PURCHASE PRICE ADJUSTMENT & EARN-OUT CLAUSE PACK

Closing Working Capital Adjustment (Sample)

• Target and Mechanic: The Purchase Price will be adjusted dollar-for-dollar to the extent Closing Net Working Capital differs from the Target Net Working Capital of $[TARGET].
• Definitions: Net Working Capital = Current Assets minus Current Liabilities, excluding Cash, Debt, and Transaction Expenses, calculated per GAAP as modified by Schedule [X] (sample statements and policies).
• Process: Buyer delivers Closing Statement within [X] days after Closing; Seller has [Y] days to review/objection; disputes to Independent Accountant; fee split 50/50.
• Payment: Any upward adjustment paid from escrow or by Buyer within [Z] days after final determination; downward adjustments paid from the adjustment escrow or directly by Seller.

Cash-Free, Debt-Free, and Transaction Expenses

Purchase Price assumes a cash-free, debt-free company at Closing; Buyer will net from the Purchase Price any Closing Debt and unpaid Transaction Expenses, as listed on the Funds Flow.

Earn-Out Mechanic (Revenue/EBITDA Variant)

• Performance Metric: Earn-Out based on [Revenue/EBITDA] for periods ending [DATE(S)] with thresholds and payouts set forth on Schedule [E].
• Covenants: Buyer will not take actions intended primarily to avoid Earn-Out; Buyer retains ultimate control of the business.
• Measurement and Reporting: Buyer provides Earn-Out Statement within [X] days after each Earn-Out Period; Seller has [Y] days to object; disputes to Independent Accountant.
• Cap/Acceleration: Total Earn-Out capped at $[CAP]; acceleration upon [CHANGE OF CONTROL/ASSET SALE] with payout mechanics specified.
• Setoff: Buyer may set off unresolved indemnity claims against Earn-Out amounts only after good-faith notice; consider escrow instead.

Independent Accountant Resolution

Disputed items submitted to an Independent Accountant jointly engaged by the parties; scope limited to disputed items; binds the parties absent manifest error; fees split equally unless the Accountant allocates otherwise.

Dispute Timeline (Sample)

• Buyer delivers Closing Statement within [X] days after Closing.
• Seller review/objection period: [Y] days from receipt (must include specific disputed items/amounts).
• If disputed items remain after [Z] days of negotiation, submit to Independent Accountant; decision within [W] days; bind parties.

Sample Definitions (Tailor)

• Closing Debt: all interest-bearing indebtedness, letters of credit (drawn/undrawn), capital leases, and accrued interest/fees.
• Transaction Expenses: unpaid fees/expenses of advisors, bonuses/change-in-control payments triggered by the transaction, 280G gross-ups (if any).
• Cash: cash and cash equivalents net of issued but uncleared checks (checks outstanding reduce Cash).

Working Capital Calculation Outline (Example)

• Line items per sample balance sheet on Schedule [X].
• Policies: GAAP applied consistently with the Reference Statement as of [DATE] (no new reserves/policies).
• Exclusions: Cash, Closing Debt, Transaction Expenses, income taxes payable/receivable related to pre-closing periods (unless otherwise agreed).
• Estimates: Inventory valued at lower of cost or market; AR net of specific reserves per Schedule [X].

State-Law Considerations (New York)

• Confirm New York law treatment of implied covenant obligations in earn-out covenants and any limits on setoff remedies.
• Align accountant determination provisions with New York law on expert determinations versus arbitration.

[// GUIDANCE: Align with escrow/holdback terms; ensure funds flow ties to these definitions; avoid conflicts with indemnity caps and baskets. Add earn-out remedy (limited injunctive relief, covenant to operate in good faith) if negotiated.]

[// GUIDANCE: Align with escrow/holdback terms; ensure funds flow ties to these definitions; avoid conflicts with indemnity caps and baskets.]