Background
North Highland acquired technology consulting firm The Bridge under an equity purchase agreement that included an uncapped earnout. One component credited gross profit from “Qualifying Projects,” defined as new North Highland projects that primarily, based on revenue, involved technology or data-analytics services. Before North Highland submitted a proposal during its Stage 3 process, seller representative Eric Winton was required to notify the company of a potential Qualifying Project, after which the parties would mutually agree on its classification.
After closing, North Highland controlled the internal Salesforce and pricing-tool information needed to identify those projects. It supplied Winton only curated pipeline reports that omitted projects North Highland had unilaterally deemed ineligible and lacked the revenue-allocation data needed to apply the contractual test. North Highland also asserted unwritten limitations, including that The Bridge must meaningfully participate in the sale and delivery of a project. Winton sued and obtained an expedited trial on four forward-looking issues concerning administration of the 2026 earnout.
The Court’s Holding
The Court of Chancery held that the implied covenant of good faith and fair dealing prohibited North Highland from arbitrarily withholding information necessary to make the agreement’s notification and classification process operative. The court ordered specific performance requiring North Highland to provide biweekly reports identifying pertinent Stage 3 projects, along with the Salesforce identifying fields and pricing-tool output needed to determine the allocation of revenue between technology or data-analytics services and other services. North Highland must make supplemental disclosures for projects that will reach the proposal deadline before the next report, but Winton was not entitled to unrestricted or real-time access to North Highland’s systems.
The court also declared that the agreement’s revenue-based definition governs whether a project qualifies and that the mutual-agreement clause is a procedural verification mechanism, not a substantive veto permitting North Highland to impose unwritten operational, client, geographic, staffing, or participation requirements. The court denied without prejudice Winton’s request concerning separate business-unit records because he had abandoned the expedited claim for access to those records and had not properly presented an expedited claim concerning their maintenance.
Key Takeaways
- The implied covenant can require a buyer to disclose limited information necessary to prevent a negotiated earnout procedure from becoming illusory, even when the agreement lacks an express contemporaneous information right.
- A requirement that parties “mutually agree” whether a project satisfies an express contractual definition does not authorize either party to add substantive criteria absent from the agreement.
- Specific performance may be appropriate when damages cannot reliably recreate a seller representative’s lost opportunity to participate in a time-sensitive earnout-classification process.
Why It Matters
The decision illustrates how Delaware courts may use the implied covenant narrowly to preserve an earnout’s negotiated procedural protections without granting sellers a broad right to monitor the buyer’s business. The remedy was tailored to the information necessary to apply the contractual test while preserving North Highland’s operational control and avoiding unnecessary disruption to its sales process.
For deal lawyers, the opinion underscores the importance of expressly defining pre-closing or post-closing information rights, classification standards, reporting intervals, response deadlines, and dispute procedures when an earnout depends on data controlled exclusively by the buyer.