December 30, 2009

Some Fun Stuff to End the Year: Cheese v. Font

Built in the same simple format as our own “Blue Justice League,” I love this casual game – “Cheese or Font” – where a name pops up and you need to click on whether it’s a type of cheese or font. If you want to play something more “legal,” our “Blue Justice League” competition still goes on. It remains the only casual game for lawyers I’ve seen online.

This new “Alice in Wonderland” trailer starring Johnny Depp looks awesome.

An Inspirational Site for the New Year

My college bud, Dino, turned me onto this inspirational site: “The Fun Theory.”

Second Circuit: Investor Ceased to be 10% Owner 26 Minutes Before Purchase

Below is a new entry from Alan Dye on his “ Blog“:

In December of last year, I blogged about Donoghue v. Corp., 2008 WL 4539487 (S.D.N.Y.), in which the court held that an alleged ten percent owner’s simultaneous purchase and sale of issuer securities at 4:32 p.m. on August 1, 2007 were not subject to Section 16(b) because the issuer had issued common stock to a group of third party investors 26 minutes earlier, diluting the former ten percent owner’s ownership to 9.75%. The Second Circuit has now affirmed that decision. 2009 WL 4640653 (2d. Cir.).

The case involved a purchase of common stock and warrants by Hearst Communication, Inc., pursuant to a stock purchase agreement executed in February 2007, as a result of which Hearst became a ten percent owner subject to Section 16. The stock purchase agreement prohibited from selling any additional shares of common stock for the next 90 days without Hearst’s written consent. Within that time, entered into an agreement to sell common stock to a group of third party investors. One of the conditions to closing was that obtain all required consents to the transaction. Hearst agreed to consent to the transaction if would reduce the exercise price of Hearst’s warrants by $0.50 a share, provided that filed a Form 8-K disclosing the terms of the consent by 5:00 p.m. on August 1, the date of closing.

Here is the sequence in which the pertinent closing events occurred:

– 12:46 p.m.– notified its transfer agent to prepare the stock certificates to be delivered to the new investors, but to wait for final approval before releasing them

– 4:06 p.m.–the new investors wired payment for their shares

– 4:32 p.m.– filed the Form 8-K disclosing Hearst’s consent

– 4:45 p.m.– instructed its transfer agent to release the stock certificates

Once the new shares were issued to the third party investors, the number of shares outstanding was sufficient to dilute Hearst’s ownership to below 10%. The question was whether the warrant amendments, which the plaintiff alleged constituted a cancellation and re-grant (an issue the court found it unnecessary to address), occurred before or after the new shares were outstanding.

The Second Circuit affirmed the district court’s holding that the private placement shares were issued and outstanding at 4:06 p.m., when received payment for the shares. This was a case that could have gone either way, based on the technicalities of the closing conditions, but the outcome is appropriate and clearly supportable.

– Broc Romanek