Earn-Out Structure Template

This Earn-Out Schedule ("Schedule") is attached to and incorporated into the Asset Purchase Agreement or Stock Purchase Agreement dated [DATE] between [SELLER] ("Seller") and [BUYER] ("Buyer") for the acquisition of [BUSINESS NAME] ("Business").

TOTAL EARN-OUT OPPORTUNITY: Up to $[MAXIMUM EARN-OUT AMOUNT] ("Maximum Earn-Out"), payable in accordance with the terms hereof.

EARN-OUT PERIOD: [DATE] through [DATE] ([1 / 2 / 3] years from closing).

1.1 MEASUREMENT METRIC. Earn-Out payments shall be determined based on [SELECT ONE]:

OPTION A — Revenue-Based:
"Earn-Out Revenue" means the gross revenue of the Business during the Earn-Out Period, calculated on an accrual basis using the accounting policies described in Section 3.

OPTION B — EBITDA-Based:
"Earn-Out EBITDA" means the Earnings Before Interest, Taxes, Depreciation, and Amortization of the Business, calculated using the specific methodology in Section 3.

OPTION C — Gross Profit-Based:
"Earn-Out Gross Profit" means gross revenue less cost of goods sold (as defined in Section 3).

OPTION D — Milestone-Based:
Earn-Out payments shall be triggered by the achievement of the milestones described in Section 1.3.

1.2 METRIC DEFINITION. [Define the metric with precision — e.g., "Earn-Out Revenue includes all invoiced sales of products and services by the Business, net of returns, allowances, and customer credits. Earn-Out Revenue excludes: revenue from any acquisition made by Buyer after closing; revenue from customers not existing as of the Closing Date that are referred by Buyer's other business units; and intercompany revenue."]

1.3 MILESTONE TABLE (if milestone-based):
| Milestone | Trigger Date | Payment |
|-----------|-------------|---------|
| [DESCRIBE MILESTONE 1] | [DATE] | $[AMOUNT] |
| [DESCRIBE MILESTONE 2] | [DATE] | $[AMOUNT] |
| [DESCRIBE MILESTONE 3] | [DATE] | $[AMOUNT] |

2.1 TIERED PAYMENT STRUCTURE:

[CUSTOMIZE FOR YOUR DEAL — EXAMPLES:]

Example A — Threshold / Target / Stretch:
| Performance Level | Metric Threshold | Earn-Out Payment |
|-------------------|-----------------|-----------------|
| Below threshold | Less than $[X] | $0 |
| At threshold | $[X] | $[AMOUNT 1] |
| At target | $[Y] | $[AMOUNT 2] |
| At stretch | $[Z] or more | $[MAXIMUM EARN-OUT] |

Example B — Linear (proportional):
Earn-Out Payment = (Actual Metric / Target Metric) × Maximum Earn-Out, subject to:
- Minimum: $0 (no payment if Actual < [___]% of Target)
- Maximum: $[MAXIMUM EARN-OUT] (capped even if Actual exceeds Target by more than [___]%)

Example C — Annual Tiers:
Year 1 (ending [DATE]): Up to $[AMOUNT] based on [METRIC] of $[TARGET]
Year 2 (ending [DATE]): Up to $[AMOUNT] based on [METRIC] of $[TARGET]
Year 3 (ending [DATE]): Up to $[AMOUNT] based on [METRIC] of $[TARGET]

3.1 ACCOUNTING STANDARDS. All Earn-Out calculations shall be prepared in accordance with [GAAP / cash basis / the specific accounting policies attached as Exhibit 1], applied consistently with the Business's historical practices as of the Closing Date.

