R.A. Mackie & Co. v. Petrocorp Inc. (329 F. Supp. 2d 477, 2004)

United States District Court for the Southern District of New York 2004-08-09

Citations

Full opinion text

OPINION and ORDER

KOELTL, District Judge.

This case arises out of the alleged breach of, and tortious interference with, the Series B Perpetual Warrant Agreement dated September 29, 2000 (the “Warrant Agreement”) between Southern Mineral Corporation (“Southern Mineral”) and American Stock Transfer and Trust Company (“AST”). The plaintiffs, R.A. Mackie & Go., L.P. (“RAMLP”) and Wien Securities Corp. (“WSC”), are purchasers of the Series B Perpetual Warrants (the “Warrants”) issued under the Warrant Agreement.

PetroCorp Incorporated and PetroCorp Acquisition Corporation (collectively “Pe-troCorp”) merged with Southern Mineral on June 6, 2001. PetroCorp is the sueees-sor-in-interest to Southern Mineral under the Warrant Agreement. See R.A. Mackie & Co., L.P. v. PetroCorp Inc., 244 F.Supp.2d 279, 282 (S.D.N.Y.2003) (“Mackie I”). The action was originally commenced in the Supreme Court of the State of New York, New York County. The defendants timely removed the action to this Court, on the grounds of complete diversity of citizenship, by filing a Notice of Removal on March 1, 2002.

The essence of the dispute between the parties is that the plaintiffs, purchasers of the Warrants, contend that the Warrants were by their terms “perpetual,” and that the Warrants therefore could not be required to be redeemed. The plaintiffs contend that Southern Mineral violated the terms of the Warrant Agreement when it merged into PetroCorp because the only way that the Warrant holders could receive the merger consideration given to all other Southern Mineral stockholders was to exchange their Warrants for Southern Mineral stock before the merger. If the Warrant holders did not exchange their Warrants, their Warrants thereafter would only be redeemable for $.50, the difference between the $4.71 value of the Southern Mineral stock and the $4.21 exercise price for each Warrant, effectively freezing the consideration to be paid for the Warrants and preventing any appreciation. Petro-Corp contends that this was consistent with the terms of the Warrant Agreement. The plaintiffs contend that Southern Mineral breached the terms of the Warrant Agreement by eliminating the provision of the Warrants which made them perpetual and that PetroCorp as the successor to Southern Mineral is liable for that breach. Further, the plaintiffs contend that Petro-Corp intentionally interfered with the Warrant Agreement and caused its breach.

The Court conducted a non-jury trial on February 24, 25, and 26 and March 1 and 2, 2004. Having heard the testimony of the witnesses, and having assessed their credibility, and having reviewed the exhibits in evidence, the Court makes the following findings of fact and reaches the following conclusions of law pursuant to Federal Rule of Civil Procedure 52.

FINDINGS OF FACT

The Parties

1. RAMLP is a Delaware limited partnership with its principal place of business located in Irvington, New York. R.A. Mackie & Co., Inc. (“Mackie & Co.”) is the general partner of RAMLP. Mackie & Co. is a New York corporation, having its principal place of business located in Irvington, New York. The sole limited partner of RAMLP is Robert A. Mackie (“Mack-ie”), a citizen of the State of New York. (Amended Joint Pretrial Order (“AJPO”) ¶ iii(b).) Mr. Mackie is president and sole owner of Mackie & Co. (Tr. at 613 (Mack-ie).) RAMLP is engaged in the business of warrant trading, hedge trading and securities arbitrage. (Tr. at 377 (Bridges), 448 (Bridges); Tr. at 605-07 (Mackie).)

2. WSC is a New Jersey corporation with its principal place of business located in the State of New Jersey. (AJPO ¶ 3(c).) Stephen Rose (“Rose”), Manager of WSC’s Arbitrage Department, engaged in the business of warrant trading and hedge trading on behalf of WSC. (Tr. at 496-500 (Rose).)

3. Defendant PetroCorp Incorporated is a Texas corporation with its principal place of business located in Tulsa, Oklahoma. (AJPO ¶ iii(d).) Defendant PAC was a wholly owed subsidiary of PetroCorp Incorporated. (PX15 at p. 58.) PAC was formed for the purpose of acquiring Southern Mineral. (PX15 at I — 1—1—2.) Prior to its merger into PetroCorp Incorporated, PAC was a Delaware corporation with its principal place of business located in Tulsa, Oklahoma. (AJPO ¶ 3(e).)

4. According to its Form 10-K for the fiscal year ended December 31, 2001, Pe-troCorp is “engaged in the acquisition, exploration and development of oil and gas properties, and in the production of oil, natural gas liquids and natural gas in North America.” (PX26 at p. 2.) In accordance with the Agreement and Plan of Merger between PetroCorp and Southern Mineral, dated as of December 22, 2000, as amended (the “Merger Agreement”), Pe-troCorp is the successor-in-interest to Southern Mineral, and Petro Corp has assumed Southern Mineral’s obligations under the Warrant Agreement. (PX15 at I-2 § 1.1; Mackie I, 244 F.Supp.2d at 282.)

Background

5. In connection with its emergence from a Chapter 11 bankruptcy proceeding in July 2000, Southern Mineral issued to its “current common shareholders, option holders, and warrant holders of record on July 24, 2000 ... approximately 3,667,000 warrants allowing them to increase their ownership from 22% to up to 40% of [Southern Mineral’s] outstanding common stock.” (PX30 at p. 7; see also PX35 at pp. 70-72; Tr. at 548 (Mikel).) These Series B Perpetual Warrants (the “Warrants”) were “for a perpetual term with an exercise of $4.21 per share, subject to adjustment for certain customary anti-dilution stock splits, stock dividends and other recapitalization events'.” (PX30 at p. 7; see also PX1 §§ 1.1, 2.1, 2.2, 3.3; PX35 at p. 71; PX32 at p. 1.) The phrase “adjustment for ... customary recapitalization events” encompasses “mergers.” (Tr. at 281-82 (Buck); Tr. at 388 (Bridges).)

6. The Warrants began trading on the NASD’s Over-the-Counter Bulletin Board on October 16, 2000 and were delisted from the Bulletin Board on June 7, 2001, one day after Southern Mineral’s merger into PetroCorp was consummated. (.Mackie I, 244 F.Supp.2d at 282.)

The Warrant Agreement

7. The Warrant Agreement states that it is made between “Southern Mineral Corporation ... (including its successors and permitted assigns, the “Company”) and American Stock Transfer & Trust Company....” (PX1 at p. 1.) The Warrant Agreement provides that each Warrant issued thereunder “entitles its holder to purchase from the Company one share of Common Stock at $4.21 per share, subject to adjustment as provided in Article III [thereof].” (PX1 § 2.1.) Section 6.10 of the Warrant Agreement states that “[a]ll the covenants and provisions of this Agreement by or for the benefit of the Company or the Warrant Agent or the holders of the Warrant Certificates shall bind and inure to the benefit of their respective successors and assigns hereunder.” (PX1 § 6.10.) Under the plain text of the Warrant Agreement, the Warrants were exercisable into the common stock of Southern Mineral and its successors, which includes PetroCorp. The Warrant Agreement is binding on Southern Mineral, PetroCorp, and the plaintiffs, as well as the successors and assigns of each party.

