments: (A) The principal object of the agreements. (B) Corporate changes conceived as affecting the principal object of the agreements. (C) Mechanisms provided for preserving the principal object of the agreements in the event of such changes. (D) Provisions for notice of such corporate changes.
The principal object of the agreements was to afford the holders or their assigns (such as these plaintiffs) the option for a period of 5 years to obtain 30,000 shares of the capital stock of the company at the price of $1 per share. It is specifically provided that the warrants were not to entitle the holders to any voting rights or other rights as a stockholder of the company.
In an apparent effort to prevent a defeat of the basic purpose of the warrants by a change in corporate circumstances, 12 different possible situations are anticipated in paragraph 3 of the agreements: (1) A distribution upon capital stock payable in capital stock, i. e., a stock dividend. [2] (2) A division (split) of the outstanding capital stock. [2] (3) A combining (reverse split) of outstanding capital stock. [2] (4) A cash dividend upon stock not payable from net earnings or earned surplus. [3] (5) Such a dividend upon stock but not payable in cash. [3] (6) A capital reorganization. [4] (7) A reclassification of stock. [4] (8) A consolidation with another corporation. [4] (9) A merger with another corporation. [4] (10) The sale of all or substantially all of the assets of the corporation to another corporation. [4] (11) An offer to holders of capital stock for pro rata subscription for additional shares of stock or any other rights. [5] (12) A voluntary or involuntary dissolution. [5]
In the event of the occurrence of situations 1 to 3 (stock dividends; splits; reverse splits) the warrants provide for adjustment by decrease or increase in the number of shares purchasable and the price per share to be paid. [6] In situations 4 and 5 (depleting dividend) the adjustment is to be accomplished by reducing the purchase price per share (i. e., $1 per share) by (a) the amount of the dividend, if paid in cash, and (b) the fair value of distributed assets other than cash. [7] In situations 6 to 10 (reorganization; stock reclassification; consolidation; merger; sale of all or substantially all assets) it is required by paragraph 3(c) of the agreement that appropriate provision be made for the protection of the rights and interests of the warrant holders. [8] Paragraph 3(c) which deals with situations 6 to 10 concludes with this sentence:    Any such shares of stock, securities or assets which the holder hereof may be entitled to purchase pursuant to this paragraph (c) shall be included within the term `capital stock' as used herein. This sentence becomes significant when considered in conjunction with paragraph 2 of the agreements which concludes with this sentence:    The Company further covenants and agrees that during the period within which the rights represented by this Warrant may be exercised, the Company will at all times have authorized, and reserved, a sufficient number of shares of capital stock to provide for the exercise of the rights represented by this Warrant   . (Italics supplied.) We interpret these provisions, considered together, to impose on Plastics an obligation to have reserved a sufficient number of shares of United stock to provide for the exercise of the rights represented by the warrants if the arrangement planned and executed by the seven directors of the two corporations, described hereinafter, amounted to a reorganization; stock reclassification; consolidation; merger; or a sale of all or substantially all of Plastics' assets to United. Paragraph 3(c) provided with respect to situations 8 to 10 (consolidation; merger; sale of all or substantially all of assets) that the successor corporation should be required to assume the obligation to deliver to such [warrant] holder such shares of stock, securities or assets as, in accordance with the foregoing provisions, such holder may be entitled to purchase. [9]
In situations 1 to 3 (stock dividends; splits; reverse splits) set out above, the company obligates itself to give notice to the warrant holder stating the purchase price per share resulting from such adjustment and the increase or decrease, if any, in the number of shares purchasable at such price upon the exercise of this Warrant. [10] In situations 1 (stock dividend) and 4 to 12 (dividends; reorganization; reclassification; consolidation; merger; sale of all or substantially all of assets; subscription offer; dissolution) a 20-day notice to the warrant holder is required by paragraph 3(e) which notice in situations 4 and 5 (dividends), 11 (subscription offer), and 12 (dissolution) at least, must specify the date on which the holders of capital stock shall be entitled thereto, and in situations 6 (reorganization), 7 (reclassification), 8 (consolidation), 9 (merger), 10 (sale) and 12 (dissolution) must specify the date on which the holders of capital stock shall be entitled to exchange their capital stock for securities or other property. [11]