Purchase Agreement: Earn-Out with Milestones

by Practical Law Corporate & Securities

These Standard Clauses provide a framework for structuring earn-out provisions in a purchase agreement where contingent payments are tied to the achievement of specific milestones. Intended for use in private stock purchases, asset purchases, or mergers, these clauses outline the mechanics of milestone payments as part of the total consideration. The clauses address critical aspects such as the notification and payment process, the buyer's operational discretion post-closing, and the potential for a sale of the business during the earn-out period. Furthermore, these Standard Clauses explore the buyer's right of set-off against other amounts owed by the seller and include language designed to prevent the contingent payment rights from being classified as a security under US securities laws. Drafting notes offer valuable negotiating and drafting guidance for both buyers and sellers, incorporating recent market trends data from the American Bar Association (ABA) Business Law Section's Private Target Mergers & Acquisitions Deal Point Study.