Earnout. (a) Within forty-five (45) days after the end of an Earnout Year, the Purchaser shall deliver to the Seller a statement (the “Earnout Statement”), together with reasonable supporting detail, showing the Purchaser’s good faith calculation for such Earnout Year of the (i) Gross Profit, (ii) Gross Profit Margin Percentage and (iii) resulting Earnout Amount. The Gross Profit and Gross Profit Margin Percentage shall be calculated in accordance with the policies, principles and procedures set forth on Exhibit F. (b) Subject to the Disclosure Limitations, the Seller and its Representatives shall be permitted reasonable access to review and obtain copies of the books and records of the Business and any work papers (subject to customary access letters and confidentiality undertakings) related to the preparation of the Earnout Statement. The Seller and its Representatives may make reasonable inquiries of the Purchaser and its accountants regarding questions or disagreements, and the Purchaser shall, and shall use its reasonable best efforts to cause any such accountants to, cooperate with and respond to such inquiries. At the request of the Seller, and subject to the Disclosure Limitations, the Purchaser shall make available its personnel who are knowledgeable about the information contained in, and the preparation of, the Earnout Statement, to the Seller to advise and assist the Seller in its review of the Earnout Statement and any objections or disputes with respect thereto. (c) Within thirty (30) days after delivery of the Earnout Statement to the Seller, if the Seller has any objections to the Earnout Statement, the Seller shall deliver to the Purchaser a statement setting forth its objections thereto (an “Earnout Objections Statement”). Any Earnout Objections Statement shall specify in reasonable detail the nature of any disagreement so asserted, the proposed correct amount for each such item and the resulting Earnout Amount. If an Earnout Objections Statement is not delivered to the Purchaser within thirty (30) days after delivery of the Earnout Statement to the Seller, the Earnout Statement shall be final, binding and non-appealable by the Parties. If an Earnout Objections Statement is properly and timely delivered, the portion of the Earnout Statement not subject to dispute pursuant to the Earnout Objections Statement shall be final, binding and non-appealable by the Parties. At any time during such thirty (30) day period, the Seller may deliver a written notice to the Purchaser stating that it agrees with the Earnout Statement and the Earnout Statement shall thereafter become final, binding and non-appealable by the Parties. The Seller and the Purchaser shall negotiate in good faith to resolve any objections in the Earnout Objections Statement, but if and to the extent they do not reach a final resolution within sixty (60) days after the delivery of the Earnout Objections Statement, the Seller and the Purchaser shall submit, within seventy five (75) days after the delivery of the Earnout Objections Statement, such dispute to the Valuation Firm for resolution. The Valuation Firm shall be instructed by the Seller and the Purchaser to render a determination of the applicable dispute (solely to the extent of such dispute) within thirty (30) days after submission of the matter to the Valuation Firm (or such longer period as mutually agreed in writing by the Purchaser and the Seller), which determination must be in writing and must set forth, in reasonable detail, the basis therefor, and include a certification that it reached such determination in accordance with the definitions as provided in this Agreement and Exhibit F. Any further submissions to the Valuation Firm must be written and delivered to each Party to the dispute. The Valuation Firm shall make a final determination of the Gross Profit, Gross Profit Margin Percentage and resulting Earnout Amount (solely to the extent such amounts or their components are in dispute) in accordance with the guidelines and procedures set forth in this Agreement and Exhibit F. The Valuation Firm shall determine, based solely on presentations by the Purchaser and the Seller and their respective Representatives, and not by independent review, only those issues in dispute specifically set forth on the Earnout Objections Statement, and shall act as an expert and not as an arbitrator. In resolving any disputed item, the Valuation Firm shall (i) be bound by the principles set forth in this Section 2.5 and (ii) not assign a value to any item in dispute that is greater than the greatest value for such disputed item claimed by any Party or less than the smallest value for such disputed item claimed by any Party. The Parties shall reasonably cooperate with the Valuation Firm during the term of its engagement, including by executing a customary engagement letter. Neither the Purchaser, the Seller nor any of their respective Affiliates or Representatives shall have any ex parte conversations or meetings with the Valuation Firm in connection with any dispute submitted by the Purchaser and/or the Seller to the Valuation Firm pursuant to this Section 2.5(c) without the prior consent of the other Party. The Valuation Firm’s determination of the Gross Profit, Gross Profit Margin Percentage and the resulting Earnout Amount with respect to an Earnout Year shall, in each case in the manner contemplated by this Section 2.5, become final and binding on the Parties on the date the Valuation Firm delivers its final resolution in writing to the Seller and the Purchaser, absent manifest error or fraud. The costs and expenses of the Valuation Firm shall be allocated between the Purchaser, on the one hand, and the Seller, on the other hand, in the same proportion that (x) the absolute value of the difference between the value of the Earnout Amount asserted by the Purchaser and the value of the Earnout Amount determined by the Valuation Firm bears to (y) the absolute value of the difference between the value of the Earnout Amount asserted by the Seller and the value of the Earnout Amount determined by the Valuation Firm. For example, if the Seller submits an Earnout Objections Statement to the Valuation Firm that states that the Earnout Amount should be $2,000 while the Purchaser asserts in the written presentation to the Valuation Firm that the Earnout Amount should be $1,000, and the Valuation Firm ultimately resolves that the Earnout Amount should be $1,200, then the costs and expenses of the Valuation Firm will be allocated 20% to the Purchaser and 80% to the Seller. (d) Once the Earnout Amount for an Earnout Year has been finally determined in accordance with Section 2.5(c) and such Earnout Amount is not zero, the Purchaser shall no later than eight (8) Business Days following such determination, deliver or cause to be delivered to Seller the number of Purchaser Shares payable as the Earnout Stock Consideration for such Earnout Year, provided that if any portion of the Earnout Amount is subject to a pending claim for indemnification by the Purchaser under Section 9.1(a) and Section 9.4(d), such portion of the Earnout Amount shall only be paid eight (8) Business Days following the final resolution of such claim and only to the extent not used to offset the amount required to be paid by the Seller under Section 9.1(a) with respect to such claim. For the avoidance of doubt, no payment of Purchaser Shares shall be due with respect to an Earnout Year if the Earnout Amount for such Earnout Year is zero. (e) The Parties understand and agree that (i) the contingent rights to receive an Earnout Amount shall not be represented by any form of certificate or other instrument, are not transferable, and do not constitute an equity or ownership interest in the Purchaser or any of its Affiliates; (ii) the Seller shall not have any rights as a security-holder of the Purchaser as a result of the Seller’s contingent right to receive any Earnout Amount; and (iii) no interest is payable with respect to any Earnout Amount. (f) Any amount paid pursuant to this Section 2.5 shall be treated for all Tax purposes as additional consideration paid for the Company Shares pursuant to this Agreement, except (i) for any portion treated as imputed interest and (ii) to the extent otherwise required pursuant to a “determination” within the meaning of Section 1313(a) of the Code (or any similar provisions of state, local or foreign Law). (g) Subsequent to the Closing and until the end of FY 2028, the Purchaser shall use its commercially reasonable efforts to maintain and preserve in all material respects the material third-party customer relationships and material Intellectual Property of the Business existing as of the Closing Date (other than expiration of registered Intellectual Property in accordance with their terms). Without limiting the foregoing, (x) during the period from the Closing Date through the final determination of the Earnout Amount for FY 2028, the Purchaser shall maintain the records of the Business in a manner permitting preparation of the Earnout Statements and the Quarterly Gross Profit Statements accurately in all material respects in order to allow for the good faith calculation of the Earnout Amount and its components, including by following the policies, principles and procedures set forth on Exhibit F; (y) during the period from the Closing Date through the end of FY 2028, the Purchaser shall (i) not take any action in bad faith, the primary intent or primary purpose of which is to avoid or reduce the amount of any Earnout Amount, including in bad faith accelerating or delaying the shipping of Specified Products or recognition of any revenues of the Business from one Earnout Year to another or following the end of the last Earnout Year; and (ii) use commercially reasonable efforts to provide reasonably adequate staffing and working capital for the conduct of the Business; and (z) during the period from the Closing Date through the earlier of (i) the payment of the Earnout Amount for FY 2028 or (ii) the final determination that no Earnout Amount is payable for FY 2028, the Purchaser shall not enter into (or permit any Subsidiary of the Purchaser to enter into) any agreement or arrangement that would prevent the Purchaser from paying the Earnout Amount in accordance with this Agreement. (h) The Purchaser shall deliver or cause to be to be delivered to the Seller, within forty-five (45) days after the end of each fiscal quarter of an Earnout Year (other than the last fiscal quarter of such Earnout Year), a statement (the “Quarterly Gross Profit Statement”) setting forth the Purchaser’s calculation of Gross Profit for such fiscal quarter in reasonable detail, and, subject to the Disclosure Limitations, the Purchaser agrees to promptly provide such supporting documentation as the Seller may reasonably request to review the Purchaser’s calculation of the Gross Profit for such quarter. (i) Any information provided to or obtained by the Seller pursuant to this Section 2.5 shall be deemed to be Confidential Information. (j) The fiscal years of the Business for any Earnout Year and any fiscal quarter of the Business for any Earnout Year shall be based on the 4-4-5 accounting calendar that is used by the Purchaser, including as specified in the definitions of FY 2027 and FY 2028. (k) Seller agrees to distribute the net proceeds of (i) 100% of any Earnout Amount in respect of FY 2027 (including the 2027 Catch-Up Amount, if any) to its members in accordance with the distribution provisions in the Seller’s Organizational Documents and (ii) 50% of any Earnout Amount in respect of FY 2028 (excluding, for avoidance of doubt, the 2027 Catch-Up Amount, if any) to The Resolute Fund IV, L.P. and the other 50% of any Earnout Amount in respect of FY 2028 (excluding, for avoidance of doubt, the 2027 Catch-Up Amount, if any) to Business Employee Equityholders, in each case of this clause (ii), in accordance with the distribution provisions in the Seller’s Organizational Documents. For purposes of the prior sentence, “Seller’s Organizational Documents” means Seller’s Organizational Documents as of the date of this Agreement, as they may be amended to implement the Earnout Arrangement in accordance with the terms of this Agreement and the terms set forth in Exhibit H.
Appears in 1 contract
Sources: Purchase and Sale Agreement (Motorola Solutions, Inc.)
Earnout. (a) Within fortyNo later than seventy-five (4575) days after following the end of an the period beginning on January 1, 2026 and ending on December 31, 2026 (the “Earnout YearMeasurement Period”), the Purchaser Acquiror shall deliver to the Seller API Representative a written statement (such statement, the “Earnout Statement”) setting forth its good faith calculation of (i) the Included FRR and the components thereof and (ii) the applicable Earnout Amount resulting therefrom, if any (the “Proposed Earnout Amount”), in each case, as calculated in accordance with this Agreement, and together with reasonable supporting detail, showing documentation for the Purchaser’s good faith calculation for such Earnout Year of the (i) Gross Profit, (ii) Gross Profit Margin Percentage and (iii) resulting Earnout Amountthereof. The Gross Profit and Gross Profit Margin Percentage Acquiror shall be calculated in accordance with the policies, principles and procedures set forth on Exhibit F.
(b) Subject to the Disclosure Limitations, the Seller and its Representatives shall not be permitted reasonable access to review and obtain copies of the books and records of the Business and any work papers (subject to customary access letters and confidentiality undertakings) related to the preparation of the Earnout Statement. The Seller and its Representatives may make reasonable inquiries of the Purchaser and its accountants regarding questions or disagreements, and the Purchaser shall, and shall use its reasonable best efforts to cause any such accountants to, cooperate with and respond to such inquiries. At the request of the Seller, and subject to the Disclosure Limitations, the Purchaser shall make available its personnel who are knowledgeable about the information contained in, and the preparation of, the Earnout Statement, to the Seller to advise and assist the Seller in its review of amend the Earnout Statement and any objections or disputes with respect thereto.
(c) Within thirty (30) days after following its delivery of the Earnout Statement to the SellerAPI Representative. For illustrative purposes only, if the Seller has any objections to the Earnout Statement, the Seller shall deliver to the Purchaser attached hereto as Schedule 2.7(a) is a statement setting forth its objections thereto (an “Earnout Objections Statement”). Any Earnout Objections Statement shall specify in reasonable detail the nature sample calculation of any disagreement so asserted, the proposed correct amount for each such item Included FRR and the resulting Earnout Amount. , using the assumptions set forth therein.
(b) If an Earnout Objections Statement is not delivered to the Purchaser within thirty (30) days after delivery API Representative disagrees with any part of Acquiror’s calculations in the Earnout Statement to the Seller(an “Earnout Dispute”), the Earnout Statement shall be final, binding and non-appealable by the Parties. If an Earnout Objections Statement is properly and timely delivered, the portion of the Earnout Statement not subject to dispute pursuant to the Earnout Objections Statement shall be final, binding and non-appealable by the Parties. At any time during such thirty (30) day period, the Seller may deliver a written notice to the Purchaser stating that it agrees with the Earnout Statement and the Earnout Statement shall thereafter become final, binding and non-appealable by the Parties. The Seller and the Purchaser shall negotiate in good faith to resolve any objections in the Earnout Objections Statement, but if and to the extent they do not reach a final resolution within sixty (60) days after the delivery of the Earnout Objections Statement, the Seller and the Purchaser shall submit, within seventy five (75) days after the delivery of the Earnout Objections Statement, such dispute to the Valuation Firm for resolution. The Valuation Firm shall be instructed by the Seller and the Purchaser to render a determination of the applicable dispute (solely to the extent of such dispute) within thirty (30) days after submission of the matter to the Valuation Firm (or such longer period as mutually agreed in writing by the Purchaser and the Seller), which determination must be in writing and must set forth, in reasonable detail, the basis therefor, and include a certification that it reached such determination in accordance with the definitions as provided in this Agreement and Exhibit F. Any further submissions to the Valuation Firm must be written and delivered to each Party to the dispute. The Valuation Firm shall make a final determination of the Gross Profit, Gross Profit Margin Percentage and resulting Earnout Amount (solely to the extent such amounts or their components are in dispute) in accordance with the guidelines and procedures set forth in this Agreement and Exhibit F. The Valuation Firm shall determine, based solely on presentations by the Purchaser and the Seller and their respective Representatives, and not by independent review, only those issues in dispute specifically set forth on the Earnout Objections Statement, and shall act as an expert and not as an arbitrator. In resolving any disputed item, the Valuation Firm shall (i) be bound by the principles set forth in this Section 2.5 and (ii) not assign a value to any item in dispute that is greater than the greatest value for such disputed item claimed by any Party or less than the smallest value for such disputed item claimed by any Party. The Parties shall reasonably cooperate with the Valuation Firm during the term of its engagement, including by executing a customary engagement letter. Neither the Purchaser, the Seller nor any of their respective Affiliates or Representatives shall have any ex parte conversations or meetings with the Valuation Firm in connection with any dispute submitted by the Purchaser and/or the Seller to the Valuation Firm pursuant to this Section 2.5(c) without the prior consent of the other Party. The Valuation Firm’s determination of the Gross Profit, Gross Profit Margin Percentage and the resulting Earnout Amount with respect to an Earnout Year API Representative shall, in each case in the manner contemplated by this Section 2.5, become final and binding on the Parties on the date the Valuation Firm delivers its final resolution in writing to the Seller and the Purchaser, absent manifest error or fraud. The costs and expenses of the Valuation Firm shall be allocated between the Purchaser, on the one hand, and the Seller, on the other hand, in the same proportion that (x) the absolute value of the difference between the value of the Earnout Amount asserted by the Purchaser and the value of the Earnout Amount determined by the Valuation Firm bears to (y) the absolute value of the difference between the value of the Earnout Amount asserted by the Seller and the value of the Earnout Amount determined by the Valuation Firm. For example, if the Seller submits an Earnout Objections Statement to the Valuation Firm that states that the Earnout Amount should be $2,000 while the Purchaser asserts in the written presentation to the Valuation Firm that the Earnout Amount should be $1,000, and the Valuation Firm ultimately resolves that the Earnout Amount should be $1,200, then the costs and expenses of the Valuation Firm will be allocated 20% to the Purchaser and 80% to the Seller.
(d) Once the Earnout Amount for an Earnout Year has been finally determined in accordance with Section 2.5(c) and such Earnout Amount is not zero, the Purchaser shall no later than eight (8) Business Days following such determination, deliver or cause to be delivered to Seller the number of Purchaser Shares payable as the Earnout Stock Consideration for such Earnout Year, provided that if any portion of the Earnout Amount is subject to a pending claim for indemnification by the Purchaser under Section 9.1(a) and Section 9.4(d), such portion of the Earnout Amount shall only be paid eight (8) Business Days following the final resolution of such claim and only to the extent not used to offset the amount required to be paid by the Seller under Section 9.1(a) with respect to such claim. For the avoidance of doubt, no payment of Purchaser Shares shall be due with respect to an Earnout Year if the Earnout Amount for such Earnout Year is zero.
(e) The Parties understand and agree that (i) the contingent rights to receive an Earnout Amount shall not be represented by any form of certificate or other instrument, are not transferable, and do not constitute an equity or ownership interest in the Purchaser or any of its Affiliates; (ii) the Seller shall not have any rights as a security-holder of the Purchaser as a result of the Seller’s contingent right to receive any Earnout Amount; and (iii) no interest is payable with respect to any Earnout Amount.
(f) Any amount paid pursuant to this Section 2.5 shall be treated for all Tax purposes as additional consideration paid for the Company Shares pursuant to this Agreement, except (i) for any portion treated as imputed interest and (ii) to the extent otherwise required pursuant to a “determination” within the meaning of Section 1313(a) of the Code (or any similar provisions of state, local or foreign Law).
(g) Subsequent to the Closing and until the end of FY 2028, the Purchaser shall use its commercially reasonable efforts to maintain and preserve in all material respects the material third-party customer relationships and material Intellectual Property of the Business existing as of the Closing Date (other than expiration of registered Intellectual Property in accordance with their terms). Without limiting the foregoing, (x) during the period from the Closing Date through the final determination of the Earnout Amount for FY 2028, the Purchaser shall maintain the records of the Business in a manner permitting preparation of the Earnout Statements and the Quarterly Gross Profit Statements accurately in all material respects in order to allow for the good faith calculation of the Earnout Amount and its components, including by following the policies, principles and procedures set forth on Exhibit F; (y) during the period from the Closing Date through the end of FY 2028, the Purchaser shall (i) not take any action in bad faith, the primary intent or primary purpose of which is to avoid or reduce the amount of any Earnout Amount, including in bad faith accelerating or delaying the shipping of Specified Products or recognition of any revenues of the Business from one Earnout Year to another or following the end of the last Earnout Year; and (ii) use commercially reasonable efforts to provide reasonably adequate staffing and working capital for the conduct of the Business; and (z) during the period from the Closing Date through the earlier of (i) the payment of the Earnout Amount for FY 2028 or (ii) the final determination that no Earnout Amount is payable for FY 2028, the Purchaser shall not enter into (or permit any Subsidiary of the Purchaser to enter into) any agreement or arrangement that would prevent the Purchaser from paying the Earnout Amount in accordance with this Agreement.
(h) The Purchaser shall deliver or cause to be to be delivered to the Seller, within forty-five (45) days after its receipt of the end Earnout Statement (the “Earnout Dispute Period”), notify Acquiror in writing of such disagreement (an “Earnout Dispute Notice”). The Earnout Dispute Notice shall specify with reasonable detail which aspects of the calculation of the Earnout Statement, including the amount of Included FRR and the resulting Earnout Amount, are being disputed and describe the basis for and amount of such dispute, and the API Representative’s alternative calculation, in reasonable detail, of such amounts, and any other information applicable to such Earnout Dispute. The API Representative shall not be permitted to amend the Earnout Dispute Notice following its delivery to the Acquiror.
(c) Following the delivery of the Earnout Statement until the determination of the Final Earnout Amount, the Acquiror Parties shall, and shall cause the Company Group Entities and any other Persons comprising the Acquired Management Business (the “Acquired Management Business Entities”), and their respective other Affiliates and representatives to, reasonably cooperate with the API Representative and its representatives solely to assist with their review of the Earnout Statement and the calculations therein, including of the Proposed Earnout Amount, including by (i) permitting the API Representative and its representatives to have reasonable access to the books, records and other documents (including work papers, schedules, financial statements, memoranda, etc.) of the Acquiror Parties, the Acquired Management Business Entities and their respective Affiliates and representatives, reasonably cooperating with the API Representative in seeking to obtain work papers from the Acquiror Parties, the Acquired Management Business Entities and their respective other Affiliates and representatives, in each fiscal quarter case, to the extent pertaining to or used in connection with the preparation of an Earnout Year such documents and providing the API Representative and its representatives with copies thereof (as reasonably requested by the API Representative) and (ii) providing the API Representative and its representatives reasonable access to the employees and accountants of the Acquiror Parties, the Acquired Management Business Entities and their respective Affiliates as reasonably requested by the API Representative; provided, that, in each case, such access shall (A) be conducted during normal business hours and under the supervision of personnel of Acquiror or its Affiliates (other than the last fiscal quarter Company Group Entities), (B) be conducted in a manner not to unreasonably interfere with the businesses or operations of Acquiror or its Affiliates (including the Acquired Management Business Entities), (C) comply with all applicable Laws, including those regarding the exchange of competitively sensitive information and (D) be subject to API Representative’s and its representatives’ execution of customary access letters which contain, among other things, a non-reliance provision. Notwithstanding anything herein to the contrary, no such access shall be permitted to the extent that it would require the Acquiror or any of the Acquired Management Business Entities to disclose information that is subject to attorney-client privilege or for which disclosure is prohibited by the terms of any Contract or applicable Law; provided, that the Acquiror Parties shall, and shall cause their respective Affiliates (including the Acquired Management Business Entities) to, use their respective commercially reasonable efforts to permit such access and disclosure in a manner that does not violate any such Contract, Law or attorney-client or other privilege. If the API Representative does not deliver an Earnout Dispute Notice to Acquiror prior to the end of the Earnout Dispute Period, then such Earnout Year)Statement shall be conclusive, a statement final and binding on the API Entities and Acquiror (and all other Parties) in the “Quarterly Gross Profit Statement”) setting forth the Purchaser’s calculation of Gross Profit for such fiscal quarter form in reasonable detail, and, subject which it was delivered to the Disclosure Limitations, the Purchaser agrees to promptly provide API Representative and such supporting documentation as the Seller may reasonably request to review the Purchaser’s calculation of the Gross Profit for such quarter.
(i) Any information provided to or obtained by the Seller pursuant to this Section 2.5 Proposed Earnout Amount shall be deemed to be Confidential Informationthe “Final Earnout Amount”. The API Representative may, at any time prior to the last day of such Earnout Dispute Period, notify Acquiror that such party agrees with the Earnout Statement, and upon such notification from the API Representative, the Proposed Earnout Amount shall be deemed to be the “Final Earnout Amount”.
(jd) The fiscal years of If an Earnout Dispute Notice is timely delivered by the Business for any API Representative to Acquiror, the API Representative, on the one hand, and Acquiror, on the other hand, shall negotiate in good faith to resolve such Earnout Year Dispute and any fiscal quarter of the Business for any Earnout Year such resolution agreed upon in writing shall be based conclusive and binding on the 4-4-5 accounting calendar API Entities and Acquiror (and all other Parties). In the event that is used by the PurchaserAPI Representative and Acquiror are unable to resolve such Earnout Dispute within thirty (30) days after Acquiror’s receipt of such timely delivered Earnout Dispute Notice, including either the API Representative or Acquiror, as specified in applicable, may submit such Earnout Dispute to the definitions of FY 2027 and FY 2028.
(k) Seller agrees to distribute Accounting Expert. For the net proceeds of (i) 100% of any Earnout Amount in respect of FY 2027 (including the 2027 Catch-Up Amount, if any) to its members in accordance with the distribution provisions in the Seller’s Organizational Documents and (ii) 50% of any Earnout Amount in respect of FY 2028 (excluding, for avoidance of doubt, items and amounts not objected to by the 2027 Catch-Up Amount, if anyAPI Representative in the Earnout Dispute Notice shall be deemed resolved and shall not be submitted to the Accounting Expert.
