April 10, 2017
Delaware: Chancery Interprets Contingent Payment Term
This Shearman & Sterling blog highlights a recent Chancery Court decision interpreting an ambiguous term in a merger agreement’s contingent payment arrangements. Since the term’s meaning was unclear from the document, Chancellor Bouchard looked at extrinsic evidence to derive its meaning. Here’s an excerpt summarizing the case:
On March 15, 2017, Chancellor Andre G. Bouchard of the Delaware Court of Chancery decided, post-trial, that a biopharmaceutical company was not required to pay a $50 million “milestone payment” under the terms of a merger agreement. Shareholder Representative Services LLC v. Gilead Sciences Inc. et al., C.A. No. 10537-CB (Del. Ch. Mar. 15, 2017).
As noted by the Court, this case turned on the interpretation of one word—“indication”—as it was used in a merger agreement. Finding the term “ambiguous when construed within the four corners of the merger agreement,” the Court relied on extrinsic evidence—primarily related to the negotiation history—to determine that the limited approval of a drug to treat a narrow subpopulation of blood cancer patients did not constitute the requisite approval for a specified “indication” that would trigger the contractual milestone payment.
– John Jenkins