Amazon loses case on antidilution clause

Interesting new decision by the Delaware Chancery Court in a case involving Amazon. Amazon obtained antidilution rights with preferred stock in Basis and when followon rounds were issued above their price (by $.03), Amazon claimed that the Board acted with self-interest to circumvent their antidilution rights.  Amazon argued that the Board breached their duties of care and loyalty by getting a higher price, thereby causing less dilution to all shareholders, other than Amazon that had this special right. While acknowledging that they were novel, the court rejected Amazon’s arguments.  The take-away from this case seems that if a follow-on round is close in price to the last round, it may be a good idea to document how and why that price was reached, at least in the case where the company is not on the best of terms with the shareholderthat may complain.

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