Gildor v. Optical Solutions, Inc., download file. This Chancery Court decision involved cross motions for summary judgment. A preferred shareholder attempted to assert his preemptive rights to buy preferred shares issued by a privately-held company.
The main issue was whether or not the company gave proper notice to the shareholder as required by the agreement that gave him preemptive rights. The shareholder did not receive actual notice until after the issuance and the company argued that he waived the preemptive rights that he had bargained for in the Shareholders Agreement. In essence, because the agreement on which his preemptive rights were based, did not include a current address, even though the company had a current address in its records, the court determined that the company breached the agreement by not properly notifying the shareholder and resting on the mistaken belief that it had complied when it learned that notice did not reach the stockholder, Gildor, at the address to which the notice was sent.
The court reasoned that the company was required to make better efforts to comply with the notice provision, which was not literally possible, but required reasonable efforts to at least use the other addresses in the records of the corporation. Although the agreement required notice to be provided pursuant to the address in the agreement, the agreement did not include an address and the court concluded that

“issuers who create contractual ambiguity about the method of notice bear the proportionate costs of their own drafting infelicities by undertaking reasonable efforts to provide actual notice.”

The court did not rely on the “implied duty of good faith and fair dealing” because the court was hesitant to alter the dynamics of the bedrock principle of the freedom of contract by imposing duties that two sophisticated parties did not provide on their own.
The court also emphasized that specific performance was only available at the discretion of the court and required a showing that a legal remedy would be inadequate. However, it did note that when the stock of a private company is not available in the market, is unique or has unique value, that specific performance has been held to be appropriate (citing Amaysing Tech. Corp. v. CyberAir Communications, Inc. 2004 WL 1192602 (Del. Ch. 2004)).
In sum, it was not sufficient for the company to send two notices that it knew were sent to outdated addresses.
This calls to mind an article in the Sunday New York Times of July 9, 2006 by Linda Greenhouse at page 5 of Section 4. She was describing a recent decision by U.S. Chief Justice John G. Roberts, Jr. in which he wrote a majority opinion that found that the State of Arkansas denied due process to a homeowner by seizing and selling his house for non-payment of property taxes without taking reasonable steps to notify him of the risk he was facing. Chief Justice Roberts wrote in that case that “in response to the returned form suggesting that Jones [the homeowner] had not received notice that he was about to lose his property, the state did – – nothing.” Similar common sense logic and reasoning was used in the Gildor case. See generally a recent Delaware Supreme Court decision, summarized here, which addressed the issue of “when a mailed letter is presumed to be received by the addressee” in a different context than the Gildor case.