Earnouts That Pay: Drafting and Litigating the Private-Company Sale Clause

Michael P. Sternheim, Partner | Fried, Frank, Harris, Shriver & Jacobson LLP

Michael P. Sternheim is a litigation partner in Fried Frank’s New York office. He represents corporations, boards of directors, special committees, senior management, and financial sponsors in corporate governance matters, shareholder and derivative litigation, and securities litigation, as well as confidential internal investigations and United States Attorney’s Office and SEC investigations, including insider trading matters.

• Education & Credentials

Mr. Sternheim earned his JD, cum laude, from Fordham University School of Law and his BA, Phi Beta Kappa, from the University of Wisconsin-Madison. [confirm degree years with speaker] He is admitted to the bars of New York and New Jersey and to practice before the US District Courts for the Southern and Eastern Districts of New York and the US Courts of Appeals for the Second and Fourth Circuits. From 2012 to 2014 he served as a law clerk to the Honorable Nicholas J. Tsoucalas (retired) of the US Court of International Trade.

• Recognition & Leadership

Mr. Sternheim is recognized by The Legal 500 in the category of M&A Litigation: Defense and by Benchmark Litigation on its 40 & Under List for securities litigation.

• Professional Involvement

Mr. Sternheim is a member of Fried Frank’s Firmwide Attorney Development Committee and Attorney Relations Committee. He maintains an active pro bono practice at the trial and appellate levels, representing criminal defense clients at sentencing and on appeal through the Southern District of New York’s Criminal Justice Act (CJA) Panel and handling immigration matters before federal Immigration Courts and in New York State Court. He argued before the New York Supreme Court, Appellate Division, Second Department, successfully obtaining reversal of a Queens Family Court decision that had prevented a minor from El Salvador from seeking lawful permanent resident status in the United States.

• Experience

Mr. Sternheim’s notable shareholder and securities representations include Apollo Global Management and several of its directors in litigation challenging payments to Apollo’s co-founders; the Special Committee of IAC/InterActiveCorp in Delaware Chancery litigation over a proposed non-voting share class; Under Armour, Inc. and its Board in federal securities, derivative, and Maryland state court shareholder litigation; Sinclair Broadcast Group in securities and derivative litigation arising from its terminated merger with Tribune Media Company; and the Special Committee of Clover Health in an investigation of short-seller allegations. His M&A and commercial work includes Seritage Growth Properties in fraudulent conveyance litigation arising from the Sears bankruptcy, four Xerox directors in lawsuits over the terminated Fuji-Xerox merger, and defense of an insurance company in two RICO actions.

Rishi N. Zutshi, Partner | Cleary Gottlieb Steen & Hamilton LLP

Rishi N. Zutshi is a litigation partner in Cleary Gottlieb’s New York office. He represents clients in high-stakes litigation and investigations and has won victories—including at trial—defeating or resolving claims seeking billions of dollars in damages. His clients include public and private companies, financial institutions, private equity, venture capital, investment firms, and sovereign wealth funds.

• Education & Credentials

Mr. Zutshi earned his JD from New York University School of Law in 2007 and his BA from Brown University in 2001. He is admitted to the New York bar, the US Supreme Court, the US Courts of Appeals for the Second and Third Circuits, and the US District Courts for the Southern and Eastern Districts of New York. He served as a law clerk to the Honorable William K. Sessions III of the US District Court for the District of Vermont from 2007 to 2008.

• Recognition & Leadership

Mr. Zutshi is recognized as a Litigation Star by Benchmark Litigation, a Leading Partner for General Commercial Disputes by Legal 500 U.S., and a Distinguished Advisor by Financier Worldwide.

• Professional Involvement

Mr. Zutshi is a member of the Hedge Fund and Capital Markets Committee of the Commercial and Federal Litigation Section of the New York State Bar Association and maintains an active pro bono practice focused on immigrants’ rights and human rights issues. His publications include “Calculating Pharma Earnout Damages: Strategic Lessons for Designing Milestone Frameworks” (Cleary M&A and Corporate Governance Watch, July 23, 2025) and Cleary Gottlieb Alert Memos on Delaware Court of Chancery earnout decisions addressing ambiguous milestone provisions and commercially reasonable efforts in pharma milestone payment cases.