8. With respect to the duration of the Warrants, the Warrant Agreement states that the Warrants “are perpetual; that is, the Warrants will not expire.” (PX1 § 2.2; Tr. at 280 (Buck) (“the perpetual nature of the warrant ... by definition, does not have an expiration date”).) The Warrants’ perpetual duration was a unique and unusual feature for warrant agreements. David C. Buck, an attorney at Andrews & Kurth which represented the Creditors Committee of Southern Mineral, asked Southern Mineral’s bankruptcy attorneys at Akin, Gump, Strauss, Hauer & Feld, LLP (“Akin Gump”) whether the perpetual term of the Warrants was permissible because he had never encountered a perpetual warrant before. (Tr. at 285-86 (Buck).) The witnesses at trial testified that the Warrants’ perpetual duration was a unique feature that they had not previously encountered in a warrant agreement. (Tr. at 112-13 (Berlin); Tr. at 213-214 (Lemmer); Tr. at 279 (Buck), 284-285 (Buck); Tr. at 625 (Mackie).) The witnesses also testified, however, that other than its perpetual duration, the Warrant Agreement did not contain unusual or unique features. (Tr. at 279 (Buck); Tr. at 724 (Mackie).)

9. The perpetual term of the Warrant could not be terminated “[w]ithout the agreement of the [Warrant holders or the other parties to the [WJarrant.” (Tr. at 281 (Buck).) Under the terms of the Warrant Agreement, the Warrants could not be called, redeemed or extinguished; nor could any action of Southern Mineral or PetroCorp cause the expiration of the Warrants. (Mackie I, 244 F.Supp.2d at 282; PX1 § 2.2.)

10.Section 3.3 of the Warrant Agreement is central to the outcome of this action. Section 3.3 provides, in relevant part:

Section 3.3 Reorganization, Merger and Asset Sales. If after the date hereof any ... merger involving the Company ... shall be effected, then, as a condition of such ... merger ... lawful and fair provision shall be made whereby the Warrant Certificate holders shall thereafter have the right to purchase and receive upon the basis and upon the terms and conditions specified in the Warrant Certificates and in lieu of the shares of Common Stock of the Company immediately theretofore purchasable and receivable upon the exercise of the Warrants represented thereby, such shares of stock, securities, or assets as may be issued or payable with respect to or in exchange for a number of outstanding shares of such Common Stock equal to the number of shares of such stock immediately theretofore purchasable and receivable upon the exercise of the Warrants had such ... merger ... not taken place, and in any such case appropriate provision shall be made with respect to the rights and interests of the Warrant Certificate holders to the end that the provisions hereof (including, without limitation, provisions for adjustments of the Warrant Price and of the number of shares purchasable upon the exercise of the Warrants) shall thereafter be applicable, as nearly as may be in relation to any share of stock, securities, or assets thereafter deliverable upon the exercise hereof....

(PX1 § 3.3)

11. In addition, the Warrant Agreement provides: “Nothing in this Agreement expressed and nothing that may be implied from any of the provisions hereof is intended, or shall be construed, to confer upon, or give to, any person or corporation other than the parties hereto and the holders of the Warrant Certificates any right, remedy, or claim under or by reason of this Agreement or of any covenant, condition, stipulation, promise, or agreement hereof, and all covenants, conditions, stipulations, promises, and agreements in this Agreement contained shall be for the sole and exclusive benefit of the parties hereto and their successors and the holders of the Warrant Certificates.” (PX1 § 6.13.)

Evidence Concerning the Meaning of Section 3.3 of the Warrant Agreement

12. Subsequent to Southern Mineral’s emergence from bankruptcy and prior to execution of the Warrant Agreement, John Goodgame (“Goodgame”), then an associate attorney at Akin Gump, wrote an August 21, 2000 e-mail to Steve Mikel, the President of Southern Mineral. This email enclosed a draft of the Warrant Agreement and Warrant Certificate. (Tr. at 40-41 (Goodgame), 61-64 (Goodgame); PX29.) Mr. Goodgame was principally involved in drafting the Warrant Agreement; he was assigned to that project by J. Vincent Kendrick (“Kendrick”), a partner at Akin Gump. (Tr. at 43-47 (Goodgame).) To create the Warrant Agreement at issue here, Mr. Goodgame modified a pre-exist-ing Southern Mineral warrant agreement that had been part of a previous transaction. (Tr. at 46-47 (Goodgame); PX29; PX45.)

13. Section 3.3 of the Warrant Agreement came from — and used almost the exact language from — prior Southern Mineral Warrants called the “Amerac warrants.” (PX45; PX1; PX29; PX93.)

14. Mr. Goodgame’s August 21, 2000 email to Mr. Mikel stated:

Attached for your review and comment are the following draft documents:

Series B Perpetual Warrant Certificate; and Series B Perpetual Warrant Agreement.

We have assumed that you will want American Stock Transfer & Trust to serve as Warrant Agent; please note that the Warrant Agreement will need to be reviewed and agreed to by the Warrant Agent as soon as possible.

Please call me with any questions or comments.

(PX29 at p. 1.)

15. The draft Warrant Agreement attached to Mr. Goodgame’s e-mail contained a provision (Section 3.4) addressing the treatment of the Warrants in reorganizations, mergers, asset sales and other like events. (PX29.) Section 3.4 was incorporated in its entirety as Section 3.3 in the final, executed version of the Warrant Agreement. (PX1 § 3.3, PX29 § 3.4.)

16. Mr. Mikel responded to Mr. Good-game by e-mail sent on August 21, 2001 at 9:06 a.m. Mr. Mikel stated:

Please forward a draft to AST & T for their review and comment. I do not believe that we need Section 3.3 [Special Stock Dividends]. In addition, confirm for me that the effect of Section 3.4 is that upon a merger or other exchange for shares, the warrants are exchanged into the underlying common prior to the exchange; the warrants do not flow through and remain a perpetual part of the acquiring entity’s capital structure. They need to be extinguished when we do a deal.

(PX29 at p. 1.)

17. Mr. Goodgame answered Mr. Mik-el’s inquiry with a further e-mail sent on August 21, 2000 at 3:33 p.m. Mr. Good-game’s reply stated:

We’ll forward a draft to AST & T shortly. The effect of Section 3.4 is, upon a merger (or other similar transaction), the warrants effectively convert from being convertible equity securities into being rights to convert into their ‘share’ of the merger consideration. In other words, in a merger, a warrant would become the right to receive from the acquiring company stock (or cash, in a cash-out transaction) equal to the amount the warrant holder would have received had he converted immediately prior to the merger. The warrants would not be “equity securities” of the acquiror, but rather rights to receive merger consideration. The timing of the receipt, though, would still be up to the warrant holder. Incidentally, we talked to Roy [Stroube] about this concept and he indicated that it was in line with the Order.

As to Section 3.3, we agree that you may not want it in the document. We included it, though, and marked it for discussion, because it was in a previous Southern Mineral warrant, and we were not certain whether deleting it was worth the potential questions that might arise. Does its presence in the previous warrant change your analysis?

(PX29 at p. 1 (emphasis added).)

