Purchase Price Adjustment and Earn-Out Clause Pack - Florida

PURCHASE PRICE ADJUSTMENT AND EARN-OUT CLAUSE PACK

State of Florida

Prepared for Use in: Stock Purchase Agreements, Asset Purchase Agreements, Merger Agreements
Governing Law: State of Florida
Date: [__/__/____]

PART I: OVERVIEW AND PURCHASE PRICE MECHANICS

Section 1.01 — Purchase Price Structure

The aggregate consideration for the Acquired Business (the "Purchase Price") shall consist of:

☐ (a) Base Cash Consideration. An amount equal to $[________________________________] (the "Base Purchase Price"), payable at the Closing by wire transfer of immediately available funds to an account designated by Seller, subject to adjustment as provided in Part II of this Clause Pack;

☐ (b) Closing Adjustment. A dollar-for-dollar adjustment to the Base Purchase Price based on the difference between Closing Net Working Capital and Target Net Working Capital, as set forth in Section 2.01;

☐ (c) Earn-Out Consideration. Contingent consideration in the form of one or more Earn-Out Payments, subject to and in accordance with Part III of this Clause Pack, in an aggregate maximum amount not to exceed $[________________________________] (the "Earn-Out Cap");

☐ (d) Seller Note. A promissory note in the principal amount of $[________________________________], bearing interest at [____]% per annum, payable on the terms set forth in Exhibit [____];

☐ (e) Equity Rollover. [________________________________] shares/units of Buyer or its parent entity, valued at $[________________________________] per share/unit, subject to the terms of the Rollover Agreement attached as Exhibit [____];

☐ (f) Escrow Amount. $[________________________________] of the Base Purchase Price shall be deposited in escrow with [________________________________] (the "Escrow Agent") to secure Seller's obligations under Article [____] (Indemnification) and Section 2.01 (Working Capital Adjustment), to be held and disbursed pursuant to the Escrow Agreement attached as Exhibit [____].

Section 1.02 — Funds Flow

At the Closing, the Base Purchase Price shall be disbursed in accordance with the funds flow memorandum (the "Funds Flow") to be agreed upon by the Parties not fewer than [____] Business Days prior to the Closing Date, which shall reflect:

(a) Payment of all Closing Indebtedness to the holders thereof;

(b) Payment of all unpaid Transaction Expenses to the payees thereof;

(c) Deposit of the Escrow Amount with the Escrow Agent;

(d) Payment of any estimated Closing adjustment amount pursuant to Section 2.02;

(e) Distribution of the remaining balance to Seller.

Section 1.03 — Cash-Free, Debt-Free Basis

The Purchase Price is calculated on a cash-free, debt-free basis, with a normalized level of Net Working Capital. Accordingly:

(a) Cash. All Cash shall be for the account of Seller, or the Purchase Price shall be increased dollar-for-dollar by the amount of any Cash remaining at Closing;

(b) Indebtedness. All Closing Indebtedness shall be repaid at or prior to Closing from the Purchase Price;

(c) Transaction Expenses. All unpaid Transaction Expenses shall be paid at or prior to Closing from the Purchase Price.

PART II: WORKING CAPITAL ADJUSTMENT

Section 2.01 — Target Net Working Capital

(a) The Parties agree that the target Net Working Capital of the Company is $[________________________________] (the "Target Net Working Capital"), representing the normalized level of Net Working Capital necessary for ordinary course operations.

(b) The Target has been determined based on the average monthly Net Working Capital for the [____]-month period ending [__/__/____], calculated per the Accounting Principles and the Sample Working Capital Calculation set forth on Schedule [____].

Section 2.02 — Estimated Closing Statement

Not fewer than [____] Business Days prior to the anticipated Closing Date, Seller shall deliver to Buyer a good faith estimate of Closing Net Working Capital (the "Estimated Closing Net Working Capital"), together with a reasonably detailed calculation thereof (the "Estimated Closing Statement"). The Base Purchase Price payable at Closing shall be:

(a) Increased dollar-for-dollar if the Estimated Closing Net Working Capital exceeds the Target; or

(b) Decreased dollar-for-dollar if the Target exceeds the Estimated Closing Net Working Capital.