(e) to The Resolute Fund IV, L.P. Acquiror and the other 50% API Representative shall use commercially reasonable efforts to cause, and shall instruct, the Accounting Expert to resolve all Earnout Disputes as soon as practicable, but in any event shall direct the Accounting Expert to render a determination within thirty (30) days after its retention. The Accounting Expert, acting as an expert and not as an arbitrator, shall consider only those items and amounts in Acquiror’s or API Representative’s respective calculations of any the Earnout Statement, as applicable, including the amount of Included FRR and the Earnout Amount resulting therefrom, that are identified as being items and amounts to which Acquiror or the API Representative, as applicable, have been unable to agree in respect of FY 2028 (excluding, for avoidance of doubtwriting. In resolving any disputed item, the 2027 Catch-Up AmountAccounting Expert may not assign a value to any item greater than the greatest value for such item claimed by either Acquiror or the API Representative or less than the smallest value for such item claimed by either Acquiror or the API Representative. The Accounting Expert’s determination shall be based solely on written materials submitted by the API Representative and Acquiror and their respective representatives, if anyas applicable (a copy of which shall be delivered to Acquiror or the API Representative, as applicable, substantially concurrently with delivery to the Accounting Expert) to Business Employee Equityholders(i.e., in each case not on independent review), and on the terms of this clause Section 2.7. The determination of the Accounting Expert shall be conclusive and binding upon the Parties and shall not be subject to appeal or further review (iiother than with respect to errors in arithmetic calculations), in accordance with the distribution provisions in the Seller’s Organizational Documents. For purposes of the prior sentence, “Seller’s Organizational Documents” means Seller’s Organizational Documents as of the date of this Agreement, a “Final Earnout Amount” shall mean a Proposed Earnout Amount as they may be amended finally determined pursuant to implement the Earnout Arrangement this Section 2.7 or as otherwise agreed in accordance with the terms of this Agreement writing by Acquiror and the terms set forth in Exhibit H.API Representative.
Appears in 1 contract
Sources: Transaction Agreement (TPG Inc.)
Earnout. The Earnout Amount shall be calculated, determined and paid in the following manner:
(a) Within forty-five (45) 90 days after the end of an the Earnout YearPeriod, the Purchaser Buyer shall prepare in good faith and deliver to the Seller a written statement showing in reasonable detail the calculation of EBITDA for the Earnout Period and the Earnout Amount payable, if any (the “Earnout Statement”), together with reasonable supporting detail, showing the Purchaser’s good faith calculation for such Earnout Year of the (i) Gross Profit, (ii) Gross Profit Margin Percentage and (iii) resulting Earnout Amount. The Gross Profit and Gross Profit Margin Percentage shall be calculated in accordance with the policies, principles and procedures set forth on Exhibit F..
(b) Subject In the event of any objection by Seller with respect to the Disclosure Limitationsdetermination of the EBITDA or the Earnout Amount payable for the Earnout Period, Seller shall, within 60 days after its receipt of the Earnout Statement, give written notice to Buyer of such objection showing in reasonable detail the calculation thereof (an “Earnout Dispute Notice”). Buyer and Seller shall thereafter attempt to amicably resolve any disputed items set forth in the Earnout Dispute Notice. If Seller does not timely deliver an Earnout Dispute Notice, then the calculation of the EBITDA and the Earnout Amount payable for the Earnout Period as set forth in the Earnout Statement shall be deemed to have been accepted and shall be final and binding on all parties hereto.
(c) If, for any reason, Buyer and Seller cannot resolve any disputed items indicated in the Earnout Dispute Notice within 30 days of the date of delivery of the Earnout Dispute Notice, then such unresolved items (“Earnout Disputes”) shall be resolved by the Accountant in the manner provided in Section 2.3(c) above, mutatis mutandis, except as modified herein. The Accountant shall issue a written report which shall include a revised Earnout Statement as adjusted (i) pursuant to any resolutions to objections agreed upon by Buyer and Seller and its Representatives (ii) pursuant to the Accountant’s resolution of the unresolved objections. The Accountant shall review only those matters specified in the unresolved objections and shall make no changes to the Earnout Statement, except as are required to resolve the unresolved objections. The award of the Accountant shall set out the final Earnout Statement, shall be permitted reasonable access final and binding on all parties hereto, and may be enforced in any court of competent jurisdiction. The parties agree that the procedure set forth in this Section 2.8 for resolving disputes with respect to review the Earnout Statement shall be the sole and obtain copies of the books and records of the Business and exclusive method for resolving any work papers such disputes.
(subject to customary access letters and confidentiality undertakingsd) related to In connection with the preparation of the Earnout Statement. The Seller , and its Representatives may make reasonable inquiries until the final resolution of the Purchaser and its accountants regarding questions or disagreementsEarnout Statement, and the Purchaser Buyer shall, and shall use cause the Company and its reasonable best efforts to cause any such accountants Subsidiaries to, (A) provide Seller and its authorized Representatives with reasonable access to the relevant books and records, Buyer’s and its accountants’ work papers, schedules and other supporting data, facilities and employees as may reasonably be requested by Seller; and (B) otherwise reasonably cooperate with Seller and respond to such inquiries. At its authorized Representatives, including by providing on a timely basis information reasonably necessary or useful in the request determination of the Seller, calculations and subject to the Disclosure Limitations, the Purchaser shall make available its personnel who are knowledgeable about the information contained in, and the preparation of, amounts set forth in the Earnout Statement, to the Seller to advise and assist the Seller in its review of the Earnout Statement and any objections or disputes with respect thereto.
(c) Within thirty (30) days after delivery of the Earnout Statement to the Seller, if the Seller has any objections to the Earnout Statement, the Seller shall deliver to the Purchaser a statement setting forth its objections thereto (an “Earnout Objections Statement”). Any Earnout Objections Statement shall specify in reasonable detail the nature of any disagreement so asserted, the proposed correct amount for each such item and the resulting Earnout Amount. If an Earnout Objections Statement is not delivered to the Purchaser within thirty (30) days after delivery of the Earnout Statement to the Seller, the Earnout Statement shall be final, binding and non-appealable by the Parties. If an Earnout Objections Statement is properly and timely delivered, the portion of the Earnout Statement not subject to dispute pursuant to the Earnout Objections Statement shall be final, binding and non-appealable by the Parties. At any time during such thirty (30) day period, the Seller may deliver a written notice to the Purchaser stating that it agrees with the Earnout Statement and the Earnout Statement shall thereafter become final, binding and non-appealable by the Parties. The Seller and the Purchaser shall negotiate in good faith to resolve any objections in the Earnout Objections Statement, but if and to the extent they do not reach a final resolution within sixty (60) days after the delivery of the Earnout Objections Statement, the Seller and the Purchaser shall submit, within seventy five (75) days after the delivery of the Earnout Objections Statement, such dispute to the Valuation Firm for resolution. The Valuation Firm shall be instructed by the Seller and the Purchaser to render a determination of the applicable dispute (solely to the extent of such dispute) within thirty (30) days after submission of the matter to the Valuation Firm (or such longer period as mutually agreed in writing by the Purchaser and the Seller), which determination must be in writing and must set forth, in reasonable detail, the basis therefor, and include a certification that it reached such determination in accordance with the definitions as provided in this Agreement and Exhibit F. Any further submissions to the Valuation Firm must be written and delivered to each Party to the dispute. The Valuation Firm shall make a final determination of the Gross Profit, Gross Profit Margin Percentage and resulting Earnout Amount (solely to the extent such amounts or their components are in dispute) in accordance with the guidelines and procedures set forth in this Agreement and Exhibit F. The Valuation Firm shall determine, based solely on presentations by the Purchaser and the Seller and their respective Representatives, and not by independent review, only those issues in dispute specifically set forth on the Earnout Objections Statement, and shall act as an expert and not as an arbitrator. In resolving any disputed item, the Valuation Firm shall (i) be bound by the principles set forth in this Section 2.5 and (ii) not assign a value to any item in dispute that is greater than the greatest value for such disputed item claimed by any Party or less than the smallest value for such disputed item claimed by any Party. The Parties shall reasonably cooperate with the Valuation Firm during the term of its engagement, including by executing a customary engagement letter. Neither the Purchaser, the Seller nor any of their respective Affiliates or Representatives shall have any ex parte conversations or meetings with the Valuation Firm in connection with any dispute submitted by the Purchaser and/or the Seller to the Valuation Firm pursuant to this Section 2.5(c) without the prior consent of the other Party. The Valuation Firm’s determination of the Gross Profit, Gross Profit Margin Percentage and the resulting Earnout Amount with respect to an Earnout Year shall, in each case in the manner contemplated by this Section 2.5, become final and binding on the Parties on the date the Valuation Firm delivers its final resolution in writing to the Seller and the Purchaser, absent manifest error or fraud. The costs and expenses of the Valuation Firm shall be allocated between the Purchaser, on the one hand, and the Seller, on the other hand, in the same proportion that (x) the absolute value of the difference between the value of the Earnout Amount asserted by the Purchaser and the value of the Earnout Amount determined by the Valuation Firm bears to (y) the absolute value of the difference between the value of the Earnout Amount asserted by the Seller and the value of the Earnout Amount determined by the Valuation Firm. For example, if the Seller submits an Earnout Objections Statement to the Valuation Firm that states that the Earnout Amount should be $2,000 while the Purchaser asserts in the written presentation to the Valuation Firm that the Earnout Amount should be $1,000, and the Valuation Firm ultimately resolves that the Earnout Amount should be $1,200, then the costs and expenses of the Valuation Firm will be allocated 20% to the Purchaser and 80% to the Seller.
(d) Once the Earnout Amount for an Earnout Year has been finally determined in accordance with Section 2.5(c) and such Earnout Amount is not zero, the Purchaser shall no later than eight (8) Business Days following such determination, deliver or cause to be delivered to Seller the number of Purchaser Shares payable as the Earnout Stock Consideration for such Earnout Year, provided that if any portion of the Earnout Amount is subject to a pending claim for indemnification by the Purchaser under Section 9.1(a) and Section 9.4(d), such portion of the Earnout Amount shall only be paid eight (8) Business Days following the final resolution of such claim and only to the extent not used to offset the amount required to be paid by the Seller under Section 9.1(a) with respect to such claim. For the avoidance of doubt, no payment of Purchaser Shares shall be due with respect to an Earnout Year if the Earnout Amount for such Earnout Year is zero.
(e) The Parties understand On the fifth Business Day after Buyer and Seller agree that (i) to the contingent rights Earnout Statement or Buyer and Seller receive from the Accountant its written report pursuant to receive Section 2.8(c), as applicable, Buyer shall pay to Seller an amount in cash equal to the Earnout Amount shall not be represented by any form of certificate or other instrument, are not transferable, and do not constitute an equity or ownership interest in payable for the Purchaser or any of its Affiliates; (ii) the Seller shall not have any rights as a security-holder of the Purchaser as a result of the Seller’s contingent right to receive any Earnout Amount; and (iii) no interest is payable with respect to any Earnout Amount.
(f) Any amount paid pursuant to this Section 2.5 Period. Such cash payment shall be treated for all Tax purposes as additional consideration paid for the Company Shares pursuant to this Agreement, except (i) for any portion treated as imputed interest and (ii) made by wire transfers of immediately available funds to the extent otherwise required pursuant to a “determination” within the meaning of Section 1313(a) of the Code (or any similar provisions of state, local or foreign Law).
(g) Subsequent to the Closing and until the end of FY 2028, the Purchaser shall use its commercially reasonable efforts to maintain and preserve in all material respects the material third-party customer relationships and material Intellectual Property of the Business existing as of the Closing Date (other than expiration of registered Intellectual Property accounts specified in accordance with their terms). Without limiting the foregoing, (x) during the period from the Closing Date through the final determination of the Earnout Amount for FY 2028, the Purchaser shall maintain the records of the written instructions provided by Seller to Buyer at least two Business in a manner permitting preparation of the Earnout Statements and the Quarterly Gross Profit Statements accurately in all material respects in order to allow for the good faith calculation of the Earnout Amount and its components, including by following the policies, principles and procedures set forth on Exhibit F; (y) during the period from the Closing Date through the end of FY 2028, the Purchaser shall (i) not take any action in bad faith, the primary intent or primary purpose of which is to avoid or reduce the amount of any Earnout Amount, including in bad faith accelerating or delaying the shipping of Specified Products or recognition of any revenues of the Business from one Earnout Year to another or following the end of the last Earnout Year; and (ii) use commercially reasonable efforts to provide reasonably adequate staffing and working capital for the conduct of the Business; and (z) during the period from the Closing Date through the earlier of (i) the payment of the Earnout Amount for FY 2028 or (ii) the final determination that no Earnout Amount is payable for FY 2028, the Purchaser shall not enter into (or permit any Subsidiary of the Purchaser to enter into) any agreement or arrangement that would prevent the Purchaser from paying the Earnout Amount in accordance with this Agreement.
(h) The Purchaser shall deliver or cause to be to be delivered Days prior to the Seller, within forty-five (45) days after the end of each fiscal quarter of an Earnout Year (date such payment is due or on such other than the last fiscal quarter of such Earnout Year), a statement (the “Quarterly Gross Profit Statement”) setting forth the Purchaser’s calculation of Gross Profit for such fiscal quarter in reasonable detail, and, subject to the Disclosure Limitations, the Purchaser agrees to promptly provide such supporting documentation date as the Buyer and Seller may reasonably request to review the Purchaser’s calculation of the Gross Profit for such quartershall agree.
(i) Any information provided to or obtained by the Seller pursuant to this Section 2.5 shall be deemed to be Confidential Information.
(j) The fiscal years of the Business for any Earnout Year and any fiscal quarter of the Business for any Earnout Year shall be based on the 4-4-5 accounting calendar that is used by the Purchaser, including as specified in the definitions of FY 2027 and FY 2028.
(k) Seller agrees to distribute the net proceeds of (i) 100% of any Earnout Amount in respect of FY 2027 (including the 2027 Catch-Up Amount, if any) to its members in accordance with the distribution provisions in the Seller’s Organizational Documents and (ii) 50% of any Earnout Amount in respect of FY 2028 (excluding, for avoidance of doubt, the 2027 Catch-Up Amount, if any) to The Resolute Fund IV, L.P. and the other 50% of any Earnout Amount in respect of FY 2028 (excluding, for avoidance of doubt, the 2027 Catch-Up Amount, if any) to Business Employee Equityholders, in each case of this clause (ii), in accordance with the distribution provisions in the Seller’s Organizational Documents. For purposes of the prior sentence, “Seller’s Organizational Documents” means Seller’s Organizational Documents as of the date of this Agreement, as they may be amended to implement the Earnout Arrangement in accordance with the terms of this Agreement and the terms set forth in Exhibit H.
Appears in 1 contract
Sources: Membership Interest Purchase Agreement (Bank Jos a Clothiers Inc /De/)
Earnout. (a) Within forty-Seller shall be entitled to additional consideration from Purchaser (any such additional consideration, an “Earnout Amount”) as follows: [***] The parties hereto agree that, except as hereinafter provided, no interest shall accrue on, or be due and payable with respect to, any Earnout Amount. Purchaser shall deliver any Earnout Amount for any Earnout Period (as defined below) to Seller within five (45) business days after the end Final Earnout Amount Determination Date for such period. At Purchaser’s option, up to [***] of each Earnout Amount may be satisfied by the issuance to Seller of unregistered shares of Parent Common Stock having a Fair Market Value equal to such portion of such Earnout Amount. Shares of Parent Common Stock issued in satisfaction of any portion of an Earnout Year, the Purchaser shall deliver Amount are referred to the Seller a statement (the as “Earnout Statement”)Shares” and, together with reasonable supporting detailthe Initial Shares, showing as the Purchaser’s good faith calculation for “Shares”. [***] In no event will any Shares be issued hereunder if the issuance of such Earnout Year Shares would cause the total number of Shares issued pursuant to this Agreement to exceed 19.9% of the (i) Gross Profitnumber of shares of Parent Common Stock outstanding on the Closing Date. Any Earnout Amount that would otherwise be satisfied by the issuance of Earnout Shares in excess of such amount, (ii) Gross Profit Margin Percentage and (iii) resulting any other portion of an Earnout Amount. The Gross Profit and Gross Profit Margin Percentage shall Amount that is not satisfied through the issuance of Earnout Shares, will be calculated paid in cash by wire transfer of immediately available funds in accordance with the policies, principles written instructions delivered to Purchaser by Seller. Seller acknowledges and procedures set forth on Exhibit F.
(b) Subject agrees that neither Purchaser nor any other Person makes any guarantee or representation to the Disclosure Limitations, the Seller and its Representatives shall that any Earnout Amount will be permitted reasonable access to review and obtain copies of the books and records of the Business and any work papers (subject to customary access letters and confidentiality undertakings) related to the preparation of the Earnout Statement. The Seller and its Representatives may make reasonable inquiries of the Purchaser and its accountants regarding questions or disagreements, and the Purchaser shall, and shall use its reasonable best efforts to cause any such accountants to, cooperate with and respond to such inquiries. At the request of the Seller, and subject to the Disclosure Limitations, the Purchaser shall make available its personnel who are knowledgeable about the information contained in, and the preparation of, the Earnout Statement, to the Seller to advise and assist the Seller in its review of the Earnout Statement and any objections or disputes with respect thereto.
(c) Within thirty (30) days after delivery of the Earnout Statement to the Seller, if the Seller has any objections to the Earnout Statement, the Seller shall deliver to the Purchaser a statement setting forth its objections thereto (an “Earnout Objections Statement”)realized. Any Earnout Objections Statement shall specify in reasonable detail the nature of any disagreement so asserted, the proposed correct amount for each such item and the resulting Earnout Amount. If an Earnout Objections Statement is not delivered to the Purchaser within thirty (30) days after delivery of the Earnout Statement to the Seller, the Earnout Statement shall be final, binding and non-appealable by the Parties. If an Earnout Objections Statement is properly and timely delivered, the portion of the Earnout Statement not subject to dispute pursuant to the Earnout Objections Statement shall be final, binding and non-appealable by the Parties. At any time during such thirty (30) day period, the Seller may deliver a written notice to the Purchaser stating that it agrees with the Earnout Statement and the Earnout Statement shall thereafter become final, binding and non-appealable by the Parties. The Seller and the Purchaser shall negotiate in good faith to resolve any objections in the Earnout Objections Statement, but if and to the extent they do not reach a final resolution within sixty (60) days after the delivery of the Earnout Objections Statement, the Seller and the Purchaser shall submit, within seventy five (75) days after the delivery of the Earnout Objections Statement, such dispute to the Valuation Firm for resolution. The Valuation Firm shall be instructed by the Seller and the Purchaser to render a determination of the applicable dispute (solely to the extent of such dispute) within thirty (30) days after submission of the matter to the Valuation Firm (or such longer period as mutually agreed in writing by the Purchaser and the Seller), which determination must be in writing and must set forth, in reasonable detail, the basis therefor, and include a certification that it reached such determination in accordance with the definitions as provided in this Agreement and Exhibit F. Any further submissions to the Valuation Firm must be written and delivered to each Party to the dispute. The Valuation Firm shall make a final determination of the Gross Profit, Gross Profit Margin Percentage and resulting Earnout Amount (solely to the extent such amounts or their components are in dispute) in accordance with the guidelines and procedures set forth in this Agreement and Exhibit F. The Valuation Firm shall determine, based solely on presentations by the Purchaser and the Seller and their respective Representatives, and not by independent review, only those issues in dispute specifically set forth on the Earnout Objections Statement, and shall act as an expert and not as an arbitrator. In resolving any disputed item, the Valuation Firm shall (i) be bound by the principles set forth in this Section 2.5 and (ii) not assign a value to any item in dispute that is greater than the greatest value for such disputed item claimed by any Party paid in cash or less than the smallest value for such disputed item claimed by any Party. The Parties shall reasonably cooperate with the Valuation Firm during the term of its engagement, including by executing a customary engagement letter. Neither the Purchaser, the Seller nor any of their respective Affiliates or Representatives shall have any ex parte conversations or meetings with the Valuation Firm in connection with any dispute submitted by the Purchaser and/or the Seller to the Valuation Firm pursuant to this Section 2.5(c) without the prior consent of the other Party. The Valuation Firm’s determination of the Gross Profit, Gross Profit Margin Percentage and the resulting Earnout Amount with respect to an Earnout Year shall, in each case in the manner contemplated by this Section 2.5, become final and binding on the Parties on the date the Valuation Firm delivers its final resolution in writing to the Seller and the Purchaser, absent manifest error or fraud. The costs and expenses of the Valuation Firm shall be allocated between the Purchaser, on the one hand, and the Seller, on the other hand, in the same proportion that (x) the absolute value of the difference between the value of the Earnout Amount asserted by the Purchaser and the value of the Earnout Amount determined by the Valuation Firm bears to (y) the absolute value of the difference between the value of the Earnout Amount asserted by the Seller and the value of the Earnout Amount determined by the Valuation Firm. For example, if the Seller submits an Earnout Objections Statement to the Valuation Firm that states that the Earnout Amount should be $2,000 while the Purchaser asserts in the written presentation to the Valuation Firm that the Earnout Amount should be $1,000, and the Valuation Firm ultimately resolves that the Earnout Amount should be $1,200, then the costs and expenses of the Valuation Firm will be allocated 20% to the Purchaser and 80% to the Seller.
(d) Once the Earnout Amount for an Earnout Year has been finally determined in accordance with Section 2.5(c) and such Earnout Amount is not zero, the Purchaser shall no later than eight (8) Business Days following such determination, deliver or cause to be delivered Shares to Seller the number of Purchaser Shares payable as the Earnout Stock Consideration for such Earnout Year, provided that if any portion of the Earnout Amount is subject to a pending claim for indemnification by the Purchaser under Section 9.1(a) and Section 9.4(d), such portion of the Earnout Amount shall only be paid eight (8) Business Days following the final resolution of such claim and only to the extent not used to offset the amount required to be paid by the Seller under Section 9.1(a) with respect to such claim. For the avoidance of doubt, no payment of Purchaser Shares shall be due with respect to an Earnout Year if the Earnout Amount for such Earnout Year is zero.
(e) The Parties understand and agree that (i) the contingent rights to receive an Earnout Amount shall not be represented by any form of certificate or other instrument, are not transferable, and do not constitute an equity or ownership interest in the Purchaser or any of its Affiliates; (ii) the Seller shall not have any rights as a security-holder of the Purchaser as a result of the Seller’s contingent right to receive any Earnout Amount; and (iii) no interest is payable with respect to any Earnout Amount.
(f) Any amount paid pursuant to this Section 2.5 designees shall be treated for all Tax purposes as additional consideration paid for the Company Shares pursuant to this Agreement, except (i) for any portion treated as imputed interest and (ii) to the extent otherwise required pursuant to a “determination” within the meaning of Section 1313(a) component of the Code (or any similar provisions of state, local or foreign Law).
(g) Subsequent to the Closing and until the end of FY 2028, the Purchaser shall use its commercially reasonable efforts to maintain and preserve in all material respects the material third-party customer relationships and material Intellectual Property of the Business existing as of the Closing Date (other than expiration of registered Intellectual Property in accordance with their terms)Purchase Price. Without limiting the foregoing, (x) during the period from the Closing Date through the final determination of the Earnout Amount for FY 2028, the Purchaser shall maintain the records of the Business in a manner permitting preparation of the Earnout Statements and the Quarterly Gross Profit Statements accurately in all material respects in order to allow for the good faith calculation of the Earnout Amount and its components, including by following the policies, principles and procedures set forth on Exhibit F; (y) during the period from the Closing Date through the end of FY 2028, the Purchaser shall (i) not take any action in bad faith, the primary intent or primary purpose of which is to avoid or reduce the amount of any Earnout Amount, including in bad faith accelerating or delaying the shipping of Specified Products or recognition of any revenues of the Business from one Earnout Year to another or following the end of the last Earnout Year; and (ii) use commercially reasonable efforts to provide reasonably adequate staffing and working capital for the conduct of the Business; and (z) during the period from the Closing Date through the earlier of (i) the payment of the Earnout Amount for FY 2028 or (ii) the final determination that no Earnout Amount is payable for FY 2028, the Purchaser shall not enter into (or permit any Subsidiary of the Purchaser to enter into) any agreement or arrangement that would prevent the Purchaser from paying the Earnout Amount in accordance with this Agreement.
