Equity-Linked Investors, L.P. v. Adams
Delaware Court of Chancery
705 A.2d 1040 (Del. Ch. 1997)
Genta Incorporated (defendant), a near-insolvent pharmaceutical company whose liquidation value was less than its $30 million preferred-stock liquidation preference, had promising but unrealized technologies that could generate substantial future value; its board pursued additional financing to keep the company operating rather than liquidating, ultimately borrowing $3 million secured by warrants for half the company's stock, while preferred stockholder Equity-Linked Investors (plaintiff) wanted to liquidate and distribute assets to preferred holders instead. Equity-Linked sued challenging the board's financing decision.
Whether the board of directors breaches its duty, in exercising its business judgment, to prefer the interests of common stockholders to the interests of preferred stockholders, if there is a conflict of the two interests.