18. At his deposition, which was read into evidence without objection at trial, Mr. Goodgame elaborated on his reply to Mr. Mikel’s e-mail as follows:

Q. In his e-mail to you, Mr. Goodgame, [Mr. Mikel] asked you to confirm that the effect of Section 3.4- — now 3.3 — is that upon merger or other exchange for shares the warrants are exchanged into the underlying common prior to the exchange and the warrants do not flow through or remain a perpetual part of [the] acquiring [entity’s] capital structure. My question to you is in your reply did you attempt to confirm that for him?

A. I don’t think that my reply — I don’t think that you could read my reply as being a yes to him. I think you could read my reply as being a response of maybe you don’t understand how these work. Here’s how they work.

Q. Mr. Goodgame, the last sentence of Mr. Mikel’s e-mail to you is, ‘they,’ referring to the warrants, ‘need to be extinguished when we do a deal.’

A. Uh-huh.

Q. Did you, in your commentary or in your response to his e-mail, did you comment upon that, upon the statement by Mr. Mikel?

A. What I said was I didn’t use the words extinguished or otherwise. What I said was, to paraphrase my language, they are not extinguished rather they convert from, being convertible equity securities into rights to convert into their share of the merger consideration.

So, I suppose I did not answer his question directly by saying they are not extinguished but I answered his question by saying here is what happens.

Q. They become rights to receive merger consideration?

A. Correct. In the context of whatever common stock would have been able to — would have been entitled to.

(Tr. at 62-64 (Goodgame) (emphasis added).)

19. Mr. Goodgame’s August 21, 2001 email at 3:33 p.m., along with the other testimony and evidence at trial, establish that the Warrants became rights to receive merger consideration, at a time of the Warrant holders’ choosing, in the context of whatever consideration Southern Mineral’s common stockholders would have been entitled to receive in the merger.

20. Concerning the meaning of Section 3.3, Gary Christopher, the President and Chief Executive Officer of PetroCorp, testified that “the warrant holder was entitled to receive whatever the common shareholder owned or was entitled to receive at the time of the exercise.” (Tr. at 133 (Christopher).) Mr. Christopher understood that Section 3.3 gave the Warrant holders the right to convert their Warrants into whatever merger consideration to which the Southern Mineral shareholders were entitled for the duration of the Warrants. (Tr. at 139 (Christopher).)

21. Mr. Christopher also testified that he believed the following statement in Pe-troCorp’s attorneys’ January 22, 2001 email, (PX54), describing the Warrants was accurate: “In the event of any merger, such as the merger of Southern Mineral into [PAC], the [W]arrants represent the right to receive the securities and assets as the holders of Southern Mineral common stock receive in the merger.” (Tr. at 166 (Christopher).) Mr. Christopher had no doubt that the timing of the receipt of the merger consideration would be up to the Warrant holders. (Tr. at 163-64 (Christopher).)

22. Herbert J. Lemmer (“Lemmer”), AST’S General Counsel, executed the Warrant Agreement on behalf of AST. (PX1 at p. 13; Tr. at 210-12 (Lemmer).) AST acted as warrant agent for the Warrants. (PX1; Tr. at 210 (Lemmer).)

23. Mr. Lemmer read the entire Warrant Agreement, including Section 3.3, before he executed it and recognized Section 3.3 as a standard provision found in warrant agreements to protect the issuer and the warrant holders. (Tr. at 212, 218, 239 (Lemmer).) Mr. Lemmer testified that Section 3.3:

... gives the issuer the right to merge so that a warrant holder cannot turn around and say, issuer, you cannot merge because by merger you are wiping out the stock that I’m entitled to exercise my warrant for.

And, similarly, it protects the warrant holder so that the issuer cannot come along and say sorry, there is no more stock that you are entitled to exercise your warrant for.

(Tr. at 212-13 (Lemmer).)

24. Mr. Lemmer used several examples to illustrate the effect of Section 3.3 in a merger:

If, in a particular deal you have a share for share deal, so let’s say Petro and this company was acquiring Southern Mineral and each Southern Mineral share would become entitled to receive one Petro share, then the warrant would, in the future, be exercisable for one Petro share. If the consideration was cash, $5 a share, then the warrant would be exercisable into $5 of cash. You could also have a combination, let’s say the warrants — the consideration was half a share of Petro and $2.50, then on an ongoing basis the warrant would be exercisable for half a share plus $2.50.

(Tr. at 213 (Lemmer).)

25.According to Mr. Lemmer, the Warrant Agreement did not contain a

provision giving Southern Mineral or PetroCorp the “ability to cut off the right to receive the merger consideration, whatever that is, and this is a perpetual warrant.” (Tr. at 213 (Lem-mer).)

26. Mr. Buck’s testimony concerning the language of Section 3.3 of the Warrant Agreement echoed that of Mr. Lemmer. Mr. Buck testified that Section 3.3 “provide[d] for the continued exerciseability of the [Wjarrant after the specified transaction into the consideration specified.” (Tr. at 291 (Buck).) Similarly, Mr. Buck testified that Section 3.3 “confers rights to the [W]arrant-holder to continue to be able to exercise the [W]arrant into the consideration that the common stockholders receive in connection with a transaction.” (Tr. at 298 (Buck); see also 304 (Buck).) Mr. Buck also testified that “[t]he purpose of [Section 3.3] is to not require [W]arrant holders to exercise [to] be entitled to the same shares of stock, securities or assets as may be issued or payable [to Southern Mineral’s common shareholders].” (Tr. at 311 (Buck).)

27. Like Mr. Lemmer, Mr. Buck did not have any understanding that the option feature of the Warrants would not extend beyond the time of a merger, consolidation or other so-called exit transaction. (Tr. at 311-12 (Buck).) Indeed, the Warrant Agreement itself states that the Warrants would be perpetual in duration, and the Warrant Agreement does not provide, implicitly or explicitly, for an “exit transaction” or “value realization event” that would terminate the perpetual duration of the Warrants, as the defendants argued at trial.

28. RAMLP and WSC’s representatives’ testimony concerning Section 3.3 was consistent with that of the other witnesses. For example, Mr. Mackie testified that the plain language of Section 3.3 required the Warrants to remain exercisable into equity of an acquiring corporation where equity was offered as part of the merger consideration. (Tr. at 632-34 (Mackie).) Mr. Rose testified that the text of Section 3.3 required that upon “any change in the structure of the common shares of the company, my warrants would be protected so that I would receive or have the right to receive the same consideration, value or shares that I was able to receive when the issue first came out as I was able to receive after this change in structure that which I would have been able to receive before the change happened.” (Tr. at 503 (Rose); see also Tr. at 383 (Bridges) (“I also noticed — 3.3 concerning what we referred to as an anti-dilution or anti-destruction clause, ensuring the life, the survivability of the [Warrant in case of certain activities”).)