(h) The Purchaser shall deliver or cause to be to be delivered to the Seller, within forty-five (45) days after the end of each fiscal quarter of an Earnout Year (other than the last fiscal quarter of such Earnout Year), a statement (the “Quarterly Gross Profit Statement”) setting forth the Purchaser’s calculation of Gross Profit for such fiscal quarter in reasonable detail, and, subject to the Disclosure Limitations, the Purchaser agrees to promptly provide such supporting documentation as the Seller may reasonably request to review the Purchaser’s calculation of the Gross Profit for such quarter.
(i) Any information provided to or obtained by the Seller pursuant to this Section 2.5 shall be deemed to be [***] Confidential Information.
(j) The fiscal years of the Business for any Earnout Year and any fiscal quarter of the Business for any Earnout Year shall be based on the 4-4-5 accounting calendar that is used by the Purchaser, including as specified in the definitions of FY 2027 and FY 2028.
(k) Seller agrees to distribute the net proceeds of (i) 100% of any Earnout Amount in respect of FY 2027 (including the 2027 Catch-Up Amount, if any) to its members in accordance treatment requested. Omitted portions have been filed separately with the distribution provisions in the Seller’s Organizational Documents Securities and (ii) 50% of any Earnout Amount in respect of FY 2028 (excluding, for avoidance of doubt, the 2027 Catch-Up Amount, if any) to The Resolute Fund IV, L.P. and the other 50% of any Earnout Amount in respect of FY 2028 (excluding, for avoidance of doubt, the 2027 Catch-Up Amount, if any) to Business Employee Equityholders, in each case of this clause (ii), in accordance with the distribution provisions in the Seller’s Organizational Documents. For purposes of the prior sentence, “Seller’s Organizational Documents” means Seller’s Organizational Documents as of the date of this Agreement, as they may be amended to implement the Earnout Arrangement in accordance with the terms of this Agreement and the terms set forth in Exhibit H.Exchange Commission.
Appears in 1 contract
Earnout. (a) Within forty-five Subject to the terms and conditions of this Section 1.5, the Sellers shall be entitled to additional consideration for the Shares if the Purchaser meets certain EBITDA targets as set forth below:
(45i) For the 2017 Earnout Period, the Purchaser shall pay to the Sellers the amount of the Guaranteed Earnout as set forth on Exhibit B for the 2017 Earnout Period; provided, however, if the actual EBITDA amount of the Company during the 2017 Earnout Period is equal to or greater than the EBITDA Floor (as set forth on Exhibit B for the 2017 Earnout Period), then the Purchasers shall pay to the Sellers’ Representative (on behalf of the Sellers) an amount equal to the sum of (x) the amount of the Guaranteed Earnout (as set forth on Exhibit B for the 2017 Earnout Period) plus (y) the amount of the Variable Earnout (as set forth on Exhibit B for the 2017 Earnout Period); provided, further, that if the actual EBITDA of the Company for the 2017 Earnout Period is equal to or greater than the Target EBITDA (as set forth on Exhibit B for the 2017 Earnout Period), then the Purchaser shall pay to the Sellers’ Representative (on behalf of the Sellers) an amount equal to the sum of (x) the amount of the Guaranteed Earnout (as set forth on Exhibit B for the 2017 Earnout Period) plus (y) the amount of the Variable Earnout (as set forth on Exhibit B for the 2017 Earnout Period), plus (z) 60% of the amount in excess of the Target EBITDA (as set forth on Exhibit B for the 2017 Earnout Period).
(ii) For the 2018 Earnout Period, the Purchaser shall pay to the Sellers the amount of the Guaranteed Earnout as set forth on Exhibit B for the 2018 Earnout Period; provided, however, if the actual EBITDA amount of the Company during the 2018 Earnout Period is equal to or greater than the EBITDA Floor (as set forth on Exhibit B for the 2018 Earnout Period), then the Purchasers shall pay to the Sellers’ Representative (on behalf of the Sellers) an amount equal to the sum of (x) the amount of the Guaranteed Earnout (as set forth on Exhibit B for the 2018 Earnout Period) plus (y) the amount of the Variable Earnout (as set forth on Exhibit B for the 2018 Earnout Period); provided, further, that if the actual EBITDA of the Company for the 2018 Earnout Period is equal to or greater than the Target EBITDA (as set forth on Exhibit B for the 2018 Earnout Period), then the Purchaser shall pay to the Sellers’ Representative (on behalf of the Sellers) an amount equal to the sum of (x) the amount of the Guaranteed Earnout (as set forth on Exhibit B for the 2018 Earnout Period) plus (y) the amount of the Variable Earnout (as set forth on Exhibit B for the 2018 Earnout Period), plus (z) 60% of the amount in excess of the Target EBITDA (as set forth on Exhibit B for the 2018 Earnout Period).
(iii) For the 2019 Earnout Period, the Purchaser shall pay to the Sellers the amount of the Guaranteed Earnout as set forth on Exhibit B for the 2019 Earnout Period; provided, however, if the actual EBITDA amount of the Company during the 2019 Earnout Period is equal to or greater than the EBITDA Floor (as set forth on Exhibit B for the 2019 Earnout Period), then the Purchasers shall pay to the Sellers’ Representative (on behalf of the Sellers) an amount equal to the sum of (x) the amount of the Guaranteed Earnout (as set forth on Exhibit B for the 2019 Earnout Period) plus (y) the amount of the Variable Earnout (as set forth on Exhibit B for the 2019 Earnout Period); provided, further, that if the actual EBITDA of the Company for the 2019 Earnout Period is equal to or greater than the Target EBITDA (as set forth on Exhibit B for the 2019 Earnout Period), then the Purchaser shall pay to the Sellers’ Representative (on behalf of the Sellers) an amount equal to the sum of (x) the amount of the Guaranteed Earnout (as set forth on Exhibit B for the 2019 Earnout Period) plus (y) the amount of the Variable Earnout (as set forth on Exhibit B for the 2019 Earnout Period), plus (z) 60% of the amount in excess of the Target EBITDA (as set forth on Exhibit B for the 2019 Earnout Period).
(b) All payments due and payable by the Purchaser to the Sellers pursuant to this Section 1.5 shall be paid to the Sellers’ Representative (on behalf of the Sellers) by wire transfer within ninety (90) days after the end of the 2017 Earnout Period, 2018 Earnout Period and 2019 Earnout Period, respectively. The Sellers’ Representative shall distribute to each Seller an amount of any received Earnout Year, the Purchaser shall deliver Consideration equal to the Seller a statement product of (A) such Seller’s Equity Ownership Percentage multiplied by (B) the “Earnout Statement”), together with reasonable supporting detail, showing Consideration received from the Purchaser’s good faith calculation for such Earnout Year of the (i) Gross Profit, (ii) Gross Profit Margin Percentage and (iii) resulting Earnout Amount. The Gross Profit and Gross Profit Margin Percentage shall be calculated in accordance with the policies, principles and procedures set forth on Exhibit F.
(b) Subject to the Disclosure Limitations, the Seller and its Representatives shall be permitted reasonable access to review and obtain copies of the books and records of the Business and any work papers (subject to customary access letters and confidentiality undertakings) related to the preparation of the Earnout Statement. The Seller and its Representatives may make reasonable inquiries of the Purchaser and its accountants regarding questions or disagreements, and the Purchaser shall, and shall use its reasonable best efforts to cause any such accountants to, cooperate with and respond to such inquiries. At the request of the Seller, and subject to the Disclosure Limitations, the Purchaser shall make available its personnel who are knowledgeable about the information contained in, and the preparation of, the Earnout Statement, to the Seller to advise and assist the Seller in its review of the Earnout Statement and any objections or disputes with respect thereto.
(c) Within thirty (30) days after delivery The obligations of the Earnout Statement Purchaser pursuant to the Seller, if the Seller has any objections to the Earnout Statement, the Seller shall deliver to the Purchaser a statement setting forth its objections thereto (an “Earnout Objections Statement”). Any Earnout Objections Statement shall specify in reasonable detail the nature of any disagreement so asserted, the proposed correct amount for each such item and the resulting Earnout Amount. If an Earnout Objections Statement is not delivered to the Purchaser within thirty (30) days after delivery of the Earnout Statement to the Seller, the Earnout Statement shall be final, binding and non-appealable by the Parties. If an Earnout Objections Statement is properly and timely delivered, the portion of the Earnout Statement not this Section 1.5 are subject to dispute pursuant to the Earnout Objections Statement shall be final, binding and non-appealable by the Parties. At any time during such thirty (30) day period, the Seller may deliver a written notice to the Purchaser stating that it agrees with the Earnout Statement and the Earnout Statement shall thereafter become final, binding and non-appealable by the Parties. The Seller and the Purchaser shall negotiate in good faith to resolve any objections in the Earnout Objections Statement, but if and to the extent they do not reach a final resolution within sixty (60) days after the delivery of the Earnout Objections Statement, the Seller and the Purchaser shall submit, within seventy five (75) days after the delivery of the Earnout Objections Statement, such dispute to the Valuation Firm for resolution. The Valuation Firm shall be instructed by the Seller and the Purchaser to render a determination of the applicable dispute (solely to the extent of such dispute) within thirty (30) days after submission of the matter to the Valuation Firm (or such longer period as mutually agreed in writing by the Purchaser and the Seller), which determination must be in writing and must set forth, in reasonable detail, the basis therefor, and include a certification that it reached such determination in accordance with the definitions as provided in this Agreement and Exhibit F. Any further submissions to the Valuation Firm must be written and delivered to each Party to the dispute. The Valuation Firm shall make a final determination of the Gross Profit, Gross Profit Margin Percentage and resulting Earnout Amount (solely to the extent such amounts or their components are in dispute) in accordance with the guidelines and procedures set forth in this Agreement and Exhibit F. The Valuation Firm shall determine, based solely on presentations by the Purchaser and the Seller and their respective Representatives, and not by independent review, only those issues in dispute specifically set forth on the Earnout Objections Statement, and shall act as an expert and not as an arbitrator. In resolving any disputed item, the Valuation Firm shall (i) be bound that certain Subordination Agreements dated as of the date hereof by and among the principles set forth in this Section 2.5 Company, the Purchaser, the Sellers, and each of the Lenders, respectively (the “Subordination Agreements”) and (ii) not assign a value to any item in dispute that is greater than the greatest value for such disputed item claimed by any Party or less than the smallest value for such disputed item claimed by any Party. The Parties shall reasonably cooperate with the Valuation Firm during the term of its engagement, including by executing a customary engagement letter. Neither the Purchaser, the Seller nor any ’s right of their respective Affiliates or Representatives shall have any ex parte conversations or meetings with the Valuation Firm in connection with any dispute submitted by the Purchaser and/or the Seller to the Valuation Firm set off pursuant to this Section 2.5(c) without 8.7 hereof in order to secure the prior consent of the other Party. The Valuation Firm’s determination of the Gross Profit, Gross Profit Margin Percentage and the resulting Earnout Amount with respect to an Earnout Year shall, in each case in the manner contemplated by this Section 2.5, become final and binding on the Parties on the date the Valuation Firm delivers its final resolution in writing to the Seller and the Purchaser, absent manifest error or fraud. The costs and expenses of the Valuation Firm shall be allocated between the Purchaser, on the one hand, and the Seller, on the other hand, in the same proportion that Sellers’ indemnification obligations under Article VIII (x) the absolute value of the difference between the value of the Earnout Amount asserted by the Purchaser and the value of the Earnout Amount determined by the Valuation Firm bears to (y) the absolute value of the difference between the value of the Earnout Amount asserted by the Seller and the value of the Earnout Amount determined by the Valuation Firm. For example, if the Seller submits an Earnout Objections Statement to the Valuation Firm that states that the Earnout Amount should be $2,000 while the Purchaser asserts in the written presentation to the Valuation Firm that the Earnout Amount should be $1,000, and the Valuation Firm ultimately resolves that the Earnout Amount should be $1,200, then the costs and expenses of the Valuation Firm will be allocated 20% to the Purchaser and 80% to the SellerIndemnification).
(d) Once Notwithstanding anything to the contrary contained herein, no Seller shall be entitled to any Earnout Consideration for any upcoming Earnout Period (and the Purchaser shall have no obligation to pay any such Earnout Consideration) pursuant to this Section 1.5 if both Employee Shareholders’ employment or consulting relationships with the Company are terminated (i) by the Purchaser for Cause or (ii) by such Seller without Good Reason; provided, however, that upon the termination of both Employee Shareholders, ▇▇▇▇▇▇ ▇▇▇▇▇ shall enter into an employment arrangement with the Company on terms no less favorable than the employment terms of each Employee Shareholder immediately prior to such Employee Shareholder’s termination in order to maintain the Sellers’ rights to the Earnout Amount for an Consideration; provided, further, that, upon a Change in Control, the Earnout Year has been finally determined Consideration shall accelerate in accordance with the terms and conditions of Section 2.5(c) and such Earnout Amount is not zero, the Purchaser shall no later than eight (8) Business Days following such determination, deliver or cause to be delivered to Seller the number of Purchaser Shares payable as the Earnout Stock Consideration for such Earnout Year, provided that if any portion of the Earnout Amount is subject to a pending claim for indemnification by the Purchaser under Section 9.1(a) and Section 9.4(d1.5(f), such portion of the Earnout Amount shall only be paid eight (8) Business Days following the final resolution of such claim and only to the extent not used to offset the amount required to be paid by the Seller under Section 9.1(a) with respect to such claim. For the avoidance of doubt, no payment any Seller whose employment or consulting arrangement with the Company is terminated shall still be entitled to Earnout Consideration so long as any of Purchaser Shares shall be due the Sellers are still in an employment or consulting relationship with respect to an Earnout Year if the Earnout Amount for Company at the time such Earnout Year Consideration is zeropayable in accordance with this Section 1.5.
(e) The Parties understand Sellers and Purchaser shall mutually agree that on a business plan for the Company through the Fiscal Year-Ended 2019 (ithe “Business Plan”) the contingent rights to receive an Earnout Amount shall not be represented implemented by any form of certificate or other instrument, are not transferable, and do not constitute an equity or ownership interest in the Purchaser or any and Sellers (as employees of its Affiliates; (ii) the Seller shall not have any rights as a security-holder of the Purchaser as a result of the Seller’s contingent right to receive any Earnout Amount; and (iii) no interest is payable with respect to any Earnout AmountPurchaser).
(f) Any amount paid pursuant Subject to this the continued employment or consulting relationship of at least one (1) Seller as set forth in Section 2.5 1.5(d), upon a Change in Control the Earnout Consideration shall be treated for all Tax purposes accelerate as additional consideration paid for the Company Shares pursuant to this Agreement, except follows:
(i) for any portion treated as imputed interest and (ii) if the Change in Control occurs on or prior to the extent otherwise required pursuant to a “determination” within the meaning of Section 1313(a) of the Code (or any similar provisions of state, local or foreign Law).
(g) Subsequent to the Closing and until the end of FY 2028, the Purchaser shall use its commercially reasonable efforts to maintain and preserve in all material respects the material third-party customer relationships and material Intellectual Property of the Business existing as of the Closing Date (other than expiration of registered Intellectual Property in accordance with their terms). Without limiting the foregoing, (x) during the period from the Closing Date through the final determination of the Earnout Amount for FY 2028, the Purchaser shall maintain the records of the Business in a manner permitting preparation of the Earnout Statements and the Quarterly Gross Profit Statements accurately in all material respects in order to allow for the good faith calculation of the Earnout Amount and its components, including by following the policies, principles and procedures set forth on Exhibit F; (y) during the period from the Closing Date through the end of FY 2028, the Purchaser shall (i) not take any action in bad faith, the primary intent or primary purpose of which is to avoid or reduce the amount of any Earnout Amount, including in bad faith accelerating or delaying the shipping of Specified Products or recognition of any revenues of the Business from one Earnout Year to another or following the end of the last 2017 Earnout Year; Period, the Earnout Consideration due and payable upon the consummation of the Change in Control transaction shall equal $1,791,204;
(ii) use commercially reasonable efforts to provide reasonably adequate staffing and working capital for if the conduct of the Business; and (z) during the period from the Closing Date through the earlier of (i) the payment of the Earnout Amount for FY 2028 or (ii) the final determination that no Earnout Amount is payable for FY 2028, the Purchaser shall not enter into (or permit any Subsidiary of the Purchaser to enter into) any agreement or arrangement that would prevent the Purchaser from paying the Earnout Amount Change in accordance with this Agreement.
(h) The Purchaser shall deliver or cause to be to be delivered to the Seller, within forty-five (45) days Control occurs after the end of each fiscal quarter of an the 2017 Earnout Year (other than the last fiscal quarter of such Earnout Year), a statement (the “Quarterly Gross Profit Statement”) setting forth the Purchaser’s calculation of Gross Profit for such fiscal quarter in reasonable detail, and, subject Period and on or prior to the Disclosure Limitationsend of the 2018 Earnout Period, the Purchaser agrees to promptly provide such supporting documentation as Earnout Consideration due and payable upon the Seller may reasonably request to review the Purchaser’s calculation consummation of the Gross Profit Change in Control transaction shall equal $1,337,996 in addition to the Earnout Consideration already paid for such quarter.the 2017 Earnout Period; and
(iiii) Any information provided to or obtained by if the Seller pursuant to this Section 2.5 shall be deemed to be Confidential Information.
(j) The fiscal years Change in Control occurs after the end of the Business for any 2018 Earnout Year Period and any fiscal quarter on or prior to the end of the Business for any 2019 Earnout Year shall be based on the 4-4-5 accounting calendar that is used by the Purchaser, including as specified in the definitions of FY 2027 and FY 2028.
(k) Seller agrees to distribute the net proceeds of (i) 100% of any Earnout Amount in respect of FY 2027 (including the 2027 Catch-Up Amount, if any) to its members in accordance with the distribution provisions in the Seller’s Organizational Documents and (ii) 50% of any Earnout Amount in respect of FY 2028 (excluding, for avoidance of doubtPeriod, the 2027 Catch-Up Amount, if any) to The Resolute Fund IV, L.P. Earnout Consideration due and payable upon the other 50% of any Earnout Amount in respect of FY 2028 (excluding, for avoidance of doubt, the 2027 Catch-Up Amount, if any) to Business Employee Equityholders, in each case of this clause (ii), in accordance with the distribution provisions in the Seller’s Organizational Documents. For purposes consummation of the prior sentence, “Seller’s Organizational Documents” means Seller’s Organizational Documents as of the date of this Agreement, as they may be amended Change in Control transaction shall equal $736,364 in addition to implement the Earnout Arrangement in accordance with Consideration paid for the terms of this Agreement 2017 and the terms set forth in Exhibit H.2018 Earnout Periods.
Appears in 1 contract
Earnout. (a) Within forty-five (45) days after At the end of an Earnout YearClosing, the 400,000,000 additional Purchaser shall deliver to the Seller a statement Ordinary Shares (the “Earnout StatementShares”) will be issued by Purchaser to the Company Shareholders (other than holders of Dissenting Company Shares) and placed in an escrow account with Continental (the “Earnout Escrow Account” and such Earnout Shares placed in the Earnout Escrow Account, the “Escrowed Earnout Shares”) for the benefit of such Company Shareholders pursuant to an Escrow Agreement between Purchaser, Continental and M▇. ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ (the “Company Shareholder Representative”) as the representative of the Company Shareholders (the “Earnout Escrow Agreement”); provided that M▇. ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ shall only be a party to the Earnout Escrow Agreement, the Sponsor Promote Escrow Agreement, and the Termination Fee Escrow Agreement in his capacity as the Company Shareholder Representative if duly appointed by the Company Shareholders. Each Company Shareholder (other than holders of Dissenting Company Shares) shall be shown as the registered owner of its pro rata portion of the Escrowed Earnout Shares on the books and records of Purchaser, as set forth on Schedule 1.6 of the Company Disclosure Schedules (in respect of each Company Shareholder, its “Pro Rata Portion”), together with reasonable supporting detail, showing the Purchaser’s good faith calculation for such Earnout Year of the (i) Gross Profit, (ii) Gross Profit Margin Percentage and (iii) resulting Earnout Amount. The Gross Profit and Gross Profit Margin Percentage shall be calculated in accordance entitled to exercise voting rights and all share rights with the policies, principles and procedures set forth on Exhibit F.respect to such Escrowed Earnout Shares.
(b) Subject to the Disclosure Limitationsadjustment pursuant to Section 1.6(c) below, the Seller and its Representatives Company Shareholders shall be permitted reasonable access have the right to review and obtain copies receive their Pro Rata Portion of the books and records Escrowed Earnout Shares after the Closing Date in accordance with this Section 1.6. In the event that the Revenue Target is achieved, the Escrowed Earnout Shares will be released from the Earnout Escrow Account to the Company Shareholders on the later of January 31, 2024 or the Closing Date (the “Earnout Release Date”). Any Escrowed Earnout Shares remaining in the Earnout Escrow Account following the Earnout Release Date, will be surrendered back to Purchaser without consideration by the Company Shareholders executing an irrevocable surrender of shares. The Company Shareholder Representative, on behalf of the Business Company Shareholders, shall instruct Continental to unconditionally release the surrendered portion of such Escrowed Earnout Shares from the Earnout Escrow Account to Purchaser, and any work papers (subject to customary access letters Purchaser shall cancel such surrendered portion of such Escrowed Earnout Shares in accordance with the Earnout Escrow Agreement and confidentiality undertakings) related the Company Shareholder Representative shall execute an Irrevocable Surrender of Shares on behalf of the Company Shareholders in form and substance satisfactory to the preparation of the Sponsor and surrender such Earnout Statement. The Seller and its Representatives may make reasonable inquiries of the Shares to Purchaser and its accountants regarding questions or disagreements, and the Purchaser shall, and shall use its reasonable best efforts to cause any such accountants to, cooperate with and respond to such inquiries. At the request of the Seller, and subject to the Disclosure Limitations, the Purchaser shall make available its personnel who are knowledgeable about the information contained in, and the preparation of, the Earnout Statement, to the Seller to advise and assist the Seller in its review of the Earnout Statement and any objections or disputes with respect theretowithout consideration.
