Earn-Out Protection Clause Samples
An Earn-Out Protection clause is designed to safeguard the interests of a seller in a transaction where part of the purchase price is contingent on the future performance of the business. This clause typically sets out specific mechanisms to ensure that the buyer does not take actions that would artificially reduce the business's performance metrics, such as diverting resources or changing accounting practices, which could negatively impact the earn-out payment. By establishing clear rules and restrictions, the clause helps prevent manipulation and ensures that the seller has a fair opportunity to achieve the agreed-upon earn-out targets, thereby protecting the value of their deferred compensation.
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Earn-Out Protection. (a) Purchaser agrees that in the period between Closing and the end of the GP Earn-Out Period, Purchaser will undertake, and cause the Acquired Companies to undertake, all actions in good faith and not designed to cause or permit anything to be done to avoid or reduce any Earn-Out Consideration; provided however, that the foregoing shall not prevent the Purchaser and/or the Acquired Companies from taking reasonable action(s) which are required to be taken considering the Purchaser’s and/or the Acquired Companies’ best interests and not designed to avoid or reduce any Earn-Out Consideration, even if they ultimately have such an impact, and if necessary, the Purchaser shall make, and shall cause the Acquired Companies to make their best commercial efforts to adopt and implement the necessary adjustments to preserve the Parties’ mutual intent to maximize the Acquired Companies’ EBITDA during Fiscal Year 2021, and their Gross Profit during Fiscal Year 2022. To the extent feasible and legally permissible, Purchaser shall notify the Selling Shareholders prior to any changes that are reasonably likely to have a material impact on the business of the Acquired Companies or the relevant EBITDA or the relevant Gross Profit, and the necessary adjustments that it shall take to preserve the Parties’ mutual intent as provided above. Subject to the foregoing, Purchaser agrees that the Acquired Companies will be operated during the Earn-Out Period in a manner consistent with the foregoing.
(b) Purchaser agrees that it shall satisfy the reasonable liquidity needs of the Business post-Closing in a manner consistent with the section entitled “Liquidity” of the business plan and budget for the same period disclosed to, and as they were approved in writing (including by E-mail) by, Purchaser.
(c) If Purchaser or its Affiliates take any of the following actions or cause or allow the Company to take any of the following actions without the prior written approval of the relevant Selling Shareholder (which approval shall not unreasonably be withheld) or without adopting and implementing the necessary adjustments to preserve the Parties’ mutual intent to achieve the Earn-Out Consideration despite such adjustments, then the provisions of clause 2.04(d) shall apply:
(1) Terminating the employment or significantly reducing the management authority of the executive members of the Management Team, or of the expected post-Closing replacement for Mr. [**] (the new sales lead), without Caus...
Earn-Out Protection. 3.4.1 The Buyer acknowledges that the Seller has an interest in receiving the highest possible amount of Earn Out Payment, and, as provided in this clause 3.4, shall not take, direct or indirectly, any action that is intended or has the effect of decreasing revenues or increasing expenses or that is out of the ordinary development of the business, unless such action is taken with the purpose of furthering the proper business interests of Buyer, but with the limits stated in clause 3.4.2 below. The obligations will apply until the end of the period used for calculating Year 2 EBITDA (the “Protection Period”). During the Protection Period, Buyer shall ensure that the principles set forth below are respected in the management of the MovilCarga Business (hereinafter, the “Earn Out Protection Principles”): • the MovilCarga Business will be managed in a prudent manner, consistent with past practices, except as necessary to operate it on a stand alone basis and to achieve successful integration of Buyer into the Euronet Group. With regards to this, provided that (i) this integration is beneficiary for the adequate development of the MovilCarga Business and (ii) provided that the expenses are at reasonably market prices; • all services rendered by, or commercial relationships with, any entities in the Euronet Group will be priced on market prices; • Buyer shall not be required to bear any expenses not properly attributed to it in accordance with GAAP, and in particular, the expenses of any other company in the Euronet Group; • Buyer will not incur SG&A costs at levels that are significantly higher than those of other Euronet Group companies. Seller acknowledges that Buyer will be required to incur expenses relating to accounting, legal and management resources as required to reinforce Buyer’s internal controls and procedures in conformity with the U.S. Sarbanes Oxley Act and introduce management reporting resources that are reasonably comparable to those in other Euronet Group companies. These Earn Out Protection Principles are listed just as examples but not as a close list, provided that eventual new protection principles follow the same spirit that the former ones, and, at least, that respect the following two criteria: (i) to facilitate the adequate development of MovilCarga Business and (ii) at market prices. In this regard, the termination of the Services Agreement with respect to certain services and the subsequent procurement of the services concerned at m...
