According to the Exhibit 1, I think the fiduciary duties of directors is that in making a business decision, the directors of a corporation acted on an informed basis, in good faith and in the honest belief that the action taken was in the best interest of the company.

If the company is sold for a price greater than the downround valuation and the new preferred stock gets a 400 percent return plus its share of the remaining equity while the common stock gets little or nothing, the directors may be sued personally for breach of fiduciary duty.(website: http://apps.americanbar.org/buslaw/blt/2003-05-06/blomberg.html)

In this case, capitalization consist of multiple series of preferred stock while founders held the common stock, therefore it will be hard to secure financing.

At first, two engineers invest $60000 to found the Alantec Company. However, within six months, they needed capital to keep their enterprise going, so 1.5 million was invested. In 1989, the reduced revenue and cash flow have created an immediate need for cash, and TA felt it is too risky to be supported any longer by a single venture investor. But at that time, no one was interesting to put their money in Alantec at $0.88 per share, so they drop it at $0.30 per share.

This action, in my view, can be seen as the best interests of corporation. If not doing this, the company may suffer in bankruptcy. If Alantec bankrupt at that time, not only the founders, but also the VCs will suffer from it. So I believe the Board of Directors fulfills their fiduciary