M&A Stories August 10, 2026 The seller of his company in this case agreed to an earnout that would pay up to $4.2 million if the company’s 2025 net sales exceeded $5 million. The buyer claimed that net sales fell…
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Why Delaware’s Implied Covenant of Good Faith and Fair Dealing Is Not Enough Protection for an Earnout
In this blog post, we explore the crucial role of earnout agreements in M&A transactions and why Delaware’s implied covenant of good faith and fair dealing is not sufficient protection for sellers. A recent Delaware Court of Chancery case underscores…
Posted in Express efforts clause vs. Delaware's implied covenant of good faith and fair dealing, problems with earnouts Tagged with: Breach of contract, commercial reasonable efforts, Contractual obligations, Delaware court decision, Delaware Court of Chancery, Earnout agreements, earnout milestones, express efforts provision, good faith efforts, implied covenant of good faith and fair dealing, M&A lawyers, M&A legal considerations, M&A legal disputes, M&A negotiation, M&A seller protections, M&A transaction risks, private company deals, Private Equity, seller vulnerability, seller's rights
Recent Posts
- Why Every M&A Earnout Deal Needs a Buyer Efforts Clause — Even with Strong Buyer Covenants
- M&A Seller Deadlines Nobody’s Watching: Earnout Calculations, Indemnification, and Escrow Claims
- Delaware’s Implied Covenant of Good Faith and Fair Dealing Can’t Save $400 Million Regulatory Earnout Milestone When Government Changed Approval Pathway
- What Your Anti-Reliance Clause Cannot Do
- Make the Transfer of the Digital Assets an APA Closing Condition
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Categories
- "as is where is"
- 351 M&A transactions
- Accounting Firm Dispute Resolution
- accounting methodology
- actual knowledge
- actual notice to known creditors
- against public policy
- agreement to agree is unenforceable
- agreement to agree on earnout revenue inclusion
- all cash deal
- allocation of preclosing taxes refunds and credits
- allocation of sales tax from transaction
- alter ego
- alter ego
- alternative dispute resolution
- ambiguous exclusion
- amortization
- anti-destruction clause
- anti-reliance clause
- anti-reliance clause
- anti-stripping covenants
- APA closing conditions
- approval of franchisor
- approval of investment banking fee
- arbitration
- arbitration in employment agreements
- arbitration vs expert determination
- asbestos claims
- asset buyer's assumption of seller's liabilities by contract
- asset purchase
- asset purchase agreement
- asset seller's liabilities
- asset vs stock deal
- Assignment
- assignment of contracts
- assumed liabilities
- assumption of a contract
- assumption of contract by incorporation by reference
- attorney client privilege
- Attorney's Fee Provision
- bad faith
- bankruptcy sale
- best efforts to secure financing
- binding only upon execution of definitive acquisition agreement
- bitcoin
- blockchain
- boilerplate provisions
- bona fide offer
- book value adjustment
- books and records rep and warranty
- boot
- boot
- bootstrapping doctrine
- breach of contract
- breach of contract
- breach of contract exclusion
- breach of representations and warranties
- breach of seller's covenants
- broad or narrow scope of forum selection clause
- bundled sales
- business cards
- business judgment rule
- buyer assumption of seller liability
- Buyer beware
- buyer connected to seller insiders
- buyer covenant to provide seller access to promote seller products post-closing
- buyer earnout working capital funding covenant
- buyer equity
- buyer has no regulatory problems
- Buyer payment of seller retained liabilities
- buyer representations and warranties
- buyer's assumption of seller liabilities in asset acquisition
- buyer's covenants
- buyer's stock as currency
- buying distribution business
- C Reorganization
- Calculating Earnout Metrics
- California
- cannabis dispensary
- capitalization of cash flow
- cash
- cash and cash equivalents
- CERCLA or superfund liability
- certificate of insurance
- certificate of need
- CGL Policy
- Change of Control
- choice of law provision
- choice of law provision
- claim against seller's liability insurance
- closing
- co-author
- commercially reasonable efforts
- common interest doctrine
- compliance with all applicable laws
- compliance with law
- consent to assignment
- consent to assignment
- Consistent with past practice of acquired business
- constructive knowledge
- constructive knowledge
- continuity of enterprise exception
- continuity of ownership
- contracts
- contravene strong state public policy
- controlling shareholder fiduciary duty M&A
- copyrights
