Amazon.com, Inc. v. Hoffman, No. 2239-VCN (June 30, 2009), read opinion here.
In this letter decision, the Chancery Court grants a Motion to Dismiss claims that Amazon.com, Inc. brought against Basis Technology Corporation in connection with the preferred shares that Amazon.com owns in Basis. Amazon.com claimed that the directors breached their fiduciary duties, as well as the implied covenant of good faith and fair dealing based on the terms of the Certificate of Incorporation as a result of the issuance of additional shares that allegedly circumvented an anti-dilution provision that Amazon.com had negotiated. The Certificate of Designation in the Certificate of Incorporation (the "Charter") included anti-dilution protection for Amazon.com by which the conversion price that would apply to the right of Amazon.com to convert its preferred shares into common shares would be adjusted in favor of Amazon.com if any new stock was issued at a price lower than $1.36 per common share.
The Charter included a Section 102(b)(7) exculpatory clause to protect its directors against monetary liability for breach of the duty of care. The court did not find any basis to question their loyalty and good faith, thus, allowing them to enjoy the protection of that Charter provision.
The court also rejected the argument that the issuance of new stock was a violation of the covenant of good faith and fair dealing. The court reasoned that simply because the applicable documents did not expressly address what would happen if shares were issued at a price equal to or greater than $1.36 per share, does not mean that the “expectation of the parties [if shares of common stock were issued for $1.36 per share or more] was so fundamental that it is clear that they did not feel a need to negotiate about them.” Thus, the court dismissed the amended complaint, although Amazon was allowed leave to amend.