29.There was some testimony concerning the meaning of the word “immediately” as that term is used in Section 3.3 of the Warrant Agreement. The use of that term does not alter the perpetual nature of the Warrants. The word “immediately” does not limit the merger consideration into which the Warrant holders were able to exercise their Warrants or enable Southern Mineral or its acquirer to place a time limit on the Warrant holders’ ability to exercise their Warrants into any form of merger consideration to which Southern Mineral’s shareholders were entitled. (Tr. at 213-214, 216-18 (Lemmer); Tr. at 293-96 (Buck); Tr. at 504-05 (Rose).) Rather, the provision that, in the event of a merger, the warrants are convertible into the “number of outstanding shares of such common stock equal to the number of shares of such stock immediately theretofore purchasable and receivable upon the exercise of the warrants had such ... merger ... not taken place,” is a means of taking into account the mathematical adjustments made to the exercise feature of the Warrant — e.g., stock dividends, stock splits and aggregations of Southern Mineral stock, (PX1 §§ 3.1, 3.2) — occurring during the Warrants’ term prior to a merger. (Tr. at 504-05 (Rose).) Thus, “instead of having the right to purchase shares of Southern Mineral [the Warrant holders] would have the right to purchase whatever the merger consideration was,” (Tr. at 217 (Lemmer)), after taking into account prior mathematical adjustments in the exercise feature of the Warrants (PX1 § § 3.1, 3.2; Tr. at 293-95 (Buck).)

30. The plain language of Section 3.3, and testimony and documentary evidence concerning that Section, establish that under the Warrant Agreement, the Warrant holders were entitled to exercise their Warrants — at a time of their choosing after the merger — into the same merger consideration offered to Southern Mineral’s shareholders.

The Warrant Certificate

31. The Southern Mineral Series B Perpetual Warrant Certificate (the “Warrant Certificate”) states, in part:

This Warrant Certificate certifies that, [ ] (including its successors, the “HOLDER”), is the holder of [ ] Series B Perpetual Warrants (“WARRANTS”), each of which entitles such Holder to purchase, at any time, one share (as adjusted) of common stock, par value $0.01 per share (“COMMON STOCK”), of Southern Mineral Corporation, a Nevada Corporation (the “COMPANY”), as such stock is constituted at the date of this warrant, at the price of $4.21 per share....

This Warrant Certificate is issued under and in accordance with the Series B Perpetual Warrant Agreement dated as of [ ], 2000 (the ‘WARRANT AGREEMENT”), between the Company and the Warrant Agent and is subject to the terms and provisions contained in such Warrant Agreement, to all of which terms and provisions the Holder consents acceptance hereof.

(PX2 at p. X-10.)

32. The witnesses at trial testified that the Warrant Certificate: (a) does not create any contract rights or obligations for the issuer of the Warrants or the Warrant holders; and (b) that Warrant Certificate is merely evidence of ownership of the Warrants. (Tr. at 58-59 (Goodgame); Tr. at 297 (Buck); Tr. at 381 (Bridges); Tr. at 505 (Rose).) Mr. Buck testified that the rights of the Warrant holders stem from the Warrant Agreement itself. (Tr. at 297 (Buck); see also Tr. at 291 (Buck) (“[A] warrant agreement ... represents the warrants. So the warrants in essence are the same thing as this agreement.”).) In any event, the Warrant Certificate was subject to the terms and conditions of the Warrant Agreement discussed above.

33. Purchasers of Southern Mineral’s Warrants did not receive a Warrant Certificate unless they specifically requested one be sent to them. (Tr. at 505-06 (Rose).)

The Southern Miner aV-PetroCorp Merger

34. On December 22, 2000, Southern Mineral and PetroCorp entered into the Merger Agreement. Mackie I, 244 F.Supp.2d at 282. The Merger Agreement contained the following relevant terms addressing the treatment of Southern Mineral’s shareholders and Warrant holders in the merger:

[Section 1.5] (c) Subject to Sections 1.5(b), 1.6, 1.7, 1.8 and 1.12, each issued and outstanding share of Company Common Stock not cancelled pursuant to Section 1.5(b) will be converted into one of the following....

(i) for each such share of Company Common Stock (other than shares as to which a Stock Election (as defined in Section 1.6(a) has been effectively made and not revoked or lost pursuant to Section 1.6)), the right to receive an amount in cash, without interest (collectively, the “Cash Consideration”), equal to $4.71, (the “Per Share Merger Consideration”)-, or

(ii) at the election of the holder thereof, for each such share of Company Common Stock as to which a Stock Election has been effectively made and not revoked or lost, the right to receive a number of shares of Parent Common Stock equal to the Exchange Ratio (collectively, the “Stock Consideration”; the aggregate Cash Consideration and Stock Consideration issued to all of Company’s shareholders in connection with the Merger will be referred to as the “Aggregate Merger Consideration”). The “Exchange Ratio” will equal the Per Share Merger Consideration divided by 10.

s¡s * * ❖ * *

Section 1.6 Company Common Stock Elections. Subject to Sections 1.5, 1.7 and 1.8, each holder of shares of Company Common Stock (other than holders of shares to be canceled as set forth in Section 1.5(b)) will have the right to submit a request specifying the number of shares, of Company Common Stock which such holder desires to have converted into the right to receive either Stock Consideration or a combination of Stock Consideration and Cash Consideration in accordance with the following procedures:

(a) Each holder of shares of Company Common Stock may specify in a request made in accordance with the provisions of this Section 1.6 the number of such shares which such holder desires to have converted into the right to receive Stock Consideration in the Merger (a. “Stock Election”). Each share of Company Common Stock as to which no Stock Election is in effect at the Stock Election Final Date (as defined in Section 1.6(e) ) or for which a Stock Election has been made but has been revoked or withdrawn or is otherwise no longer effective will be called a “Non-Electing Share.” Subject to Sections 1.7 and 1.8, the Non-Electing Shares of each holder of share's of Company Common Stock will be treated for purposes of this Agreement as if such shares were not covered by a Stock Election and, accordingly, will be converted to the right to receive Cash Consideration in accordance with Section 1.5(c)(i) ....

(e) A Stock Election will have been properly made only if the Exchange Agent will have received, by 5:00 p.m., New York City time, on the twentieth day (or a later date which may be determined prior to the Stock Election Mailing Date by mutual agreement of Parent and Company) following the date of mailing of the Form of Stock Election (such time on such day being referred to herein as the “Stock Election Final Date”), a properly completed and signed Form of Stock Election. A holder of Warrants that (i) receives a Form of Stock Election, (ii) exercises Warrants in accordance with the applicable warrant agreement after receipt of such Form of Stock Election but prior to the Stock Election Final Date, and (in) otherwise delivers such Form of Stock Election in accordance with this Section 1.6(e) with respect to the shares of Company Common Stock issuable under such Warrant, will have made a Stock Election-with respect to such shares of Company Common Stock issuable under such-Warrant if, and only if, such shares are issued to such holder on or prior to the Stock Election Final Date so that such holder is the record holder of such shares on the Stock Election Final Date....

(PX15 pp. 1-3 and 1-5 (italics in original) (emphasis added).)

35.By Joint Prospectus and Proxy Statement, dated April 3, 2001 and first mailed to shareholders on or about April 9, 2001 (the “Joint Prospectus”), (PX15 at p. 1), Southern Mineral and PetroCorp explained their treatment of Southern Mineral’s shareholders and Warrant holders in the merger. The Joint Prospectus stated:

Q. What will happen to Southern Mineral shares in the merger?

A. In exchange for each share of Southern Mineral stock, Southern Mineral shareholders will receive merger consideration of $4.71 in cash or, if the shareholder timely elects, in PetroCorp common stock based on an exchange ratio of .471, subject to possible proration as a result of oversub-scription for PetroCorp stock, as described below....