- corporate overhead
- corporate overhead allocations
- covenant not to compete
- Covenants
- Cross-Selling Earnout Credit
- customer and supplier rep
- customer deposits
- customer due diligence
- customer list
- customer list
- cybersecurity risks
- damages
- de facto merger exception
- death of seller's impact upon noncompetition payments
- deduction of expenses buyer traded away
- deferred closing
- defining earnout milestone by business goal
- defining retained business by category not as currently conducted
- Delaware
- deliberate fraud carveout
- denial of consent must be reasonable
- dental practice sale
- Description of business assets purchased
- determination of purchase price adjustment
- digital assets
- diminuation of value
- direct
- director and officer duty of care
- director liability
- directors and officers insurance policy
- discharge in bankruptcy
- disclosure schedule
- discounted cash flow or DCF
- dispute resolution procedure
- dispute resolution provision
- distressed business acquisitions
- divestitures
- doing deal with company's officer or director
- due diligence
- duty to defend
- Duty to Defend
- Duty to negotiate in good faith
- duty to warn
- earn out
- earn out dispute procedure
- earn outs
- Earned customer deposits
- earnout
- earnout as ownership interest in buyer
- earnout based upon revenue from at will contracts
- earnout dispute resolution procedure
- earnout payable upon constructive termination
- earnout payable upon termination without cause
- earnouts based on construction milestones
- earnouts based upon fda/ec milestones
- earnouts in bankruptcy
- EBITDA
- EBITDA
- EBITDA earnouts
- economic loss doctrine
- employment agreement
- employment agreement
- enforce against nonparty
- enforceability of non-owner noncompete
- enforcing buyer earnout deadlines
- entire fairness
- environment representations and warranties
- environmental
- environmental problems
- equitable contribution
- equitable estoppel
- escrow
- exclude transaction costs and success bonuses from profit calculation
- Excluded Assets
- excluded liabilities
- excluded or retained liabilites
- exclusive remedy
- exclusivity provision
- excuse for untimely indemnification claim
- executory contracts
- expenses that should be capitalized
- express duty to negotiate in good faith
- Express efforts clause vs. Delaware's implied covenant of good faith and fair dealing
- extension by contract in Delaware
- extension of closing
- extra-contractual fraud
- extracontractual fraud
- F reorganization
- failure to make timely purchase price payment
- fair insider deal
- Family and Medical Leave Act
- FDIC approval
- federal employer liability
- federal employment discrimination liability
- federal multiemployer pension plan withdrawal liability
- federal securities fraud
- federal wage and hour violations
- fee based upon buyer debt assumption
- financial representation and warranty
- financing acquisition issues
- for cause termination
- force majeure
- foreign income tax
- form over substance
- forum non conveniens doctrine
- forum selection clause
- franchise sale
- fraud
- fraud carveout
- fraud carveout
- fraud in business sale
- fraud in the inducement exception
- fraudulent concealment
- fraudulent inducement
- fraudulent intent
- fraudulent omission
- full disclosure
- full disclosure rep
- full disclosure rep
- further assurance provision
- further assurance provision
- getting buyer to provide earnout calculation supporting data
- governmental approval
- governmental approval of transaction
- Guaranty
- guaranty of related acquisition agreements
- handshake redemption obligation
- hinder, delay or defraud
- hiring seller's employees
- hybrid noncompetes
- implied assumption of seller contract/liability
- implied covenant of good faith and fair dealing
- implied covenant of good faith and fair dealing
- implied duty of good faith and fair dealing
- implied warranty of merchantability
- importance of nonreliance clause in nondisclosure agreements
- indemnification
- indemnification cap
- indemnification for pre-closing product loss
- independent trustee
- inequitable
- insider
- insurance broker duty
- insurance coverage
- insurance requirements
- integration clause
- integration clause bars extracontractual promises of future performance
- Intellectual Property
- Internal Revenue Code Section 1377 election
- investment banker/business broker
- joint venture
- judgement for intentional misrepresentation
- Key Employee Retention Requirement
- key employees of target
- Kovel doctrine – translator exception
- land use issues
- layoff notice law or Warn Act
- leases
- leases
- letter of intent
- liens
- liquidated damages provision
- LOI good faith negotiation covenant
