Adams on Contract Drafting
Why Did This Contract Language Cause a Fight?
Last year someone—I’ll call him George—hired me to analyze for him a sentence in a contract.
George had sold his business. Part of the purchase price was to be paid in an earnout: after the closing of the sale, the buyer was to make up to three additional payments to George if in the three years after the closing of the transaction specified revenue targets were met. Revenues at the 12 Month Revenue Measurement Point (as defined in the contract) were determined to be 400 Spondulix (I don’t want to use actual amounts), and the buyer paid George the first Annual Earnout Payment. The buyer then told George that revenues in the second year of the three-year period were likely be approximately 100 Spondulix. George and the buyer got into a dispute over the second earnout payment.
Here’s the language at issue: