Reiss v. Financial Performance Corporation, 715 N.Y.S.2d 29 (N.Y. App. Div. 2000)

Facts

Financial issued warrants to Rebot and Reiss to purchase shares of stock for 10 cents per share, extending for five years.  Three years later, the Board of Directors approved a one-for-five stock split.  Rebot and Reiss sought to exercise their warrants within the five years, arguing they were not subject to the stock split.

Issue(s)

When a warrant is silent on reverse stock splits, must the warrant be deemed to reflect a proportional change to reflect the split?

Holding(s)

Yes.

Reasoning/Analysis

The Court found that in the absence of evidence the parties contemplated otherwise, the warrant holder is limited to the proportional number of shares.  Just as plaintiffs should not suffer from the possibility of dilution of their warrants, Financial should not suffer from the consolidation of its shares resulting from a reverse stock split.

Judgment/Outcome

The Court found in favor of Financial.

Concurring Opinions/Dissenting Opinions/Comments

The dissent felt the Court should not have changed the terms of the agreement when fraud, duress, mistake, etc. could not be shown.