First Time for Termination Based on Material Adverse Change and Effect
The parties to a merger that went sour sought judicial interpretation of the merger agreement. The Delaware Court of Chancery delivered a missive on the interpretation of material adverse change and material adverse effect clauses in merger agreements and the definition and application of the phrase “commercially reasonable efforts” or “reasonable best efforts” often contained in such transactional documents. In a 240+ page opinion the court, maybe for the first time, permitted termination of the merger agreement based on material adverse change/material adverse effect. The court also dissected the phrase “commercially reasonable efforts” in great detail lending some clarity to future interpretation of the term.