3.2 LOCKED-IN POLICIES. The following specific accounting policies shall apply and shall not be changed during the Earn-Out Period without Seller's written consent:
(a) Revenue recognition policy: [DESCRIBE — e.g., "revenue recognized upon invoice for service businesses; upon shipment for product businesses"]
(b) COGS treatment: [DESCRIBE specific items included/excluded]
(c) Treatment of customer deposits and prepayments
(d) Treatment of returns and refund reserves

3.3 NO-MANIPULATION COVENANT. Buyer shall not, during the Earn-Out Period:
(a) Change accounting policies in a manner that artificially reduces Earn-Out Metric;
(b) Shift revenue or customers from the Business to other Buyer entities;
(c) Materially change the Business's pricing, customer incentive programs, or sales compensation in a manner designed to defer revenue past the Earn-Out Period;
(d) Incur extraordinary expenses or costs allocated to the Business that would not be incurred absent the Earn-Out arrangement.

3.4 CONDUCT OF BUSINESS. During the Earn-Out Period, Buyer agrees to:
(a) Operate the Business in the ordinary course;
(b) Maintain sufficient working capital to support normal operations;
(c) Not discontinue any product line or service that generated more than [10]% of Business revenue in the 12 months prior to closing without Seller's prior written consent (not to be unreasonably withheld).

4.1 EARN-OUT STATEMENT. Within [45] days after each Earn-Out Period measurement date, Buyer shall deliver to Seller a written statement ("Earn-Out Statement") showing:
(a) Earn-Out Metric for the applicable period;
(b) Earn-Out Payment calculated therefrom;
(c) Supporting calculations and documentation.

4.2 SELLER REVIEW PERIOD. Seller shall have [30] days after receipt of the Earn-Out Statement to review and object ("Review Period"). During the Review Period, Buyer shall provide Seller and Seller's representatives with reasonable access to books, records, and accounting personnel.

4.3 NOTICE OF OBJECTION. If Seller objects, Seller shall deliver written notice within the Review Period specifying in reasonable detail the basis for each disputed item and Seller's proposed calculation.

4.4 RESOLUTION PROCESS:
(a) Good Faith Negotiation: The parties shall negotiate in good faith for [20] days after Seller's objection notice.
(b) Independent Accountant: If unresolved, either party may refer the dispute to [BIG 4 FIRM / NATIONAL FIRM] or another nationally recognized accounting firm mutually agreed upon ("Independent Accountant"). The Independent Accountant shall act as an expert, not an arbitrator, and shall determine only the disputed items. The Independent Accountant's decision shall be final and binding. Fees of the Independent Accountant shall be borne by the party whose position was furthest from the Independent Accountant's determination (or split equally if both were equally off).

5.1 PAYMENT TIMING. Earn-Out Payments shall be made within [10] business days after the final determination of the Earn-Out Statement.

5.2 PAYMENT FORM. All Earn-Out Payments shall be made in cash by wire transfer to Seller's account on file, unless otherwise agreed in writing.

5.3 OFFSET RIGHT. Buyer may offset against Earn-Out Payments any indemnification amounts finally determined to be owed by Seller under the Purchase Agreement, provided that (a) Buyer provides Seller with written notice of any proposed offset, and (b) the amount of the offset does not exceed amounts finally adjudicated or admitted by Seller.

5.4 ACCELERATION. All remaining potential Earn-Out Payments shall become immediately due and payable, in the amount of [the Maximum Earn-Out / the trailing 12-month pro-rated amount / as calculated by the independent accountant] upon:
(a) Buyer's sale of the Business to a third party;
(b) Buyer's material breach of Section 3.3 or 3.4 (non-manipulation and conduct covenants);
(c) [Other acceleration triggers to be negotiated].

6.1 SELLER'S ROLE. [IF SELLER REMAINS INVOLVED]: Seller shall serve as [TITLE] of the Business during the Earn-Out Period pursuant to a separate Employment or Consulting Agreement attached as Exhibit 2, at compensation of $[AMOUNT] per [month / year]. Seller agrees to use commercially reasonable efforts to achieve the Earn-Out targets.

6.2 SELLER EXIT (if seller departs): If Seller's engagement with the Business terminates for any reason during the Earn-Out Period:
(a) Earn-Out Payments continue to be calculated as if Seller remained active;
(b) Buyer's obligations to operate the Business consistent with Section 3.4 remain in effect.

Signed:

______________________________________    ______________________________________
[SELLER SIGNATURE]                              [BUYER SIGNATURE]
Date: _______________                          Date: _______________