(c) Within thirty (30) days after delivery The applicable number of the Earnout Statement to the SellerShares, if any, shall be subject to equitable adjustment for share splits, share dividends, reorganizations, combinations, recapitalizations and similar transactions affecting the Seller has any objections Purchaser Ordinary Shares after the Closing and prior to the Earnout Statement, the Seller shall deliver to the Purchaser a statement setting forth its objections thereto (an “Earnout Objections Statement”). Any Earnout Objections Statement shall specify in reasonable detail the nature of any disagreement so asserted, the proposed correct amount for each such item and the resulting Earnout Amount. If an Earnout Objections Statement is not delivered to the Purchaser within thirty (30) days after delivery of the Earnout Statement to the Seller, the Earnout Statement shall be final, binding and non-appealable by the Parties. If an Earnout Objections Statement is properly and timely delivered, the portion of the Earnout Statement not subject to dispute pursuant to the Earnout Objections Statement shall be final, binding and non-appealable by the Parties. At any time during such thirty (30) day period, the Seller may deliver a written notice to the Purchaser stating that it agrees with the Earnout Statement and the Earnout Statement shall thereafter become final, binding and non-appealable by the Parties. The Seller and the Purchaser shall negotiate in good faith to resolve any objections in the Earnout Objections Statement, but if and to the extent they do not reach a final resolution within sixty (60) days after the delivery of the Earnout Objections Statement, the Seller and the Purchaser shall submit, within seventy five (75) days after the delivery of the Earnout Objections Statement, such dispute to the Valuation Firm for resolution. The Valuation Firm shall be instructed by the Seller and the Purchaser to render a determination of the applicable dispute (solely to the extent of such dispute) within thirty (30) days after submission of the matter to the Valuation Firm (or such longer period as mutually agreed in writing by the Purchaser and the Seller), which determination must be in writing and must set forth, in reasonable detail, the basis therefor, and include a certification that it reached such determination in accordance with the definitions as provided in this Agreement and Exhibit F. Any further submissions to the Valuation Firm must be written and delivered to each Party to the dispute. The Valuation Firm shall make a final determination of the Gross Profit, Gross Profit Margin Percentage and resulting Earnout Amount (solely to the extent such amounts or their components are in dispute) in accordance with the guidelines and procedures set forth in this Agreement and Exhibit F. The Valuation Firm shall determine, based solely on presentations by the Purchaser and the Seller and their respective Representatives, and not by independent review, only those issues in dispute specifically set forth on the Earnout Objections Statement, and shall act as an expert and not as an arbitrator. In resolving any disputed item, the Valuation Firm shall (i) be bound by the principles set forth in this Section 2.5 and (ii) not assign a value to any item in dispute that is greater than the greatest value for such disputed item claimed by any Party or less than the smallest value for such disputed item claimed by any Party. The Parties shall reasonably cooperate with the Valuation Firm during the term of its engagement, including by executing a customary engagement letter. Neither the Purchaser, the Seller nor any of their respective Affiliates or Representatives shall have any ex parte conversations or meetings with the Valuation Firm in connection with any dispute submitted by the Purchaser and/or the Seller to the Valuation Firm pursuant to this Section 2.5(c) without the prior consent of the other Party. The Valuation Firm’s determination of the Gross Profit, Gross Profit Margin Percentage and the resulting Earnout Amount with respect to an Earnout Year shall, in each case in the manner contemplated by this Section 2.5, become final and binding on the Parties on the date the Valuation Firm delivers its final resolution in writing to the Seller and the Purchaser, absent manifest error or fraud. The costs and expenses of the Valuation Firm shall be allocated between the Purchaser, on the one hand, and the Seller, on the other hand, in the same proportion that (x) the absolute value of the difference between the value of the Earnout Amount asserted by the Purchaser and the value of the Earnout Amount determined by the Valuation Firm bears to (y) the absolute value of the difference between the value of the Earnout Amount asserted by the Seller and the value of the Earnout Amount determined by the Valuation Firm. For example, if the Seller submits an Earnout Objections Statement to the Valuation Firm that states that the Earnout Amount should be $2,000 while the Purchaser asserts in the written presentation to the Valuation Firm that the Earnout Amount should be $1,000, and the Valuation Firm ultimately resolves that the Earnout Amount should be $1,200, then the costs and expenses of the Valuation Firm will be allocated 20% to the Purchaser and 80% to the SellerRelease Date.
(d) Once Notwithstanding anything contained in this Section 1.6, if during the Earnout Amount for an Earnout Year has been finally determined in accordance with Section 2.5(c) and such Earnout Amount is not zeroInterim Period, the Company obtains transaction financing in the aggregate amount of at least $215,000,000, in the form of firm written commitments from investors recognized and accepted by Purchaser or in the form of no less than $107,500,000 good faith deposit made by investors for a private placement of equity, debt or other alternative financing to Purchaser, each Company Shareholder (other than holders of Dissenting Company Shares) shall no later than eight (8) Business Days following such determination, deliver or cause be entitled to be delivered to Seller the number of Purchaser Shares payable as the Earnout Stock Consideration for such Earnout Year, provided that if any portion receive its Pro Rata Portion of the Earnout Amount is subject to a pending claim for indemnification by the Purchaser under Section 9.1(a) and Section 9.4(d), such portion of the Earnout Amount shall only be paid eight (8) Business Days following the final resolution of such claim and only to the extent not used to offset the amount required to be paid by the Seller under Section 9.1(a) with respect to such claim. For the avoidance of doubt, no payment of Purchaser Shares shall be due with respect to an Earnout Year if the Earnout Amount for such Earnout Year is zero.
(e) The Parties understand and agree that (i) the contingent rights to receive an Earnout Amount shall not be represented by any form of certificate or other instrument, are not transferable, and do not constitute an equity or ownership interest in the Purchaser or any of its Affiliates; (ii) the Seller shall not have any rights as a security-holder of the Purchaser as a result of the Seller’s contingent right to receive any Earnout Amount; and (iii) no interest is payable with respect to any Earnout Amount.
(f) Any amount paid pursuant to this Section 2.5 shall be treated for all Tax purposes as additional consideration paid for the Company Shares pursuant to this Agreement, except (i) for any portion treated as imputed interest and (ii) to the extent otherwise required pursuant to a “determination” within the meaning of Section 1313(a) of the Code (or any similar provisions of state, local or foreign Law).
(g) Subsequent to on the Closing and until Date, regardless of whether the end of FY 2028, the Purchaser shall use its commercially reasonable efforts to maintain and preserve in all material respects the material third-party customer relationships and material Intellectual Property of the Business existing as of the Closing Date (other than expiration of registered Intellectual Property in accordance with their terms). Without limiting the foregoing, (x) during the period from the Closing Date through the final determination of the Earnout Amount for FY 2028, the Purchaser shall maintain the records of the Business in a manner permitting preparation of the Earnout Statements and the Quarterly Gross Profit Statements accurately in all material respects in order to allow for the good faith calculation of the Earnout Amount and its components, including by following the policies, principles and procedures set forth on Exhibit F; (y) during the period from the Closing Date through the end of FY 2028, the Purchaser shall (i) not take any action in bad faith, the primary intent or primary purpose of which Revenue Target is to avoid or reduce the amount of any Earnout Amount, including in bad faith accelerating or delaying the shipping of Specified Products or recognition of any revenues of the Business from one Earnout Year to another or following the end of the last Earnout Year; and (ii) use commercially reasonable efforts to provide reasonably adequate staffing and working capital for the conduct of the Business; and (z) during the period from the Closing Date through the earlier of (i) the payment of the Earnout Amount for FY 2028 or (ii) the final determination that no Earnout Amount is payable for FY 2028, the Purchaser shall not enter into (or permit any Subsidiary of the Purchaser to enter into) any agreement or arrangement that would prevent the Purchaser from paying the Earnout Amount in accordance with this Agreementachieved.
(h) The Purchaser shall deliver or cause to be to be delivered to the Seller, within forty-five (45) days after the end of each fiscal quarter of an Earnout Year (other than the last fiscal quarter of such Earnout Year), a statement (the “Quarterly Gross Profit Statement”) setting forth the Purchaser’s calculation of Gross Profit for such fiscal quarter in reasonable detail, and, subject to the Disclosure Limitations, the Purchaser agrees to promptly provide such supporting documentation as the Seller may reasonably request to review the Purchaser’s calculation of the Gross Profit for such quarter.
(i) Any information provided to or obtained by the Seller pursuant to this Section 2.5 shall be deemed to be Confidential Information.
(j) The fiscal years of the Business for any Earnout Year and any fiscal quarter of the Business for any Earnout Year shall be based on the 4-4-5 accounting calendar that is used by the Purchaser, including as specified in the definitions of FY 2027 and FY 2028.
(k) Seller agrees to distribute the net proceeds of (i) 100% of any Earnout Amount in respect of FY 2027 (including the 2027 Catch-Up Amount, if any) to its members in accordance with the distribution provisions in the Seller’s Organizational Documents and (ii) 50% of any Earnout Amount in respect of FY 2028 (excluding, for avoidance of doubt, the 2027 Catch-Up Amount, if any) to The Resolute Fund IV, L.P. and the other 50% of any Earnout Amount in respect of FY 2028 (excluding, for avoidance of doubt, the 2027 Catch-Up Amount, if any) to Business Employee Equityholders, in each case of this clause (ii), in accordance with the distribution provisions in the Seller’s Organizational Documents. For purposes of the prior sentence, “Seller’s Organizational Documents” means Seller’s Organizational Documents as of the date of this Agreement, as they may be amended to implement the Earnout Arrangement in accordance with the terms of this Agreement and the terms set forth in Exhibit H.
Appears in 1 contract
Sources: Business Combination Agreement (AlphaVest Acquisition Corp.)
Earnout. (a) Within forty-five Buyer will pay Seller as additional consideration an amount (45the “Earnout”) in cash not to exceed $12,000,000 based on the shipment of Products by Buyer during the period commencing on October 1, 2007 and ending on September 30, 2008 (such period, the “Earnout Period”) in accordance with this Section 2.7. The actual amount of cash payable as the Earnout (the “Earnout Payment”) will be determined on the basis of the Earnout Amount (as defined herein) for each fiscal quarter during the Earnout Period as set forth on and pursuant to Schedule 2.7 hereto (each such fiscal quarter, an “Earnout Quarter”). In no event will Buyer be obligated to pay any amounts in the aggregate in excess of $12,000,000 under this Section 2.7 (including, for such purpose, Schedule 2.7) as the Earnout Payment, irrespective of the amount of Earnout Amount in a particular Earnout Quarter or the entire Earnout Period. The Earnout Payment will be payable in accordance with subsection (b) hereof. For the purposes hereof, “Earnout Amount” means the aggregate dollar amount of all Products shipped by Buyer during the Earnout Period, which will be determined by multiplying (i) the number of each such Product shipped by Buyer by (ii) the trailing quarterly weighted average sales price (“ASP”) of each such Product shipped by Buyer to its distributors or customers as determined using the applicable invoice(s); provided, however, that solely for the purposes of the first Earnout Quarter, any Products shipped by Seller to Buyer at the written request of Buyer, which Products are not subsequently shipped by Buyer to any distributor or customer during such Earnout Quarter, will be deemed to constitute a “shipment by Buyer” for the purposes hereof and thus will be included in the calculation of the Earnout Amount for such Earnout Quarter; provided further, that for the purpose of determining ASP for each Product shipped by Buyer during the first Earnout Quarter (including those products deemed shipped by Buyer pursuant to the immediately preceding proviso), such ASP will be determined based on the applicable purchase order(s) for any such Product as submitted by Buyer’s distributors and customers. In the event that the Closing Date occurs after October 1, 2007, the Parties will agree to a mutually acceptable adjustment of the Earnout Amount and Earnout Payment for the first Earnout Quarter.
(b) As soon as practicable but in no event later than 45 days after following the end of an Earnout YearQuarter, Buyer will pay Seller the Purchaser shall portion of the Earnout Payment attributable to such period (an “Earnout Quarter Payment”), by wire transfer to an account designated in writing by Seller. Buyer will have the right to withhold and set off against any portion of such Earnout Quarter Payment the amount of any Damages to which any Buyer Indemnified Party may be entitled under this Agreement.
(c) No later than 90 days after the expiration of the Earnout Period, Buyer will deliver to the Seller a statement computation of the Earnout Amount, identifying the Earnout Payment previously made by Buyer based on such computation, during the Earnout Period (the “Earnout Statement”). Unless within 60 days after receipt of such computation, together with Seller tenders written notice to Buyer setting forth any and all items of disagreement relating to such computation, the computation will be conclusive and binding on Seller. If Seller delivers a dispute notice within such 60-day period, Buyer and Seller will use reasonable supporting detailefforts to resolve their differences for a period of 10 days. If Buyer and Seller are unable to resolve their differences within such period, showing Buyer and Seller will jointly retain a mutually agreed third Person (the Purchaser’s good faith calculation for “Earnout Referee”) to resolve such disagreement. Buyer and Seller will request that the Earnout Year Referee render a determination as to the computation of the (i) Gross Profit, (ii) Gross Profit Margin Percentage and (iii) resulting aggregate Earnout Amount. The Gross Profit and Gross Profit Margin Percentage shall be calculated in accordance with the policies, principles and procedures set forth on Exhibit F.
(b) Subject to the Disclosure Limitations, the Seller and its Representatives shall be permitted reasonable access to review and obtain copies of the books and records of the Business and any work papers (subject to customary access letters and confidentiality undertakings) related to the preparation of the Earnout Statement. The Seller and its Representatives may make reasonable inquiries of the Purchaser and its accountants regarding questions or disagreements, and the Purchaser shallEarnout Payment based thereon, within 45 days after its retention, and shall use its reasonable best efforts Buyer and Seller will cooperate fully with the Earnout Referee so as to cause any facilitate a final determination as quickly and as accurately as possible. In making such accountants to, cooperate with and respond to such inquiries. At the request of the Seller, and subject to the Disclosure Limitations, the Purchaser shall make available its personnel who are knowledgeable about the information contained in, and the preparation ofresolution, the Earnout StatementReferee will consider only those issues, to the Seller to advise and assist the Seller items or amounts in its review of the Earnout Statement and any objections or disputes with respect thereto.
(c) Within thirty (30) days after delivery of the Earnout Statement as to the Seller, if the which Seller has any objections to disagreed in writing in the Earnout Statement, the Seller shall deliver to the Purchaser a statement setting forth its objections thereto (an “Earnout Objections Statement”). Any Earnout Objections Statement shall specify in reasonable detail the nature of any disagreement so asserted, the proposed correct amount for each such item and the resulting Earnout Amount. If an Earnout Objections Statement is not delivered to the Purchaser within thirty (30) days after delivery of the Earnout Statement to the Seller, the Earnout Statement shall be final, binding and non-appealable by the Parties. If an Earnout Objections Statement is properly and timely delivered, the portion of the Earnout Statement not subject to aforementioned dispute pursuant to the Earnout Objections Statement shall be final, binding and non-appealable by the Parties. At any time during such thirty (30) day period, the Seller may deliver a written notice to the Purchaser stating that it agrees with the Earnout Statement and the Earnout Statement shall thereafter become final, binding and non-appealable by the Partiesnotice. The Seller and Earnout Referee’s final determination (the Purchaser shall negotiate in good faith to resolve any objections in the “Final Earnout Objections Statement, but if and to the extent they do not reach a final resolution within sixty (60Report”) days after the delivery of the Earnout Objections Statement, the Seller and the Purchaser shall submit, within seventy five (75) days after the delivery of the Earnout Objections Statement, such dispute to the Valuation Firm for resolution. The Valuation Firm shall be instructed by the Seller and the Purchaser to render a determination of the applicable dispute (solely to the extent of such dispute) within thirty (30) days after submission of the matter to the Valuation Firm (or such longer period as mutually agreed in writing by the Purchaser and the Seller), which determination must will be in writing and must set forth, in reasonable detail, the basis thereforwill be binding on Buyer and Seller, and include a certification that it reached such determination in accordance with the definitions as provided in this Agreement and Exhibit F. Any further submissions to the Valuation Firm must be written and delivered to each Party to the dispute. The Valuation Firm shall make a final determination of the Gross Profit, Gross Profit Margin Percentage and resulting Earnout Amount (solely to the extent such amounts or their components are in dispute) in accordance with the guidelines and procedures set forth in this Agreement and Exhibit F. The Valuation Firm shall determine, based solely on presentations by the Purchaser and the Seller and their respective Representatives, and not by independent review, only those issues in dispute specifically set forth on the Earnout Objections Statement, and shall act as an expert and not as an arbitrator. In resolving any disputed item, the Valuation Firm shall (i) be bound by the principles set forth in this Section 2.5 and (ii) not assign a value to any item in dispute that is greater than the greatest value for such disputed item claimed by any Party or less than the smallest value for such disputed item claimed by any Party. The Parties shall reasonably cooperate with the Valuation Firm during the term of its engagement, including by executing a customary engagement letter. Neither the Purchaser, the Seller nor any of their respective Affiliates or Representatives shall have any ex parte conversations or meetings with the Valuation Firm in connection with any dispute submitted by the Purchaser and/or the Seller to the Valuation Firm pursuant to this Section 2.5(c) without the prior consent of the other Party. The Valuation Firm’s determination of the Gross Profit, Gross Profit Margin Percentage and the resulting Earnout Amount with respect to an Earnout Year shall, in each case in the manner contemplated by this Section 2.5, become final and binding on the Parties on the date the Valuation Firm delivers its final resolution in writing to the Seller and the Purchaser, absent manifest error or fraud. The costs fees and expenses of the Valuation Firm shall Earnout Referee will be allocated between the Purchaser, on the one hand, and the Seller, on the other hand, Parties in the same proportion that (x) the absolute value aggregate amount of the difference between the value of disputed items so submitted to the Earnout Amount asserted Referee that is unsuccessfully disputed by the Purchaser and the value of the Earnout Amount such Party (as finally determined by the Valuation Firm Earnout Referee) bears to (y) the absolute value total amount of such remaining disputed items so submitted. In the difference between the value of event that any amount is payable as the Earnout Amount asserted Payment under this subsection (c), Buyer will pay such amount by wire transfer of immediately available funds to an account designated by the Seller and as soon as reasonably practicable but in no event later than 10 days following the value receipt of the Final Earnout Amount determined by Report. In the Valuation Firm. For example, if the Seller submits an Earnout Objections Statement to the Valuation Firm that states event that the Earnout Amount should be $2,000 while the Purchaser asserts Payment is adjusted downward in the written presentation Final Earnout Report, Seller will pay such amount by wire transfer of immediately available funds to an account designated by Buyer as soon as practicable but in no event later than 10 days following the Valuation Firm that the Earnout Amount should be $1,000, and the Valuation Firm ultimately resolves that the Earnout Amount should be $1,200, then the costs and expenses receipt of the Valuation Firm will be allocated 20% to the Purchaser and 80% to the SellerFinal Earnout Report.
(d) Once Buyer agrees, with respect to the Earnout, except as otherwise agreed by the Seller, such agreement not to be unreasonably withheld or delayed, that:
(i) it will use commercially reasonable efforts to cause the Business to be integrated with its existing businesses and operations promptly and in a manner that does not have a material negative impact on the Earnout Amount for an Earnout Year has been finally determined in accordance with Section 2.5(cPayment;
(ii) and such Earnout Amount is not zero, the Purchaser shall no later than eight (8) Business Days following such determination, deliver or cause to be delivered to Seller the number of Purchaser Shares payable as during the Earnout Stock Consideration for such Period it will use commercially reasonable efforts to promote and maximize the sale of Products; and
(iii) during the Earnout YearPeriod it will not cease or materially reduce production of the Products. Notwithstanding the foregoing, provided Seller acknowledges that if (A) upon the closing of the Contemplated Transactions, Buyer has the right to operate the Business and Buyer’s other businesses in any portion way that Buyer deems appropriate in Buyer’s sole and absolute discretion, consistent with clauses (d)(i) through (d)(iii) above, (B) subject to clauses (d)(i) through (d)(iii) above, Buyer has no obligation to operate the Business in order to achieve any Earnout Payment or to maximize the amount of the Earnout Amount Payment during the Earnout Period or any particular Earnout Quarter, (C) the Earnout Payment is speculative and is subject to a pending claim for indemnification by numerous factors outside the Purchaser under Section 9.1(acontrol of Buyer and Seller, (D) there is no assurance that Seller will receive any Earnout Payment and Section 9.4(d)Buyer has not promised nor projected any Earnout Payment, such portion of the Earnout Amount shall only be paid eight (8) Business Days following the final resolution of such claim and only E) Buyer owes no fiduciary duty or, subject to clauses (d)(i) through (d)(iii) above, express or implied duty to the extent not used Seller, including an implied duty of good faith and fair dealing, and (F) the Parties solely intend the express provisions of this Agreement to offset govern their contractual relationship. Seller hereby waives any fiduciary duty or, subject to clauses (d)(i) through (d)(iii) above, express or implied duty of Buyer to the amount required to be paid by the Seller under Section 9.1(a) with respect to such claim. For the avoidance Seller, including an implied duty of doubt, no payment of Purchaser Shares shall be due with respect to an Earnout Year if the Earnout Amount for such Earnout Year is zerogood faith and fair dealing.
(e) The Parties understand and agree that (i) Buyer agrees that, if requested by Seller, it will meet with Seller at a mutually agreeable time once each quarter at the contingent rights to receive an Earnout Amount shall not be represented by any form of certificate or other instrumentBuyer’s principal executive offices during regular business hours, are not transferable, and do not constitute an equity or ownership interest in the Purchaser or any of its Affiliates; (ii) the Seller shall not have any rights as a security-holder of the Purchaser as a result of the at Seller’s contingent right sole expense, to receive any Earnout Amount; and (iii) no interest is payable with respect to any Earnout Amount.
(f) Any amount paid pursuant to this Section 2.5 shall be treated for all Tax purposes as additional consideration paid for discuss the Company Shares pursuant to this Agreement, except (i) for any portion treated as imputed interest and (ii) to the extent otherwise required pursuant to a “determination” within the meaning level of Section 1313(a) sales of the Code (or any similar provisions of state, local or foreign Law).
(g) Subsequent to the Closing and until the end of FY 2028, the Purchaser shall use its commercially reasonable efforts to maintain and preserve Products. Buyer agrees that it will consider in all material respects the material third-party customer relationships and material Intellectual Property of the Business existing as of the Closing Date (other than expiration of registered Intellectual Property in accordance with their terms). Without limiting the foregoing, (x) during the period from the Closing Date through the final determination of the Earnout Amount for FY 2028, the Purchaser shall maintain the records of the Business in a manner permitting preparation of the Earnout Statements and the Quarterly Gross Profit Statements accurately in all material respects in order to allow for the good faith calculation the suggestions of Seller concerning increasing the Earnout Amount and its components, including sales of Products. If requested by following the policies, principles and procedures set forth on Exhibit F; (y) during the period Seller within 60 days from the Closing Date through the end of FY 2028, the Purchaser shall (i) not take any action in bad faith, the primary intent or primary purpose of which is to avoid or reduce the amount of any Earnout Amount, including in bad faith accelerating or delaying the shipping of Specified Products or recognition of any revenues of the Business from one Earnout Year to another or following the end of the last Earnout Year; Period, Buyer will cooperate with and (ii) use commercially allow Seller and any representative of Seller, during normal business hours and subject to customary confidentiality restrictions, upon reasonable efforts notice and at Seller’s expense, to provide reasonably adequate staffing and working capital for the conduct an audit of the Business; and (z) during the period from the Closing Date through the earlier of (i) the payment of Buyer’s records with respect to the Earnout Amount for FY 2028 or (ii) the final determination that no Earnout Amount is payable for FY 2028, the Purchaser shall not enter into (or permit any Subsidiary of the Purchaser to enter into) any agreement or arrangement that would prevent the Purchaser from paying the Earnout Amount in accordance with this AgreementPayment.
(h) The Purchaser shall deliver or cause to be to be delivered to the Seller, within forty-five (45) days after the end of each fiscal quarter of an Earnout Year (other than the last fiscal quarter of such Earnout Year), a statement (the “Quarterly Gross Profit Statement”) setting forth the Purchaser’s calculation of Gross Profit for such fiscal quarter in reasonable detail, and, subject to the Disclosure Limitations, the Purchaser agrees to promptly provide such supporting documentation as the Seller may reasonably request to review the Purchaser’s calculation of the Gross Profit for such quarter.
(i) Any information provided to or obtained by the Seller pursuant to this Section 2.5 shall be deemed to be Confidential Information.
(j) The fiscal years of the Business for any Earnout Year and any fiscal quarter of the Business for any Earnout Year shall be based on the 4-4-5 accounting calendar that is used by the Purchaser, including as specified in the definitions of FY 2027 and FY 2028.
(k) Seller agrees to distribute the net proceeds of (i) 100% of any Earnout Amount in respect of FY 2027 (including the 2027 Catch-Up Amount, if any) to its members in accordance with the distribution provisions in the Seller’s Organizational Documents and (ii) 50% of any Earnout Amount in respect of FY 2028 (excluding, for avoidance of doubt, the 2027 Catch-Up Amount, if any) to The Resolute Fund IV, L.P. and the other 50% of any Earnout Amount in respect of FY 2028 (excluding, for avoidance of doubt, the 2027 Catch-Up Amount, if any) to Business Employee Equityholders, in each case of this clause (ii), in accordance with the distribution provisions in the Seller’s Organizational Documents. For purposes of the prior sentence, “Seller’s Organizational Documents” means Seller’s Organizational Documents as of the date of this Agreement, as they may be amended to implement the Earnout Arrangement in accordance with the terms of this Agreement and the terms set forth in Exhibit H.
