Tag: Earn Out

earn-out provision of merger agreement requires extrinsic evidence to aid interpretation

By Scott E. Waxman and Pouya D. Ahmadi

In Western Standard, LLC, v. SourceHOV Holdings, Inc. and Pangea Acquisitions, Inc., C.A. No. 2018-0280-JRS (Del. Ch. July 24, 2019), the Delaware Court of Chancery (the “Court”) refused to the grant SourceHOV Holdings, Inc. (“SourceHOV”) and Pangea Acquisitions, Inc.’s (“Pangea”) motion to dismiss, holding that more extrinsic evidence was needed for the Court to be able to interpret the terms of the merger agreement (the “Merger Agreement”) among Pangea and BancTec, Inc. (“BancTec”) and decide whether there was a valid breach of a contract claim.

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CHANCERY COURT DENIES MOTION TO DISMISS CLAIM FOR BREACH OF MERGER AGREEMENT EARN-OUT EFFORTS PROVISION

By: Remsen Kinne and Greyson Blue

In Himawan, et al. v. Cephalon, Inc., et al., C.A. No. 2018-0075-SG (Del. Ch. Dec. 28, 2018), the Delaware Court of Chancery in a Memorandum Opinion denied a motion to dismiss a breach of contract claim brought against defendants Cephalon, Inc. (“Cephalon”), Teva Pharmaceutical Industries Ltd. (“Teva”) and Teva’s affiliate Teva Pharmaceuticals USA, Inc. (“Teva USA”) by former shareholders of Ception, Inc. (“Ception”), a biotech company acquired by Cephalon in a merger transaction. The case concerns a dispute over the phrase “commercially reasonable efforts” as used in an earn-out provision in the merger agreement. The decision highlights pleadings requirements for supporting an initial claim for breach of an objective contractual standard.

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