The Validity of Stockholders’ Representatives after Aveta

March 11, 2011

Although it is common practice to appoint a stockholders’ representative to facilitate post-closing matters under merger agreements governed by Delaware law, there had been little definitive guidance and accordingly, some uncertainty amongst practitioners, as to whether and to what extent these arrangements were enforceable and binding upon all stockholders. On September 20, 2010, the Delaware Court of Chancery, in Aveta Inc. v. Cavallieri, C.A. No. 5074-VCL (Del.Ch.), addressed this uncertainty in holding that a contractual mechanism for determining the amount of merger consideration, including the appointment of a stockholders’ representative under the merger agreement to resolve issues relating to merger consideration with respect to post-closing purchase price adjustments, was authorized under the Delaware General Corporation Law as a fact ascertainable outside of the agreement as well as binding upon the minority stockholders, regardless of agency law. In a recent article featured in Deal Lawyers, Dechert lawyers David Schulman, Tony Chan, and Jordan McKay the Aveta case and its implications for M&A practitioners.

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