The Basic Conversion Rate of the LTWs:
The Amended 2003 Warrant Agreement that governs the LTWs is linked here:
Really, this case is best understood by reading one document: the post-trial memorandum of the litigation tracking warrant class.
The debtor's arguments are here:
LTW class reply to debtor's brief:
From "The Grudge" -
LTW Warrant Agreement and "Shall Vs. May"
Here is the passage that is the subject of so much debate with respect to the LTWs:
"Section 4.4 Other Events - If any event occurs as to which the foregoing provisions of this Article IV are not strictly applicable or, if strictly applicable, would not, in the good faith judgment of the Board, fairly and adequately protect the purchase rights of the Holders of the Warrants in accordance with the essential intent and principles of such provisions, then the Board may make, without the consent of the Holders, such adjustments to the terms of this Article IV, in accordance with such essential intent and principles, as will be reasonably necessary, in the good faith opinion of such Board, to protect such purchase rights as aforesaid."
Much of the Debtor's argument hinges on the inclusion of the word "May". In my opinion, it is irrelevant whether it says "May","Shall" "Can" ,"Will" or any other similar word. I also believe that the contract itself renders the term irrelevant. Why? Because of the inclusion of the phrases "essential intent and principles" and "protect the purchase rights of the holders". If the "essential intent and principles" does not include protecting the rights of the LTW Holders to receive payment, either in stock, cash or other property, then what exactly would the essential intent and principles be? And further, if the term "May" is construed as permissive and the essential intent and principles are ignored or deemed irrelevant, could it not be argued that these LTWs were essentially valueless at issuance? No one would create valueless securities, at least, not in good faith. If "May" is construed as permissive and ignoring all of the myriad protective provisions of the document, the Company or the Board could have, at any point, caused a transfer of the litigation to a 3rdparty for valuable consideration received, without honoring its obligations to the LTW Holders. Clearly that would have been wrong if not fraudulent.
If anything is deemed to be "permissive", the inclusion of the word "May" should be construed as "permissive" only to the extent that it allows the Board to act "…without consent of the holders…" Because of the other numerous protective provisions included in the Warrant Agreement it strains credulity to think that the Board could have simply failed to act and that their inaction would be appropriate.
In defeating summary judgment, LTW Plaintiffs had to show, and did show, that the Warrant Agreement was not clear on its face and that one must look beyond the "Four Corners" of the document to divine the intent of the parties. Knowing that, and based on the evidence adduced by Plaintiffs at trial, Plaintiffs appear to have cleared the requisite hurdle to successfully prevail on "Contra Proferentum" (ambiguous contract terms should be construed against the drafting party).
In my opinion, citing to the protective "catch all" provisions of Section 4.4 of the Warrant Agreement is an argument that does not and will not fail even if the arguments under sections 4.2(b), 4.2(d) and 6.3 somehow fail in the eyes of the Court. Also in my opinion, having the board members as named defendants brings the D & O insurance into play whereby LTW Claimants have additional protection and avenues for recovery in the event that this case drags on beyond what is currently anticipated. The argument for breach of Section 4.4 should carry the day on its own but the LTW Plaintiffs' papers outline numerous other breaches that are also meritorious.