EBITDA clause: Copy, customize, and use instantly
Introduction
An EBITDA clause defines how EBITDA—earnings before interest, taxes, depreciation, and amortization—is calculated, reported, or used under an agreement. EBITDA is a common financial metric used to assess operational profitability, set performance targets, determine payouts, trigger earnouts, or support business valuation. Clear EBITDA clauses help both parties align on what counts toward EBITDA and how it affects the rights or obligations in a contract.
Below are templates for EBITDA clauses tailored to different scenarios. Copy, customize, and insert them into your agreement.
EBITDA clause with performance target threshold
Links financial or contractual outcomes to a minimum EBITDA level.
If [Party A] achieves an annual EBITDA of at least $1,000,000, [Party B] shall be entitled to a performance-based payment of $100,000, payable within 30 days of fiscal year-end.
EBITDA clause with bonus multiplier
Adds a performance-based multiplier tied to EBITDA growth.
If EBITDA exceeds the prior year’s figure by more than 15%, [Party B] shall receive a bonus of 1.2x their standard compensation or revenue share for the applicable period.
EBITDA clause with adjustment for extraordinary items
Protects EBITDA calculation from distortion by unusual events.
EBITDA shall be adjusted to exclude any extraordinary gains or losses, including asset write-downs, legal settlements, restructuring charges, or discontinued operations.
EBITDA clause with quarterly reporting requirement
Requires regular EBITDA disclosure to support transparency.
[Party A] shall provide a quarterly EBITDA report within 20 days of each quarter-end, accompanied by a breakdown of revenue, operating costs, and adjustments made.
EBITDA clause with audit verification rights
Allows review or audit of reported EBITDA figures.
[Party B] shall have the right to request an independent audit of EBITDA figures once per year to verify accuracy. If discrepancies exceed 5%, audit costs shall be borne by [Party A].
EBITDA clause with earnout payment trigger
Connects earnout payments directly to EBITDA performance.
If annual EBITDA exceeds $2,500,000, an earnout payment of $250,000 shall be made to [Party B], in accordance with the earnout schedule in Schedule A.
EBITDA clause with trailing twelve-month basis
Standardizes EBITDA calculation over a rolling time frame.
EBITDA shall be calculated on a trailing twelve-month basis to provide consistency in performance measurement and reduce volatility in payout decisions.
EBITDA clause with fixed adjustment schedule
Defines specific allowable adjustments to EBITDA.
EBITDA shall be adjusted by excluding (i) stock-based compensation, (ii) non-cash employee benefits, and (iii) foreign exchange gains or losses, as set out in Schedule B.
EBITDA clause with minimum margin requirement
Ties obligations to EBITDA as a percentage of revenue.
[Party A] shall maintain a minimum EBITDA margin of 15%. If the margin falls below this threshold for two consecutive quarters, the parties shall meet to review operational and financial terms.
EBITDA clause with variable compensation structure
Uses EBITDA as a basis for calculating incentive pay.
[Party B] shall receive variable compensation equal to 5% of annual EBITDA, payable within 30 days of fiscal year-end, based on audited financial statements.
EBITDA clause with declining adjustment scale
Gradually reduces permitted EBITDA adjustments over time.
Permitted EBITDA adjustments shall decline annually, with a maximum of 10% in Year 1, 7.5% in Year 2, and 5% in Year 3, to promote more accurate operational measurement.
EBITDA clause with cap on non-cash adjustments
Prevents over-adjustment through accounting entries.
Non-cash adjustments, including stock-based compensation and accrual reversals, shall not exceed 10% of EBITDA in any reporting period.
EBITDA clause with cumulative bonus trigger
Links multi-year EBITDA growth to a bonus payment.
If cumulative EBITDA over a three-year period exceeds $10,000,000, [Party B] shall receive a one-time performance bonus of $500,000.
EBITDA clause with currency normalization
Standardizes EBITDA reporting across multiple currencies.
All EBITDA figures shall be reported in USD using the exchange rate published by [Source] on the last business day of each quarter.
EBITDA clause with sector benchmarking
Compares reported EBITDA with market standards.
