San Francisco’s HandHeld Entertainment, said it has agreed to acquire eBaum’s World, an entertainment site offering user-generated videos, games, jokes, photos and other content.

HandHeld said it will pay $17.5 million for eBaum’s World at closing, including $15.0 million in cash, $5.0 million in common stock, which is subject to a $2.5 million one-year hold-back based on achievement of certain financial targets. In addition, HandHeld may pay earn-outs of up to $32.5 million ($17.5 million in stock and $15.0 million in cash) over three years to the owners of eBaum’s World, dependent on the achievement of certain financial and operational milestones of the purchased business.

From the statement:

Founded in 1998, eBaum’s World (www.eBaumsWorld.com) is one of the oldest and most successful user-generated content (UGC) sites in the world, generating approximately $5.2 million in revenue and $1.6 million in net income before income taxes in 2006. During the last 12 months, eBaum’s World served more than 2.5 billion unique page views and video streams, with an average time on site per user visit of more than 10 minutes. As a pioneer of viral video, eBaum’s World has helped shape the UGC market with its loyal following and growing community, becoming one of the world’s largest independent online publishers of humor-related content. The company has relationships with such leading media companies as AOL Video, Facebook, FOX Mobile and others.