Q. Can Southern Mineral warrant holders receive PetroCorp stock in the merger?

A. Southern Mineral warrant holders can receive PetroCorp stock in connection with the merger only if, prior to the expiration of the merger stock election period, they exercise their warrants (including paying the applicable exercise price) and, as shareholder, make a valid stock election as provided in the merger agreement. In accordance with the terms of the Southern Mineral warrants, if the merger is completed, PetroCorp will assume each Southern Mineral warrant outstanding immediately prior to the merger and holders of those warrants will be entitled to receive, after payment of the applicable exercise price, for each share of Southern Mineral stock underlying such warrant, the per share merger consideration in cash, without interest.

(PX15 at pp. 1-2 (emphasis in original).)

36. By notices to its shareholders and Warrant holders, dated May 8, 2001, Southern Mineral implemented the Merger Agreement and Joint Prospectus. (PX31, PX33.) The notices stated that Southern Mineral and PetroCorp expected the merger to close on or about May 30, 2001. Both notices contained a “Stock Election Form.” (PX31, PX33.) The notice to shareholders required those shareholders seeking PetroCorp stock in the merger to execute and return the Stock Election Form — listing the “number of shares of Southern Mineral common stock for which shares of. PetroCorp common stock are elected,” (PX31 at p. 2) — so that it would be received by May 29, 2001 at 5 p.m. (PX31 at p. 1.)

37. The notice to Warrant holders described the mechanics of the merger as they pertained to the Warrant holders as follows:

Southern Mineral warrant holders can receive PetroCorp stock in connection with the merger only if, prior to the expiration of the merger stock election period, they exercise their warrants (including paying the applicable exercise price) and, as a shareholder, make a valid stock election as described below. In the event the merger is not consummated, warrant holders will be afforded the opportunity to rescind their exercise and remain as warrant holders.

We have enclosed the forms by which you may elect whether you would like to receive PetroCorp stock if the merger is consummated. Southern Mineral shareholders who wish to receive PetroCorp stock in the merger must duly execute and timely deliver a stock election form. Such forms must be completed and delivered to the warrant agent, American Stock Transfer & Trust Company no later than 5:00 p.m., New York City time on May 29, 2001.... If you, as a Series B Perpetual Warrant holder, wish to make a stock election you must:

• exercise, in whole or part, your warrant, by surrendering your warrant certificate to the warrant agent with a duly executed and timely delivered subscription form, located on the back of your warrant certificate, including payment in full of the warrant price of $4.21 per full share of Southern Mineral common stock and any applicable taxes; and

• Deliver a duly executed stock election form ... with respect to the shares issuable under your warrant no later than 5 p.m., New York City time on May 29, 2001.

In order for you to receive PetroCorp stock in the merger, your warrant certificate, including a duly executed and timely delivered subscription form, and an election form must be delivered to the warrant agent, American Stock Transfer & Trust Company no later than 5:00 p.m., New York City time on May 29, 2001. We are not obligated to accept any forms received after the deadline, but we reserve the right to do so. You may deliver both a duly executed subscription form with your warrant certificate and a duly executed stock election form to the warrant agent at the same time or separately, however, if you deliver such forms separately, the duly executed subscription form accompanied by your warrant certificate must be delivered to the warrant agent prior to the stock election form....

(PX33 at p. 2 (emphasis and italics in original).)

38. By press release dated May 22, 2001, (PX39), Southern Mineral and Petro-Corp announced that: (a) the date of their merger was rescheduled from May 30 until June 6, 2001; and (b) the final date for receipt of Stock Election Forms was moved from May 29 until June 5, 2001 at 5 p.m.

39. The merger consideration furnished by PetroCorp to Southern Mineral’s stockholders was: (a) $4.71 in cash per share; and (b) .471 shares of PetroCorp stock per share, subject to proration in the event that Southern Mineral’s shareholders elected to receive more than 4 million shares of PetroCorp stock. (PX15 at pp. 1-2, 5, 58-59, 1-3, 1-5, VIII-l-VIII-3 (Opinion of Southern Mineral’s financial advisor); PX31; Tr. at 126-29 (Christopher); Tr. at 308 (Buck); Tr. at 575 (Mik-el).)

Pre-Merger Negotiations

40. Southern Mineral and PetroCorp began merger discussions shortly after Southern Mineral emerged from bankruptcy protection. (Tr. at 140-41 (Christopher); PX6, PX7.) Steve Amos, Petro-Corp’s Controller, brought the Warrants to Mr. Christopher’s attention, perhaps for the first time, in an e-mail Mr. Amos sent to Mr. Christopher on November 13, 2000. (PX8; Tr. at 139-140 (Christopher).)

41.By November 24, 2000 letter to Randy King, an employee of Petrie Parkman & Co., Southern Mineral’s financial advisor, Mr. Christopher made the following proposal concerning the structure of the merger:

(1) Purchase of SMC Common Stock. PetroCorp will acquire all of the SMC Common Stock and Warrants to purchase SMC Common Stock in a tripartite statutory merger of SMC and a wholly-owned subsidiary of PetroCorp (“PetroCorp Sub”) in which, as of the Closing, all issued and outstanding shares of SMC Common Stock and Warrants as of the date of Closing, will be converted into the right to receive at Closing an aggregate of (a) $18,254,099 ... and (b) 4,000,000 shares of Petro-Corp Common Stock_ After all estimated adjustments, this equates to $2.01 and 0.25 share of PetroCorp Common Stock per share of fully diluted SMC Common Stock....

(2) Mechanics of Merger. The mechanics for accomplishing the Merger are as follows: ...

'(b) As a condition of the Merger, not less then eighty-five percent (85%) of the Warrants shall have been duly exercised and the exercise price thereof received by SMC immediately prior to the Merger.

(c) The aggregate Merger Consideration will be issued (or, in the case of Warrants, reserved for issuance upon exercise of the Warrants) proportionately in respect of the total of all shares of SMC Common Stock and Warrants to acquire SMC Common Stock outstanding as of the Closing. Each Warrant will be entitled to receive its proportionate part of the 4,000,000 PetroCorp shares when the Warrant is exercised and payment of the exercise price is received by SMC.

(PX9 at p. 1.)

42. Mr. Christopher explained that Pe-troCorp required that eighty-five (85%) percent of Southern Mineral’s Warrants be exercised as a condition of the merger because “PetroCorp did not want to assume the overhang of the Southern Mineral warrants ... [PetroCorp was] willing to ... take on a few of them, but not very many.” (Tr. at 143 (Christopher); see also Tr. at 145-47 (Christopher).)

43. Mr. Christopher further testified that PetroCorp was willing to take on only a few Warrants because: (a) PetroCorp “desired to keep [its] balance sheet clean, as we continued to grow the company, to make [PetroCorp] an attractive candidate for someone else to acquire;” and (b) it was not possible to put a value on the Warrants’ perpetual option to exercise. (Tr. at 143-45 (Christopher).) PetroCorp wanted the vast majority of Warrants to be exercised in the merger because otherwise Pe-troCorp “would have had a class of security ... going forward ... — depending on what the future conditions were — [and] would not know what kind of liability it would be to the existing shareholders, and that was not acceptable to PetroCorp.” (Tr. at 145 (Christopher).)