Appears in 1 contract
Sources: Asset Purchase Agreement (Vitesse Semiconductor Corp)
Earnout. (a) Within forty-five (45) Not later than 90 days after following the end last day of an the Earnout YearPeriod, the Purchaser shall deliver or cause to the be delivered to Seller a written statement setting forth Purchaser’s good faith determination of Gross Profit and the resulting Earnout Amount (the “Earnout Statement”), together with reasonable supporting detail, showing the Purchaser’s good faith calculation for such Earnout Year of the (i) Gross Profit, (ii) Gross Profit Margin Percentage and (iii) resulting Earnout Amount. The calculations of Gross Profit and Gross Profit Margin Percentage the Earnout Amount shall each be calculated determined in accordance with the policies, principles and procedures definitions set forth on Exhibit F.
(b) Subject to in this Agreement. After delivery of the Disclosure LimitationsEarnout Statement, the Purchaser shall give the Seller and its Representatives shall be permitted representatives reasonable access to review the Purchaser’s and obtain copies of the Company’s and the Operating Company’s books and records of the Business and any work papers (subject to customary access letters and confidentiality undertakings) related to the preparation of or relevant to the determination of Gross Profit and the Earnout StatementAmount. The Seller and its Representatives representatives may make reasonable inquiries of the Purchaser Purchaser, the Company and its their respective accountants regarding questions concerning or disagreementsdisagreements with the Earnout Statement arising in the course of its review thereof, and the Purchaser shallshall use its, and shall cause the Company to use its its, commercially reasonable best efforts to cause any such accountants to, to cooperate with and respond to such inquiries. At the request of the Seller, and subject to the Disclosure Limitations, the Purchaser shall make available its personnel who are knowledgeable about the information contained in, and the preparation of, the Earnout Statement, to the Seller to advise and assist the Seller in its review of the Earnout Statement and any objections or disputes with respect thereto.
(cb) Within thirty (30) days after delivery of the Earnout Statement to the Seller, if If the Seller has any objections to the Earnout Statement, the Seller shall deliver to the Purchaser a written statement setting forth its objections thereto not later than 30 days after delivery of the Earnout Statement by Purchaser (an “Earnout Objections Statement”). Any If the Purchaser fails to timely deliver the Earnout Objections Statement shall specify in reasonable detail accordance with Section 1.6(a), then the nature of any disagreement so assertedSeller may prepare and deliver to Purchaser a draft Earnout Statement (the “Seller Earnout Statement”) that is deemed to be the Earnout Statement for purposes hereof and, in such event, the proposed correct amount for each provisions hereof shall apply, mutatis mutandis, to the Purchaser’s review of such item and the resulting Earnout AmountStatement. If an Earnout Objections Statement is not delivered to the Purchaser within thirty (30) days after delivery of the Earnout Statement to the SellerPurchaser, the Earnout Statement delivered by Purchaser shall be final, binding and non-non- appealable by the Partiesparties hereto. If Seller delivers a Seller Earnout Statement to Purchaser to which Purchaser has any objections, Purchaser shall deliver to Seller a written statement setting forth its objections thereto not later than 30 days after delivery of the Seller Earnout Statement.
(c) If the Seller shall timely deliver an Earnout Objections Statement is properly and or if Purchaser shall timely delivered, the portion of the Earnout Statement not subject to dispute pursuant to the Earnout Objections Statement shall be final, binding and non-appealable by the Parties. At any time during such thirty (30) day period, the Seller may deliver a written notice objection to the Purchaser stating that it agrees with the a Seller Earnout Statement and the Earnout Statement shall thereafter become finalStatement, binding and non-appealable by the Parties. The Seller and the Purchaser shall negotiate in good faith to resolve any objections in the Earnout Objections Statementsuch objections, but if and to the extent they do not reach a final resolution within sixty (60) 30 days after the delivery of the Earnout Objections Statement or Purchaser’s statement of objection to a Seller Earnout Statement, the Seller and the Purchaser shall submit, within seventy five (75) days after the delivery of the Earnout Objections Statement, submit such dispute to the Valuation Firm for resolutionDispute Resolution Firm. The Valuation Firm shall be instructed by the Seller and the Purchaser to render a determination of the applicable dispute (solely to the extent of such dispute) within thirty (30) days after submission of the matter to the Valuation Firm (or such longer period as mutually agreed in writing by the Purchaser and the Seller), which determination must be in writing and must set forth, in reasonable detail, the basis therefor, and include a certification that it reached such determination in accordance with the definitions as provided in this Agreement and Exhibit F. Any further submissions to the Valuation Dispute Resolution Firm must be written and delivered to each Party party to the disputedispute and neither the Purchaser or the Seller nor any of their respective representatives shall have any ex parte communications or meetings with the Dispute Resolution Firm regarding the subject matter hereof without the other party’s prior written consent. The Valuation Dispute Resolution Firm shall make a final consider only those items and amounts which are identified in the Earnout Objections Statement and which are not resolved in writing by the Seller and the Purchaser prior to submission to the Dispute Resolution Firm. The Dispute Resolution Firm’s determination will be based solely on the provisions of this Agreement, including Schedule 1.6 and will be limited to whether the determination of the Gross Profit, Gross Profit Margin Percentage and the resulting Earnout Amount (solely were made in a manner consistent with this Agreement, including Schedule 1.6 and the definitions contained in this Agreement. The Seller and the Purchaser shall use their commercially reasonable efforts to cause the Dispute Resolution Firm to resolve all disagreements as soon as practicable and in any event within 30 days after the submission of any dispute to the extent such amounts or their components are in dispute) in accordance with the guidelines and procedures set forth in this Agreement and Exhibit F. Dispute Resolution Firm. The Valuation Dispute Resolution Firm shall determine, based solely on presentations by the Purchaser and the Seller and their respective Representatives, and not by independent review, only those issues in dispute specifically set forth on the Earnout Objections Statement, and shall act as an expert and not as an arbitrator. Further, the Dispute Resolution Firm’s determination shall be based solely on the written presentations by the Purchaser and the Seller which are in accordance with the terms and procedures set forth in this Agreement (i.e., not on the basis of an independent review or investigation). In resolving any disputed item, the Valuation Dispute Resolution Firm shall (i) be bound by the principles set forth in this Section 2.5 and (ii) not assign a value to any item in dispute that is greater than the greatest value for such disputed item claimed by any Party either party or less than the smallest value for such disputed item claimed by any Partyeither party. The Parties shall reasonably cooperate with resolution of the Valuation Firm during the term of its engagement, including by executing a customary engagement letter. Neither the Purchaser, the Seller nor any of their respective Affiliates or Representatives shall have any ex parte conversations or meetings with the Valuation Firm in connection with any dispute submitted by the Purchaser and/or the Seller to the Valuation Dispute Resolution Firm pursuant to this Section 2.5(c) without the prior consent of the other Party. The Valuation Firm’s determination of the Gross Profitshall be final, Gross Profit Margin Percentage binding and the resulting Earnout Amount with respect to an Earnout Year shall, in each case in the manner contemplated by this Section 2.5, become final and binding non-appealable on the Parties on the date the Valuation Firm delivers its final resolution in writing to the Seller and the Purchaserparties hereto, absent manifest error or fraudmathematical error. The costs and expenses of the Valuation Dispute Resolution Firm shall be allocated between based upon the Purchaser, on percentage which the one hand, and portion of the Seller, on contested amount not awarded to each party bears to the other hand, amount actually contested by such party in the same proportion that (x) presentation to the absolute value of the difference between the value of the Earnout Amount asserted by the Purchaser and the value of the Earnout Amount determined by the Valuation Firm bears to (y) the absolute value of the difference between the value of the Earnout Amount asserted by the Seller and the value of the Earnout Amount determined by the Valuation Dispute Resolution Firm. For example, if the Seller submits an Earnout Objections Statement to the Valuation Firm that states that the Earnout Amount should be $2,000 while the Purchaser asserts in the written presentation to the Valuation Firm that the Earnout Amount should be for $1,000, and if the Valuation Purchaser contests only $500 of the amount claimed by the Seller, and if the Dispute Resolution Firm ultimately resolves that the Earnout Amount should be dispute by awarding the Seller $1,200300 of the $500 contested, then the costs and expenses of the Valuation Dispute Resolution Firm will be allocated 2060% (i.e., 300/500) to the Purchaser and 8040% (i.e., 200/500) to the Seller.
(d) Once Not later than 15 calendar days following the date on which the Earnout Amount for becomes final pursuant to Section 1.6(a), Section 1.6(c), or otherwise by a writing signed by each of Purchaser and Seller, Purchaser shall pay to Seller such Earnout Amount (such date, the “Earnout Payment Date”), if any, by wire transfer of immediately available funds to an account or accounts designated in writing by the Seller; provided, that the portion of such Earnout Year has been finally Amount constituting Option Proceeds (as determined solely based on the Payment Spreadsheet) and the Employer Tax Amount shall be delivered by Purchaser to the Company or its applicable Subsidiary, which shall pay such Option Proceeds to such Optionholders in accordance with Section 2.5(c) the Payment Spreadsheet, less any applicable withholding Taxes, through its payroll system promptly following the Earnout Payment Date but in any event not later than the next normal payroll date of the Company that follows the Earnout Payment Date and such deliver the Employer Tax Amount to the appropriate Governmental Authority. In the event that the Earnout Amount is not zeropaid to, the Purchaser shall no later than eight (8) Business Days following such determinationor as directed by Seller, deliver on or cause prior to be delivered to Seller the number of Purchaser Shares payable as the Earnout Stock Consideration for such Earnout YearPayment Date, provided that if any portion of the Earnout Amount is subject to a pending claim for indemnification by the Purchaser under Section 9.1(a) and Section 9.4(d), such portion of then the Earnout Amount shall only be paid eight (8) Business Days following accrue interest at a rate of 10% per annum from the final resolution last day of such claim and only to the extent not used to offset the amount required to be paid by the Seller under Section 9.1(a) with respect to such claim. For the avoidance of doubt, no payment of Purchaser Shares shall be due with respect to an Earnout Year if the Earnout Amount for such Earnout Year is zeroPeriod until the date of payment.
(e) The Parties understand From and after the Closing and through the Earnout Period, Purchaser will, and will cause each of its Affiliates (including the Company) to, act in good faith with respect to this Section 1.6, and will not act or fail to act with the primary purpose of avoiding payment or reducing the Gross Profit or the Earnout Amount, provided, that, other than with respect to the obligations of the Purchaser set forth in this Section 1.6, Purchaser shall be permitted to conduct the Flushing Business following the Closing in its good faith discretion; provided, however, that, during the Earnout Period, Purchaser shall use commercially reasonable efforts to continue to operate the Flushing Business, including by (i) maintaining the name “Purge Rite” (or derivative thereof) as a component of any rebranding of the Company or Operating Company or services they provide, and (ii) providing or causing the Company to provide sufficient personnel and managerial support, consistent with the conduct (as understood by Purchaser) of the Flushing Business as it was conducted on or prior to the Closing Date. Purchaser agrees that, during the Earnout Period, Purchaser shall not outsource components of the Flushing Business currently provided by the Company or the Operating Company to any third-party (such as re-rent equipment or water-haul off or treatment) unless and to the extent that the revenue generated from such components is taken into account in the calculation of Gross Profit. Purchaser shall cause the Company to maintain a financial record keeping system that enables Purchaser and the Company to separately account for the components of Gross Profit. Prior to the end of the Earnout Period, except in connection with a sale or transfer covered under Section 1.6(f) or as Purchaser and Seller may otherwise agree in writing, Purchaser shall not, and Purchaser shall cause the Company and the Operating Company and each of their respective officers, managers and employees not to (A) sell, assign, transfer, convey, lease or otherwise dispose of any material assets, Contracts, properties or business of the Company or the Operating Company other than in the Ordinary Course of Business or (B) transfer any material Contracts or divert any business or arrangements relating to the Flushing Business from the Company or the Operating Company, in each case, in a manner that would likely reduce Gross Profit; provided however, nothing herein shall be deemed to restrict or limit the ability of Purchaser and its affiliates from continuing to provide services on the projects set forth on Schedule 11.1(c).
(f) If, prior to the end of the Earnout Period, Purchaser sells or transfers (x) (by stock sale, merger or otherwise) a majority of the equity interests of the Company or the Operating Company to any Person or (y) all or substantially all of the assets of the Operating Company are sold or transferred to any Person (other than an Affiliate of Purchaser), then Purchaser shall pay by wire transfer of immediately available funds the maximum Earnout Amount, to the extent not already paid, promptly (and in no event later than one Business Day) after the closing of such transaction to an account or accounts designated in writing by the Seller; provided, that the portion of such Earnout Amount constituting Option Proceeds (as determined solely based on the Payment Spreadsheet) and the Employer Tax Amount shall be delivered by Purchaser to the Company or its applicable Subsidiary, which shall pay such Option Proceeds to such Optionholders in accordance with the Payment Spreadsheet, less any applicable withholding Taxes, through its payroll system promptly following the due date for such payment pursuant to this Section 1.6(f) but in any event not later than the next normal payroll date of the Company that follows such date and deliver the Employer Tax Amount to the appropriate Governmental Authority.
(g) Purchaser agrees to deliver to Seller its then-current good faith calculation of the Gross Profit (including reasonable support for such calculation) no later than 30 calendar days following the last day of each calendar quarter ending prior to the quarter in which the last day of the Earnout Period occurs.
(h) Seller understands and agrees that (i) the contingent rights to receive an Earnout Amount any amount pursuant to this Section 1.6 shall not be represented by any form of certificate or other instrument, are not transferable, and do not constitute an equity or ownership interest in the Purchaser or any of its Affiliates; the Company and (ii) the Seller shall not have any rights as a security-holder securityholder (including, dividend rights, voting rights, liquidation rights, preemptive rights or other rights common to holders of capital stock) of Purchaser or the Purchaser Company as a result of the Seller’s contingent right to receive any Earnout Amount; and (iii) no interest is payable with respect to any Earnout Amount.
(f) Any amount paid pursuant to this Section 2.5 shall be treated for all Tax purposes as additional consideration paid for the Company Shares pursuant to this Agreement, except (i) for any portion treated as imputed interest and (ii) to the extent otherwise required pursuant to a “determination” within the meaning of Section 1313(a) of the Code (or any similar provisions of state, local or foreign Law).
(g) Subsequent to the Closing and until the end of FY 2028, the Purchaser shall use its commercially reasonable efforts to maintain and preserve in all material respects the material third-party customer relationships and material Intellectual Property of the Business existing as of the Closing Date (other than expiration of registered Intellectual Property in accordance with their terms). Without limiting the foregoing, (x) during the period from the Closing Date through the final determination of the Earnout Amount for FY 2028, the Purchaser shall maintain the records of the Business in a manner permitting preparation of the Earnout Statements and the Quarterly Gross Profit Statements accurately in all material respects in order to allow for the good faith calculation of the Earnout Amount and its components, including by following the policies, principles and procedures set forth on Exhibit F; (y) during the period from the Closing Date through the end of FY 2028, the Purchaser shall (i) not take any action in bad faith, the primary intent or primary purpose of which is to avoid or reduce the amount of any Earnout Amount, including in bad faith accelerating or delaying the shipping of Specified Products or recognition of any revenues of the Business from one Earnout Year to another or following the end of the last Earnout Year; and (ii) use commercially reasonable efforts to provide reasonably adequate staffing and working capital for the conduct of the Business; and (z) during the period from the Closing Date through the earlier of (i) the payment of the Earnout Amount for FY 2028 or (ii) the final determination that no Earnout Amount is payable for FY 2028, the Purchaser shall not enter into (or permit any Subsidiary of the Purchaser to enter into) any agreement or arrangement that would prevent the Purchaser from paying the Earnout Amount in accordance with this Agreement.
(h) The Purchaser shall deliver or cause to be to be delivered to the Seller, within forty-five (45) days after the end of each fiscal quarter of an Earnout Year (other than the last fiscal quarter of such Earnout Year), a statement (the “Quarterly Gross Profit Statement”) setting forth the Purchaser’s calculation of Gross Profit for such fiscal quarter in reasonable detail, and, subject to the Disclosure Limitations, the Purchaser agrees to promptly provide such supporting documentation as the Seller may reasonably request to review the Purchaser’s calculation of the Gross Profit for such quarterhereunder.
(i) Any information provided to or obtained by Seller acknowledges that upon and following the Closing (i) there is no assurance that the Seller pursuant will earn and be entitled to any specific payment under this Section 2.5 1.6, and Purchaser has not promised or projected any such payments, nor is Purchaser obligated to operate the Company and the Flushing Business in order to maximize any such payment, (ii) Purchaser does not owe any fiduciary or other duty to Seller with respect to Seller earning such additional payments, except for those agreements set forth in this Section 1.6, (iii) Purchaser and Seller solely intend that the express provisions of this Agreement shall be deemed govern their contractual relationship with respect to be Confidential Informationsuch potential additional Purchase Price amounts or Earnout Amount and (iv) subject to the express terms of this Agreement, subsequent to the Closing, Purchaser shall have sole discretion with regard to all matters relating to the operation of the Company and the Flushing Business.
(j) The fiscal years of the Business for any Earnout Year and any fiscal quarter of the Business for any Earnout Year Purchaser shall be based on entitled to set off, recoup and deduct the 4-4-5 accounting calendar that is used by the Purchaser, including as specified in the definitions of FY 2027 and FY 2028.
(k) Seller agrees to distribute the net proceeds of (i) 100% amount of any liability or obligation of Seller to Purchaser under Section 10.1(i) against and from the Earnout Amount in respect of FY 2027 (including the 2027 Catch-Up Amount, if any) , provided, that, in no event shall any such set off, recoupment or deduction result in an obligation of Seller to its members in accordance with pay Purchaser any negative amount resulting from the distribution provisions in reduction of the Seller’s Organizational Documents and (ii) 50% of any Earnout Amount in respect of FY 2028 (excluding, for avoidance of doubt, the 2027 Catch-Up Amount, if any) , by the amount of such liability or obligation pursuant to The Resolute Fund IV, L.P. and Section 10.1(i). Purchaser shall include the other 50% of any amount by which it intends to reduce the Earnout Amount in respect of FY 2028 (excluding, for avoidance of doubt, the 2027 Catch-Up Amount, if any) to Business Employee Equityholders, in each case of this clause (ii), in accordance with the distribution provisions in the Seller’s Organizational Documents. For purposes of the prior sentence, “Seller’s Organizational Documents” means Seller’s Organizational Documents as of the date of this Agreement, as they may be amended to implement the its Earnout Arrangement in accordance with the terms of this Agreement and the terms set forth in Exhibit H.Statement.
Appears in 1 contract
Earnout. (a) Within forty-five During the Earnout Period, Acquiror shall, and shall cause its controlled Affiliates to:
(45i) days not take or omit to take any action that is in bad faith and for the primary purpose of avoiding, reducing, or preventing the achievement or attainment of the Price Earnout Milestone;
(ii) as soon as practicable (and in any event within ten (10) Business Days) after the end of an Earnout Yeareach monthly anniversary of a Measurement Start Date (each such period a “Measurement Period”), the Purchaser shall prepare and deliver to each of the Seller Acquiror Representative and the Blade Representative (each, a statement “Representative Party”) a written statement, certified by the Acquiror’s Chief Financial Officer (the each, a “Price Earnout Statement”), together with reasonable supporting detail, showing setting out (A) the Purchaser’s good faith calculation for such Earnout Year VWAP of the Acquiror Common Stock for each Trading Day during such Measurement Period then ended and each preceding Measurement Period during the Earnout Period and (iB) Gross Profita statement as to whether the Price Earnout Milestone has been achieved during such Measurement Period (for the avoidance of doubt, (ii) Gross Profit Margin Percentage Acquiror shall have no obligation to prepare and deliver a Price Earnout Statement following a Non-Reporting Measurement Period unless and until a New Measurement Start Date has occurred);
(iii) resulting make available, in the ten (10) Business Days following Acquiror’s delivery of a Price Earnout Amount. The Gross Profit Statement, Acquiror’s Chief Financial Officer and Gross Profit Margin Percentage shall related personnel and advisors to (A) conduct a telephone or video conference with the Acquiror Representative and the Blade Representative (or either of them) regarding questions concerning or disagreements with such Price Earnout Statement arising in the course of their review thereof, (B) respond to reasonable follow-up inquiries by the Acquiror Representative and the Blade Representative regarding the information provided by or on behalf of Acquiror during any such telephone or video conference and (C) otherwise reasonably cooperate with the Acquiror Representative and the Blade Representative in connection with such Representative Party’s review of any Price Earnout Statement;
(iv) promptly upon the achievement of the Price Earnout Milestone (as finally determined pursuant to Section 3.05(c) or Section 3.05(d)), and in any event within ten (10) Business Days of such finally determined achievement of the Price Earnout Milestone (the “Price Milestone Issuance Date”), issue, or cause to be calculated issued, to the Earnout Participants, in accordance with their respective Pro Rata Shares, the policiesEarnout Shares, principles and procedures set forth on Exhibit F.subject to Section 3.05(b); and
(v) immediately prior to the occurrence of a Transaction Earnout Milestone (the “Transaction Milestone Issuance Date”), issue or cause to be issued, to the Earnout Participants, in accordance with their respective Pro Rata Shares, the Earnout Shares, subject to Section 3.05(b).
(b) Subject Notwithstanding anything in Section 3.05(a) to the Disclosure Limitationscontrary, the Seller and its Representatives shall be permitted reasonable access to review and obtain copies of the books and records of the Business and any work papers (subject to customary access letters and confidentiality undertakings) related to the preparation extent that any portion of the Earnout Statement. The Seller and its Representatives may make reasonable inquiries Shares become issuable to an Earnout Participant in respect of such Earnout Participant’s Assumed Blade Options that remain unvested as of the Purchaser Price Milestone Issuance Date or the Transaction Milestone Issuance Date, as applicable (each such award, an “Unvested Assumed Option”), then, in lieu of issuing such portion of the Earnout Shares to such Earnout Participant in respect of Unvested Assumed Options, Acquiror shall grant to such Earnout Participant, as soon as practicable following the later of (i) the Price Milestone Issuance Date or the Transaction Milestone Issuance Date, as applicable and (ii) Acquiror’s filing of a Form S-8 Registration Statement covering grants to be made in accordance herewith, restricted stock units for a number of shares of Acquiror Common Stock equal to such portion of the Earnout Shares otherwise issuable to such Earnout Participant in accordance with Section 3.05(a) in respect of Unvested Assumed Options (“Earnout RSUs”); provided that such Earnout RSUs shall only be granted in accordance herewith if the Earnout Participant remains in continuous service to Acquiror or any of its accountants regarding questions Subsidiaries as of the Price Milestone Issuance Date or disagreementsthe Transaction Milestone Issuance Date, as applicable (and, if such Earnout Participant has not so remained in continuous service, then no Earnout Shares or Earnout RSUs shall be granted to such Earnout Participant in accordance herewith in respect of such Unvested Assumed Option). Earnout RSUs shall vest, and the Purchaser shallunderlying shares of Acquiror Common Stock issued, in substantially equal quarterly installments over the remaining vesting schedule of the corresponding Unvested Assumed Option and shall use its reasonable best efforts to cause any such accountants to, cooperate with and respond to such inquiries. At the request of the Seller, and be subject to the Disclosure Limitations, the Purchaser shall make available its personnel who are knowledgeable about the information contained in, and the preparation of, the Earnout Statement, same vesting conditions as apply to the Seller corresponding Unvested Assumed Options (as adjusted to advise and assist the Seller in its review of the Earnout Statement and any objections or disputes with respect theretoreflect quarterly vesting installments).
