Mergers & Acquisitions 2022 Annual Review

14 MORRISON FOERSTER Delaware Allows Corporations to Act to Provide Exculpation for Corporate Officers In August 2022, Delaware amended its corporate statute to allow corporations to provide in their charters for exculpation of certain senior corporate officers for breaches of the duty of care. 12 Previously, the statute allowed corporations to provide exculpation only for directors. Corporations that wish to provide such exculpation to applicable officers will need to amend their charters, requiring stockholder approval. As with directors, the statute does not extend to breaches of the duty of loyalty or to “acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of the law.” Unlike the protections afforded to directors, the statute does not allow officers to be exculpated for stockholder derivative claims brought on behalf of the corporation. Companies should consider the potential reaction of stockholders when asking for approval of such provisions in their charters. Proxy advisors have indicated they will review such provisions on a case-by-case basis, and in 2022, generally recommended in favor of such proposals, noting, for example, the need for officers to “remain free of the risk of financial ruin as a result of an unintentional misstep.” Assuming more companies implement the amendment, CEOs, CFOs, and other affected officers may see the risk of liability, and claims made, reduced for certain corporate transactions and actions, such as their involvement in preparing proxy statements. Courts May Not Distinguish “Commercially Best Efforts” From “Best Efforts” Without a Defined Yardstick In ConMed , a seller challenged a buyer’s decision not to pay earnout payments under a stock purchase agreement, despite the agreement’s requirement that the defendant use “commercially best efforts” to maximize payments. The court interpreted “commercially best efforts” as akin to “best efforts” and concluded that the buyer’s decision to discontinue payments was “commercially reasonable” in light of, among other things, the buyer’s efforts to resolve the underlying safety concerns of the target’s medical product. 13 Of more general significance to acquisition agreement drafters, the court noted that, while parties use a range of efforts standards, including “best efforts,” “reasonable best efforts,” “reasonable efforts,” “commercially reasonable efforts,” and “good faith efforts,” courts “have struggled to discern daylight between” the various standards; in particular, in prior opinions, the court had found “‘best efforts’ obligations as on par with ‘commercially reasonable efforts.’” The court noted, that while courts have interpreted efforts clauses in some merger agreements, such agreements have included a “yardstick” to determine whether a party complied with an efforts clause. Deal practitioners may consider defining the “yardstick” used to determine whether a party satisfies an efforts clause, particularly in agreements governed by Delaware law. 5. DELAWARE DEVELOPMENTS