EBITDA shall be benchmarked annually against the median EBITDA margin for comparable businesses in the [industry] sector, as published by [Source].
EBITDA clause with escalation rights for underperformance
Triggers negotiation rights if EBITDA underperforms.
If EBITDA falls below $1,000,000 for two consecutive quarters, [Party B] may initiate renegotiation of service fees or terminate the agreement with 30 days’ notice.
EBITDA clause with forecast deviation penalty
Penalizes large gaps between projected and actual EBITDA.
If actual EBITDA deviates by more than 20% from forecast for two consecutive quarters, [Party A] shall provide a detailed variance report and corrective action plan.
EBITDA clause with fixed minimum contribution ratio
Requires EBITDA to represent a fixed share of revenue.
EBITDA must represent at least 20% of total revenue in any fiscal year. If this target is not met, performance-based compensation shall be reduced accordingly.
EBITDA clause with pre-distribution reserve
Holds back part of EBITDA before distribution.
10% of EBITDA shall be retained as a reserve before any profit-sharing or distributions are made, to ensure adequate working capital.
EBITDA clause with adjusted margin floor
Sets a baseline for operational efficiency.
EBITDA margin shall not fall below 15% without triggering a formal financial review between the parties.
EBITDA clause with fixed cost normalization
Removes variation in fixed operating costs from EBITDA.
EBITDA shall be normalized to exclude fluctuations in long-term lease payments, insurance premiums, and fixed overheads exceeding $100,000 per year.
EBITDA clause with rolling adjustment index
Smooths adjustments over time.
EBITDA adjustments shall be averaged over the previous three quarters to avoid spikes or distortions in one-time reporting periods.
EBITDA clause with revenue-linked adjustment cap
Links adjustments to top-line performance.
Total EBITDA adjustments in any period shall not exceed 15% of reported revenue for that period.
EBITDA clause with vendor pass-through exclusion
Excludes certain passthrough vendor costs.
EBITDA shall exclude any passthrough vendor expenses that are not directly related to the delivery of core services under this agreement.
EBITDA clause with fixed conversion formula
Standardizes calculation across multiple business units.
EBITDA shall be calculated using a standard formula across all divisions: Total revenue – cost of goods sold – operating expenses + non-cash charges.
EBITDA clause with reserve buffer for debt service
Allocates part of EBITDA to debt repayment reserve.
A minimum of 10% of EBITDA shall be allocated to a debt service reserve fund before any distributions are made to stakeholders.
EBITDA clause with sub-entity tracking
Tracks EBITDA for each operating division separately.
EBITDA shall be tracked and reported separately for each business unit or operating division listed in Schedule C.
EBITDA clause with penalty for over-adjustment
Discourages excessive or unjustified adjustments.
If EBITDA adjustments exceed 20% of operating profit in any quarter, [Party A] must justify the difference in writing or face a 2% fee deduction.
EBITDA clause with bonus multiplier on margin threshold
Rewards strong operational efficiency.
If EBITDA margin exceeds 25% in any quarter, [Party B] shall receive an additional bonus equal to 2% of EBITDA for that quarter.
EBITDA clause with tax shelter exclusion
Removes certain tax-motivated expenses.
Expenses incurred for tax shelter or deferral strategies shall be excluded from EBITDA adjustments to maintain a consistent operational performance measure.
EBITDA clause with post-acquisition normalization
Adjusts EBITDA following a change of control.
If [Party A] undergoes an acquisition, EBITDA shall be normalized by excluding any one-time acquisition-related costs for a period of 6 months.
EBITDA clause with defined reporting format
Standardizes how EBITDA data is presented.
All EBITDA reports shall follow the format outlined in Schedule D, including detailed line items, prior-period comparisons, and itemized adjustments.
EBITDA clause with margin-based revenue share
Links share payments to EBITDA performance.
[Party B] shall receive 15% of net revenue only if EBITDA margin exceeds 18% in the relevant period. Otherwise, a base share of 10% shall apply.
EBITDA clause with capital expenditure exclusion
Separates CapEx from EBITDA calculation.
Capital expenditures shall be excluded from EBITDA calculations and accounted for separately in the financial statements.
EBITDA clause with service-level penalty offset
Links poor service to EBITDA impact.