(c) Within thirty (30) days after delivery of the Earnout Statement to the Seller, if the Seller If either Representative Party has any objections to the a Price Earnout Statement, such Representative Party shall, within fifteen (15) Business Days of such Representative Party’s receipt of such Price Earnout Statement (the Seller shall “Objection Period”), deliver to the Purchaser Acquiror (to the attention of the Acquiror’s Chief Financial Officer) and the other Representative Party a written statement setting forth its objections thereto (an “Earnout Objections Objection Statement”). Any Earnout Objections Statement shall specify ) setting forth such objections (in reasonable detail the nature of any disagreement so asserted, the proposed correct amount for each such item and the resulting Earnout Amountdetail). If an Earnout Objections Objection Statement is not delivered by a Representative Party prior to the Purchaser within thirty (30) days after delivery expiration of the Objection Period, the Acquiror and each Representative Party shall meet, confer and exchange any additional relevant information reasonably requested regarding the computations set forth in the Price Earnout Statement for a period of ten (10) Business Day thereafter (the “Negotiation Period”) and use reasonable best efforts to resolve by written agreement (the “Agreed Modifications”) any differences as to the Sellercomputations in the Price Earnout Statement. In the event Acquiror and the Representative Parties so resolve any such differences, the Price Earnout Statement, as modified by the Agreed Modifications, shall be final and binding with respect to the applicable Measurement Period. In the event Acquiror and the Representative Parties do not resolve any differences as to the computations in the Price Earnout Statement shall be final, binding and non-appealable by prior to the Parties. If an Earnout Objections Statement is properly and timely delivered, the portion expiration of the Earnout Statement not subject to dispute pursuant to Negotiation Period, then either Representative Party may refer the Earnout Objections Statement shall be final, binding and non-appealable by the Parties. At any time during such thirty (30) day period, the Seller may deliver a written notice to the Purchaser stating that it agrees with the Earnout Statement and the Earnout Statement shall thereafter become final, binding and non-appealable by the Parties. The Seller and the Purchaser shall negotiate in good faith to resolve any objections in the Earnout Objections Statement, but if and to the extent they do not reach a final resolution within sixty (60) days after the delivery of the Earnout Objections Statement, the Seller and the Purchaser shall submit, within seventy five (75) days after the delivery of the Earnout Objections Statement, such dispute to the Valuation Firm for resolution. The Valuation Firm shall be instructed by the Seller a nationally recognized, independent accounting firm reasonably acceptable to Acquiror and the Purchaser Blade and independent to render a determination of the applicable dispute Acquiror and Blade (solely to the extent of such dispute“Independent Expert”) within thirty (30) calendar days after submission following the expiration of the matter to Negotiation Period for final resolution of the Valuation Firm (or such longer period as mutually agreed in writing by the Purchaser and the Seller), which determination must be in writing and must set forth, in reasonable detail, the basis therefor, and include a certification that it reached such determination dispute in accordance with the definitions as provided procedures set forth in this Agreement and Exhibit F. Any further submissions Section 3.05(d).
(d) If a dispute with respect to the Valuation Firm must be written and delivered to each Party to the dispute. The Valuation Firm shall make a final determination of the Gross Profit, Gross Profit Margin Percentage and resulting Price Earnout Amount (solely to the extent such amounts or their components are in dispute) Statement is submitted in accordance with this Section 3.05 to the guidelines Independent Expert for final resolution, Acquiror and the Representative Parties will follow the procedures set forth in this Agreement Section 3.05(d). Each of the Blade Representative and Exhibit F. The Valuation Firm shall determinethe Acquiror Representative agrees to execute, based solely on presentations if requested by the Purchaser and Independent Expert, a reasonable engagement letter with respect to the Seller and their respective Representatives, and not by independent review, only those issues in dispute specifically set forth on the Earnout Objections Statement, and shall act as an expert and not as an arbitrator. In resolving any disputed item, the Valuation Firm shall (i) determination to be bound made by the principles set forth in this Section 2.5 and (ii) not assign a value to any item in dispute that is greater than the greatest value for such disputed item claimed by any Party or less than the smallest value for such disputed item claimed by any Party. The Parties shall reasonably cooperate with the Valuation Firm during the term of its engagement, including by executing a customary engagement letter. Neither the Purchaser, the Seller nor any of their respective Affiliates or Representatives shall have any ex parte conversations or meetings with the Valuation Firm in connection with any dispute submitted by the Purchaser and/or the Seller to the Valuation Firm Independent Expert pursuant to this Section 2.5(c) without the prior consent of the other Party. The Valuation Firm’s determination of the Gross Profit, Gross Profit Margin Percentage and the resulting Earnout Amount with respect to an Earnout Year shall, in each case in the manner contemplated by this Section 2.5, become final and binding on the Parties on the date the Valuation Firm delivers its final resolution in writing to the Seller and the Purchaser, absent manifest error or fraud3.05(d). The costs All fees and expenses of the Valuation Firm shall Independent Expert will be allocated between borne by the Purchaser, on the one hand, and the Seller, on the other hand, Acquiror. Except as provided in the same proportion that (x) the absolute value of the difference between the value of the Earnout Amount asserted by the Purchaser and the value of the Earnout Amount determined by the Valuation Firm bears to (y) the absolute value of the difference between the value of the Earnout Amount asserted by the Seller and the value of the Earnout Amount determined by the Valuation Firm. For examplepreceding sentence, if the Seller submits an Earnout Objections Statement to the Valuation Firm that states that the Earnout Amount should be $2,000 while the Purchaser asserts in the written presentation to the Valuation Firm that the Earnout Amount should be $1,000, and the Valuation Firm ultimately resolves that the Earnout Amount should be $1,200, then the all other costs and expenses of incurred by the Valuation Firm Blade Representative in connection with resolving any dispute hereunder before the Independent Expert will be allocated 20% to the Purchaser and 80% to the Seller.
(d) Once borne by the Earnout Amount for an Earnout Year has been finally determined in accordance with Section 2.5(c) Participants, and such Earnout Amount is not zero, the Purchaser shall no later than eight (8) Business Days following such determination, deliver or cause to be delivered to Seller the number of Purchaser Shares payable as the Earnout Stock Consideration for such Earnout Year, provided that if any portion of the Earnout Amount is subject to a pending claim for indemnification all other costs and expenses incurred by the Purchaser under Section 9.1(a) and Section 9.4(d), such portion of Acquiror Representative in connection with resolving any dispute hereunder before the Earnout Amount shall only Independent Expert will be paid eight (8) Business Days following the final resolution of such claim and only to the extent not used to offset the amount required to be paid borne by the Seller under Section 9.1(a) with respect to such claimAcquiror. For the avoidance of doubt, no payment of Purchaser Shares shall be due with respect to an Earnout Year if the Earnout Amount for such Earnout Year is zero.
(e) The Parties understand and agree that (i) the contingent rights to receive an Earnout Amount shall not be represented by any form of certificate or other instrument, are not transferable, and do not constitute an equity or ownership interest in the Purchaser or any of its Affiliates; (ii) the Seller shall not have any rights as a security-holder of the Purchaser as a result of the Seller’s contingent right to receive any Earnout Amount; and (iii) no interest is payable with respect to any Earnout Amount.
(f) Any amount paid pursuant to this Section 2.5 shall be treated for all Tax purposes as additional consideration paid for the Company Shares pursuant to this Agreement, except (i) for any portion treated as imputed interest and (ii) to the extent otherwise required pursuant to a “determination” within the meaning of Section 1313(a) of the Code (or any similar provisions of state, local or foreign Law).
(g) Subsequent to the Closing and until the end of FY 2028, the Purchaser shall use its commercially reasonable efforts to maintain and preserve in all material respects the material third-party customer relationships and material Intellectual Property of the Business existing as of the Closing Date (other than expiration of registered Intellectual Property in accordance with their terms). Without limiting the foregoing, (x) during the period from the Closing Date through the final determination of the Earnout Amount for FY 2028, the Purchaser shall maintain the records of the Business in a manner permitting preparation of the Earnout Statements Blade Representative and the Quarterly Gross Profit Statements accurately in all material respects in order to allow for Acquiror Representative will request that the good faith calculation of the Earnout Amount and its components, including by following the policies, principles and procedures set forth on Exhibit F; (y) during the period from the Closing Date through the end of FY 2028, the Purchaser shall (i) not take any action in bad faith, the primary intent or primary purpose of which is to avoid or reduce the amount of any Earnout Amount, including in bad faith accelerating or delaying the shipping of Specified Products or recognition of any revenues of the Business from one Earnout Year to another or following the end of the last Earnout Year; and (ii) use commercially reasonable efforts to provide reasonably adequate staffing and working capital for the conduct of the Business; and (z) during the period from the Closing Date through the earlier of (i) the payment of the Earnout Amount for FY 2028 or (ii) the final Independent Expert’s determination that no Earnout Amount is payable for FY 2028, the Purchaser shall not enter into (or permit any Subsidiary of the Purchaser to enter into) any agreement or arrangement that would prevent the Purchaser from paying the Earnout Amount in accordance with this Agreement.
(h) The Purchaser shall deliver or cause to be to be delivered to the Seller, made within forty-five (45) days after its engagement, or as soon thereafter as possible, and that such determination be set forth in a written statement delivered to the end of each fiscal quarter of an Earnout Year Acquiror, the Acquiror Representative and the Blade Representative. The Independent Expert’s determination will be final, conclusive, non-appealable and binding for all purposes hereunder (other than the last fiscal quarter of such Earnout Year), a statement (the “Quarterly Gross Profit Statement”) setting forth the Purchaser’s calculation of Gross Profit for such fiscal quarter in reasonable detail, and, subject to the Disclosure Limitations, the Purchaser agrees to promptly provide such supporting documentation as the Seller may reasonably request to review the Purchaser’s calculation of the Gross Profit for such quarter.
(i) Any information provided to or obtained by the Seller pursuant to this Section 2.5 shall be deemed to be Confidential Information.
(j) The fiscal years of the Business for any Earnout Year and any fiscal quarter of the Business for any Earnout Year shall be based on the 4-4-5 accounting calendar that is used by the Purchaser, including as specified in the definitions event of FY 2027 and FY 2028.
(k) Seller agrees to distribute the net proceeds of (i) 100% of any Earnout Amount fraud or manifest error). The Independent Expert will determine only those issues still in respect of FY 2027 (including the 2027 Catch-Up Amount, if any) to its members in accordance with the distribution provisions in the Seller’s Organizational Documents and (ii) 50% of any Earnout Amount in respect of FY 2028 (excluding, for avoidance of doubt, the 2027 Catch-Up Amount, if any) to The Resolute Fund IV, L.P. and the other 50% of any Earnout Amount in respect of FY 2028 (excluding, for avoidance of doubt, the 2027 Catch-Up Amount, if any) to Business Employee Equityholders, in each case of this clause (ii), in accordance with the distribution provisions in the Seller’s Organizational Documents. For purposes of the prior sentence, “Seller’s Organizational Documents” means Seller’s Organizational Documents dispute as of the date of such Independent Expert’s engagement and such determination will be based solely upon and consistent with the terms and conditions of this Agreement. Each of the Blade Representative and the Acquiror Representative will be entitled to make one presentation to the Independent Expert and will use their reasonable best efforts to make their respective presentations to the Independent Expert as promptly as practicable following submission to the Independent Expert of the disputed items, and each such Representative Party will be entitled, as part of its presentation, to respond to the presentation of the other Representative Party and any questions and requests of the Independent Expert. In deciding any matter, the Independent Expert will be bound by the provisions of this Agreement, including this Section 3.05(d). It is the intent of the parties hereto that the activities of the Independent Expert in connection herewith are not (and should not be considered to be or treated as) an arbitration proceeding or similar arbitral process and that no formal arbitration rules should be followed (including rules with respect to procedures and discovery).
(e) Following the Closing, the Acquiror and its Subsidiaries, including Blade and its Subsidiaries, will be entitled to operate their respective businesses based upon the business requirements of the Acquiror and its Subsidiaries. Each of the Acquiror and its Subsidiaries, including Blade and its Subsidiaries, will be permitted, following the Closing to make changes at its sole discretion to its operations, organization, personnel, accounting practices and other aspects of its business, including actions that may have an impact on the closing price of the Acquiror Common Stock and the achievement of the Price Earnout Milestone, and, other than as they may be amended to implement a result of a breach of Section 3.05(a)(i), the Earnout Arrangement Participants will not have any right to claim the loss of all or any portion of any Earnout Shares or other damages as a result of such decisions.
(f) If Acquiror shall, at any time or from time to time, after the date hereof effect a subdivision, stock split, stock dividend, reorganization, combination, recapitalization or similar transaction affecting the outstanding shares of Acquiror Common Stock (in accordance with each case, other than pursuant to the terms Conversion or the PIPE Investment) (an “Earnout Adjustment Event”), the number of this Agreement and the terms shares of Acquiror Common Stock set forth in Exhibit H.the definitions of Earnout Shares, and the stock price target set forth in the definition of Price Earnout Milestone, shall be equitably adjusted for such Earnout Adjustment Event. Any adjustment under this paragraph shall become effective at the close of business on the date the Earnout Adjustment Event becomes effective (which shall be the “ex” date, if any, with respect to any such event).
Appears in 1 contract
Earnout. (a) Within fortyDuring the time period starting on the Closing Date and ending on thirty-five six (4536) days after the end of an Earnout Yearmonth anniversary thereof, the Sellers, in their capacities as employees of the Purchaser and WBS LLC, shall deliver use commercially reasonable efforts to cause the Seller Purchaser and WBS LLC to collect in full each of the accounts receivables of WBS LLC set forth on Schedule B hereto (each, a statement “Relevant Account Receivable”). As part of the U.S. Transaction Consideration, the Sellers shall be entitled to receive cash payments from the Purchaser (the “Earnout StatementU.S. Transaction Consideration”)) equal to the amount, together with reasonable supporting detailif any, showing the Purchaser’s good faith calculation for such Earnout Year of the by which: (i) Gross Profitthe amount of cash recovered by the Purchaser and WBS LLC with respect to each Relevant Account Receivable during such time period (each, a “Recovered Amount”); exceeds (ii) Gross Profit Margin Percentage and the GTTA Estimated Collectible Amount for such Relevant Account Receivable set forth set forth next to its name on Schedule B; provided, however, that in no event shall the aggregate Earnout U.S. Transaction Consideration amount exceed five hundred thousand dollars (iii) resulting Earnout Amount$500,000). The Gross Profit Purchaser and Gross Profit Margin Percentage WBS LLC shall be calculated in accordance entitled to retain, without compensation to the Sellers, any Recovered Amount with respect to any Relevant Account Receivable that is less than the policies, principles and procedures set forth on Exhibit F.GTTA Estimated Collectible Amount for such Relevant Account Receivable.
(b) Subject The Purchaser and WBS LLC shall fund their reasonable outside counsel fees associated with collection of Relevant Accounts Receivable pursuant to Section 1.11(a), which shall, except with respect to the Disclosure LimitationsWV Fiber matter (as described on Schedule B), be solely at the Seller and its Representatives shall be permitted reasonable access to review and obtain copies of the books and records of the Business and any work papers (subject to customary access letters and confidentiality undertakings) related to the preparation of the Earnout Statement. The Seller and its Representatives may make reasonable inquiries expense of the Purchaser and its accountants regarding questions or disagreements, and the Purchaser shall, WBS LLC and shall use its reasonable best efforts to cause any such accountants to, cooperate with and respond to such inquiries. At the request of the Seller, and subject to the Disclosure Limitations, the Purchaser shall make available its personnel who are knowledgeable about the information contained in, and the preparation of, not reduce the Earnout Statement, to the Seller to advise and assist the Seller in its review of the Earnout Statement and any objections or disputes with respect theretoU.S. Transaction Consideration.
(c) Within thirty (30) days after delivery of the The Earnout Statement to the SellerU.S. Transaction Consideration, if the Seller has any objections any, with respect to the Earnout Statement, the Seller shall deliver to the Purchaser a statement setting forth its objections thereto (an “Earnout Objections Statement”). Any Earnout Objections Statement shall specify in reasonable detail the nature of any disagreement so asserted, the proposed correct amount for each such item and the resulting Earnout Amount. If an Earnout Objections Statement is not delivered to the Purchaser within thirty (30) days after delivery of the Earnout Statement to the Seller, the Earnout Statement Relevant Account Receivable shall be final, binding allocated fifty percent (50%) to Charter and non-appealable by the Parties. If an Earnout Objections Statement is properly fifty percent (50%) to Hollander and timely delivered, the portion of the Earnout Statement not subject to dispute pursuant to the Earnout Objections Statement shall be final, binding and non-appealable paid by the Parties. At any time during such thirty (30) day period, the Seller may deliver a written notice to the Purchaser stating that it agrees with the Earnout Statement and the Earnout Statement shall thereafter become final, binding and non-appealable by the Parties. The Seller and the Purchaser shall negotiate in good faith to resolve any objections in the Earnout Objections Statement, but if and to the extent they do not reach a final resolution within sixty (60) days after the delivery of the Earnout Objections Statement, the Seller and the Purchaser shall submit, within seventy five (75) days after the delivery of the Earnout Objections Statement, such dispute to the Valuation Firm for resolution. The Valuation Firm shall be instructed by the Seller and the Purchaser to render a determination the Sellers, by check or wire transfer of immediately available funds, promptly after such receipt by the Purchaser or WBS LLC of the applicable dispute (solely to the extent of such dispute) within thirty (30) days after submission of the matter to the Valuation Firm (or such longer period as mutually agreed in writing by the Purchaser and the Seller), which determination must be in writing and must set forth, in reasonable detail, the basis therefor, and include a certification that it reached such determination in accordance with the definitions as provided in this Agreement and Exhibit F. Any further submissions to the Valuation Firm must be written and delivered to each Party to the dispute. The Valuation Firm shall make a final determination of the Gross Profit, Gross Profit Margin Percentage and resulting Earnout Amount (solely to the extent such amounts or their components are in dispute) in accordance with the guidelines and procedures set forth in this Agreement and Exhibit F. The Valuation Firm shall determine, based solely on presentations by the Purchaser and the Seller and their respective Representatives, and not by independent review, only those issues in dispute specifically set forth on the Earnout Objections Statement, and shall act as an expert and not as an arbitrator. In resolving any disputed item, the Valuation Firm shall (i) be bound by the principles set forth in this Section 2.5 and (ii) not assign a value to any item in dispute that is greater than the greatest value for such disputed item claimed by any Party or less than the smallest value for such disputed item claimed by any Party. The Parties shall reasonably cooperate with the Valuation Firm during the term of its engagement, including by executing a customary engagement letter. Neither the Purchaser, the Seller nor any of their respective Affiliates or Representatives shall have any ex parte conversations or meetings with the Valuation Firm in connection with any dispute submitted by the Purchaser and/or the Seller to the Valuation Firm pursuant to this Section 2.5(c) without the prior consent of the other Party. The Valuation Firm’s determination of the Gross Profit, Gross Profit Margin Percentage and the resulting Earnout Amount with respect to an Earnout Year shall, in each case in the manner contemplated by this Section 2.5, become final and binding on the Parties on the date the Valuation Firm delivers its final resolution in writing to the Seller and the Purchaser, absent manifest error or fraud. The costs and expenses of the Valuation Firm shall be allocated between the Purchaser, on the one hand, and the Seller, on the other hand, in the same proportion that (x) the absolute value of the difference between the value of the Earnout Amount asserted by the Purchaser and the value of the Earnout Amount determined by the Valuation Firm bears to (y) the absolute value of the difference between the value of the Earnout Amount asserted by the Seller and the value of the Earnout Amount determined by the Valuation Firm. For example, if the Seller submits an Earnout Objections Statement to the Valuation Firm that states that the Earnout Amount should be $2,000 while the Purchaser asserts in the written presentation to the Valuation Firm that the Earnout Amount should be $1,000, and the Valuation Firm ultimately resolves that the Earnout Amount should be $1,200, then the costs and expenses of the Valuation Firm will be allocated 20% to the Purchaser and 80% to the SellerRecovered Amount.
(d) Once the Earnout Amount for an Earnout Year has been finally determined In taking actions in accordance connection with Section 2.5(c) and such Earnout Amount is not zero, the Purchaser shall no later than eight (8) Business Days following such determination, deliver or cause to be delivered to Seller the number collection of Purchaser Shares payable as the Earnout Stock Consideration for such Earnout Year, provided that if any portion of the Earnout Amount is subject to a pending claim for indemnification by the Purchaser under Section 9.1(a) and Section 9.4(d), such portion of the Earnout Amount shall only be paid eight (8) Business Days following the final resolution of such claim and only to the extent not used to offset the amount required to be paid by the Seller under Section 9.1(a) with respect to such claim. For the avoidance of doubt, no payment of Purchaser Shares shall be due with respect to an Earnout Year if the Earnout Amount for such Earnout Year is zero.
(e) The Parties understand and agree that Relevant Accounts Receivable: (i) the contingent rights to receive an Earnout Amount Sellers shall not be represented by any form act in a commercially reasonably manner in accordance with the direction and oversight of certificate or other instrument, are not transferable, and do not constitute an equity or ownership interest in their superiors within the Purchaser or any of its Affiliatesand WBS LLC; (ii) without limiting the generality of the foregoing, in no event will any Seller shall not have take any rights as a security-holder action that is reasonably likely to harm to the relationship of the Purchaser as a result of and WBS LLC with the Seller’s contingent right to receive any Earnout Amountapplicable account debtor; and (iii) no interest is payable with respect to any Earnout Amount.
(f) Any amount paid pursuant to this Section 2.5 shall be treated for all Tax purposes as additional consideration paid for the Company Shares pursuant to this Agreement, except (i) for any portion treated as imputed interest and (ii) to the extent otherwise required pursuant to a “determination” within the meaning of Section 1313(a) of the Code (or any similar provisions of state, local or foreign Law).
(g) Subsequent to the Closing and until the end of FY 2028, the Purchaser and WBS LLC shall use its act in a commercially reasonable efforts to maintain and preserve in all material respects the material third-party customer relationships and material Intellectual Property of the Business existing as of the Closing Date (other than expiration of registered Intellectual Property in accordance with their terms). Without limiting the foregoing, (x) during the period from the Closing Date through the final determination of the Earnout Amount for FY 2028, the Purchaser shall maintain the records of the Business in a manner permitting preparation of the Earnout Statements and the Quarterly Gross Profit Statements accurately in all material respects in order to allow for the good faith calculation of the Earnout Amount and its components, including by following the policies, principles and procedures set forth on Exhibit F; (y) during the period from the Closing Date through the end of FY 2028, the Purchaser shall (i) not take any action in bad faith, the primary intent or primary purpose of which is to avoid or reduce the amount of any Earnout Amount, including in bad faith accelerating or delaying the shipping of Specified Products or recognition of any revenues of the Business from one Earnout Year to another or following the end of the last Earnout Year; and (ii) use commercially reasonable efforts to provide reasonably adequate staffing and working capital for the conduct of the Business; and (z) during the period from the Closing Date through the earlier of (i) the payment of the Earnout Amount for FY 2028 or (ii) the final determination that no Earnout Amount is payable for FY 2028, the Purchaser shall not enter into (or permit any Subsidiary of the Purchaser to enter into) any agreement or arrangement that would prevent the Purchaser from paying the Earnout Amount in accordance with this Agreementmanner.”
(h) The Purchaser shall deliver or cause last sentence of Section 5.6(a) of the Purchase Agreement is hereby amended to be to be delivered to delete therefrom the Sellerfollowing phrase: “but, within forty-five (45) days after as provided in the end definition of each fiscal quarter of an Earnout Year (other than the last fiscal quarter of such Earnout Year), a statement (the “Quarterly Gross Profit Statement”) setting forth the Purchaser’s calculation of Gross Profit for such fiscal quarter NWC in reasonable detail, and, subject to the Disclosure LimitationsArticle IX, the Purchaser agrees to promptly provide such supporting documentation as Companies Employees Severance Obligations shall not be included in the Seller may reasonably request to review the Purchaser’s calculation of the Gross Profit for such quarterNWC”.
