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This article follows up on our prior analysis of the Delaware Court of Chancery’s liability determination in the Alexion-Syntimmune case, available here.

In designing the earnout structure, parties should anticipate how expectation damages would be determined by a court using a discounted, probability-weighted mathematical method. 

On June 11, 2025, the Delaware Court of Chancery established an important framework for how courts may approach the calculation of earnout damages in pharma milestone disputes in its most recent decision in Shareholder Representative Services LLC v. Alexion Pharmaceuticals, Inc.[1]  In an earlier opinion (the “September Opinion”), the Court found that a buyer, Alexion, was liable for breach of contract for its failure to use commercially reasonable efforts to achieve milestones for which future earnout payments may have become due to the selling securityholders of Syntimmune, Inc.[2]  The June 11 opinion adopted a probability-based mathematical framework to determine the amount of damages owed and it provides a number of important takeaways:Continue Reading Calculating Pharma Earnout Damages: Strategic Lessons for Designing Milestone Frameworks

The following is part of our annual publication Selected Issues for Boards of Directors in 2025. Explore all topics or download the PDF.

2024 was a remarkable year in Delaware. For the first time in as long as anyone can remember, people began to seriously question whether Delaware would retain its dominance as the go-to jurisdiction for incorporating companies. There was an uproar following several decisions by the Delaware Court of Chancery that seemed to shake the market’s confidence in Delaware law’s venerable predictability. One such decision invalidated shareholder agreement provisions that had long been commonplace and another found that a board had not validly approved a merger agreement because, as is typical, the board had not received a draft in final form. At the same time, a certain well-known CEO’s $50 billion compensation package was struck down, leading him to publicly declare “Never incorporate your company in the state of Delaware.”Continue Reading Delaware’s Rocky Year–What Lies Ahead?

2025 promises to be another turbulent year for boards of directors. On the heels of a historically unprecedented election, companies are still ramping up compliance with the ambitious agenda of the outgoing administration while simultaneously bracing for the changes promised by the next one. Against that backdrop, colleagues from across Cleary’s offices have zeroed-in on the impact of the issues that boards of directors and senior management of public companies have faced in the past year, as well as on what can be anticipated in the year to come.Continue Reading Selected Issues for Boards of Directors in 2025

Earnout provisions in acquisition agreements can be a useful tool in bridging the valuation gap by deferring portions of the purchase price until certain post-closing milestones are achieved, and they are particularly common in developmental-stage pharmaceutical transactions.  Practitioners should take note of the September 5, 2024 opinion in Shareholder Representative Services LLC v. Alexion Pharmaceuticals, Inc., in which the Delaware Court of Chancery held a buyer, Alexion, liable for breach of contract both for its failure to use commercially reasonable efforts to achieve milestones for which future earnout payments may have become due and for its failure to pay an earned milestone payment to selling securityholders of Syntimmune, Inc.[1]Continue Reading Delaware Court of Chancery Finds Buyer Failed to Use Commercially Reasonable Efforts in Pharma Milestone Payment Case

In a May 31, 2024 opinion, the Delaware Court of Chancery denied a motion to dismiss a complaint challenging the sale of a public company with a controlling private equity sponsor to an unrelated, arms-length buyer, finding that the sale was potentially tainted by conflicts of interest.[1]  In particular, the court found that it was reasonably conceivable that the private equity sponsor’s receipt of an early termination payment under a tax receivable agreement put into place upon the target company’s initial public offering was a material non-ratable benefit, which may have led the sponsor to push for a sale (which would trigger the early termination payment), even if remaining a standalone company would have been better for the minority stockholders. The opinion also touches on important issues relating to financial advisors’ advice in connection with such a sale. While tax receivable agreements (“TRAs”) are common in sponsor-backed and “Up-C” IPOs, this case highlights a rarely considered issue involving these agreements, and the need for careful navigation of related potential conflicts of interest in a sale process where a private equity sponsor, and TRA beneficiary, continues to control the public company.Continue Reading Delaware Chancery Court Finds Private Equity Sponsor’s Tax Receivable Agreement Potentially Led to Conflicted Sale Process

On April 4, 2024, the Delaware Supreme Court issued its decision on a stockholder suit challenging the fairness of IAC/InterActiveCorp’s separation from its controlled subsidiary, Match Group, Inc.[1]  In this decision, the Delaware Supreme Court provided clarity and guidance on two important issues involving the application of the MFW framework.Continue Reading Delaware Supreme Court Provides Important Guidance on Application of MFW Framework to Controlling Stockholder Transactions