Section 2.03 — Post-Closing Adjustment Procedures

(a) Closing Statement Delivery. Within [____] days after the Closing Date, Buyer shall prepare and deliver to Seller a statement (the "Closing Statement") setting forth Buyer's good faith calculation of Closing Net Working Capital, Closing Cash, Closing Indebtedness, and unpaid Transaction Expenses, prepared in accordance with the Accounting Principles.

(b) Review Period. Seller shall have [____] days after receipt of the Closing Statement (the "Review Period") to review. Buyer shall provide Seller and its Representatives with reasonable access during normal business hours to the books, records, work papers, and personnel of the Company.

(c) Dispute Notice. If Seller disagrees with any item, Seller shall deliver a written Dispute Notice on or before the last day of the Review Period specifying:

• (i) Each item or amount in dispute;
• (ii) The amount of such dispute, item by item;
• (iii) Seller's proposed resolution with supporting documentation.

Items not specifically identified in the Dispute Notice shall be deemed accepted.

(d) Resolution Period. The Parties shall negotiate in good faith for [____] days. Unresolved disputes shall be submitted to the Independent Accountant per Section 6.01.

(e) Final Determination. The Closing Net Working Capital, as finally determined, shall be the "Final Closing Net Working Capital."

Section 2.04 — True-Up Payment

(a) If the Final Closing Net Working Capital exceeds the Estimated Closing Net Working Capital, Buyer shall pay the excess to Seller within [____] Business Days of final determination.

(b) If the Estimated Closing Net Working Capital exceeds the Final Closing Net Working Capital, Seller shall pay the excess to Buyer within [____] Business Days of final determination.

(c) Downward Adjustments shall first be satisfied from the Escrow Amount.

(d) Payments shall include interest at [____]% per annum from the Closing Date. Florida's usury statute (Fla. Stat. § 687.02 — 18% per annum for amounts of $500,000 or less; 25% for amounts over $500,000) should be considered.

Section 2.05 — De Minimis Threshold

No adjustment payment shall be required if the absolute value of the difference between Final Closing Net Working Capital and Estimated Closing Net Working Capital is less than $[________________________________] (the "De Minimis Amount"). If exceeded, the full adjustment shall be payable.

PART III: EARN-OUT PROVISIONS

Section 3.01 — Earn-Out Milestones and Payment Schedule

Subject to the terms and conditions of this Part III, Buyer shall pay (or cause to be paid) to Seller the following contingent consideration amounts (each, an "Earn-Out Payment"):

☐ (a) Revenue-Based Earn-Out:

☐ (b) EBITDA-Based Earn-Out:

☐ (c) Milestone-Based Earn-Out:

☐ (d) Hybrid Earn-Out. As set forth on Schedule [____].

Section 3.02 — Earn-Out Definitions

For purposes of this Part III:

(a) "Earn-Out Revenue" means the net revenue of the Business recognized during the applicable Earn-Out Period, calculated in accordance with the Accounting Principles, excluding:

• (i) Revenue from post-Closing acquisitions, unless [________________________________];
• (ii) Intercompany revenue;
• (iii) Non-recurring items;
• (iv) [________________________________].

(b) "Earn-Out EBITDA" means the net income of the Business before interest, taxes, depreciation, and amortization, further adjusted to exclude:

• (v) Management fees and corporate allocations exceeding Schedule [____] amounts;
• (vi) Transaction and integration expenses;
• (vii) Non-cash stock-based compensation;
• (viii) Purchase accounting adjustments;
• (ix) [________________________________].

(c) "Earn-Out Period" means each period identified in Section 3.01.

Section 3.03 — Earn-Out Statement and Dispute Resolution

(a) Earn-Out Statement. Within [____] days after each Earn-Out Period, Buyer shall deliver to Seller a written Earn-Out Statement with supporting detail.

(b) Access and Review. During the [____]-day Earn-Out Review Period, Buyer shall provide Seller reasonable access to books, records, work papers, and personnel.

(c) Earn-Out Dispute Notice. Seller shall deliver any Earn-Out Dispute Notice within the Earn-Out Review Period, specifying each disputed item.

