October 13, 2016
Court Won’t Dismiss CVR “Efforts Clause” Claim
This Cooley blog notes that a federal court recently refused to dismiss claims that a buyer breached its obligations to use “diligent efforts” to hit milestones for payment of “contingent value rights” issued to an acquired company’s shareholders. The blog also flags an important issue for sellers to keep in mind if earn-outs – or CVRs – are part of the deal:
According to recent case law in Delaware, buyers do not have an independent obligation under the implied covenant of good faith and fair dealing to try to maximize value or pay an earn-out if a contract’s plain language does not require it to do so, which suggests that well-advised sellers should include express efforts covenants in the acquisition agreement.
– John Jenkins