CL Investments, L.P. v. Advanced Radio Telecom Corp.

2000 WL 1868096 (2000)

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CL Investments, L.P. v. Advanced Radio Telecom Corp.

Delaware Chancery Court
2000 WL 1868096 (2000)

Facts

Telecom (defendant) entered into an agreement with Advanced Radio Telecom Corp. (ART) (defendant) in which a wholly owned subsidiary of ART was merged into Telecom, which survived under ART’s control. As part of the merger, Telecom’s stock was exchanged for ART stock, and the Telecom shares were canceled. ART then undertook a series of transactions that diluted the ART stock. CL Investments, L.P. (CL) (plaintiff) held a warrant for the purchase of Telecom stock. The warrant provided that in the event of a merger, the warrant holder was entitled to the same securities that it would have received as a shareholder of Telecom. The warrant also provided that if the company engaged in transactions that diluted the subject shares, the warrant holder was entitled to adjustments to offset the dilution. The term “the company” was defined to include any corporation that succeeded or assumed the obligations of Telecom unless context dictated otherwise. The parties agreed that the warrant gave CL the option to purchase ART shares after the merger. However, ART and Telecom interpreted the warrant to mean that ART was not “the company” for purposes of the antidilution provision, because ART did not succeed or assume the obligations of Telecom. CL brought suit in the Delaware Chancery Court for breach of contract (i.e., the warrant). ART and Telecom moved for dismissal for failure to state a claim. CL cross-moved for partial judgment on the pleadings.

Rule of Law

Issue

Holding and Reasoning (Jacobs, J.)

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