(d) Resolution. Good faith negotiation for [____] days; then to the Independent Accountant (financial metrics) or Part VI dispute resolution (milestone-based disputes).

Section 3.04 — Payment of Earn-Out Amounts

(a) Each Earn-Out Payment shall be paid within [____] Business Days after final determination.

(b) Payments shall be made without setoff except as provided in Section 3.07.

(c) Late payments shall bear interest at [____]% per annum, subject to Florida usury limits.

Section 3.05 — Acceleration Events

The unpaid Earn-Out Cap shall become due and payable upon:

☐ (a) A Change of Control of Buyer;
☐ (b) A sale of all or substantially all Business assets;
☐ (c) A merger where the Business is not the survivor;
☐ (d) Dissolution or liquidation of the Business;
☐ (e) Material uncured breach of Section 5.02 after [____] days' notice;
☐ (f) [________________________________].

Acceleration Payment calculated as:

☐ (i) Full Acceleration;
☐ (ii) Pro-Rata Acceleration;
☐ (iii) Negotiated Formula: [________________________________].

Section 3.06 — Pro-Rata and Interpolated Earn-Out Payments

☐ (a) Linear Interpolation;
☐ (b) Tiered Achievement (per Schedule [____]);
☐ (c) All-or-Nothing.

Section 3.07 — Right of Setoff

☐ (a) No Setoff;
☐ (b) Limited Setoff (final indemnification determinations only);
☐ (c) Full Setoff.

Setoff Procedure. Written notice specifying amount and basis; disputed amounts escrowed pending resolution.

PART IV: ACCOUNTING STANDARDS AND PRINCIPLES

Section 4.01 — Accounting Principles

"Accounting Principles" means GAAP as in effect on the date of the Agreement, applied using the same methods, practices, principles, policies, and procedures used in the Reference Financial Statements, on a basis consistent with the Reference Balance Sheet dated [__/__/____].

Section 4.02 — Hierarchy of Accounting Principles

(a) First, Agreed-Upon Procedures on Schedule [____];
(b) Second, Historical Practices;
(c) Third, GAAP.

Section 4.03 — GAAP Consistency Requirements

All calculations shall be without giving effect to: (i) post-Agreement GAAP changes; (ii) post-Closing accounting method changes by Buyer; (iii) purchase accounting adjustments; (iv) new reserves not in Historical Practices; (v) write-downs inconsistent with Historical Practices.

Section 4.04 — Permitted Adjustments

(a) Elimination of excess Buyer overhead;
(b) Normalization of related-party transactions to arm's length;
(c) Exclusion of non-recurring items;
(d) Exclusion of ASC 805 purchase accounting effects.

PART V: EARN-OUT PROTECTIONS AND OPERATIONAL COVENANTS

Section 5.01 — Implied Covenant of Good Faith and Fair Dealing (Florida)

(a) Florida Standard. Under Florida law, every contract includes an implied promise that both parties will act in good faith and deal fairly with one another. The purpose of this covenant is to protect the reasonable expectations of the parties in light of their express agreement. See Ins. Concepts & Design, Inc. v. Healthplan Servs., Inc., 785 So. 2d 1232 (Fla. 4th DCA 2001).

(b) Tied to Express Terms. Critically, Florida's implied covenant is not a free-standing obligation — it must be tied directly to the performance of an express contractual term. A party cannot bring a standalone claim for breach of the implied covenant without also identifying a breach of an express contractual obligation. See QBE Ins. Corp. v. Chalfonte Condo. Apartment Ass'n, Inc., 94 So. 3d 541 (Fla. 2012).

(c) Cannot Override Express Terms. Florida courts will not apply the implied covenant to override clear contract language or to create obligations that contradict the written terms.

(d) Application to Discretionary Provisions. The implied covenant may be invoked when the contract grants a party a discretionary obligation (such as acting "reasonably" or doing something "at its option") that has no defined standards. In such cases, the implied covenant requires the exercise of that discretion in good faith.

(e) Application to Earn-Out. Without limiting the generality of the foregoing, Buyer shall not exercise any discretion granted under this Agreement with the primary purpose of reducing or avoiding Earn-Out Payments. Given Florida's requirement that the implied covenant be tied to an express term, the express operational covenants in Section 5.02 serve as the critical mechanism for Seller's protection.

