## Facts

- ART Licensing Corp. issued CL Investments, L.P. a warrant in March 1996 to purchase 110,000 shares of Telecom common stock at $6.25 per share.
- The warrant included (i) a merger provision entitling the holder, upon a merger, to receive the same securities it would have received as a shareholder and (ii) an antidilution provision requiring adjustments if “the Company” engaged in dilutive transactions.
- The warrant defined “the Company” to include successors and entities that succeeded to or assumed Telecom’s obligations, unless context required otherwise.
- ART caused a wholly owned subsidiary to merge into Telecom; Telecom survived as an ART-controlled subsidiary, and Telecom stock was exchanged for ART stock and cancelled.
- The parties agreed the warrant became exercisable for ART stock after the merger.
- ART later engaged in transactions that allegedly diluted ART common stock.
- CL demanded antidilution adjustments under the warrant; defendants refused, asserting ART was not “the Company” for antidilution purposes.

## Issues

1. Whether the warrant’s definition of “the Company,” read with the merger provision, required treating ART as “the Company” after the merger.
2. Whether the warrant’s antidilution protections applied to post-merger dilutive transactions affecting ART stock, once the warrant became exercisable for ART shares.
3. Whether CL stated a breach-of-contract claim sufficient to survive a Rule 12(b)(6) motion, and whether contract-interpretation issues could be decided on partial judgment on the pleadings under Rule 12(c).

## Decision

- Defendants’ motion to dismiss for failure to state a claim was denied.
- CL’s motion for partial judgment on the pleadings was granted in substantial part.
- The court construed the warrant to treat ART as “the Company” after the merger for purposes including the antidilution provision.
- The court held the antidilution provisions applied to dilution of ART stock following the merger and that CL’s allegations supported a viable breach-of-contract claim.
- Remaining factual and remedial matters were left for later proceedings.

## Legal Principles

- Delaware contract interpretation gives effect to defined terms and reads an instrument as a whole to avoid interpretations that render negotiated protections ineffective.
- Where a warrant’s merger clause converts the underlying security to stock of a post-merger entity, successor/assumption language in the definition of “Company” may extend other warrant protections, including antidilution adjustments, to that post-merger entity.
- A party cannot accept that a post-merger entity is the obligor for purposes of delivering the new underlying shares while denying that status for related adjustment provisions when the instrument’s text and structure link those obligations.
- On a pleadings record, courts may resolve pure contract-interpretation questions as a matter of law when the operative document and transaction structure are undisputed.

## Conclusion

The Court of Chancery interpreted the warrant to carry antidilution protection forward to the post-merger parent whose stock replaced the original issuer’s stock, denied dismissal, and granted partial judgment on the pleadings recognizing that dilution of the parent’s shares could trigger warrant adjustments.


CL Invs., L.P. v. Advanced Radio Telecom Corp., No. C.A. 17973, 2000 WL 1868096 (Del. Ch. Dec. 15, 2000)