(i) Any information Section 5.12 of the Purchase Agreement is hereby amended to delete therefrom the following phrase: “but, as provided in the definition of NWC in Article IX, up to or obtained by fifty-five thousand dollars ($55,000) of the Seller pursuant to this Section 2.5 Audit Expenses shall not be deemed to be Confidential Informationincluded in the NWC”.
(j) The fiscal years Section 7.2(a) of the Business for any Earnout Year and any fiscal quarter Purchase Agreement is hereby amended to delete therefrom the following phrase: “except to the extent accrued as a Current Liability included in the calculation of the Business for any Earnout Year shall be based on the 4-4-5 accounting calendar that is used by the Purchaser, including as specified in the definitions of FY 2027 and FY 2028.Final NWC”
(k) Seller agrees to distribute the net proceeds of (iSection 7.6(a)(i) 100% of any Earnout Amount in respect of FY 2027 (including the 2027 Catch-Up Amount, if any) to its members in accordance with the distribution provisions in the Seller’s Organizational Documents and (ii) 50% of any Earnout the Purchase Agreement are hereby amended to provide in their entirety as follows:
(i) by the Sellers under Section 7.2(a) (Indemnification by the Sellers Concerning the Companies) shall be satisfied: (A) first, by cancellation of the Stock U.S. Transaction Consideration; (B) second, to the extent that the Stock U.S. Transaction Consideration is insufficient to satisfy such Seller Indemnification Payment Amount in respect full, by cancellation of FY 2028 the Notes U.S. Transaction Consideration; (excludingC) third, for avoidance to the extent that the Stock U.S. Transaction Consideration and the Notes U.S. Transaction Consideration are insufficient to satisfy such Seller Indemnification Payment Amount in full, by cancellation of doubtthe Earnout U.S. Transaction Consideration; and (D) fourth, to the extent that the Stock U.S. Transaction Consideration, the 2027 Catch-Up Amount, if any) to The Resolute Fund IV, L.P. Notes U.S. Transaction Consideration and the other 50% of any Earnout U.S. Transaction Consideration are insufficient to satisfy such Seller Indemnification Payment Amount in respect full, by wire transfer of FY 2028 immediately available funds of the unsatisfied part of the Seller Indemnification Payment Amount by the Sellers, jointly and severally, to the respective accounts of the Purchaser and Purchaser Europe (excluding, allocated between the Purchaser and Purchaser Europe in proportion to the Transaction Consideration for avoidance of doubt, the 2027 Catch-Up Amount, if any) to Business Employee EquityholdersPurchased Equity Interests that each is purchasing hereunder), in each case not later than five (5) Business Days after determination of the Seller Indemnification Payment Amount pursuant to this clause Article VII; and
(ii) by a Seller under Section 7.2(b) (Indemnification by each Seller Concerning Such Seller), shall be satisfied: (A) first, by cancellation of such Seller’s Stock U.S. Transaction Consideration; (B) second, to the extent that such Seller’s Stock U.S. Transaction Consideration is insufficient to satisfy such Seller Indemnification Payment Amount in full, by cancellation of such Seller’s Notes U.S. Transaction Consideration; (C) third, to the extent that such Seller’s Stock U.S. Transaction Consideration and Notes U.S. Transaction Consideration are insufficient to satisfy such Seller Indemnification Payment Amount in full, by cancellation of such Seller’s Earnout U.S. Transaction Consideration; and (D) fourth, to the extent that such Seller’s Stock U.S. Transaction Consideration, Notes U.S. Transaction Consideration and Earnout U.S. Transaction Consideration are insufficient to satisfy such Seller Indemnification Payment Amount in full, by wire transfer of immediately available funds of the unsatisfied part of the Seller Indemnification Payment Amount by such Seller to the respective accounts of the Purchaser and Purchaser Europe (allocated between the Purchaser and Purchaser Europe in proportion to the Transaction Consideration for the Purchased Equity Interests that each is purchasing hereunder), in accordance with the distribution provisions in the Seller’s Organizational Documents. For purposes each case not later than five (5) Business Days after determination of the prior sentence, “Seller’s Organizational Documents” means Seller’s Organizational Documents as Seller Indemnification Payment Amount pursuant to this Article VII.”
(l) The first sentence of Section 7.6(c) of the date of this Agreement, as they may be Purchase Agreement is hereby amended to implement delete the Earnout Arrangement phrase “to Section 1.6(c) or” therefrom.
(m) Sections 1.3(b)(iii) and Section 10.1(ii) of the Purchase Agreement are each hereby amended to change the reference therein to “twenty-five thousand dollars ($25,000)” to instead refer to “thirty-one thousand five hundred dollars ($31,500)”.
(n) The table entitled “U.S. Transaction Consideration” in accordance with Schedule A to the terms Purchase Agreement is hereby amended to change the column therein entitled “Notes U.S. Transaction Consideration” to provide in its entirety as follows: (o) The Purchase Agreement is hereby revised to add thereto a new Schedule B consisting of Schedule B to this Amendment.
(p) Exhibits A-1 and A-2 to the Purchase Agreement are hereby amended to consist of Exhibit A-1 and the terms set forth in Exhibit H.A-2, respectively, to this Amendment.
Appears in 1 contract
Sources: Purchase Agreement (Global Telecom & Technology, Inc.)
Earnout. (a) Within fortyIn addition to the amounts payable to Sellers pursuant to the other provisions of this Agreement, within five (5) days following the determination of the Earnout Revenue for the Earnout Period, Buyer shall pay (or cause to be paid) the Earnout Amount, if any, to the Sellers by wire transfer of immediately available funds to Sellers Representative using wire instructions designated in writing by the Sellers’ Representative.
(b) As promptly as practicable, but in no event later than sixty days after the expiration of the Earnout Period, Buyer shall deliver to Sellers’ Representative Buyer’s calculation of the Earnout Revenue for the Earnout Period, accompanied by reasonable supporting documentation sufficient to enable Sellers’ Representative to verify the calculations contained therein (the “Earnout Payment Statement”). Sellers’ Representative and Sellers agree that such information would be considered material non-public information pursuant to the Securities Laws and that they shall keep such information strictly confidential and shall not transact, either directly or indirectly, in any securities of any Affiliate of Buyer as a result of receipt of the Earnout Payment Statement. If Sellers’ Representative notifies Buyer in writing that Sellers’ Representative objects to the amounts set forth within the Earnout Statement within forty five (45) days after the end of an Earnout Yearits delivery, the Purchaser shall deliver to the Seller a statement (the “Earnout Statement”), together with reasonable supporting detail, showing the Purchaser’s good faith calculation for such Earnout Year of the (i) Gross Profit, (ii) Gross Profit Margin Percentage and (iii) resulting Earnout Amount. The Gross Profit and Gross Profit Margin Percentage shall be calculated in accordance with the policies, principles and procedures set forth on Exhibit F.
(b) Subject to the Disclosure Limitations, the Seller and its Representatives shall be permitted reasonable access to review and obtain copies of the books and records of the Business and any work papers (subject to customary access letters and confidentiality undertakings) related to the preparation of the Earnout Statement. The Seller and its Representatives may make reasonable inquiries of the Purchaser and its accountants regarding questions or disagreements, and the Purchaser shall, and shall use its reasonable best efforts to cause any such accountants to, cooperate with and respond to such inquiries. At the request of the Seller, and subject to the Disclosure Limitations, the Purchaser shall make available its personnel who are knowledgeable about the information contained in, and the preparation of, the Earnout Statement, to the Seller to advise and assist the Seller in its review of the Earnout Statement and any objections or disputes with respect thereto.
(c) Within thirty (30) days after delivery of the Earnout Statement to the Seller, if the Seller has any objections to the Earnout Statement, the Seller shall deliver to the Purchaser a statement setting forth its objections thereto (an “Earnout Objections Statement”). Any Earnout Objections Statement shall specify specifying in reasonable detail the nature and extent of any disagreement so asserted, (as well as the proposed correct amount for each such item and the resulting Earnout Amount. If an Earnout Objections Statement is not delivered to the Purchaser within thirty (30) days after delivery of disputed items or amounts in the Earnout Statement to Payment Statement) (the Seller“Earnout Payment Objection Notice”), the Earnout Statement shall be final, binding Sellers’ Representative and non-appealable by the Parties. If an Earnout Objections Statement is properly and timely delivered, the portion of the Earnout Statement not subject to dispute pursuant to the Earnout Objections Statement shall be final, binding and non-appealable by the Parties. At any time during such thirty (30) day period, the Seller may deliver a written notice to the Purchaser stating that it agrees with the Earnout Statement and the Earnout Statement shall thereafter become final, binding and non-appealable by the Parties. The Seller and the Purchaser Buyer shall negotiate in good faith to resolve any objections in such dispute, with Sellers’ Representative having full access to the books, records, information and personnel of Buyer necessary to verify the amounts set forth within the Earnout Objections Payment Statement, but if .
(c) In the event that Sellers’ Representative and Buyer are unable to the extent they do not reach a final resolution within sixty (60) days after the delivery of the Earnout Objections Statement, the Seller and the Purchaser shall submit, within seventy five (75) days after the delivery of the Earnout Objections Statement, such dispute to the Valuation Firm for resolution. The Valuation Firm shall be instructed by the Seller and the Purchaser to render a determination of the applicable dispute (solely to the extent of such dispute) resolve Sellers’ Representative’s objections within thirty (30) days after submission of Sellers’ Representative’s delivery of the matter Earnout Payment Objection Notice, each of Sellers’ Representative and Buyer will provide ▇▇▇▇ ▇▇▇▇▇, LLP (or, if ▇▇▇▇ ▇▇▇▇▇, LLP is unable or unwilling to serve, another nationally recognized accounting firm not affiliated with Sellers or Buyer that is mutually selected by Sellers’ Representative and Buyer) (the Valuation Firm (or such longer period as mutually agreed in writing by serving accounting firm being the Purchaser “Independent Accountant”) with a statement of its position, and the Seller), which determination must be in writing and must set forth, in reasonable detail, the basis therefor, and include a certification that it reached such determination in accordance with the definitions as provided in this Agreement and Exhibit F. Any further submissions to the Valuation Firm must be written and delivered to each Party to the dispute. The Valuation Firm Independent Accountant shall make a final determination of the Gross Profit, Gross Profit Margin Percentage and resulting Earnout Amount (solely as to the extent such amounts same. The Independent Accountant’s decision as to any disputed amount or their components are in dispute) in accordance with the guidelines and procedures item set forth in this Agreement and Exhibit F. The Valuation Firm shall determine, based solely on presentations by the Purchaser and the Seller and their respective Representatives, and not by independent review, only those issues in dispute specifically set forth on the Earnout Objections Statement, Statement Notice shall be within the range of amounts disputed by Buyer and Sellers’ Representative and an award binding on and shall act as an expert be non-appealable by ▇▇▇▇▇ and not as an arbitrator. In resolving Sellers’ Representative and enforceable in any disputed item, the Valuation Firm shall court of record (i) be bound by the principles set forth in this Section 2.5 and (ii) not assign a value to any item in dispute that is greater than the greatest value for such disputed item claimed by any Party absent fraud or less than the smallest value for such disputed item claimed by any Partymanifest error). The Parties shall reasonably cooperate with the Valuation Firm during the term of its engagement, including by executing a customary engagement letter. Neither the Purchaser, the Seller nor any of their respective Affiliates or Representatives shall have any ex parte conversations or meetings with the Valuation Firm in connection with any dispute submitted by the Purchaser and/or the Seller to the Valuation Firm pursuant to this Section 2.5(c) without the prior consent of the other Party. The Valuation Firm’s determination of the Gross Profit, Gross Profit Margin Percentage and the resulting Earnout Amount with respect to an Earnout Year shall, in each case in the manner contemplated by this Section 2.5, become final and binding on the Parties on the date the Valuation Firm delivers its final resolution in writing to the Seller and the Purchaser, absent manifest error or fraud. The costs fees and expenses of the Valuation Firm Independent Accountant shall be allocated between the PurchaserBuyer, on the one hand, and the SellerSellers’ Representative (on behalf of the Sellers), on the other hand, in based upon the same proportion that (x) percentage which the absolute value dollar amount of the difference between the value of the Earnout Amount asserted by the Purchaser and the value of the Earnout Amount determined by the Valuation Firm disputed items not awarded to each Party bears to (y) the absolute value of the difference between the value of the Earnout Amount asserted total amount contested by the Seller and the value of the Earnout Amount determined by the Valuation Firm. For example, if the Seller submits an Earnout Objections Statement to the Valuation Firm that states that the Earnout Amount should be $2,000 while the Purchaser asserts in the written presentation to the Valuation Firm that the Earnout Amount should be $1,000, and the Valuation Firm ultimately resolves that the Earnout Amount should be $1,200, then the costs and expenses of the Valuation Firm will be allocated 20% to the Purchaser and 80% to the Sellersuch Party.
(d) Once the Earnout Amount for an Earnout Year has been finally determined in accordance with Section 2.5(c) and such Earnout Amount is not zero, the Purchaser shall no later than eight (8) Business Days following such determination, deliver or cause to be delivered to Seller the number of Purchaser Shares payable as the Earnout Stock Consideration for such Earnout Year, provided that if any portion of the Earnout Amount is subject to a pending claim for indemnification by the Purchaser under Section 9.1(a) and Section 9.4(d), such portion of the Earnout Amount shall only be paid eight (8) Business Days following the final resolution of such claim and only to the extent not used to offset the amount required to be paid by the Seller under Section 9.1(a) with respect to such claim. For the avoidance of doubt, no payment of Purchaser Shares shall be due with respect to an Earnout Year if the Earnout Amount for such Earnout Year is zero.
(e) The Parties understand and agree that (i) the contingent rights to receive an Earnout Amount shall not be represented by any form of certificate or other instrument, are not transferable, and do not constitute an equity or ownership interest in the Purchaser or any of its Affiliates; (ii) the Seller shall not have any rights as a security-holder of the Purchaser as a result of the Seller’s contingent right to receive any Earnout Amount; and (iii) no interest is payable with respect to any Earnout Amount.
(f) Any amount paid pursuant to this Section 2.5 shall be treated for all Tax purposes as additional consideration paid for the Company Shares pursuant to this Agreement, except (i) for any portion treated as imputed interest and (ii) to the extent otherwise required pursuant to a “determination” within the meaning of Section 1313(a) of the Code (or any similar provisions of state, local or foreign Law).
(g) Subsequent to the Closing and until the end of FY 2028, the Purchaser shall use its commercially reasonable efforts to maintain and preserve in all material respects the material third-party customer relationships and material Intellectual Property of the Business existing as of the Closing Date (other than expiration of registered Intellectual Property in accordance with their terms). Without limiting the foregoing, (x) during the period from the Closing Date through the final determination of the Earnout Amount for FY 2028, the Purchaser shall maintain the records of the Business in a manner permitting preparation of the Earnout Statements and the Quarterly Gross Profit Statements accurately in all material respects in order to allow for the good faith calculation of the Earnout Amount and its components, including by following the policies, principles and procedures set forth on Exhibit F; (y) during the period from the Closing Date through the end of FY 2028, the Purchaser shall (i) not take any action in bad faith, the primary intent or primary purpose of which is to avoid or reduce the amount of any Earnout Amount, including in bad faith accelerating or delaying the shipping of Specified Products or recognition of any revenues of the Business from one Earnout Year to another or following the end of the last Earnout Year; and (ii) use commercially reasonable efforts to provide reasonably adequate staffing and working capital for the conduct of the Business; and (z) during the period from the Closing Date through the earlier of (i) the payment of the Earnout Amount for FY 2028 or (ii) the final determination that no Earnout Amount is payable for FY 2028, the Purchaser shall not enter into (or permit any Subsidiary of the Purchaser to enter into) any agreement or arrangement that would prevent the Purchaser from paying the Earnout Amount in accordance with this Agreement.
(h) The Purchaser shall deliver or cause to be to be delivered to the Seller, within forty-five (45) days after the end of each fiscal quarter of an Earnout Year (other than the last fiscal quarter of such Earnout Year), a statement (the “Quarterly Gross Profit Statement”) setting forth the Purchaser’s calculation of Gross Profit for such fiscal quarter in reasonable detail, and, subject to the Disclosure Limitations, the Purchaser agrees to promptly provide such supporting documentation as the Seller may reasonably request to review the Purchaser’s calculation of the Gross Profit for such quarter.
(i) Any information provided to or obtained by the Seller pursuant to this Section 2.5 shall be deemed to be Confidential Information.
(j) The fiscal years of the Business for any Earnout Year and any fiscal quarter of the Business for any Earnout Year shall be based on the 4-4-5 accounting calendar that is used by the Purchaser, including as specified in the definitions of FY 2027 and FY 2028.
(k) Seller agrees to distribute the net proceeds of (i) 100% of any Earnout Amount in respect of FY 2027 (including the 2027 Catch-Up Amount, if any) to its members in accordance with the distribution provisions in the Seller’s Organizational Documents and (ii) 50% of any Earnout Amount in respect of FY 2028 (excluding, for avoidance of doubt, the 2027 Catch-Up Amount, if any) to The Resolute Fund IV, L.P. and the other 50% of any Earnout Amount in respect of FY 2028 (excluding, for avoidance of doubt, the 2027 Catch-Up Amount, if any) to Business Employee Equityholders, in each case of this clause (ii), in accordance with the distribution provisions in the Seller’s Organizational Documents. For purposes of the prior sentence, “Seller’s Organizational Documents” means Seller’s Organizational Documents as of the date of this Agreement, as they may be amended to implement the Earnout Arrangement in accordance with the terms of this Agreement and the terms set forth in Exhibit H.
Appears in 1 contract
Earnout. (a) Within forty-five (45) days after the end of an Each Earnout Year, the Purchaser shall deliver to the Seller a statement (the “Earnout Statement”), together with reasonable supporting detail, showing the Purchaser’s good faith calculation for such Earnout Year of the (i) Gross Profit, (ii) Gross Profit Margin Percentage and (iii) resulting Earnout Amount. The Gross Profit and Gross Profit Margin Percentage Amount shall be calculated in accordance with the policies, principles this Section 1.8 and procedures set forth on Exhibit F.shall be subject to Article VIII.
(b) Subject Within 45 days after the each applicable Earnout Period, Acquirer shall deliver to the Disclosure LimitationsStockholders’ Agent a statement (each, an “Earnout Statement”) setting forth Acquirer’s good faith calculation of (i) the Seller applicable Earnout Period revenue and (ii) the applicable Earnout Amount, in each case for such applicable Earnout Period. Acquirer shall provide the Stockholders’ Agent and its Representatives shall be permitted representatives reasonable access upon reasonable notice to review the records, properties, personnel and obtain copies of the books and records of the Business and any work papers (subject to the execution of customary work paper access letters and confidentiality undertakingsif requested) related auditors relating to the preparation of the each Earnout Statement. The Seller and its Representatives may make reasonable inquiries of the Purchaser and its accountants regarding questions or disagreements, and the Purchaser shall, Statement and shall use cause its reasonable best efforts personnel to cause any such accountants to, reasonably cooperate with and respond to such inquiries. At the request of the Seller, and subject to the Disclosure Limitations, the Purchaser shall make available its personnel who are knowledgeable about the information contained in, and the preparation of, the Earnout Statement, to the Seller to advise and assist the Seller Stockholders’ Agent in connection with its review of the each Earnout Statement and any objections or disputes with respect theretoStatement.
(c) Within thirty (30) The Stockholders’ Agent shall have 30 days within which to review an Acquirer Earnout Statement after Acquirer’s delivery thereof. The Stockholders’ Agent may object to any calculation set forth in the Acquirer Earnout Statement by providing written notice of such objection to Acquirer within 30 days after Acquirer’s delivery of the Acquirer Earnout Statement to (the Seller, if the Seller has any objections to the “Notice of Earnout Statement, the Seller shall deliver to the Purchaser a statement setting forth its objections thereto (an “Earnout Objections StatementObjection”). Any Earnout Objections Statement shall specify , together with the basis of its objection in reasonable detail the nature of and any disagreement so assertedsupporting documentation, the proposed correct amount for each such item information and the resulting Earnout Amountcalculations. If an a Notice of Earnout Objections Statement Objection is not delivered to the Purchaser provided within thirty (such 30) days after delivery of the Earnout Statement to the Seller, the Earnout Statement shall be final, binding and non-appealable by the Parties. If an Earnout Objections Statement is properly and timely delivered, the portion of the Earnout Statement not subject to dispute pursuant to the Earnout Objections Statement shall be final, binding and non-appealable by the Parties. At any time during such thirty (30) day period, the Seller may deliver a written notice to the Purchaser stating that it agrees with the Acquirer Earnout Statement (and each of the calculations set forth therein) shall be deemed final.
(d) If the Stockholders’ Agent provides the Notice of Earnout Objection, then Acquirer and the Earnout Statement Stockholders’ Agent shall thereafter become final, binding and non-appealable by the Parties. The Seller and the Purchaser shall negotiate confer in good faith for a period of up to 30 days following Acquirer’s receipt of the Notice of Earnout Objection in an attempt to resolve any objections disputed matter set forth in the Earnout Objections StatementNotice of Objection, but if and to the extent they do not reach a final any resolution within sixty (60) days after the delivery of the Earnout Objections Statement, the Seller and the Purchaser by them shall submit, within seventy five (75) days after the delivery of the Earnout Objections Statement, such dispute to the Valuation Firm for resolution. The Valuation Firm shall be instructed by the Seller and the Purchaser to render a determination of the applicable dispute (solely to the extent of such dispute) within thirty (30) days after submission of the matter to the Valuation Firm (or such longer period as mutually agreed in writing by the Purchaser and the Seller), which determination must be in writing and must set forth, in reasonable detail, the basis therefor, and include a certification that it reached such determination in accordance with the definitions as provided in this Agreement and Exhibit F. Any further submissions to the Valuation Firm must shall be written and delivered to each Party to the dispute. The Valuation Firm shall make a final determination of the Gross Profit, Gross Profit Margin Percentage and resulting Earnout Amount (solely to the extent such amounts or their components are in dispute) in accordance with the guidelines and procedures set forth in this Agreement and Exhibit F. The Valuation Firm shall determine, based solely on presentations by the Purchaser and the Seller and their respective Representatives, and not by independent review, only those issues in dispute specifically set forth on the Earnout Objections Statement, and shall act as an expert and not as an arbitrator. In resolving any disputed item, the Valuation Firm shall (i) be bound by the principles set forth in this Section 2.5 and (ii) not assign a value to any item in dispute that is greater than the greatest value for such disputed item claimed by any Party or less than the smallest value for such disputed item claimed by any Party. The Parties shall reasonably cooperate with the Valuation Firm during the term of its engagement, including by executing a customary engagement letter. Neither the Purchaser, the Seller nor any of their respective Affiliates or Representatives shall have any ex parte conversations or meetings with the Valuation Firm in connection with any dispute submitted by the Purchaser and/or the Seller to the Valuation Firm pursuant to this Section 2.5(c) without the prior consent of the other Party. The Valuation Firm’s determination of the Gross Profit, Gross Profit Margin Percentage and the resulting Earnout Amount with respect to an Earnout Year shall, in each case in the manner contemplated by this Section 2.5, become final and binding on the Parties on the date the Valuation Firm delivers its final resolution in writing to the Seller parties hereto and the Purchaser, absent manifest error or fraud. The costs and expenses of the Valuation Firm shall be allocated between the Purchaser, on the one hand, and the Seller, on the other hand, in the same proportion that (x) the absolute value of the difference between the value of the Earnout Amount asserted by the Purchaser and the value of the Earnout Amount determined by the Valuation Firm bears to (y) the absolute value of the difference between the value of the Earnout Amount asserted by the Seller and the value of the Earnout Amount determined by the Valuation Firm. For example, if the Seller submits an Earnout Objections Statement to the Valuation Firm that states that the Earnout Amount should be $2,000 while the Purchaser asserts in the written presentation to the Valuation Firm that the Earnout Amount should be $1,000, and the Valuation Firm ultimately resolves that the Earnout Amount should be $1,200, then the costs and expenses of the Valuation Firm will be allocated 20% to the Purchaser and 80% to the Seller.