FLORIDA PRACTICE NOTE: Florida's implied covenant is narrower than California's or Alaska's, as it requires a nexus to an express contractual obligation. Sellers in Florida-law transactions should therefore insist on detailed express operational covenants (Section 5.02) and should not rely solely on the implied covenant. The four-year statute of limitations under Fla. Stat. § 95.11(3)(o) applies to implied covenant claims.

Section 5.02 — Buyer Operational Covenants

During each Earn-Out Period and for [____] days thereafter, Buyer covenants and agrees that, unless Seller provides prior written consent (not to be unreasonably withheld, conditioned, or delayed), Buyer shall:

☐ (a) Operate in Ordinary Course. Operate the Business in the ordinary course consistent with past practice;

☐ (b) Maintain Adequate Resources. Devote adequate financial, personnel, and operational resources;

☐ (c) Maintain Separate Books. Maintain separate books and records for the Business;

☐ (d) Preserve Business Relationships. Use commercially reasonable efforts to preserve customer, supplier, and vendor relationships;

☐ (e) Retain Key Employees. Use commercially reasonable efforts to retain Key Employees on Schedule [____];

☐ (f) No Diversion. Refrain from intentionally diverting customers, contracts, or revenue opportunities from the Business to Buyer or its Affiliates for the primary purpose of reducing Earn-Out Payments;

☐ (g) Pricing and Terms. Refrain from materially changing pricing or customer discount programs inconsistent with past practice, except as competitively required;

☐ (h) Capital Expenditures. Make capital expenditures at levels no less than the [____]-year pre-Closing average;

☐ (i) No Asset Stripping. Refrain from disposing of material Business assets outside the ordinary course;

☐ (j) No Unreasonable Charges. Refrain from imposing excessive management fees or corporate allocations;

☐ (k) Insurance. Maintain substantially equivalent insurance coverage;

☐ (l) Compliance. Operate in compliance with all applicable Laws.

Section 5.03 — Anti-Manipulation Provisions

(a) Prohibited Actions. The following actions shall constitute a breach if undertaken with the primary purpose of reducing or avoiding Earn-Out Payments:

• (i) Accelerating or deferring revenue or expense recognition outside the ordinary course;
• (ii) Changing the fiscal year or accounting period;
• (iii) Below-market transactions with Buyer or its Affiliates;
• (iv) Terminating material customer contracts without commercially reasonable justification;
• (v) Reassigning key personnel without commercially reasonable justification;
• (vi) Eliminating product lines or service offerings without commercially reasonable justification.

(b) Burden of Proof. Seller bears the initial burden; if a prima facie showing is made, the burden shifts to Buyer to demonstrate a legitimate business purpose.

Section 5.04 — Reporting and Transparency

During each Earn-Out Period, Buyer shall provide Seller with:

(a) Monthly financial statements within [____] days of month-end;
(b) Quarterly performance metric summaries within [____] days of quarter-end;
(c) Prompt notice of material adverse events;
(d) Such additional information as Seller may reasonably request.

Section 5.05 — Remedies for Breach of Earn-Out Covenants

(a) Specific Performance. Seller shall be entitled to seek equitable relief under Fla. Stat. § 686.02 et seq.

(b) Damages. Seller shall be entitled to recover actual damages, including lost Earn-Out Payments.

(c) Acceleration. Material uncured breach constitutes an Acceleration Event under Section 3.05(e).

PART VI: DISPUTE RESOLUTION

Section 6.01 — Independent Accountant

(a) Selection. Unresolved accounting disputes shall be submitted to a nationally recognized independent accounting firm (the "Independent Accountant") mutually agreed by the Parties.

(b) Scope. Expert determination (not arbitration). Limited to disputed items. No value outside the range of the Parties' positions.

(c) Procedures. Submissions within [____] days; determination within [____] days.

(d) Binding Effect. Final and binding, absent manifest error or fraud.

(e) Fees. Allocated proportionally based on relative merit.

