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…
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Why Delaware’s Implied Covenant of Good Faith and Fair Dealing Is Not Enough Protection for an Earnout
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
How Overstated Revenue Leads to Fraud Claims and Unlimited Liability
Discover the high stakes of fraud allegations in M&A transactions through this case study involving overstated revenue and nondisclosure. When an IT consulting firm failed to disclose that its projected $25 million revenue was inflated due to enterprise division contributions,…
Posted in fraud in business sale, fraudulent inducement Tagged with: and seller's legal obligations., asset purchase agreement, Breach of contract in M&A, buyer fraud claims, contractual representations, Delaware Superior Court, false revenue claims, fraud defense in M&A, Fraud in M&A, Indemnification caps, IT consulting M&A, Legal Risks in M&A, M&A case studies, M&A Due Diligence, M&A legal disputes, M&A litigation, M&A negotiations, M&A transaction risks, purchase price adjustments, revenue misrepresentation, seller disclosures, SMB acquisition
Recent Posts
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- When “Telling the Truth” Destroys Your Reputation: The “Safe Harbor” Fix Every Business Seller Needs
- The “Cash Hostage” Squeeze: The Strategic Pivot to a Restricted Setoff
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- bad faith
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- bitcoin
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- closing
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- constructive knowledge
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- contracts
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- controlling shareholder fiduciary duty M&A
- copyrights
- corporate overhead
- covenant not to compete
- Covenants
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- customer deposits
- customer due diligence
- customer list
- customer list
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- damages
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- deferred closing
- Delaware
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- 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
- earnouts in bankruptcy
- EBITDA
- EBITDA
- economic loss doctrine
- employment agreement
- employment agreement
- enforce against nonparty
- enforceability of non-owner noncompete
- entire fairness
- environment representations and warranties
- environmental
- environmental problems
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- escrow
- Excluded Assets
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- exclusive remedy
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- excuse for untimely indemnification claim
- executory contracts
- 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
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- failure to make timely purchase price payment
- fair insider deal
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- mere continuation exception
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- merger agreement
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- misappropriation of likeness
- misleading personal financial statement
- missing attachment to acquisition document
- modification as counteroffer
- multi-employer pension plan
- mutual mistake
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- negligent misrepresentation
- net working capital adjustment
- New York
- no kickback or bribe rep
- no oral modifications of contract
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- No Undisclosed Liabilities
- Non-Disparagement Clause
- non-reliance clause
- nonbinding
- nonbusiness income
- nonbusiness income/sale of subsidiary
- noncompete area
- noncompetition covenant
- noncompetition covenant term
- nondischargeable debt in bankruptcy
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- nondisclosure provision
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- notice provision
- objection -reasonable detail
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- offset right
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- Ownership of Target Law Firm File
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- percentage of purchase price
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- prior-material-breach doctrine
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- Privilege Access Protocol
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- problems with general liability insurance
- Problems with governments
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- problems with insurance
- Problems with intellectual property
- problems with leases
- problems with noncompetition covenants
- problems with oral M&A promises
- 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 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 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
- purchase price reduction
- 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
- retaliation
- retention bonus
- revenue and profit projections
- reverse termination or breakup fee
- Revlon doctrine
- Right of publicity
- risk of post closing payments
- 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
- 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
- signing LOI with revisions by signer
- 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
- 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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