Richards Layton & Finger
 

Chancery Court Provides Guidance on Structuring Financings

April 4, 2012

In Zimmerman v. Crothall, C.A. No. 6001-VCP (Del. Ch. March 5, 2012), the Delaware Court of Chancery, ruling on a motion for summary judgment, found that the defendants - directors and venture capital investors of Adhezion Biomedical - failed to establish that Adhezion's issuance of preferred equity and convertible debt to the defendants that was not offered to all holders on the same terms were not self-interested transactions. In so doing, however, the court indicated that equity or debt offerings made to all holders on the same terms may be subject to business judgment review, even if otherwise interested directors and/or controlling holders participate in the offering.