Section 6.02 — Arbitration

☐ (a) Arbitration. Non-accounting disputes shall be resolved by binding arbitration administered by the AAA under its Commercial Arbitration Rules.

(b) Florida Arbitration Code. Governed by Fla. Stat. § 682.01 et seq. (Revised Florida Arbitration Code), as amended.

(c) Arbitrator Selection. Single arbitrator with M&A experience.

(d) Location. [________________________________], Florida.

(e) Discovery. Limited to document production and [____] depositions per side.

(f) Award. Reasoned written award within [____] days. Judgment may be entered in any Florida court.

(g) Confidentiality. Proceedings and materials shall be confidential.

(h) Fees. Each Party bears its own attorneys' fees; arbitrator fees split equally unless the arbitrator determines otherwise.

(i) Florida Fee-Shifting. Under Florida law, each party generally bears its own attorneys' fees unless a contract or statute provides otherwise. The Parties may include a prevailing party fee-shifting provision.

Section 6.03 — Injunctive Relief and Provisional Remedies

Nothing in this Part VI shall prevent either Party from seeking injunctive relief from a court of competent jurisdiction in Florida to prevent irreparable harm pending the outcome of arbitration.

PART VII: TAX TREATMENT

Section 7.01 — Tax Treatment of Purchase Price and Earn-Out

(a) Installment Sale Treatment (IRC § 453). Earn-Out Payments may constitute contingent consideration under Treas. Reg. § 15a.453-1(c). Seller shall report using the installment method under IRC § 453, subject to:

• (i) Maximum selling price treatment per Treas. Reg. § 15a.453-1(c)(2);
• (ii) Ratable basis recovery per Treas. Reg. § 15a.453-1(c)(3)-(4);
• (iii) IRC § 453A interest charges on obligations exceeding $5,000,000.

(b) Characterization. All Earn-Out Payments shall be treated as additional purchase price for all tax purposes, except as required by applicable Law.

Section 7.02 — IRC § 338 Elections

☐ (a) Section 338(h)(10) Election. Joint election; cooperation in filing IRS Form 8023.

☐ (b) Section 338(g) Election. Unilateral Buyer election.

(c) Allocation. Per IRC § 1060 and Treas. Reg. § 1.338-6 and 1.338-7.

Section 7.03 — Purchase Price Allocation (IRC § 1060)

(a) Allocation per IRC § 1060 and Treas. Reg. § 1.1060-1.

(b) Each Party shall file IRS Form 8594 and supplemental forms for Earn-Out years.

(c) No inconsistent tax positions absent a final determination under IRC § 1313(a).

Section 7.04 — Golden Parachute Payments (IRC § 280G)

☐ (i) Gross-Up; ☐ (ii) Cutback; ☐ (iii) Shareholder Approval per Treas. Reg. § 1.280G-1, Q&A 7.

Section 7.05 — Florida State Tax Considerations

(a) No Personal Income Tax. Florida does not impose a personal income tax on individuals (Fla. Const. art. VII, § 5). Individual Sellers will not incur Florida state income tax on the Purchase Price or Earn-Out Payments.

(b) Florida Corporate Income/Franchise Tax. Florida imposes a corporate income tax at 5.5% on taxable income apportioned to Florida (Fla. Stat. § 220.11), with a $50,000 exemption (Fla. Stat. § 220.14). Corporate Sellers should consider the Florida corporate income tax treatment of gain from the sale.

(c) Florida Sales and Use Tax. The sale of tangible personal property in connection with an asset sale may be subject to Florida sales tax at 6% (Fla. Stat. § 212.05), plus applicable local surtax (up to 1.5%). The occasional or isolated sale exemption may apply under Fla. Stat. § 212.02(14)(c) for sales by persons not engaged in the business of selling such property.

(d) Documentary Stamp Tax. Florida imposes a documentary stamp tax under Fla. Stat. ch. 201 on certain documents and instruments:

• Documents transferring interest in real property: $0.70 per $100 of consideration (or fraction thereof) in all counties except Miami-Dade ($0.60 per $100 plus $0.45 surtax per $100);
• Promissory notes and written obligations to pay money: $0.35 per $100;
• If the Seller Note or any document of transfer involves Florida real property, documentary stamp tax may apply.