• Experience

Mr. Zutshi’s notable matters include a first-chair trial victory for AG Financial Products Inc., defeating claims exceeding $1 billion brought by Lehman Brothers International (Europe) and prevailing on a breach-of-contract counterclaim; representing Goldman Sachs in favorable settlements of consolidated FX antitrust class actions seeking billions in damages; advising Nomura on disputes arising from the multibillion dollar collapse of Archegos Capital; and representing Synutra in earning a favorable Delaware Supreme Court decision in going-private litigation. He has also represented National Amusements, Shari Redstone, and Sumner Redstone in Delaware Chancery litigation against CBS, Genesis Global Holdco in litigation and regulatory actions connected to its Chapter 11 proceedings, and Sequoia Capital in putative class actions consolidated in the FTX MDL. He joined Cleary Gottlieb in 2008 and became a partner in 2016.

Gail Weinstein, Senior Counsel | Fried, Frank, Harris, Shriver & Jacobson LLP

Gail Weinstein advises leading companies, private equity firms, and investment banks on M&A strategy, defense preparedness, shareholder activism, and corporate governance. Formerly a partner in Fried Frank’s M&A Group, she now serves the firm as Senior Counsel in New York.

• Education & Credentials

Ms. Weinstein earned her JD from the University of Minnesota Law School and her BA from Carleton College. She is admitted to the New York bar and speaks French and Spanish.

• Recognition & Leadership

Ms. Weinstein has twice received the Burton Award for distinguished legal writing and analysis, recognizing her articles on the M&A legal landscape and trends in shareholder activism. The American Bar Association Committee on Immigration honored her with its 2021 Pro Bono Award for her advocacy on behalf of asylum-seekers at the Southern border, work also featured in the documentary film Activized, produced by Spy Pond Productions. She is regularly quoted on M&A developments in leading publications, including The Wall Street Journal and The New York Times.

• Professional Involvement

Ms. Weinstein is a co-author, with Arthur Fleischer, Jr. and Scott B Luftglass, of Takeover Defense: Mergers and Acquisitions (9th edition, Wolters Kluwer), a treatise widely regarded as a definitive resource for M&A practitioners and academicians, and her article “A Proposed Post-Pandemic Framework for Ordinary Course and MAE Provisions in Merger Agreements” appeared in the Yale Law Journal. She is a former member of the invitation-only Corporate Laws Committee of the American Bar Association’s Business Law Section, has served multiple terms on the M&A Editorial Board of Law360, and sits on Law360’s Delaware Editorial Advisory Board. She has also served on the Board of Advisors to the Dean of the University of Minnesota Law School, as trustee and treasurer of the Barnard Foundation, and as chair of the board of the Parker School. She regularly presents CLE trainings and appears on Practising Law Institute and other panels on M&A and corporate governance topics.

• Experience

Ms. Weinstein practiced at the forefront of market-shaping transactions during the advent of modern M&A in the 1980s, serving as lead legal counsel on many of the era’s seminal contested and negotiated deals. Her decades of M&A experience inform her counsel to clients on their most critical strategic challenges today, and she devotes significant time to pro bono representation of asylum-seekers and the legal organizations that assist them.

SESSION 1 – The Ins and Outs of Earnouts—Legal Developments, Key Legal Issues, Common Pitfalls | 1:00pm – 2:00pm

Earnouts have become a common feature in acquisition transactions. Their usage is particularly prevalent during times, such as ours, of economic, financial, and valuation uncertainties in the marketplace generally and with respect to specific businesses. However, earnouts almost always lead to post-closing disputes. Careful planning and negotiation are critical, with a view to the most likely future disputes and how best to avoid them or be positioned well to resolve them. This podcast will focus on providing specific earnout-related practice tips to practitioners.

BREAK | 2:00pm – 2:10pm

SESSION 2 – The Billion-Dollar Earnout: Litigating Post-Closing Disputes from Building a Record to Calculating Damages | 2:10pm – 3:10pm

Earnout provisions are among the most frequently litigated features of private-company M&A agreements, and a recent wave of Delaware decisions — headlined by the Supreme Court’s Johnson & Johnson v. Fortis Advisors opinion and the Court of Chancery’s $181 million damages award in SRS v. Alexion — has fundamentally reshaped how these disputes are tried and decided. This session examines how courts evaluate commercially reasonable efforts obligations, when the implied covenant of good faith and fair dealing can fill contractual gaps, and how damages are now calculated using a probability-weighted framework that turned a buyer’s own internal documents into the decisive evidence against it. The session also addresses fraud claims, anti-reliance provisions, and the extraordinary remedies courts have deployed — including reinstating a terminated CEO and enjoining a buyer from interfering with a product launch — when buyers act in bad faith. Attendees will leave with a practical understanding of the litigation landscape and the steps buyers and sellers should take immediately after closing to best position themselves if a dispute arises.