Non-employee shareholders being diluted after $300 million buyout offer

[MAowner]

Massachusetts -
A firm I worked for three years ago, in which I earned and exercised stock options worth just under 1% of the company, agreed this week to sell to a major multinational for approximately $300 million. It is a private (i.e. not-traded) C corporation based in Massachusetts.

Only three people - other than the two angel investors - own stock and are not actively employed at the firm. All the other (approximately 30) option and/or share holders are current employees. The board is rumored - I have a reliable source for this rumor from inside the company, proving it pays to be nice to secretaries and copy machine gofers - to be planning to issue new shares. The new shares would double or triple total shares outstanding. These new shares would be distributed to the current actively employed shareholders, proportionately to their current ownership share, although it is possible that some employees who are not shareholders would also receive some of the new shares.

This would have the effect of reducing my return from $3 million to $1 million. It doesn't sound really legal to me, but then, I'm a systems geek, not a lawyer.

I also can't afford the kind of legal representation this Boston based company can - they are phenomenally profitable and cash positive - but would a large firm be interested in taking this on a contingency fee basis? If so, how much? One-third of what I get over what they offer after the dilution takes place? (e.g. if I get the $3 million I believe I am entitled to, and they offer $1 million, the contingency fee would be 1/3rd of $2 million.) Would a major securities law firm be willing to work on that basis, bearing in mind that this company has a very large and powerful Boston law firm who would nibble an individual like me to death.

The sale has been agreed, signed and press releases issued, but the final price and closing is not until mid-October, as the buyer is a European company and the final price is dependent on the changes in the statements that might occur when translating from US accounting standards to European. If I am right, and this is a ridiculous violation of outside shareholder rights, wouldn't an injunction to stop the sale be the best way of putting pressure on? Is that possible?

Not hopeful, but not yet willing to just lie down and take it.

Any expertise appreciated.

[HomeGuru]

Originally Posted by MAowner

Massachusetts -
A firm I worked for three years ago, in which I earned and exercised stock options worth just under 1% of the company, agreed this week to sell to a major multinational for approximately $300 million. It is a private (i.e. not-traded) C corporation based in Massachusetts.

Only three people - other than the two angel investors - own stock and are not actively employed at the firm. All the other (approximately 30) option and/or share holders are current employees. The board is rumored - I have a reliable source for this rumor from inside the company, proving it pays to be nice to secretaries and copy machine gofers - to be planning to issue new shares. The new shares would double or triple total shares outstanding. These new shares would be distributed to the current actively employed shareholders, proportionately to their current ownership share, although it is possible that some employees who are not shareholders would also receive some of the new shares.

This would have the effect of reducing my return from $3 million to $1 million. It doesn't sound really legal to me, but then, I'm a systems geek, not a lawyer.

I also can't afford the kind of legal representation this Boston based company can - they are phenomenally profitable and cash positive - but would a large firm be interested in taking this on a contingency fee basis? If so, how much? One-third of what I get over what they offer after the dilution takes place? (e.g. if I get the $3 million I believe I am entitled to, and they offer $1 million, the contingency fee would be 1/3rd of $2 million.) Would a major securities law firm be willing to work on that basis, bearing in mind that this company has a very large and powerful Boston law firm who would nibble an individual like me to death.

The sale has been agreed, signed and press releases issued, but the final price and closing is not until mid-October, as the buyer is a European company and the final price is dependent on the changes in the statements that might occur when translating from US accounting standards to European. If I am right, and this is a ridiculous violation of outside shareholder rights, wouldn't an injunction to stop the sale be the best way of putting pressure on? Is that possible?

Not hopeful, but not yet willing to just lie down and take it.

Any expertise appreciated.

**A: I can't think of one attorney who would take this on a contingency.