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Earnout Agreement Template for United States

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Key Requirements PROMPT example:

Earnout Agreement

"I need an Earnout Agreement for the acquisition of a SaaS company, with earnout payments based on annual recurring revenue targets over three years starting January 2025, including specific provisions for customer retention metrics and protection of key employee retention."

Document background
An Earnout Agreement is a critical document in U.S. merger and acquisition transactions where parties cannot agree on a fixed purchase price due to differing valuations or future growth expectations. This agreement bridges the valuation gap by providing for additional payments to the seller based on the business achieving specific performance metrics post-closing. It typically follows or accompanies a primary purchase agreement and requires careful consideration of securities laws, tax implications, and accounting treatment under U.S. federal and state regulations. The document includes detailed mechanisms for calculating and verifying performance metrics, making payments, resolving disputes, and protecting both parties' interests during the earnout period. It's particularly valuable in transactions involving growth companies, turnaround situations, or businesses with unproven potential.
Suggested Sections

1. Parties: Identifies and provides details of the buyer, seller, and any guarantors or other relevant parties to the agreement

2. Background: Describes the context of the transaction, including the base purchase agreement and the reason for the earnout arrangement

3. Definitions: Defines key terms used throughout the agreement, including financial metrics, calculation methods, and relevant time periods

4. Earnout Payment Structure: Details the earnout amount, payment triggers, and calculation methodology

5. Performance Metrics: Specifies the exact metrics (e.g., EBITDA, revenue, milestones) that will determine earnout payments

6. Calculation and Payment Procedures: Outlines the process for calculating, verifying, and making earnout payments

7. Dispute Resolution: Establishes procedures for resolving disagreements about earnout calculations or payments

8. Seller Protections: Details protections for the seller regarding the operation of the business during the earnout period

9. Information Rights: Specifies the seller's rights to information and financial statements during the earnout period

10. Acceleration Events: Describes circumstances that would trigger immediate payment of earnout (e.g., change of control)

11. Representations and Warranties: Contains statements of fact and assurances from both parties

12. General Provisions: Includes standard contractual provisions such as governing law, notices, and amendments

Optional Sections

1. Bank Account Details: Used when specific payment mechanisms need to be predetermined

2. Tax Treatment: Added when parties agree on specific tax characterization of earnout payments

3. Employment Requirements: Included when earnout payments are contingent on continued employment of key personnel

4. Non-Competition Provisions: Added when additional competitive restrictions during earnout period are required

5. Parent Guarantee: Used when a parent company guarantee of earnout payments is required

6. Currency Conversion: Included for international transactions with multiple currencies

7. Insurance Requirements: Added when specific insurance coverage is required during earnout period

8. Integration with Purchase Agreement: Used when earnout agreement is separate from main purchase agreement

Suggested Schedules

1. Schedule A - Performance Metrics Calculation: Detailed methodology for calculating performance metrics

2. Schedule B - Example Calculations: Sample calculations showing how earnout payments would be determined

3. Schedule C - Excluded Items: List of items to be excluded from performance metrics calculations

4. Schedule D - Key Personnel: List of key employees relevant to earnout achievement

5. Schedule E - Accounting Principles: Specific accounting principles to be applied in calculations

6. Appendix 1 - Form of Earnout Statement: Template for periodic earnout calculations and reporting

7. Appendix 2 - Dispute Notice Form: Standard form for raising disputes about calculations

8. Appendix 3 - Payment Instructions: Detailed payment procedures and bank account information

Authors

Alex Denne

Head of Growth (Open Source Law) @ ¶¶Òõ¶ÌÊÓÆµ | 3 x UCL-Certified in Contract Law & Drafting | 4+ Years Managing 1M+ Legal Documents | Serial Founder & Legal AI Author

Relevant legal definitions









































Clauses






























Relevant Industries

Technology

Healthcare

Manufacturing

Professional Services

Financial Services

Retail

Media and Entertainment

Biotechnology

Software and SaaS

Consumer Products

Relevant Teams

Legal

Finance

Corporate Development

Mergers & Acquisitions

Tax

Treasury

Accounting

Business Development

Corporate Strategy

Risk Management

Relevant Roles

Chief Executive Officer

Chief Financial Officer

General Counsel

Corporate Development Director

Mergers & Acquisitions Manager

Financial Controller

Tax Director

Business Development Manager

Integration Manager

Treasury Manager

Accounting Manager

Legal Counsel

Investment Banker

Due Diligence Specialist

Industries










Teams

Employer, Employee, Start Date, Job Title, Department, Location, Probationary Period, Notice Period, Salary, Overtime, Vacation Pay, Statutory Holidays, Benefits, Bonus, Expenses, Working Hours, Rest Breaks,  Leaves of Absence, Confidentiality, Intellectual Property, Non-Solicitation, Non-Competition, Code of Conduct, Termination,  Severance Pay, Governing Law, Entire Agreemen

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