Two important aspects of merger agreements are the price and the nature of the post-closing obligations of the sellers to defend or indemnify the buyer for claims arising out of presale conduct. As to the former, parties to merger transactions often bridge valuation gaps with earn-outs.

The selling stockholders receive a cash payment at closing and an additional contingent right to receive a specified amount of future payments depending on how well the business performs. Exactly how much is a function of the parties’ written agreement. Similarly, the parties typically negotiate over the nature of the post-closing obligations of the seller to indemnify or defend. When disputes arise, parties calculate the likelihood of success in surviving a motion to dismiss for which the court’s standard of review is critical. In the recent case of Winshall v. Viacom International, No. 39, 2012 (Del. Oct. 8, 2013), the Delaware Supreme Court addressed the standard on a motion to dismiss and also contractual provisions in a merger agreement regarding earn-out and indemnification provisions. Its opinion provides guidance to practitioners concerning how to draft provisions that carry out their intent on these points.

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