44. By letter to Mr. Christopher dated November 27, 2000, (PX10), Mr. Mikel responded to Mr. Christopher’s November 24 proposal. In this letter, Mr. Mikel stated:

The second major issue of concern is the condition that 85% of the Perpetual Warrants be exercised prior to closing. Without arguing the merits of the assumption of the Warrants, it is a significant condition that troubles us. The Warrants are a contractual responsibility of SMC [Southern Mineral] that cannot be abrogated. We feel that the condition should be eliminated or reduced to a meaningful level of 50%, and that PEX [PetroCorp] should agree to assume the remaining Warrants; they will represent less than 7% of pro forma PEX’s equity securities on a fully diluted basis if none were exercised. Based upon a 50% exercise, outstanding Warrants would represent less than 5% of PEX’s pro forma equity securities.

We offer the following guidance with respect to your consideration of a new proposal to SMC. Cash consideration of $2.25 plus .25 PEX shares for each share of SMC common stock, not subject to adjustment, is a proposal that will receive SMC Board attention this week. A new proposal should indicate that PEX is prepared to reduce or eliminate the condition relating to the Warrants and assume all unexercised Perpetual Warrants. Should you decide to move forward on this structure, we feel that the remaining details of a mutually satisfactory undertaking could be completed in one or two days.

(PX10 at pp. 1-2 (emphasis added).)

45.With respect to Mr. Mikel’s November 27 letter, Mr. Christopher understood that Southern Mineral’s position was that the remaining fifty (50%) percent of the Warrants would be exercisable into PetroCorp stock for an indefinite period of time after the merger. (Tr. at 149-50 (Christopher).) Mr. Christopher understood that Mr. Mikel was saying that the unexercised Warrants: (a) were the contractual obligation of Southern Mineral which could not be abrogated; and (b) had to remain outstanding and exercisable into PetroCorp stock. (Tr. at 150-51 (Christopher).) However, for PetroCorp, assumption of the Warrants was an issue that could be a “deal breaker.” (Tr. at 151-52 (Christopher); Tr. at 104 (Luttrell).)

46. Because PetroCorp would not assume the Warrants — even though Petro-Corp was offering its stock as a portion of the merger consideration — PetroCorp’s management devised a proposed merger structure to ensure that there would be no Warrants exercisable into PetroCorp stock following the merger. (PX11 ¶ 5(a)(iii); Tr. at 153 (Christopher).) This merger structure was set forth in PetroCorp’s December 6, 2000 letter of intent (the “LOP’). (PX11.) Southern Mineral agreed to the LOI on December 8, 2000. (PX11.) The structure set forth in the LOI formed the basis for the structure in the Merger Agreement. (Compare PX11 at pp. 1-3 with PX15 at pp. 1-2, 4-5, 102, 1-3, 1-5.)

47. The LOI contained a representation by Southern Mineral that the Warrants to acquire Southern Mineral stock would not be outstanding as of the merger’s closing. (PX11 ¶ 5(a)(iii); Tr. at 153-54 (Christopher).)

48. Michael Luttrell, the former Vice President and Chief Financial Officer of Southern Mineral, who testified at trial by deposition without objection, confirmed that the merger was structured so that the Warrants would not remain exercisable into PetroCorp stock after the merger. (Tr. at 84-86 (Luttrell), 102-03 (Luttrell).) Mr. Luttrell testified as follows:

Q. What were the issues, if any, with respect to Southern Minerals’ warrants that had to be resolved?

A. Well, one of PetroCorp’s concerns was that those warrants didn’t continue to be perpetual as a PetroCorp warrant. I mean, in other words, convert from a Southern Mineral to a Petroeorp.

Q. Who expressed that concern to you?

A. The PetroCorp people.

Q. Specifically?

A. Well, I mean I am sure Gary Christopher primarily.

Q. Did Mr. Christopher give you an explanation for his concern?

A. I think it was really more the overhang, the evolution, you know, possibly that would be hanging out there.

Q.... Did anyone on behalf of Southern Mineral respond to Mr. Christopher’s concern concerning not wanting the perpetual warrants to be perpetual PetroCorp warrants?

A. Yes.

Q. Leaving aside the specifics of who said what, do you remember what was said to Mr. Christopher with respect to the perpetual warrants?

[Objection omitted]

A. I think it was a legal issue, you know, how to deal with achieving his objectives.

Q. What were his objectives?

A. For those warrants not to continue to be perpetual in the scheme of Pe-troCorp’s capital structure in the future.

(Tr. at 85-86 (Luttrell); see also Tr. at 102-04 (Luttrell).)

49.Mr. Luttrell’s testimony confirms that PetroCorp refused to assume the Warrants and structured the merger so that the Warrants would not be outstanding thereafter. Southern Mineral was anxious to complete the merger and did not want issues concerning the Warrants to prevent completion of the proposed merger. (Tr. at 104 (Luttrell).) It is plain that Southern Mineral’s management was aware of the perpetual nature of the Warrants and attempted not to have the contractual obligations abrogated in the merger, but, when PetroCorp refused to have the Warrants outstanding after the merger, Southern Mineral simply succumbed in order to get the merger done.

50. On December 8, 2000, Mr. Christopher sent an e-mail reflecting upon the problem caused by the Warrants during the merger negotiations. (PX12.) Mr. Christopher stated that:

On a fully diluted basis, total consideration to the SMIN [Southern Mineral] shareholders is $79.4MM, plus an estimated $2.8MM of merger costs, in a combination of cash and stock, again with the PEX stock valued at $10/share. Based on the election of their shareholders/warrant holders, we could issue as few as 3MM or as many as 4MM shares of PEX common stock with the balance paid in cash or in cash reserved for non responding warrant holders. The real problem we encountered was the fact their S.7MM warrants are perpetual and we refused to do a transaction that could leave a block of current SMIN ivarrant holders with a perpetual below value and probable below market option on PEX shares, Any warrant holder that does not exercise their right prior to closing is only entitled to $.50 in cash and this nonexercise only enhances our purchase price. Their warrant holders have the right to acquire one share of SMIN common stock for $4.21. Our proposal has the economic value of $4.71/share.

(PX12 at p. 1 (emphasis added).)

51. Mr. Christopher’s December 8, 2001 e-mail demonstrates that PetroCorp insisted on a merger structure that ensured that the Warrants would not remain outstanding and be convertible into Petro-Corp stock after the merger.

The Warrants’ Trading History

52. The Warrants began trading on the Bulletin Board as of October 16, 2000 and were delisted form the Bulletin Board on June 7, 2001, one day after the merger was consummated. (Mackie I, 244 F.Supp.2d at 282; PX115 at pp. 38M4.)

53. Between October 16 and December 21, 2000, the Warrants traded in a range between $.4063 and $.9063. (PX77 at p. 1.) The high was reached on November 7, 2000; the low was reached on November 29, 2000. (Id.) The average daily closing price for the Warrants during this period was $.6473. (Id.) The average daily trading volume was 15,885 Warrants. (Id.)

54. On December 21, 2000, the day before the planned merger between Southern Mineral and PetroCorp was announced, the closing price for the Warrants on the Bulletin Board was $.5625. (PX77.)

