Delaware Law Updates
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Henkel Corp. v. Innovative Brands Holdings, LLC, C.A. No. 3663-VCN (Aug. 26, 2008)


In a case brought to enforce a December 20, 2007 asset purchase agreement between plaintiff Henkel Corporation and defendant Innovative Brands Holdings, LLC (“IBH”), the Court of Chancery denied motion to dismiss IBH’s counterclaim seeking a declaration that it is under no obligation to close the transaction so long as Henkel has suffered a material adverse effect (“MAE”), as that term is defined in the agreement. Henkel brought suit to compel consummation of the transaction, but IBH countered that the existence of an MAE relieved it of its obligation to close. Asserting it has the right either to terminate the agreement or to waive the MAE condition and proceed with the transaction, IBH asserted that it is under no obligation to do either at this time, that the agreement remains in full effect and, therefore, that Henkel remains subject to the agreement’s no-shop clause, precluding Henkel from seeking other purchasers despite the uncertainty of its deal with IBH. Because the agreement did not provide for a definitive closing date, the significant question thus became when, if ever, IBH must decide to close or terminate, assuming (as the Court must for purposes of the dismissal motion) an MAE has, in fact, occurred. While noting that “[t]he source of Henkel’s frustration with IBH is both obvious and understandable,” the Court refused to dismiss IBH’s counterclaim, deciding instead that, absent a definitive closing date set forth in the agreement, the reasonableness of a time period within which IBH must choose to close or terminate the agreement “is necessarily dependent upon the factual context and cannot be set with this case in its current procedural posture.”

The full opinion is available here