(e) Intangible Tax. Florida repealed the annual intangible personal property tax effective January 1, 2007. However, a one-time nonrecurring intangible tax of $0.20 per $100 applies to mortgages and liens on Florida real property (Fla. Stat. § 199.133).

(f) Reemployment Tax. If the Business has employees in Florida, the Parties should address the treatment of the seller's unemployment (reemployment) tax experience rating and whether it transfers with the Business under Fla. Stat. § 443.131.

PART VIII: STATE-SPECIFIC CONSIDERATIONS — FLORIDA

Section 8.01 — Florida Contract Law and Implied Covenant

(a) Tied to Express Terms. Florida's implied covenant of good faith and fair dealing requires a nexus to an express contractual obligation. There is no standalone cause of action for breach of the implied covenant in Florida absent the breach of an express contractual term. See QBE Ins. Corp. v. Chalfonte Condo. Apartment Ass'n, Inc., 94 So. 3d 541 (Fla. 2012).

(b) Cannot Alter Express Terms. The implied covenant cannot be used to override clear contract language or to create obligations that contradict the written terms of the agreement.

(c) Discretionary Provisions. The implied covenant is most useful when a contract grants a party discretionary authority without defined standards. In such cases, the party must exercise its discretion in good faith. This principle is directly applicable to earn-out provisions where Buyer has discretion over post-closing operations.

(d) Four-Year Statute of Limitations. A claim for breach of the implied covenant of good faith and fair dealing in Florida must be filed within four years under Fla. Stat. § 95.11(3)(o).

(e) Key Florida Precedent:

• Ins. Concepts & Design, Inc. v. Healthplan Servs., Inc., 785 So. 2d 1232 (Fla. 4th DCA 2001) — implied covenant protects reasonable expectations under express agreement;
• QBE Ins. Corp. v. Chalfonte Condo. Apartment Ass'n, Inc., 94 So. 3d 541 (Fla. 2012) — no standalone implied covenant claim absent breach of express term;
• Snow v. Ruden, McClosky, Smith, Schuster & Russell, P.A., 896 So. 2d 787 (Fla. 2d DCA 2005) — discussing scope of good faith obligation.

Section 8.02 — Statute of Limitations

(a) The statute of limitations for breach of a written contract under Florida law is five (5) years (Fla. Stat. § 95.11(2)(b)).

(b) The statute of limitations for breach of an oral contract under Florida law is four (4) years (Fla. Stat. § 95.11(3)(k)).

(c) The statute of limitations for breach of the implied covenant of good faith and fair dealing is four (4) years (Fla. Stat. § 95.11(3)(o)).

Section 8.03 — Choice of Law Considerations

(a) Florida courts generally enforce choice-of-law provisions in commercial contracts under the principles of the Restatement (Second) of Conflict of Laws.

(b) Florida follows the "most significant relationship" test of the Restatement in the absence of a valid choice-of-law clause.

(c) Many M&A transactions select Delaware law as the governing law. Florida courts will generally give effect to a Delaware choice of law if the transaction bears a reasonable relationship to Delaware.

(d) Florida documentary stamp tax and sales tax obligations may apply regardless of the choice-of-law provision if the transaction involves Florida property.

Section 8.04 — Florida Arbitration Framework

(a) Florida has adopted the Revised Florida Arbitration Code at Fla. Stat. § 682.01 et seq. Arbitration clauses in M&A agreements are generally enforceable.

(b) Under Fla. Stat. § 682.13, a court shall vacate an arbitration award on limited grounds, including corruption, fraud, evident partiality, or the arbitrator exceeding the scope of the submission.

(c) Florida courts strongly favor arbitration and will generally enforce arbitration agreements. See Seifert v. U.S. Home Corp., 750 So. 2d 633 (Fla. 1999).

PART IX: PRACTICE NOTES AND DRAFTING GUIDANCE

Section 9.01 — Key Drafting Considerations

☐ Define All Financial Metrics Precisely. Under Florida law, ambiguity may be construed against the drafter. Include detailed calculation methodologies and sample calculations.

