Venture Capital Fund And Portfolio Company Obtain Favorable Settlement Of Litigation Brought By Bondholders

We secured a favorable settlement on behalf of the Company and a venture capital fund against claims brought by nine holders of more than $2 million in notes issued by the Company.  The Company's board approved the sale of Company for cash and stock in another company.  The Company then used that cash to pay certain creditors and to pay down allegedly subordinate debt owed to institutional investors, both of whom had representatives on the Company's board of directors.  When the Company could not sell the stock it received in the transaction before plaintiffs' notes became due, the Company breached its payment obligations under the notes.  Plaintiffs alleged that the board breached its fiduciary duties in selling the Company for an unfair price following an unfair process, and also alleged that the Company, the venture fund, and the Company's former directors conspired to use the cash from the sale to pay their own funds' subordinated debt, instead of plaintiffs' allegedly more senior debt.

We filed a motion to dismiss and obtained a stay of discovery shortly thereafter.  We then leveraged a global settlement whereby the notes were cancelled, and the plaintiff received a fraction of the amount owed on the notes.  The settlement was largely funded by our client's D&O insurance carrier.