If service level targets are missed, an offset equal to 2% of EBITDA shall be withheld from performance-based payments for that quarter.
EBITDA clause with holdback until audit finalization
Delays payouts until EBITDA is confirmed.
Any EBITDA-based payments shall be held in reserve until final audit completion for the period, after which adjustments shall be applied as needed.
EBITDA clause with indexation for inflation
Normalizes EBITDA targets over time.
EBITDA targets shall be indexed annually using the Consumer Price Index (CPI) to account for inflation and preserve real performance benchmarks.
EBITDA clause with operating efficiency bonus
Rewards improved profitability.
If EBITDA margin improves by more than 5% compared to the prior quarter, [Party B] shall receive a 3% efficiency bonus on top of standard compensation.
EBITDA clause with EBITDA-based renewal trigger
Determines renewal eligibility based on performance.
This agreement shall be eligible for renewal only if [Party A] maintains an average EBITDA margin of at least 20% during the contract term.
EBITDA clause with quarterly reconciliation mechanism
Ensures timely correction of EBITDA calculation discrepancies.
EBITDA figures shall be reviewed and reconciled within 30 days of each quarter-end. Any discrepancies shall be adjusted in the following quarter’s statement.
EBITDA clause with working capital adjustment overlay
Adds context by pairing EBITDA with working capital metrics.
EBITDA shall be reviewed alongside changes in working capital. If net working capital decreases by more than 10%, adjusted EBITDA shall be reduced proportionally for payout purposes.
EBITDA clause with prior-year comparison threshold
Benchmarks performance against past results.
If EBITDA falls by more than 15% compared to the same quarter in the previous year, the parties shall initiate a financial performance review.
EBITDA clause with early warning notification trigger
Alerts stakeholders to sudden drops in EBITDA.
If EBITDA declines by 25% or more in any quarter, [Party A] must notify [Party B] in writing within five business days and provide an explanation and recovery plan.
EBITDA clause with dividend lockbox mechanism
Allocates a portion of EBITDA for dividends, held in escrow.
10% of quarterly EBITDA shall be placed in a lockbox account for future dividend distribution, subject to board approval.
EBITDA clause with deferred expense treatment
Clarifies treatment of expenses incurred in prior periods.
EBITDA shall include only current period expenses. Deferred expenses booked from earlier periods shall be excluded unless incurred under a pre-approved plan.
EBITDA clause with partner-based payout ratio
Links share of EBITDA to business unit contributions.
Each partner’s share of EBITDA shall be calculated based on that partner’s revenue contribution ratio, reviewed and updated annually.
EBITDA clause with technology investment exclusion
Separates growth-related tech spend from operating performance.
EBITDA shall exclude expenses directly related to long-term technology infrastructure investments and R&D projects approved by the board.
EBITDA clause with rolling revenue-to-EBITDA target
Tracks efficiency over time.
A rolling 12-month revenue-to-EBITDA ratio shall be calculated each quarter. If the ratio worsens by more than 10%, the parties must meet to review cost controls.
EBITDA clause with exit-triggered payout escalation
Enhances share upon business sale or IPO.
If a change of control or IPO occurs, [Party B] shall receive a one-time payment equal to 5% of average EBITDA over the trailing 24 months.
EBITDA clause with adjustment sunset clause
Limits use of discretionary adjustments.
Discretionary EBITDA adjustments shall be allowed only for the first 24 months of this agreement. Thereafter, adjustments must follow a fixed list in Schedule E.
EBITDA clause with procurement variance deduction
Captures cost overages from sourcing.
If procurement costs exceed budgeted amounts by more than 10%, excess amounts shall be deducted from EBITDA to reflect reduced operating efficiency.
EBITDA clause with bonus gatekeeper provision
Controls when EBITDA bonuses can be paid.
No performance bonus tied to EBITDA shall be paid unless customer satisfaction scores exceed 85% in the same quarter.
EBITDA clause with delayed revenue recognition adjustment
Accounts for timing gaps in revenue recognition.
EBITDA shall be adjusted to account for revenue recognized late due to contractual or invoicing delays that materially distort period performance.