- loss payee
- lost profits
- lower middle market m&a
- M&A agreement
- M&A closing conditions
- MAE rep
- major shareholders exclusion
- mandatory vs. permissive
- material
- material contracts
- material rep and warranty breach
- Medi-Cal provider agreements
- membership interest purchase agreement
- mere continuation
- mere continuation exception
- merger
- merger agreement
- midco transaction
- minority business participation program
- misappropriation of likeness
- misleading personal financial statement
- missing attachment to acquisition document
- modification as counteroffer
- multi-employer pension plan
- mutual mistake
- mutual mistake
- negligent misrepresentation
- Negotiated Pre-closing price concessions and releases
- net working capital adjustment
- New York
- no kickback or bribe rep
- no oral modifications of contract
- no pending government investigations or inquiries
- no solicitation of seller employees
- No Undisclosed Liabilities
- Non-Disparagement Clause
- non-reliance clause
- nonbinding
- nonbusiness income
- nonbusiness income/sale of subsidiary
- noncompete area
- noncompete term extensions
- noncompetition covenant
- noncompetition covenant term
- nondischargeable debt in bankruptcy
- nondisclosure agreement
- nondisclosure agreements
- nondisclosure provision
- nonqualified preferred stock
- nonsolicitation of employees and customers
- nonsolicitation of former customers
- note payment amount adjustment
- notice
- notice provision
- objection -reasonable detail
- officer duty of care
- offset or setoff provision
- offset right
- One class of stock
- only assessed taxes
- oral contract
- oral contracts
- oral copyright agreement
- ordinary course of business
- overly complicated language in contract
- owner liability for company breach of financing deal
- Ownership of Target Law Firm File
- parol evidence rule
- patent licensor consent in forward merger
- patents
- payroll tax
- permits and certificates
- personal goodwill
- personal guaranty
- personal guaranty of company debt by selling shareholder
- personal guaranty of lease
- Personal Name
- photo or image
- piercing veil of acquisition subsidiary
- post asset purchase issues
- post closing covenants
- post signing asset valuation
- post-closing adjustments for pre-closing sales and services
- post-closing sales tax
- PPA v indemnification
- PPP loan
- PPP loan assumption
- pre-closing management agreement
- pre-closing operating arrangement
- pre-closing sales tax
- Pre-Suit Investigation Right
- preservation of due diligence materials
- prior-material-breach doctrine
- private credit financing
- private equity
- Privilege Access Protocol
- Problem with distributors
- Problem with Investment Banker/Broker/Finder Fee
- problem with mandatory arbitration clause
- Problem with products
- problem with prorations
- problem with purchase price adjustment
- problem with seller co-owners
- problem with seller contract
- Problem with seller lessor or landlord
- Problem with seller owner's competition
- problem with seller's owner
- problem with stock options
- Problem with Union Pensions
- Problem with Vendors and Suppliers
- Problems when business fails after closing
- Problems with Bankruptcy Auction Sales
- Problems with business records
- Problems with Competitors
- problems with condition of assets
- problems with creditors of distressed business
- problems with customers
- Problems with Deferred Purchase Price
- Problems with Deposits
- Problems with Description of Assets
- Problems with description of purchase price
- Problems with distressed business seller unexpired tenant leases
- problems with divestitures
- Problems with due diligence
- problems with earnouts
- problems with employees
- problems with escrows
- Problems with financials
- problems with financing transaction
- problems with forum selection clauses
- Problems with franchise deals
- problems with general liability insurance
- Problems with governments
- problems with indemnification notice
- problems with insurance
- Problems with intellectual property
- problems with leases
- problems with noncompetition covenants
- problems with oral M&A promises
- problems with patents
- problems with pensions
- problems with post-closing litigation in inconvenient form
- Problems with post-closing management of business
- problems with products liability claims
- Problems with Real Estate Leases
- problems with receivables
- problems with regulatory industry acquisitions
- Problems with related party contracts
- Problems with rollover equity
- Problems with sale of auto dealerships
- problems with seller nondisclosure
- problems with seller's employees
- problems with seller's lender
- Problems with seller's pre-closing errors & omissions