☐ Specify the Efforts Standard. Specify "commercially reasonable efforts," "reasonable best efforts," or "best efforts." In Himawan v. Cephalon, Inc., C.A. No. 2021-0459-LWW (Del. Ch. Apr. 30, 2024), the court held that "commercially reasonable efforts" is measured objectively. In Airborne Health, Inc. v. Squid Soap, LP, C.A. No. 4410-VCL (Del. Ch. 2010), the court found no obligation to spend minimum amounts where the agreement did not expressly require it.

☐ Address Florida's Tied Implied Covenant. Because Florida requires the implied covenant to be tied to an express contractual obligation, Sellers should ensure that the Agreement includes detailed express operational covenants covering all material aspects of post-closing operations.

☐ Address Common Manipulation Scenarios. Expressly address revenue shifting, revenue recognition timing, pricing changes, management fees, and asset transfers.

☐ Coordinate with Indemnification. Determine setoff rights.

☐ Tax Planning. Florida's lack of personal income tax makes it an attractive jurisdiction for individual Sellers. However, documentary stamp tax on any promissory notes or real property transfers should be addressed.

☐ Security for Payment. Consider requiring escrow or letter of credit.

Section 9.02 — Florida-Specific Practice Considerations

☐ No Personal Income Tax. Florida's lack of personal income tax is a significant benefit for individual Sellers. Federal tax is the primary consideration.

☐ Documentary Stamp Tax. If the transaction involves a Seller Note or Florida real property, documentary stamp tax under Fla. Stat. ch. 201 applies. The tax on promissory notes is $0.35 per $100.

☐ Sales Tax on Asset Sales. Confirm whether Florida sales tax (6% plus local surtax) applies to the transfer of tangible personal property and whether the occasional sale exemption is available.

☐ Corporate Income Tax. Florida's corporate income tax at 5.5% (with a $50,000 exemption) applies to C corporations and certain other entities. S corporations and pass-through entities are generally exempt.

☐ Implied Covenant Limitations. Draft express operational covenants — do not rely on Florida's implied covenant as a standalone protection.

☐ Reemployment Tax. Address the transfer of unemployment (reemployment) tax experience rating.

☐ Homestead Protections. If Seller is an individual Florida resident, certain assets (including homestead property) may be exempt from creditor claims under Article X, Section 4 of the Florida Constitution.

Section 9.03 — Due Diligence Checklist for Earn-Out Provisions

☐ Historical financial statements for the applicable measurement period
☐ Sample working capital calculations and reference balance sheet
☐ Customer concentration analysis
☐ Key employee identification and retention risk assessment
☐ Pending or threatened litigation
☐ Material contracts with change-of-control provisions
☐ Insurance policies and coverage adequacy
☐ Capital expenditure history and requirements
☐ Related-party transaction analysis
☐ Tax structure analysis (S corp, C corp, partnership, LLC)
☐ Florida documentary stamp tax and sales tax review
☐ Florida reemployment tax experience rating

PART X: DEFINITIONS

Section 10.01 — Selected Definitions

"Acceleration Event" has the meaning set forth in Section 3.05.

"Accounting Principles" has the meaning set forth in Section 4.01.

"Affiliate" means, with respect to any Person, any other Person that directly or indirectly controls, is controlled by, or is under common control with, such Person.

"Business" means [________________________________].

"Business Day" means any day other than a Saturday, Sunday, or day on which commercial banks in Miami, Florida are authorized or required to be closed.

"Cash" means cash and cash equivalents of the Company as of the Effective Time, net of outstanding checks and including deposits in transit.

"Change of Control" means (i) any merger or consolidation where Buyer's equityholders hold less than [____]% of voting securities post-transaction, (ii) any sale of all or substantially all Buyer assets, or (iii) any acquisition of more than [____]% of Buyer's voting securities.

"Closing Indebtedness" means all outstanding: (i) borrowed money; (ii) capital lease obligations; (iii) letters of credit; (iv) deferred purchase price obligations; (v) guarantees; (vi) accrued interest; and (vii) prepayment premiums and breakage costs.

"Company" means [________________________________].

"Effective Time" means 11:59 p.m. (Eastern Time) on the Closing Date.