55. On December 22, 2000, Southern Mineral and PetroCorp announced their planned merger. (Mackie I, 244 F.Supp.2d at 282.) Between December 22, 2000, and June 7, 2001, the Warrants traded in a range between $.49 and $.5938. (Tr. at 354 (Morris); PX115 at pp. 38-40; PX64 at pp. 1-4.) From May 2 until June 5, 2001, the closing price for the Warrants ranged from a high of $.56 on May 2 to a low of $.49 on June 5, 2000. (PX115 at p. 38; PX64 at p. 1.) The Warrants did not trade on June 6, 2001 and closed at $.4920 on June 7, 2001 on volume of 4,300 Warrants. (PX115 at p. 38; PX64 at p. 1.)

Trading History of Southern Mineral’s Stock from October 13, 2000 Through June 7, 2001

56. After Southern Mineral’s emergence from bankruptcy protection, its common stock was quoted and traded on the Bulletin Board under the symbol “SMOP.OB.” (PX55 at pp. 12-13 (Item 5. Market for Common Equity and Related Stockholder Matters); PX15 at p. 9-10.) Southern Mineral’s common stock stopped trading on the Bulletin Board on June 7, 2001, one day after the Southern Mineral-PetroCorp merger was consummated. (PX78 at p. 1; PX15 at pp. 1,1-3.)

57. Between October 13 and December 21, 2000 Southern Mineral’s stock traded in a range between $2.90 and $3.50. The high was reached on October 13, 2000; the low was reached on November 30, 2000. (PX76 at p. 1) The average daily closing price for the stock during this period was $3.2045. (Id.) The average daily trading volume for the stock was 74,392 shares. (Id.)

58. On December 21, 2000, the closing price for Southern Mineral’s stock on the Bulletin Board was $3,125. (PX76.)

59. On December 22, 2000, the date that the planned merger was announced, Southern Mineral’s stock closed at $4.00. (PX78 at p. 3.) With the exception of eight days in late December 2000 and early January 2001, Southern Mineral’s stock did not close below $4.00 again. (PX78 at pp. 1-3.) From January 9 through June 7, 2001, Southern Mineral’s stock traded in a range of $4.07 and $4.74. (PX78 at pp. 1-3.) During this period, the high was reached on May 23, 2001; the low was reached on March 1, 2001. (PX78 at p. 2.) From May 18, 2001 through June 1, 2001, the stock traded at or above $4.71, the value of the stock and cash consideration offered to Southern Mineral’s shareholders. (PX78 at p. 1.)

60. On June 7, 2001, the last day that Southern Mineral’s stock was traded on the Bulletin Board, the stock closed at $4.67 on volume of 16,300 shares. (PX78 at p. 1.)

The Plaintiffs’ Purchases and Sales of Southern Mineral Warrants

61. RAMLP is a NASD broker-dealer which specializes is trading in warrants. (Tr. at 377 (Bridges).) RAMLP made markets in NASDAQ securities and Bulletin Board-type securities and looked for warrant situations that it found attractive to trade. (Tr. at 377 (Bridges); Tr. at 610-12 (Mackie).)

62. RAMLP determined to purchase Warrants because, among other things: (a) the terms of the Warrants were attractive; (b) the trading price of the Warrants was artificially depressed as a result of the announced terms of the merger; (c) RAMLP believed that the terms of the merger violated the Warrant Agreement; and (d) RAMLP hoped to persuade Southern Mineral and PetroCorp to abide by the Warrant Agreement. (Tr. at 394-96 (Bridges), 449 (Bridges), 470-71 (Bridges), 493-95 (Bridges); Tr. at 636-38 (Mackie), 669-70 (Mackie), 718-23 (Mackie).)

63. RAMLP began purchasing Warrants on January 3, 2001 and was a market maker for the Warrants. (PX66 at p. 1; Tr. at 612 (Mackie).) RAMLP’s last net purchase of Warrants was on June 7, 2001. (PX66 at p. 16; Tr. at 412-13 (Bridges).) On that date, RAMLP bought 3,270 Warrants at $.4920 for a total purchase price of $1,608.84. (PX66 at p. 16; Tr. at 411 (Bridges).) From January 3, 2001 through June 5, 2001, RAMLP purchased a net total of 403,339 Warrants. (PX66 at pp. 2-15; Tr. at 419 (Bridges).) RAMLP purchased the Warrants from other market makers in that security; RAMLP did not purchase any Warrants from retail customers or from Southern Mineral directly. (Tr. at 407-08, 413 (Bridges).)

64. Prior to June 6, 2001, RAMLP sold warrants to three different groups that had an interest in buying the Warrants: WSC, Millenco, L.P. (“Millenco”) and Allen & Company (“Allen”). (Tr. at 414 (Bridges).) WSC and Allen were market makers and securities broker-dealers; Mil-lenco was neither a market maker nor a broker-dealer. (Tr. at 414 (Bridges), 423-424 (Bridges); Tr. at 507 (Rose).) Accordingly, RAMLP sold Warrants to Millenco through an account that Millenco maintained with Allen. (Tr. at 417 (Bridges), 490 (Bridges).)

65. On September 25, 2001, RAMLP sold 200,000 Warrants to Allen for the account of Millenco at a price of $.50 per Warrant. (PX66 at p. 16; Tr. at 412 (Bridges).) On the same date, RAMLP also sold 200,000 Warrants to Mr. Mackie’s account at a price of $.50 per Warrant. (PX66 at p. 16; Tr. at 412 (Bridges).) RAMLP’s September 25 sales were made to improve RAMLP’s balance sheet as of that date. (Tr. at 412 (Bridges), 415-16 (Bridges).)

66. On December 14, 2001, RAMLP purchased 55,000 Warrants from Mr. Mackie’s account at a price of $.50 per Warrant. (PX66 at p. 16; Tr. at 412 (Bridges).) On December 27, 2001, RAMLP purchased 145,000 Warrants from Mr. Mackie’s account at a price of $.50 per Warrant. (PX66 at p. 16; Tr. at 412 (Bridges).)

67. On December 18 and 28, 2001, RAMLP tendered a total of 206,609 Warrants for redemption to PetroCorp’s transfer agent at the $.50 redemption price. (PX66 at p. 17; Tr. at 409-10 (Bridges), 420 (Bridges).) RAMLP tendered its Warrants for redemption to mitigate damages. (Tr. at 752 (Mackie).) RAMLP received $103,304.50 from the redemption of its Warrants. (PX82 at p. 4.)

68. Since 1991, RAMLP has had the ability to make recommendations to purchase and sell securities in Millenco’s account. (Tr. at 629 (Mackie); Tr. at 414-16 (Bridges), 423-24 (Bridges), 490 (Bridges), 495 (Bridges); PX67.) As a matter of practice, an RAMLP employee would telephone Millenco with a recommendation to purchase or sell securities in the account and Millenco would routinely follow RAMLP’s recommendations. (Tr. at 415 (Bridges); Tr. at 629 (Mackie).)

