## Facts

- Qinetiq North America Operations, LLC acquired Cyveillance, Inc. under a merger agreement providing $40 million upfront and up to $40 million more as an earn-out if Cyveillance met revenue targets during an earn-out period.
- The agreement included a restriction (Section 5.4) barring Qinetiq from taking “any action to divert or defer [revenue] with the intent of reducing or limiting the earn-out payment.”
- Cyveillance did not meet the revenue thresholds by the end of the earn-out period, and no earn-out was paid.
- The sellers’ representative, Lazard Technology Partners, LLC, sued alleging (i) Qinetiq breached Section 5.4 through post-closing actions that reduced or limited revenue and (ii) Qinetiq breached the implied covenant of good faith and fair dealing by failing to take steps that would have increased revenue and produced an earn-out.
- During negotiations, the sellers sought affirmative post-closing operational commitments; Qinetiq rejected those proposals, and the parties agreed to the narrower, intent-focused language in Section 5.4.
- After a post-trial bench decision, the Court of Chancery entered judgment for Qinetiq on both the express breach claim and the implied covenant claim; Lazard appealed.

## Issues

1. Whether Section 5.4’s prohibition on actions taken “with the intent of reducing or limiting the earn-out payment” requires proof of specific intent, or instead reaches actions the buyer knew would make an earn-out less likely.
2. Whether the implied covenant of good faith and fair dealing can be used to impose broader post-closing obligations to support achievement of an earn-out, notwithstanding the parties’ negotiated, intent-based contractual standard.

## Decision

- The Delaware Supreme Court affirmed the Court of Chancery’s judgment for Qinetiq.
- Section 5.4 was interpreted according to its plain language as an intent-based limitation, not a knowledge-based limitation.
- The sellers failed to prove that Qinetiq took post-closing actions specifically motivated by a desire to reduce or avoid the earn-out payment.
- The implied covenant claim failed because it could not be used to override the agreement’s express intent requirement or to supply affirmative obligations the sellers unsuccessfully sought in negotiations.

## Legal Principles

- When an earn-out clause conditions liability on actions taken “with the intent” to reduce the earn-out, the claimant must prove conduct specifically motivated, at least in part, by a desire to reduce or avoid the earn-out; mere knowledge of potential impact is insufficient.
- Contract terms governing earn-out conduct are enforced as written; courts will not recast an intent standard into a different standard based on hindsight dissatisfaction with business outcomes.
- The implied covenant of good faith and fair dealing is a narrow gap-filler and cannot contradict express contractual language or provide protections a party failed to secure through negotiation.
- Negotiation history may confirm that the parties deliberately chose a limited allocation of post-closing risk, narrowing any possible role for the implied covenant.

## Conclusion

The court held that the merger agreement’s earn-out protection barred only conduct undertaken with specific intent to reduce or limit the earn-out and that the implied covenant could not be used to impose broader, affirmative post-closing duties or to dilute the contract’s express intent requirement; because the sellers did not prove improper intent, judgment for the buyer was affirmed.


Lazard Tech. Partners, LLC v. Qinetiq N. Am. Operations LLC, 114 A.3d 193 (Del. 2015)