"Independent Accountant" has the meaning set forth in Section 6.01.

"Key Employees" means the individuals listed on Schedule [____].

"Net Working Capital" means Current Assets minus Current Liabilities per the Accounting Principles and Schedule [____], excluding Cash, Closing Indebtedness, and Transaction Expenses.

"Person" means any individual, corporation, partnership, LLC, trust, governmental authority, or other entity.

"Representatives" means officers, directors, managers, members, partners, employees, agents, advisors, and other representatives.

"Transaction Expenses" means all unpaid fees, costs, and expenses of the transactions, including: (i) professional advisory fees; (ii) change-in-control and transaction bonuses; (iii) employer payroll taxes; (iv) IRC § 280G gross-up amounts; and (v) [________________________________].

SOURCES AND REFERENCES

1. Florida Statutes:
   - Fla. Const. art. VII, § 5 (No Personal Income Tax)
   - Fla. Const. art. X, § 4 (Homestead Exemption)
   - Fla. Stat. § 95.11(2)(b) (Statute of Limitations — Written Contracts)
   - Fla. Stat. § 95.11(3)(k) (Statute of Limitations — Oral Contracts)
   - Fla. Stat. § 95.11(3)(o) (Statute of Limitations — Implied Covenant)
   - Fla. Stat. ch. 201 (Documentary Stamp Tax)
   - Fla. Stat. § 199.133 (Nonrecurring Intangible Tax)
   - Fla. Stat. § 212.02(14)(c) (Occasional Sale Exemption)
   - Fla. Stat. § 212.05 (Sales Tax)
   - Fla. Stat. § 220.11 (Corporate Income Tax)
   - Fla. Stat. § 220.14 (Corporate Income Tax Exemption)
   - Fla. Stat. § 443.131 (Reemployment Tax Experience Rating)
   - Fla. Stat. § 672.103 (Obligation of Good Faith — UCC)
   - Fla. Stat. § 682.01 et seq. (Revised Florida Arbitration Code)
   - Fla. Stat. § 687.02 (Usury)

2. Federal Tax Authorities:
   - IRC § 280G, § 338, § 453, § 453A, § 1060, § 4999
   - Treas. Reg. § 1.280G-1; § 1.338-4 through 1.338-7; § 1.1060-1; § 15a.453-1(c)
   - IRS Publication 537

3. Accounting Standards:
   - ASC 805 (Business Combinations)
   - ASC 480-10 (Distinguishing Liabilities from Equity)

4. Key Case Law:
   - Burnet v. Logan, 283 U.S. 404 (1931) (open transaction doctrine)
   - Ins. Concepts & Design, Inc. v. Healthplan Servs., Inc., 785 So. 2d 1232 (Fla. 4th DCA 2001) (implied covenant)
   - QBE Ins. Corp. v. Chalfonte Condo. Apartment Ass'n, Inc., 94 So. 3d 541 (Fla. 2012) (no standalone implied covenant claim)
   - Snow v. Ruden, McClosky, Smith, Schuster & Russell, P.A., 896 So. 2d 787 (Fla. 2d DCA 2005) (good faith scope)
   - Seifert v. U.S. Home Corp., 750 So. 2d 633 (Fla. 1999) (enforceability of arbitration)
   - Himawan v. Cephalon, Inc., C.A. No. 2021-0459-LWW (Del. Ch. Apr. 30, 2024) (commercially reasonable efforts)
   - Airborne Health, Inc. v. Squid Soap, LP, C.A. No. 4410-VCL (Del. Ch. 2010) (earn-out obligations)

5. Secondary Sources:
   - ABA Business Law Today, "The Ins and Outs of Earn-Outs: A Delaware Perspective" (March 2022)
   - Byron F. Egan, "Earnouts in M&A Transactions," Jackson Walker LLP (2020)
   - Jimerson Birr, "Breach of the Implied Covenant of Good Faith and Fair Dealing" (Florida analysis)

This template is provided by ezel.ai for informational purposes only and does not constitute legal advice. It must be reviewed and customized by a qualified attorney licensed in Florida before use. Laws and regulations change frequently; verify all citations before relying on them.