EBITDA clause with EBITDA per employee metric
Links productivity with profitability.
A target EBITDA per full-time employee of $120,000 shall be maintained. Failure to meet this metric for two quarters triggers a review of workforce efficiency.
EBITDA clause with ratio-based debt covenant
Ties EBITDA to borrowing conditions.
The company shall maintain a debt-to-EBITDA ratio not exceeding 3.5x. Breach of this threshold shall trigger lender review and possible restructuring obligations.
EBITDA clause with pre-approval for addbacks
Requires sign-off for specific EBITDA adjustments.
Any non-recurring item added back to EBITDA must be pre-approved by both parties. Unapproved addbacks shall not be included in reported figures.
EBITDA clause with bonus tied to EBITDA CAGR
Rewards sustained growth over multiple years.
[Party B] shall receive a cumulative bonus if EBITDA compound annual growth rate (CAGR) exceeds 12% over a three-year measurement period.
EBITDA clause with governance-linked payout restriction
Restricts payments until governance conditions are met.
EBITDA-based payments shall be suspended until both parties complete internal governance milestones outlined in Schedule F.
EBITDA clause with EBITDA-to-cash conversion benchmark
Tracks how efficiently EBITDA turns into cash flow.
The business shall maintain an EBITDA-to-operating cash flow conversion rate of at least 80%. If conversion falls below this level, profit distributions may be suspended.
EBITDA clause with payout trigger tied to client profitability
Links EBITDA payouts to client-level margin.
EBITDA share shall only be distributed if average client profit margins exceed 25%, ensuring overall financial health is preserved.
EBITDA clause with escalation clause for missed targets
Increases payout percentage if previous-year target was missed and recovered.
If EBITDA fell short in the prior year but meets the current year’s target, an additional 3% bonus shall be applied to this year’s EBITDA payout.
EBITDA clause with peer performance adjustment
Adjusts share based on competitive benchmarks.
If EBITDA margin is below industry median by more than 10%, EBITDA-based incentives shall be reduced by 2% to reflect underperformance.
EBITDA clause with baseline operating cost assumption
Normalizes fixed cost impact on EBITDA.
EBITDA calculations shall assume a standard operating cost of $200,000 per month. Variances due to temporary cost spikes shall not impact the final EBITDA figure.
EBITDA clause with adjusted EBITDA for expansion
Uses adjusted EBITDA in growth-phase businesses.
EBITDA shall be adjusted to exclude new market entry costs and expansion-related marketing spend during the first 12 months of operation in any new territory.
EBITDA clause with early-stage override
Temporarily suspends EBITDA triggers during ramp-up.
During the first two quarters of the contract term, EBITDA-related payments shall be paused to allow for stabilization of operating performance.
EBITDA clause with incentive ceiling
Caps bonus payouts despite higher EBITDA.
EBITDA bonuses shall be capped at $250,000 annually, regardless of total EBITDA achieved, to preserve financial discipline.
EBITDA clause with post-period audit holdback
Protects against restatement risk.
10% of EBITDA-based payments shall be held in reserve for 90 days after period close, pending audit confirmation of reported figures.
EBITDA clause with internal cost allocation exclusion
Excludes internal transfers between departments.
Internal cost allocations between departments shall not be treated as deductions from EBITDA, ensuring accurate reflection of profitability.
EBITDA clause with milestone-adjusted thresholds
Alters EBITDA targets once milestones are hit.
Upon completion of Milestone 2 in Schedule G, EBITDA bonus thresholds shall increase by 20% to reflect revised business targets.
EBITDA clause with inflation-adjusted base year
Keeps historical comparisons meaningful.
All historical EBITDA benchmarks shall be adjusted annually using CPI to maintain accurate comparisons across periods.
EBITDA clause with defined "core operating EBITDA"
Refines the EBITDA definition to focus on core business.
“Core Operating EBITDA” means EBITDA excluding income from asset sales, joint ventures, and any one-time non-operating activities not related to the primary business function.
EBITDA clause with expense cap floor
Protects against over-inflated expenses.
Total deductible expenses shall not exceed 85% of revenue when calculating EBITDA. Excess costs shall be disallowed unless pre-approved.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.