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Chancery Applies Plain Language of a Merger Covenant To Dismiss Acquirer’s Untimely Indemnification Claim and Deny Sellers’ Request for Detailed Annual Reports

Supernus Pharms., Inc. v. Reich Consulting Grp., Inc., C.A. No. 2020-0217-MTZ (Del. Ch. Oct. 29, 2021)
Supernus Pharmaceuticals, Inc. acquired biotech startup Biscayne Neurotherapeutics, Inc. pursuant to a 2018 merger agreement. In 2019, Supernus submitted indemnification claim notices to Reich Consulting Group, Inc., the security holder representative for Biscayne. Subsequently, Supernus filed an indemnification action against Reich in the Court of Chancery. Following trial, plaintiff Supernus’s only remaining indemnification claim was based on a provision in the merger agreement that required Biscayne to operate in the ordinary course of business during a specific period of time (“Ordinary Course Covenant”).

The Court held that the plain and unambiguous language of the Ordinary Course Covenant restricted application of the Covenant to the period from the date of the merger agreement to the closing of the merger. The merger agreement required Supernus to give notice of a claim for indemnification before the Covenant expired. But Supernus did not provide notice of its indemnification claim until months after the merger closed and the Ordinary Course Covenant expired. Accordingly, Supernus’ indemnification claim was untimely. Because Supernus was not entitled to indemnification, its attorneys’ fees also were not subject to indemnification.

The Court then declined defendant Reich’s request for specific performance to require Supernus to submit more detailed annual reports under a merger agreement provision requiring annual reports about the post-transaction company’s efforts to develop, market, and sell its products. Reich argued the reports provided were not sufficiently “fulsome.” The Court reasoned that the merger agreement did not contain a contractual standard or definition of “fulsomeness” to determine whether Supernus breached a requirement to provide more detailed annual reports. Moreover, Reich did not object to the reports at the time they were provided, nor did it exercise its general information rights under a separate merger agreement provision. Thus, the Court found that Supernus had complied with the terms of the merger agreement. 

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