In a February 28, 2024 opinion, the Delaware Court of Chancery confirmed an arbitrator’s award resulting in a seller of a $40 million company unexpectedly having to pay a buyer over twice that amount – $87 million – in a customary post-closing purchase price adjustment. The adjustment seems to have resulted from an ambiguity in the purchase agreement involving a drafting technicality in the definition of “Closing Date Indebtedness” and seller and buyer taking a different view of the pre- and post-closing accounting treatment of indebtedness of a joint venture in which the target company held a one-third interest due to an internal reorganization conducted at buyer’s request. Despite the court’s view that the award was economically divorced from the intended goals of the purchase agreement, it awarded summary judgement for the buyer, concluding that the arbitrator acted within the scope of his authority. The case illustrates the importance of understanding the accounting implications of legal drafting in the customary purchase price adjustment sections of a purchase agreement, as well as the choice of what type of dispute resolution mechanism is selected by the parties for purchase price adjustment disputes.Continue Reading Raw Deal: Seller Ordered to Pay Buyer Over Twice the Purchase Price in Post-Closing Purchase Price Adjustment Dispute

With a stroke of the pen, the Delaware Court of Chancery invalidated commonplace provisions in scores of stockholder agreements relating to public corporations and likely many more relating to private corporations.  In West Palm Beach Firefighters’ Pension Fund v. Moelis & Company (“Moelis”)[1], Vice Chancellor J. Travis Laster, struck down an entire package of stockholder veto rights and held that provisions in a stockholder agreement purporting to restrict the size of the board of directors, requiring the board to recommend in favor of a stockholder nominee, requiring the board to fill any vacancy on the board with a stockholder nominee or to include a stockholder nominated director on committees of the board, are all facially invalid as a matter of Delaware law.  Vice Chancellor Laster noted that many of these provisions would have been valid if set out in the corporation’s certificate of incorporation, rather than in the stockholder agreement.Continue Reading Delaware Court of Chancery Invalidates Common Provisions in Stockholder Agreements

On January 30, 2024, the Delaware Court of Chancery struck down Tesla CEO Elon Musk’s $55 billion performance-based stock option package, ruling that Tesla’s directors did not satisfy the stringent “entire fairness” standard in approving his compensation. This case comes on the heels of a $735 million settlement in which Tesla directors disgorged previously-received compensation following shareholder claims of unjust enrichment and breach of fiduciary duty.[1] The court applied the entire fairness standard because of Musk’s enormous control over the transaction, referring to him as a “Superstar CEO”[2] who wielded maximum possible influence over the board. While the compensation package was approved by a majority of disinterested shareholders, the court concluded proxy disclosure was deficient and therefore shareholders were not fully informed.[3] Ultimately, the Tesla board was not able to prove the benefit received from Musk’s leadership was worth the $55 billion Tesla paid for it.Continue Reading It’s Not DE, It’s You: 55 Billion Reasons Tesla is Not ‘Your Company’

The following post was originally included as part of our recently published memorandum “Selected Issues for Boards of Directors in 2024”.

In 2023, Delaware courts continued to vigorously apply Caremark’s duty of oversight in cases involving corporate misconduct, expressly recognizing for the first time that such claims can be brought against officers in addition to directors.  While a Caremark claim does not necessarily require illegal conduct, Delaware courts continue to make clear that knowing inaction when confronted with illegal conduct is often enough to satisfy its bad faith requirement. This emphasis on bad faith and misconduct may suggest a more functional approach to Caremark claims by Delaware courts, and a departure from the more formal categories of Caremark claims that Delaware courts relied on in the past.  At the same time, we saw Delaware courts sidestep hot-button issues related to corporate political advocacy and defer to the business judgment of boards in order to navigate those sometimes controversial issues.  Finally, we ended 2023 with an uncertain understanding of the scope of MFW review, which has expanded beyond the squeeze-out context in recent years.  The Delaware Supreme Court is currently considering whether to cut back on such “MFW creep.”Continue Reading Delaware Courts Beef Up Caremark Claims Involving Corporate Misconduct While Leaving Hot-Button Political and ESG Issues to the Boardroom