Paul Lohnes was issued a stock warrant to purchase 8,541 shares of Level 3 Communicationss common stock.
Question:
Paul Lohnes was issued a stock warrant to purchase 8,541 shares of Level 3 Communications’s common stock. Both the exercise price and the expiration date were formalized in the warrant document. The warrant also contained a two-paragraph antidilution provision that described events that would automatically adjust the number of shares to which Lohnes would be entitled upon exercise of the warrant. There were five separate contingencies: capital reorganization, reclassification of common stock, merger, consolidation, and sale of all (or substantially all) the capital stock or assets.
The warrant did not explicitly provide for an adjustment of shares in the event of a stock split. After Level 3 authorized a two-for-one stock split, Lohnes attempted to purchase 17,082 shares (twice the number of shares specified in the warrant). Lohnes argued that he was entitled to the additional shares based on the warrant’s antidilution provision because he believed the stock split could be equated with a capital reorganization and/or a reclassification. Should Lohnes be permitted to purchase the additional shares of Level 3’s common stock? Explain.
Step by Step Answer:
Law for Business
ISBN: 978-1259722325
13th edition
Authors: A. James Barnes, Terry M. Dworkin, Eric L. Richards