Earnout Agreements In Corporate Acquisitions

The implied obligation may have been breached by the buyer`s high price for the product it was required to “market” – SRS v. Valeant (2013) (Del. Ch. Ct.). The buyer, Valeant, purchased Sprout Pharmaceuticals, which had developed the drug Addyi (the “Female Viagra”). After the draw, Earnout`s merger agreement expressly required Valeant to use “Diligent Efforts” to develop and market Addyi. The agreement contained a lengthy definition of “diligent efforts” and four specific obligations (including compliance with an asset transfer and licensing agreement, spending at least a certain amount of funds on commercialization and development, hiring a number of sales reps, and complying with conditions imposed by the FDA for the commercialization of the drug. . . .