Earn-Out Protection. The Purchaser hereby agrees and undertakes that save with the prior written consent of the Sellers’ Representative during the period:
5.1 from Completion to 31 March 2009 it will and will procure that the Company from time to time will:
(a) not alter the staffing levels within the Sales Function of the Company to any material extent;
(b) use commercially reasonable endeavours to maintain the same level of customer service and service quality as currently provided by the Company;
(c) not apply any group recharges to cost categories included within the earn-out mechanism which are not for services provided bona fide and at arm’s length by any member of the Purchaser’s Group to the Company;
(d) not procure foreign currency for the Company other than on arm’s length terms; and
(e) not do or omit to do anything being intended, calculated or designed to reduce the Earn-out Consideration, and
5.2 from Completion to 31 March 2008 it will and will procure that the Company from time to time will not:
(a) merge the Company with any other company or firm nor liquidate nor wind up the Company or sell the Shares in the Company otherwise than to a member of the Purchaser’s Group; or
(b) subject to changes related to or arising from the Purchaser’s status and/or the Company’s status as subsidiaries of a Delaware corporation registered with the United States Securities and Exchange Commission and listed on the New York Stock Exchange, make any material change in the Business. In this paragraph 5 of Part 2 of Schedule 1, references to “the Company” shall include any subsidiaries of the Company from time to time. Registered number: 3108359 Registered office: ▇▇▇▇▇▇▇ House, Sarus Court, ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇ Directors: ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇ Secretary: ▇▇▇▇▇ ▇▇▇▇▇▇ Accounting Reference Date: 30 March Charges: Venture Factors plc dated 29 March 1996 and registered on 30 March 1996 Barclays Bank plc dated 14 March 1997 and registered on 21 March 1997 Venture Finance Limited dated 24 December 2003 and registered on 31 December 2003 Bankers: Barclays Bank plc Authorised Share Capital: £100,000 Issued Share Capital: £25,000 21,250 A Shares of £1 each 2,499 B Shares of £1 each 1,249 C Shares of £1 each and 2 D Shares of £1 each
(A) At or prior to Completion, the Sellers shall procure Board meetings of the Company are held at which:
1. It shall be resolved that each of the transfers relating to the Shares...
Earn-Out Protection. 10.1 Euronet Group acknowledges that the Sellers have an interest in realizing the highest possible level of EBITDA in the third quarter of 2004. During the Protection Period, provided no Negative Deviation, as defined below, shall have occurred, the Sellers, in their capacity as managing directors of the Company, shall be permitted to manage the business of the Company so as to maximize such EBITDA, subject to the following principles:
10.1.1 The Sellers shall manage the business of the Company consistent with past practice and in accordance with the Business Plan.
10.1.2 Euronet Group shall not cause the Company to deviate from the Business Plan.
10.1.3 Buyer shall not take any action that could reasonably be expected to have an adverse impact on the financial performance of the Company as reflected in the Business Plan.
10.1.4 For purposes of this SPA, the term "Negative Deviation" shall mean a negative deviation of the realized aggregate EBITDA of the Company for the period from January 1, through April 30, 2004 ("Deviation Period I") determined on May 15, 2004 ("Deviation Date I") or for the period from May 1, through August 31, 2004, ("Deviation Period II") determined on September 15, 2004 ("Deviation Date II") compared with the planned aggregate EBITDA set out in the Business Plan for the financial year 2004 resolved by the shareholders (the "Business Plan EBITDA") for the respective Deviation Period on the respective Deviation Date of more than 25 (twenty-five) percent. To the extent any negative impact on the EBITDA of the Company is caused by a business measure to which at least one member of the Euronet Group consented, such negative impact shall be eliminated for the purpose of determining a Negative Deviation.
