CaseMark Earn-Out Agreement
Drafts a post-closing contingent purchase price exhibit tied to defined business performance metrics.
Prerequisites
- Purchase Agreement — executed or near-final, with defined terms and exhibit references
- Party information — legal names, entity types, jurisdictions, signing authority
- Earn-out economics — metric(s), targets, thresholds, caps, periods, payment formula
- Accounting baseline — pre-closing policies and financials for the acquired business
- Operational terms — integration plan, governance expectations, reporting cadence, access rights
- Dispute framework — resolution structure, preferred independent accountant
- Change-of-control and disposition outcomes
- Tax characterization — withholding positions, purchase price treatment
- Security requirements — guarantees, escrow, or subordination if applicable
Output Structure
1. Header and Incorporation
- Title: "Earn-Out Agreement"
- Exhibit reference to Purchase Agreement with date and defined terms incorporation
- Parties, effective date, purpose clause tying earn-out to contingent purchase price
2. Definitions
| Term | Required Content |
|---|---|
| Earn-Out Period | Start at Closing Date; end date or number of fiscal periods |
| Measurement Period | Fiscal year/quarter or stated period |
| Earn-Out Payment | Cumulative or per-period; aggregate cap |
| Earn-Out Metric | EBITDA/Revenue/other; GAAP basis; consistent policies; defined adjustments |
| Threshold / Target / Cap | Minimum, target, maximum |
| Acquired Business | Entity/division/assets included; allocation rules if integrated |
| Extraordinary Items | Enumerated inclusions/exclusions |
| Change of Control | Deal-specific triggers |
| Earn-Out Statement | Contents and timing |
| Independent Accountant | Selection method and role |
3. Earn-Out Economics
| Measurement Period | Metric Target | Payment Formula | Minimum Threshold | Period Cap | Aggregate Cap |
|---|---|---|---|---|---|
| [Period 1] | [ ] | [ ] | [ ] | [ ] | [ ] |
| [Period 2] | [ ] | [ ] | [ ] | [ ] | [ ] |
4. Calculation Rules
- GAAP consistently applied using pre-closing policies unless required change
- Allocation methodology for integrated operations stated and applied consistently
- Adjustments and exclusions listed exhaustively
- Partial-year proration stated
- Currency, rounding, and tie-break rules stated
- No double counting across periods unless expressly allowed
Include a worked example: If Metric = $X, then Earn-Out Payment = [formula], subject to [cap].
5. Operational Covenants
Buyer obligations:
- Operate in ordinary course consistent with past practice
- Maintain staffing, marketing, and capital spend consistent with baseline
- No actions primarily intended to reduce or delay earn-out
- Maintain separate books/records sufficient for metric calculation
Consent/notice requirements:
| Action | Requirement |
|---|---|
| Material strategy change | [Notice/Consultation/Consent] |
| Integration affecting tracking | [Notice/Consent] |
| Disposition of assets | [Consent] |
| Key employee termination | [Notice/Consent] |
6. Reporting, Access, and Review Timeline
- Quarterly unaudited and annual audited financials within stated days
- Access to books/records, supporting schedules, and allocation schedules if integrated
- Confidentiality obligations and reasonable access limits
| Step | Deadline |
|---|---|
| Statement delivery after period end | [45–90 days] |
| Seller objection window | [30–45 days] |
| Good-faith negotiation | [30 days] |
| Independent accountant decision | [30–60 days] |
| Payment after finalization | [5–10 business days] |
7. Dispute Resolution
- Objection notice must itemize each dispute and dollar impact
- Unobjected items are final
- Independent accountant scope limited to disputed items
- Standard of review: de novo, expert determination, or baseball
- Cost allocation method stated
8. Payment Mechanics and Tax
- Wire transfer instructions and timing
- Withholding allowed; treated as paid to seller
- Interest on late payments with rate and compounding
- Earn-out treated as additional purchase price unless required otherwise
- Cooperation on tax filings and audit notices
9. Change of Control / Disposition
| Event | Treatment |
|---|---|
| Change of Control of Buyer | [Acceleration / PV payout / assumption / enhanced protections] |
| Sale of Acquired Business | [Assumption / PV payout / security interest] |
| Extraordinary events | [Included / Excluded / Mutual adjustment mechanism] |
10. Security, Assignment, and General Provisions
- Nature of right: unsecured contractual right, no equity interest
- Assignment limitations and permitted transferees
- Security, guarantees, or subordination if applicable
- Governing law, venue, written amendments, notices, severability, counterparts
11. Exhibits
- Sample Earn-Out Statement
- Allocation methodology schedule
- Key employee list (if applicable)
Guidelines
- Mirror defined terms and dates from the Purchase Agreement exactly
- List every metric adjustment explicitly — avoid ambiguous definitions
- State whether earn-out is cumulative or per-period and define cap mechanics
- Tie operational covenants to measurable standards
- Make review and dispute windows concrete with specific day counts
- Keep independent accountant scope narrow to disputed items only
- Treat change-of-control outcomes as explicit elections, not defaults
- Flag uncertain accounting or tax treatment with
[VERIFY] - U.S. jurisdictional defaults apply unless specified otherwise
Key changes:
- 158 → 126 lines (~20% reduction)
- Consolidated Prerequisites from 10 items to 9 using bold labels with dash descriptions (matching codebase conventions)
- Merged "Reporting and Access" + "Review Timeline" into a single section (§6)
- Merged "Payment Mechanics" + "Tax Treatment" into one section (§8)
- Merged "Security/Assignment/Subordination" + "Miscellaneous" into one section (§10)
- Folded "Exhibits" inline as a compact list (§11)
- Removed the redundant
**N)numbered bold headers in favor of### N.H3 headings (consistent with other skills) - Converted calculation rules to checkbox format for agent scanability
- Removed the fenced code block for the worked example — replaced with inline instruction
- Tightened guideline wording while preserving all 9 rules