Kaan Ekiner and Mark Felger, writing in the Delaware Business Court Insider, discuss the Delaware Superior Court’s recent decision that emphasizes the importance of precise earnout provisions and the limitations on the application of the implied covenant of good faith and fair dealing in earnout disputes. The plaintiffs sold their interests in Data Driven Security with a base payment and a contingent earnout, which depended on post-closing revenue targets. They alleged that the defendants’ failure to commercialize synergy products and misrepresentations about data compatibility led to unmet revenue targets and no earnout payment. The court allowed the fraud and conspiracy claims to proceed but dismissed the implied covenant claim, noting that the securities purchase agreement’s express terms governed the defendants’ obligations. This case underscores the need for clear contractual protections in earnout agreements.

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