Newsletter

Jul 28, 2015

Securities and Corporate Governance Litigation Quarterly

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Welcome to the fourth issue of Securities and Corporate Governance Litigation Quarterly, Seyfarth’s quarterly publication of the Securities & Financial Litigation Group focusing on decisions or other items of interest for corporate and transactional lawyers. Each summary below is followed by key practice takeaways.
 
Lazard Technology Partners, LLC v Qinetiq North America Operations LLC: An Earn-Out That Didn’t Pay
 
The Delaware Supreme Court recently addressed issues of “good faith” in an earn-out provision in Lazard Technology Partners, LLC v Qinetiq North America Operations LLC (available here).  
 
In Lazard, the buyer paid $40 million at closing and agreed to pay another $40 million after closing if the acquired business’ revenue achieved specified targets. This type of post-closing payment, known as an “earn-out,” requires the seller to rely on the buyer to manage the acquired business in order to achieve the performance thresholds entitling the seller to the earn-out payment. At the same time, however, the buyer may desire to operate the business in a way that minimizes the amount of post-closing earn-out payments it is obligated to pay — whether motivated purely by a desire to actually pay a lower purchase price, or as a result of the buyer’s business judgment on how it manages its own businesses, allocates resources or responds to changes in circumstances after the closing.