Earn-Out Protection. 6.1 The Purchaser acknowledges that, during the period from Completion to the expiry of the Second Earn-Out Period, subject to Paragraphs 6.1.4 and 6.2 to 6.3 and subject to the Business Plan and the budget for the Group and parameters and limitations set out in the Business Plan and such budget and the overriding controls of the Board and other controls of the Purchaser in respect of the actions in Paragraph 6.2:
6.1.1 ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ (together the Management) (in the case of each, while he remains employed by a Group Company) shall retain the day-to-day management of the Company’s products and expenses subject to the terms of their respective employment agreements with a Group Company and shall be free to employ, engage or terminate or vary the terms of employment or engagement of any person without the Purchaser’s prior written consent, but subject always to the parameters, restrictions and limitations set forth in the Business Plan and the budget for the Group from time to time;
6.1.2 all employees of the Group Companies shall continue to report to ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ (while he remains employed by a Group Company);
6.1.3 the Purchaser shall not terminate any member of Management from his employment with a Group Company without Cause; and
6.1.4 the Company shall operate on a standalone basis, separate from the businesses of the other members of the Purchaser’s Group. The Purchaser shall have the right to determine the composition of the board of directors of each Group Company and the parties agree that each Group Company and the Business shall be conducted in accordance with the Business Plan and on sound commercial profit making principles including (without limitation) to continue the Group’s focus on (a) pipeline titles, (b) engine development and (c) other research and development initiatives.
6.2 The Seller and each of the Guarantors shall procure that none of the Group Companies shall, without the prior written consent of the Purchaser and the Guarantors’ Representative, agree to, allow, effect or propose any of the following:
6.2.1 take any steps for the winding up, dissolution, liquidation or deregistration of any Group Company or for any Group Company to undergo any formal insolvency procedure;
6.2.2 incur any capital expenditure not agreed or any other expenditure during any period of a level in excess of the expenditure provided for that period in the Business Plan;
6.2.3 sell, li...
Earn-Out Protection. (a) The Purchaser undertakes and covenants to the Sellers that during the EBITDA Earn-Out Period, the GP Earn-Out Period and the Revenues Earn-Out Period (together the “Earn-Out Period”):
(1) the Business shall be supported and operated in accordance with bona fide commercial principles, including maintaining staffing and resource levels that are not materially less than those available to the Company at Closing and shall not, for the avoidance of doubt, divert core Company resources (including, but not limited to, R&D capability) to projects for the Purchaser Group that are entirely unrelated to Company or materially alter the work of members of the Management Team in a manner that it is reasonably foreseeable will have a detrimental impact on the Company’s ability to achieve its R&D contractual obligations to the Company’s customers (as in place at the Closing) which are necessary to achieve the EBITDA Target, the Gross Profit Target or the Revenues Target during the Earn-Out Period);
(2) notwithstanding the foregoing Section 2.04(a), no act on the part of the Purchaser or any members of the Purchaser Group shall take place where one of the main purposes of such act is to artificially reduce the likelihood of the EBITDA Target, the Gross Profit Target or the Revenues Target being met during the Earn-Out Period;
(3) save for a disposal by a member of the Purchaser’s Group to a third party of a business of which the Business comprises no more than 5%, there shall be no sale, transfer or disposal of the Company Shares, or any material part of the Business or assets of the Company to any person or entity outside the Purchaser Group without the Purchaser as part of such sale, disposal or transfer putting in place appropriate measures to ensure the obligations to the Sellers under this Section 2.04 shall be duly discharged;
(4) no material change shall be made to the scope or nature of the Business of the Company, as carried on at Closing, where such act or omission is intended to, or is reasonably likely to have the effect of, reducing the amount of the Earn-Out Consideration otherwise payable;
(5) it shall make all decisions regarding the operation of the Company and, particularly, any decision which will impact on the achievement of any of the EBITDA Target, the Gross Profit Target or the Revenues Target on the same basis and in accordance with such policies and procedures as would be applied to a similar decision made elsewhere within the Purchaser Group;
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