- Problems with seller's projections
- problems with seller's real property
- problems with seller's unemployment insurance experience rating
- problems with sharing tax benefits
- problems with simultaneous closings
- problems with subordination rights
- problems with successor liability
- problems with survival provisions
- problems with taxes
- Problems with typos
- Problems with Undisclosed Liabilities
- Problems with undocumented employees
- product line exception
- projections
- projections
- promissory estoppel
- promissory note
- prudence
- public information exclusion
- punitive damages
- purchase agreement
- purchase price
- purchase price adjustment
- Put buy infrastructure promises in writing
- quality of earnings assessment
- ratifying unassumed contract by post-closing action
- reasonably equivalent value
- receipt of buyer equity – seller protections
- receipt of buyer equity or security
- receipt of buyer equity or security
- receivables
- reciprocal Non-Disparagement Clause
- recoupment doctrine
- reformation
- reformation of contract
- regulated business
- reliance
- remote use of trademark out of territory
- representation and warranty about customers
- representations and warranties
- rescission
- rescission
- restricted offset or setoff
- restrictive post-closing covenants
- retained business carveout
- retaliation
- retention bonus
- revenue and profit projections
- reverse termination or breakup fee
- Revlon doctrine
- Right of publicity
- risk of post closing payments
- robust buyer litigation warranty in earnout deal
- robust objective buyer earnout covenants
- royalty
- S corporation
- sale leaseback
- sale of assets of business
- sale of business to ESOP
- sale of product line
- sales order
- sales tax
- sales tax imposed on equity sale of DRE
- sales tax risk
- SBA approval re PPP loan
- scienter
- scope
- Section 1377 election
- Section 363 sale
- securing buyer's note
- securing deferred purchase price
- security agreement
- sell side M&A
- seller carried purchase price
- seller knowledge
- seller owner responsibility for underreported sales tax
- seller owners equity interest in buyer
- seller ownership in buyer
- seller rep of no federal employer liability
- seller's age discrimination claims
- seller's covenants
- seller's federal injunctions
- seller's unemployment experience rating
- seller's warranty claims
- seller's workers compensation experience rating
- Selling shareholders problem with their board of directors
- severance benefits
- sexual harassment
- shareholder approval of deal
- shareholder buyout of partner
- shareholder personal guaranty of target lease
- shareholder release
- sharing transaction tax deduction benefits
- sick time
- signature escrows are risky
- signing LOI with revisions by signer
- social media transfer
- special indemnity escrow
- specific performance
- spousal consent
- state and local tax
- state approval of nonprofit hospital
- state franchise/income tax
- statute of frauds
- statute of limitations
- statute of limitations
- stay bonus
- step-down provision
- stock purchase agreement
- stock sale
- strategic acquisition
- strategic acquisition
- structure of transaction
- subordination
- substance over form
- substantially all assets
- success fee
- successor liability
- sufficiency of assets rep
- supply problems
- survival of covenants
- survival of reps and warranties
- survival period commencement
- tangible net worth
- target's stock options
- tax
- tax benefit sharing
- tax deferred reorganization
- tax penalties and additions
- Taxation
- termination of M&A agreement
- termination or breakup fee
- third party
- third party beneficiary clause
- time of the essence
- timely objection to indemnification claim
- tolling
- tolling
- tort misrepresentation in M&A
- tortious interference with prospective economic advantage
- trade secret misappropriation
- trade secret misappropriation by former seller employee
- trademark infringement
- trademarks
- transferee liability for taxes IRC Section 6901
- TRO/preliminary injunction before filing for arbitration
- tying fraud to economic loss
- typo or scriverner's error
- UCC search
- Uncategorized
- understanding private equity
- undisclosed deal term
- Uniform Fraudulent Transfer Act or Uniform Voidable Transfer Act
- union fringe benefits
- union liabilities
- unitary business
- unjust enrichment
- unliquidated or disputed claim
- unwanted assets
- vacation time
- valuation
- waiver of contractual provision
- waiver of jury trial
- waiver of removal to federal court
- waiver provision
- willful breach carveout
- willing buyer or procuring cause
- Withholding Post-closing payments
- working capital adjustment
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