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Delaware M&A Quarterly – Lexology


Board oversight of “mission critical” regulatory issues

In Regarding the Boeing Company Derivatives Litigation, the Delaware Court of Chancellery declined to dismiss allegations that the board of directors breached its oversight duty by failing to establish an effective aircraft safety oversight system and tracking aircraft signals. related alarm. While the litigation is still ongoing, Vice Chancellor Zurn’s opinion reiterates the importance of board oversight of “mission critical” regulatory matters and provides guidance on possible board processes, such as ” assigning responsibility to a committee specifically in its charter documents or including these matters as part of the regular board agenda (as opposed to ad hoc management reports) and, in both cases, ensure that management reports give a full picture of these issues. In addition, boards should actively follow red flags associated with the failure of a critical business issue and be prepared to challenge management’s assessment. To find out more, click here.

Delaware Court of Chancery finds no EAW

In Bardy Diagnostics, Inc. v. Hill-Rom, Inc., the Delaware Court of Chancellery, in an opinion from Vice Chancellor Slights, ruled that a dramatic reduction of 50% or more in the Medicare reimbursement rate for the target’s only product (a cardiac medical device) did not constitute not a “significant adverse effect” (“MAE”) under the merger agreement. The court found, among other things, that the buyer had failed to demonstrate that a significant adverse effect on the target was “d ‘long-term significance’ (as required to establish an EAW in the context of mergers and acquisitions in Delaware), and, further, such effects did not constitute an EAW under the agreement in because of the specifics of the definition. The court ordered the buyer to close the transaction and, in a rare, if not the first, case of imposing such a remedy in this context, awarded pre-judgment interest (this remedy was not contested by the parties). not surprisingly given the history of case law in this area and the specific factual findings of the court in this case, the decision provides useful insight into the court’s interpretation of the EAW. To find out more, click here.

Delaware Supreme Court says common shareholders can agree to advance valuation rights waivers

In Manti Holdings, LLC v. Authentix Acquisition Company, Inc., the Delaware Supreme Court upheld the Chancellery Court ruling that a company can enforce an early waiver of valuation rights against its own common shareholders. Previous cases had confirmed such early waivers in relation to preferred shares, but arguably had not been resolved as to whether similar agreements entered into by holders of common stock in a company were in compliance with the order. Delaware public. While the majority opinion, drafted by Justice Montgomery-Reeves, recognizes that there are certain fundamental characteristics of a society which are essential to the identity of society and which cannot be waived, the right to requesting a forensic assessment is not one of them. The shareholders had waived their valuation rights under a shareholder agreement, and Delaware’s general corporate law did not prohibit the waiver from being applied. Judge Valihura disagreed with the majority, considering, among other things, that the specific contractual waiver of valuation rights in this case was ambiguous, that it should not be enforceable in the context of the business given the availability alternative entities and that the right to request a valuation should not be waived early by holders of ordinary shares as it was a statutory right intended to compensate shareholders for the loss of their right of veto on certain merger operations. For the opinion, click here.

Delaware Court of Chancery finds contractual provisions not effective in blocking fraud claims

In HealthNow Online, Inc. v. CIP OCL Investments, LLC, the Delaware Court of Chancery ruled that the seller was prohibited from relying on the contractual provisions of a stock purchase agreement to prevent well-argued claims of fraudulent inducement from being brought against it. After closing, the buyer discovered that certain statements regarding the tax obligations of the purchased company were allegedly false and claimed that the seller and its affiliates would have intentionally withheld tax information and made false statements in the purchase contract. . In addition, the buyer alleged that the seller’s subsidiaries knowingly participated in the fraudulent inducement. The court ruled that Delaware law and public order prevented the seller from using the survival clause “in an allegedly fraudulent contract to eviscerate an assertion that the contract itself is an instrument of fraud.” In addition, the non-recourse provision did not prevent fraudulent inducement and aiding claims from being brought against defendants who had not signed the agreement. For the opinion, click here.

Highlights of the opinion of the Court of Chancery must take into account the exclusions in the provisions relating to the effect of termination

In Yatra Online, Inc. v. Ebix, Inc., the Delaware Court of Chancellery, in an opinion from Vice Chancellor Slights, dismissed Yatra’s claims for breach of the merger agreement, finding that Yatra had extinguished its claims under the effect provision of the termination of the agreement when it has chosen to terminate. Yatra terminated the deal after Ebix purposely violated some of its contractual promises under the merger deal in a bid to opt out of the merger. The court ruled that Yatra had no recourse against Ebix because of the effect of termination provision (which provided that termination by one party of the agreement extinguishes any liability of both parties for violations prior to the termination. termination, except in cases of fraud), and Yatra has chosen to terminate rather than take legal action against Ebix prior to termination. The court also ruled that Ebix’s alleged conduct did not constitute fraud. For the opinion, click here.


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