69. RAMLP has a financial interest in Millenco’s account amounting to forty (40%) percent of the net profits therein. (Tr. at 629 (Mackie); Tr. at 416 (Bridges).) This is the only account maintained by Millenco to which RAMLP sold Warrants and all of the trades in that account, (PX67), were recommended by RAMLP. (Tr. at 416 (Bridges), 427 (Bridges), 431-32 (Bridges); Tr. at 715 (Mackie).) RAMLP recommended that Millenco purchase Warrants for the same reasons that it purchased Warrants for its own account. (Tr. at 636-37 (Mackie).)

70. Millenco began purchasing Warrants — based on RAMLP’s recommendations — on January 5, 2001. (PX67 at p. 1.) In accordance with RAMLP’s recommendations, between January 5 and June 4, 2001 Millenco bought 344,000 Warrants. (PX67 at p. 1; Tr. at 452-53 (Bridges).)

71. At the recommendation of RAMLP, Millenco purchased 360,500 Warrants (at a price of $.50 per Warrant) from Allen on July 12, 2001. (PX67 at p. 1.) Allen sold these Warrants because its trader who purchased the Warrants, who is Mr. Mack-ie’s son, was retiring and did not believe that it was proper to leave the position open at Allen when he was not there to supervise it. (Tr. at 428-29 (Bridges).) The Warrants which Allen sold to Millenco were purchased (by Alen) before the merger. (Tr. at 454 (Bridges).)

72. As set forth above, on September 25, 2001, RAMLP sold 200,000 Warrants to Millenco. (PX67 at p. 1; Tr. at 430, 453-54 (Bridges).) Alen acted as Millen-co’s broker in this transaction and charged Millenco’s account with a $.01 mark-up to cover expenses in connection with this transaction. (PX67 p. 1; Tr. at 430 (Bridges).)

73. Millenco purchased a total of 904,-500 Warrants. (PX67 at p. 33; Tr. at 430 (Bridges).) At RAMLP’s instruction, Mil-lenco tendered these Warrants for redemption on January 3, 2002. (Tr. at 430-32 (Bridges), PX67 at p. 33.) Millenco received $452,250 from the redemption of the Warrants. (PX82 at p. 3.)

74. Stephen Rose, Manager of WSC’s Abitrage Department, learned about the Warrants from a press release sent to him by Bruce Bridges. (Tr. at 501-02 (Rose).) Mr. Rose read the press release when he received it and compared it to the Warrant Agreement. (Tr. at 502 (Rose).) This comparison established to Mr. Rose’s satisfaction that the terms of the proposed merger breached the Warrant Agreement. (Tr. at 502-03 (Rose).)

75. Between January 16 and June 5, 2001, WSC purchased a net total of 200,-772 Warrants. (PX68 at p. 1; Tr. at 508 (Rose).) WSC bought 171,801 of these Warrants from RAMLP. (PX68 at p. 1.) WSC purchased these Warrants in arms’length transactions. WSC purchased the Warrants because Mr. Rose, based on his evaluation of the Warrant Agreement, thought: (a) the Warrants were well un-derpriced; and (b) the terms of the merger should be changed to comply with the Warrant Agreement. (Tr. at 511 (Rose).) Mr. Rose, who has been trading warrants for 23 years, (Tr. at 499-500 (Rose)), believed the Warrants were underpriced because they had a long time to run, were not callable, and were more than a viable trading option had they remained exercisable into the stock component of the merger consideration as required by the Warrant Agreement. (Tr. at 511 (Rose).)

76. WSC tendered its Warrants for redemption at the $.50 redemption price on December 24, 2001. (PX68 at p. 2; Tr. at 515 (Rose).) WSC tendered the Warrants for redemption to free up its capital for other purposes. (Tr. at 515 (Rose).)

The Plaintiffs’ Contacts with Southern Mineral and PetroCorp

77. Before completion of the merger, Mr. Bridges spoke with and wrote to Southern Mineral’s attorneys at Akin Gump protesting the treatment of the Warrants in the planned merger. (PX96, PX97; Tr. at 432-37 (Bridges).) Mr. Bridges also spoke with and wrote to several of PetroCorp’s officers protesting the treatment of the Warrants. (PX98; Tr. at 436-37 (Bridges).) Even after the merger, RAMLP’s attorneys wrote to PetroCorp seeking to change the treatment of the Warrants. (PX100; Tr. at 449-51 (Bridges).) All of these efforts were unsuccessful. (PX101; Tr. at 432-37 (Bridges), 449-51 (Bridges).)

78. By letter to Southern Mineral’s Board of Directors, dated April 5, 2001, Mr. Mikel enclosed four letters from Warrant holders complaining about the treatment of the Warrants in the merger.-(PX38.) In his letter, Mr. Mikel stated “PetroCorp indicates that they are disinclined to do anything to change the transaction structure at this time. We are unable to change the structure of our transaction with PetroCorp without their permission.” (PX38 at p. 1.)

The Trading Price of the Warrants Was Artificially Depressed After Announcement of the Merger

79. The plaintiffs called Mr. Mackie to testify as an expert concerning the market for warrants and as to the value of the Warrants. As set forth below, the Court found that Mr. Mackie was qualified as an expert on these subjects and permitted him to testify as an expert. (Tr. at 673 (Court).)

80. Mr. Mackie has been trading and valuing warrants since 1968. (Tr. at 600 (Mackie).) Mr. Mackie seeks to trade undervalued warrants and has endeavored to locate and evaluate the value of every warrant traded on a public market in the United States over the past 25 years. (Tr. at 610-12 (Mackie).) Mr. Mackie believes that he has examined between 500 and one thousand warrant issues to determine whether such warrants were undervalued. (Tr. at 610 (Mackie).) RAMLP has made a market in at least 300 warrants since Mr. Mackie started the firm in the late 1980’s. (Tr. at 603-05 (Mackie), 631 (Mackie).)

81. In late 2000 or early 2001, Mr. Mackie reviewed the trading history of Southern Mineral’s stock and Warrants to determine how the Warrants traded in relationship to the stock. This enabled Mr. Mackie to determine how the Warrants would trade in the event that the constraints of publically announced terms of the merger were removed. (Tr. at 638 [Mackie]; PX76; PX77.)

82. Mr. Mackie testified that from October 16 through December 21, 2000, the Warrants’ trading range and average daily volume was what he expected from a firm that recently emerged from bankruptcy. (Tr. at 640-41 (Mackie).) Mr. Mackie explained that the trading range for the Warrants ($.9063 — $.4063) was expected because: (a) the Warrants traded on the OTC Bulletin Board; (b) there is very little publicity about the Bulletin Board market {e.g., quotes for the Bulletin Board are not published in widely circulated newspapers); and (c) there were restrictions on securities broker-dealers that wanted to trade Bulletin Board securities on behalf of public customers. (Tr. at 640-41 (Mackie); see also Tr. at 396-97 (Bridges).)

83. Mr. Mackie testified that the average daily trading volume for the Warrants (15,885) was not significant given the Warrants’ average daily closing price of $.6473 in the period before the merger was announced. (Tr. at 641 (Mackie); PX77 at p. 1; see also Tr. at 397-98 (Bridges).)

84. The trading range for Southern Mineral’s stock before the merger announcement ($3.50 — $2.90) was also predictable for a Bulletin Board security when the issuer had recently emerged from bankruptcy. (Tr. at 641-42 (Mackie); PX76 at p. 1.)

85. Once the merger was announced, the Warra