(d) Once the Earnout Amount for an Earnout Year has been finally determined in accordance with Section 2.5(c) and such Earnout Amount is not zero, the Purchaser shall no later than eight (8) Business Days following such determination, deliver or cause to be delivered to Seller the number of Purchaser Shares payable as the Earnout Stock Consideration for such Earnout Year, provided that if any portion of the Earnout Amount is subject to a pending claim for indemnification by the Purchaser under Section 9.1(a) and Section 9.4(d), such portion of the Earnout Amount shall only be paid eight (8) Business Days following the final resolution of such claim and only to the extent not used to offset the amount required to be paid by the Seller under Section 9.1(a) with respect to such claim. For the avoidance of doubt, no payment of Purchaser Shares shall be due with respect to an Earnout Year if the Earnout Amount for such Earnout Year is zeroCompany Stockholders.
(e) The Parties understand If, after the 30-day period set forth in Section 1.8(c), Acquirer and agree that (i) the contingent rights to receive an Earnout Amount shall Stockholders’ Agent cannot be represented by resolve any form of certificate or other instrument, are not transferable, and do not constitute an equity or ownership interest matter set forth in the Purchaser Notice of Earnout Objection, then Acquirer and the Stockholders’ Agent shall engage the Reviewing Accountant to review only the matters in the Notice of Earnout Objection that are still disputed by Acquirer and the Stockholders’ Agent and any calculations to the extent relevant thereto. After such review, the Reviewing Accountant shall promptly (and in any event within 45 days following its engagement) determine the resolution of such remaining disputed matters, which determination shall (absent fraud or any of its Affiliates; (iimanifest error) be final and binding on the Seller shall not have any rights as a security-holder of parties hereto and the Purchaser as a result of the Seller’s contingent right to receive any Earnout Amount; and (iii) no interest is payable with respect to any Earnout AmountCompany Stockholders.
(f) Any amount paid pursuant to this Section 2.5 shall be treated for all Tax purposes As soon as additional consideration paid for the Company Shares pursuant to this Agreement, except (i) for any portion treated as imputed interest and (ii) to the extent otherwise required pursuant to a “determination” within the meaning of Section 1313(a) of the Code (or any similar provisions of state, local or foreign Law).
(g) Subsequent to the Closing and until the end of FY 2028, the Purchaser shall use its commercially reasonable efforts to maintain and preserve in all material respects the material third-party customer relationships and material Intellectual Property of the Business existing as of the Closing Date (other than expiration of registered Intellectual Property in accordance with their terms). Without limiting the foregoing, (x) during the period from the Closing Date through reasonably practicable after the final determination of the Earnout Amount for FY 2028, the Purchaser shall maintain the records of the Business in a manner permitting preparation of the Earnout Statements and the Quarterly Gross Profit Statements accurately in all material respects in order to allow for the good faith calculation of the Earnout Amount and its components, including by following the policies, principles and procedures set forth on Exhibit F; (y) during the period from the Closing Date through the end of FY 2028, the Purchaser shall (i) not take any action in bad faith, the primary intent or primary purpose of which is to avoid or reduce the amount of any Earnout Amount, including in bad faith accelerating or delaying the shipping of Specified Products or recognition of any revenues of the Business from one Earnout Year to another or following the end of the last Earnout Year; and (ii) use commercially reasonable efforts to provide reasonably adequate staffing and working capital for the conduct of the Business; and (z) during the period from the Closing Date through the earlier of (i) the payment of the Earnout Amount for FY 2028 or (ii) the final determination that no Earnout Amount is payable for FY 2028, the Purchaser shall not enter into (or permit any Subsidiary of the Purchaser to enter into) any agreement or arrangement that would prevent the Purchaser from paying the each Earnout Amount in accordance with this Agreement.
(h) The Purchaser Section 1.8, subject to adjustment or withholding pursuant to Article VIII, Acquirer shall, or shall deliver cause a direct or cause to be to be delivered indirect subsidiary of Acquirer or its Paying Agent to, pay the portion of the applicable Earnout Amount comprised of cash to the Seller, within forty-five (45) days after the end of each fiscal quarter of an Earnout Year Company Series A Stockholders and Company Common Stockholders (other than the last fiscal quarter of such Earnout YearCashed Out Common Stockholders), a statement (the “Quarterly Gross Profit Statement”) setting forth the Purchaser’s calculation of Gross Profit for such fiscal quarter in reasonable detailas applicable, and, subject and to instruct its transfer agent to issue to the Disclosure LimitationsCompany Series A Stockholders and Company Common Stockholders (other than Cashed Out Common Stockholders) that are Accredited Investors, as applicable, the Purchaser agrees to promptly provide such supporting documentation as the Seller may reasonably request to review the Purchaser’s calculation portion of the Gross Profit for such quarter.
(i) Any information provided to or obtained by the Seller pursuant to this Section 2.5 shall be deemed to be Confidential Information.
(j) The fiscal years of the Business for any Earnout Year and any fiscal quarter of the Business for any Earnout Year shall be based on the 4-4-5 accounting calendar that is used by the Purchaser, including as specified in the definitions of FY 2027 and FY 2028.
(k) Seller agrees to distribute the net proceeds of (i) 100% of any applicable Earnout Amount in respect comprised of FY 2027 (including the 2027 Catch-Up Amount, if any) to its members in accordance with the distribution provisions in the Seller’s Organizational Documents and (ii) 50% shares of any Earnout Amount in respect of FY 2028 (excluding, for avoidance of doubt, the 2027 Catch-Up Amount, if any) to The Resolute Fund IV, L.P. and the other 50% of any Earnout Amount in respect of FY 2028 (excluding, for avoidance of doubt, the 2027 Catch-Up Amount, if any) to Business Employee EquityholdersAcquirer Common Stock, in each case of this clause (ii), in accordance with the distribution provisions in the Seller’s Organizational Documents. For purposes of the prior sentenceSection 1.4 (each such payment and issuance, an “Seller’s Organizational Documents” means Seller’s Organizational Documents as of the date of this Agreement, as they may be amended to implement the Earnout Arrangement in accordance with the terms of this Agreement and the terms set forth in Exhibit H.Payment”).
Appears in 1 contract
Earnout. (a) Within forty-five (45) days after Following the end of an Earnout Year, the Purchaser shall deliver to the Seller a statement (the “Earnout Statement”), together with reasonable supporting detail, showing the Purchaser’s good faith calculation for such Earnout Year of the (i) Gross Profit, (ii) Gross Profit Margin Percentage and (iii) resulting Earnout Amount. The Gross Profit and Gross Profit Margin Percentage shall be calculated in accordance with the policies, principles and procedures set forth on Exhibit F.
(b) Subject to the Disclosure LimitationsClosing, the Seller and its Representatives Indemnifying Parties shall be permitted reasonable access entitled to review and obtain copies of the books and records of the Business and any work papers receive from Buyer (subject to customary access letters the terms and confidentiality undertakings) related to the preparation of the Earnout Statement. The Seller and its Representatives may make reasonable inquiries of the Purchaser and its accountants regarding questions or disagreements, and the Purchaser shall, and shall use its reasonable best efforts to cause any such accountants to, cooperate with and respond to such inquiries. At the request of the Seller, and subject to the Disclosure Limitations, the Purchaser shall make available its personnel who are knowledgeable about the information contained in, and the preparation of, the Earnout Statement, to the Seller to advise and assist the Seller in its review of the Earnout Statement and any objections or disputes with respect thereto.
(c) Within thirty (30) days after delivery of the Earnout Statement to the Seller, if the Seller has any objections to the Earnout Statement, the Seller shall deliver to the Purchaser a statement setting forth its objections thereto (an “Earnout Objections Statement”). Any Earnout Objections Statement shall specify in reasonable detail the nature of any disagreement so asserted, the proposed correct amount for each such item and the resulting Earnout Amount. If an Earnout Objections Statement is not delivered to the Purchaser within thirty (30) days after delivery of the Earnout Statement to the Seller, the Earnout Statement shall be final, binding and non-appealable by the Parties. If an Earnout Objections Statement is properly and timely delivered, the portion of the Earnout Statement not subject to dispute pursuant to the Earnout Objections Statement shall be final, binding and non-appealable by the Parties. At any time during such thirty (30) day period, the Seller may deliver a written notice to the Purchaser stating that it agrees with the Earnout Statement and the Earnout Statement shall thereafter become final, binding and non-appealable by the Parties. The Seller and the Purchaser shall negotiate in good faith to resolve any objections in the Earnout Objections Statement, but if and to the extent they do not reach a final resolution within sixty (60) days after the delivery of the Earnout Objections Statement, the Seller and the Purchaser shall submit, within seventy five (75) days after the delivery of the Earnout Objections Statement, such dispute to the Valuation Firm for resolution. The Valuation Firm shall be instructed by the Seller and the Purchaser to render a determination of the applicable dispute (solely to the extent of such dispute) within thirty (30) days after submission of the matter to the Valuation Firm (or such longer period as mutually agreed in writing by the Purchaser and the Seller), which determination must be in writing and must set forth, in reasonable detail, the basis therefor, and include a certification that it reached such determination in accordance with the definitions as provided in this Agreement and Exhibit F. Any further submissions to the Valuation Firm must be written and delivered to each Party to the dispute. The Valuation Firm shall make a final determination of the Gross Profit, Gross Profit Margin Percentage and resulting Earnout Amount (solely to the extent such amounts or their components are in dispute) in accordance with the guidelines and procedures set forth in this Agreement and Exhibit F. The Valuation Firm shall determine, based solely on presentations by the Purchaser and the Seller and their respective Representatives, and not by independent review, only those issues in dispute specifically set forth on the Earnout Objections Statement, and shall act as an expert and not as an arbitrator. In resolving any disputed item, the Valuation Firm shall (i) be bound by the principles conditions set forth in this Section 2.5 and (ii2.5) not assign a value to any item in dispute that is greater than additional cash consideration based on the greatest value for such disputed item claimed by any Party or less than the smallest value for such disputed item claimed by any Party. The Parties shall reasonably cooperate with the Valuation Firm Company’s performance during the term of its engagement, including by executing a customary engagement letter. Neither the Purchaser, the Seller nor any of their respective Affiliates or Representatives shall have any ex parte conversations or meetings with the Valuation Firm in connection with any dispute submitted by the Purchaser and/or the Seller to the Valuation Firm pursuant to this Section 2.5(c) without the prior consent of the other Party. The Valuation Firm’s determination of the Gross Profit, Gross Profit Margin Percentage and the resulting Earnout Amount with respect to an Earnout Year shall, in each case in the manner contemplated by this Section 2.5, become final and binding twelve month period beginning on the Parties on the date the Valuation Firm delivers its final resolution in writing to the Seller and the Purchaser, absent manifest error or fraud. The costs and expenses of the Valuation Firm shall be allocated between the Purchaser, on the one hand, and the Seller, on the other hand, in the same proportion that (x) the absolute value of the difference between the value of the Earnout Amount asserted by the Purchaser and the value of the Earnout Amount determined by the Valuation Firm bears to (y) the absolute value of the difference between the value of the Earnout Amount asserted by the Seller and the value of the Earnout Amount determined by the Valuation Firm. For example, if the Seller submits an Earnout Objections Statement to the Valuation Firm that states that the Earnout Amount should be $2,000 while the Purchaser asserts in the written presentation to the Valuation Firm that the Earnout Amount should be $1,000, and the Valuation Firm ultimately resolves that the Earnout Amount should be $1,200, then the costs and expenses of the Valuation Firm will be allocated 20% to the Purchaser and 80% to the Seller.
(d) Once the Earnout Amount for an Earnout Year has been finally determined in accordance with Section 2.5(c) and such Earnout Amount is not zero, the Purchaser shall no later than eight (8) Business Days following such determination, deliver or cause to be delivered to Seller the number of Purchaser Shares payable as the Earnout Stock Consideration for such Earnout Year, provided that if any portion of the Earnout Amount is subject to a pending claim for indemnification by the Purchaser under Section 9.1(a) and Section 9.4(d), such portion of the Earnout Amount shall only be paid eight (8) Business Days following the final resolution of such claim and only to the extent not used to offset the amount required to be paid by the Seller under Section 9.1(a) with respect to such claim. For the avoidance of doubt, no payment of Purchaser Shares shall be due with respect to an Earnout Year if the Earnout Amount for such Earnout Year is zero.
(e) The Parties understand and agree that (i) the contingent rights to receive an Earnout Amount shall not be represented by any form of certificate or other instrument, are not transferable, and do not constitute an equity or ownership interest in the Purchaser or any of its Affiliates; (ii) the Seller shall not have any rights as a security-holder of the Purchaser as a result of the Seller’s contingent right to receive any Earnout Amount; and (iii) no interest is payable with respect to any Earnout Amount.
(f) Any amount paid pursuant to this Section 2.5 shall be treated for all Tax purposes as additional consideration paid for the Company Shares pursuant to this Agreement, except (i) for any portion treated as imputed interest and (ii) to the extent otherwise required pursuant to a “determination” within the meaning of Section 1313(a) of the Code (or any similar provisions of state, local or foreign Law).
(g) Subsequent to the Closing and until the end of FY 2028, the Purchaser shall use its commercially reasonable efforts to maintain and preserve in all material respects the material third-party customer relationships and material Intellectual Property of the Business existing as of the Closing Date (other than expiration of registered Intellectual Property in accordance with their terms). Without limiting the foregoing, (x“First Earnout Period”) during the period from the Closing Date through the final determination of the Earnout Amount for FY 2028, the Purchaser shall maintain the records of the Business in a manner permitting preparation of the Earnout Statements and the Quarterly Gross Profit Statements accurately in all material respects in order to allow for the good faith calculation of the Earnout Amount and its components, including by following the policies, principles and procedures set forth on Exhibit F; (y) during the twelve month period from the Closing Date through the end of FY 2028, the Purchaser shall (i) not take any action in bad faith, the primary intent or primary purpose of which is to avoid or reduce the amount of any Earnout Amount, including in bad faith accelerating or delaying the shipping of Specified Products or recognition of any revenues of the Business from one Earnout Year to another or following the end of the last First Earnout Year; Period (the “Second Earnout Period” and (ii) use commercially reasonable efforts to provide reasonably adequate staffing the First Earnout Period each, an “Earnout Period” and working capital for the conduct of the Business; and (z) during the period from the Closing Date through the earlier of (i) the payment of the Earnout Amount for FY 2028 or (ii) the final determination that no Earnout Amount is payable for FY 2028collectively, the Purchaser “Earnout Periods”). The amount (if any) paid with respect to the First Earnout Period (the “First Earnout Payment”), the initial amount (if any) paid with respect to the Second Earnout Period (the “Second Base Earnout Payment”), the amount in addition to the Second Base Earnout Payment (if any) paid with respect to the Second Earnout Period (the “Second Upside Earnout Payment” together with the First Earnout Payment and the Second Base Earnout Payment, the “Earnout Payments” and each an “Earnout Payment”), each shall not enter into (or permit any Subsidiary of the Purchaser to enter into) any agreement or arrangement that would prevent the Purchaser from paying the Earnout Amount be determined in accordance with this Agreement.
Section 2.5. Within ten (h) The Purchaser shall deliver or cause to be to be delivered to the Seller, within forty-five (4510) days after the end amount of each fiscal quarter of an Earnout Year (other than the last fiscal quarter of any such Earnout Year), a statement (the “Quarterly Gross Profit Statement”) setting forth the Purchaser’s calculation of Gross Profit for such fiscal quarter in reasonable detail, and, subject to the Disclosure Limitations, the Purchaser agrees to promptly provide such supporting documentation as the Seller may reasonably request to review the Purchaser’s calculation of the Gross Profit for such quarter.
(i) Any information provided to or obtained by the Seller Payment has been finally determined pursuant to this Section 2.5 2.5, if any, Buyer shall be deemed make payment to the Paying Agent by wire transfer of immediately available funds an amount equal to any such Earnout Payment for disbursement to the Seller Indemnifying Parties in accordance with each Seller Indemnifying Party’s Fully Diluted Pro Rata Percentage; provided, however, that the Paying Agent’s disbursement of the portion of such amount, if any, to be Confidential Information.
(j) The fiscal years of paid to the Business for any Earnout Year and any fiscal quarter of the Business for any Earnout Year shall be based on the 4Former In-4the-5 accounting calendar that is used by the Purchaser, including as specified in the definitions of FY 2027 and FY 2028.
(k) Seller agrees to distribute the net proceeds of (i) 100% of any Earnout Amount Money Option Holders in respect of FY 2027 their In-the-Money Vested Options who are or were employees of the Company shall be distributed to the Company (including the 2027 Catch-Up Amount, if anyor any Affiliate thereof or successor thereto) to its members for payment via payroll in accordance with the distribution provisions in the Seller’s Organizational Documents and (ii) 50% of any Earnout Amount in respect of FY 2028 (excluding, for avoidance of doubt, the 2027 Catch-Up Amount, if any) to The Resolute Fund IV, L.P. and the other 50% of any Earnout Amount in respect of FY 2028 (excluding, for avoidance of doubt, the 2027 Catch-Up Amount, if any) to Business Employee Equityholders, in each case of this clause (iiSection 2.3(b)(ii), in accordance with the distribution provisions in the Seller’s Organizational Documents. For purposes of the prior sentence, “Seller’s Organizational Documents” means Seller’s Organizational Documents as of the date of this Agreement, as they may be amended to implement the Earnout Arrangement in accordance with the terms of this Agreement and the terms set forth in Exhibit H..
Appears in 1 contract
Sources: Stock Purchase Agreement (Penn National Gaming Inc)
Earnout. (a1) Within forty-five An earnout (45"Earnout") days after the end of shall be payable to Seller as set forth below in cash in an Earnout Year, the Purchaser shall deliver amount equal to the Seller a statement (the “Earnout Statement”), together with reasonable supporting detail, showing the Purchaser’s good faith calculation for such Earnout Year of the (i) Gross Profit, three multiplied by (ii) Gross Profit Margin Percentage the amount by which earnings before interest, taxes, depreciation and amortization attributable to the Business (iii"EBITDA"), as such amount is calculated in accordance with generally accepted accounting principles ("GAAP") resulting Earnout Amountexceeds the applicable threshold set forth below (the "Post-Closing EBITDA Threshold"). The Gross Profit Post-Closing EBITDA Threshold shall be calculated for two time periods and Gross Profit Margin Percentage the Earnout, if any, shall be paid on two dates. The first time period shall be the full 12 months after January 1, 2003 ("First Anniversary Earnout Period") and the Post-Closing EBITDA Threshold for the First Anniversary Earnout Period shall be $1,400,000. The second time period shall be the full 12 months after January 1, 2004 ("Second Anniversary Earnout Period") and the Post-Closing EBITDA Threshold for the Second Anniversary Earnout Period shall be EBITDA for the First Anniversary Earnout Period. Buyer shall pay the Earnout attributable to the First Anniversary Earnout Period, if any, on July 1, 2004 ("First Anniversary Payout Date") and shall pay the Earnout attributable to the Second Anniversary Earnout Period, if any, on July 1, 2005 ("Second Anniversary Payout Date"); provided, however, that Buyer shall not be required to pay the applicable Earnout if on the First Anniversary Payout Date or the Second Anniversary Payout Date, as applicable, the Shareholder's employment with Buyer has been terminated (i) by Shareholder without Good Reason (as defined in the Employment Agreement between Buyer and Shareholder of even date herewith) or (ii) by the Buyer for Cause (as defined in the Employment Agreement between Buyer and Shareholder of even date herewith). Seller agrees that if any amount remains outstanding under the Note at the time of payment of any Earnout, then outstanding amounts under the Note shall be set off against the amount of the Earnout to be paid by Buyer to Seller under this subsection in the order specified in the Note. Buyer shall pay the Earnout, if any, to Seller by wire transfer to an account designated by Seller.
(2) For purposes of this Section, EBITDA shall be calculated in good faith in accordance with GAAP on the policiesaccrual basis of accounting and in a manner consistent with Buyer's consolidated audited financial statements, principles and procedures set forth on Exhibit F.
(b) Subject taking into account the need to segregate the Disclosure LimitationsBusiness from Buyer's other business. After the Closing, the Seller and its Representatives Business shall be permitted reasonable access become known as the Travel Nurse International Group (the "TNI Group") of Buyer's Travel Nurse Division. Buyer agrees (i) to review and obtain copies provide sufficient working capital to support the growth of the books TNI Group as determined reasonably and records of the Business and any work papers (subject to customary access letters and confidentiality undertakings) related to the preparation of the Earnout Statement. The Seller and its Representatives may make reasonable inquiries of the Purchaser and its accountants regarding questions or disagreements, and the Purchaser shall, and shall use its reasonable best efforts to cause any such accountants to, cooperate with and respond to such inquiries. At the request of the Seller, and subject to the Disclosure Limitations, the Purchaser shall make available its personnel who are knowledgeable about the information contained in, and the preparation of, the Earnout Statement, to the Seller to advise and assist the Seller in its review of the Earnout Statement and any objections or disputes with respect thereto.
(c) Within thirty (30) days after delivery of the Earnout Statement to the Seller, if the Seller has any objections to the Earnout Statement, the Seller shall deliver to the Purchaser a statement setting forth its objections thereto (an “Earnout Objections Statement”). Any Earnout Objections Statement shall specify in reasonable detail the nature of any disagreement so asserted, the proposed correct amount for each such item and the resulting Earnout Amount. If an Earnout Objections Statement is not delivered to the Purchaser within thirty (30) days after delivery of the Earnout Statement to the Seller, the Earnout Statement shall be final, binding and non-appealable by the Parties. If an Earnout Objections Statement is properly and timely delivered, the portion of the Earnout Statement not subject to dispute pursuant to the Earnout Objections Statement shall be final, binding and non-appealable by the Parties. At any time during such thirty (30) day period, the Seller may deliver a written notice to the Purchaser stating that it agrees with the Earnout Statement and the Earnout Statement shall thereafter become final, binding and non-appealable by the Parties. The Seller and the Purchaser shall negotiate in good faith to resolve any objections by Buyer in the Earnout Objections Statementconsultation with Shareholder, but if and to the extent they do not reach a final resolution within sixty (60) days after the delivery as manager of the Earnout Objections Statement, the Seller and the Purchaser shall submit, within seventy five (75) days after the delivery of the Earnout Objections Statement, such dispute to the Valuation Firm for resolution. The Valuation Firm shall be instructed by the Seller and the Purchaser to render a determination of the applicable dispute (solely to the extent of such dispute) within thirty (30) days after submission of the matter to the Valuation Firm (or such longer period as mutually agreed in writing by the Purchaser and the Seller), which determination must be in writing and must set forth, in reasonable detail, the basis therefor, and include a certification that it reached such determination in accordance with the definitions as provided in this Agreement and Exhibit F. Any further submissions to the Valuation Firm must be written and delivered to each Party to the dispute. The Valuation Firm shall make a final determination of the Gross Profit, Gross Profit Margin Percentage and resulting Earnout Amount (solely to the extent such amounts or their components are in dispute) in accordance with the guidelines and procedures set forth in this Agreement and Exhibit F. The Valuation Firm shall determine, based solely on presentations by the Purchaser and the Seller and their respective Representatives, and not by independent review, only those issues in dispute specifically set forth on the Earnout Objections Statement, and shall act as an expert and not as an arbitrator. In resolving any disputed item, the Valuation Firm shall (i) be bound by the principles set forth in this Section 2.5 TNI Group and (ii) not assign to limit the geographic scope of the TNI Group's client base. Buyer agrees not to charge any corporate administrative, management and/or accounting fees to the TNI Group's operations post-Closing. If Buyer decides to merge, consolidate or otherwise join the TNI Group with any other business, Buyer shall take all necessary steps to ensure that the Earnout can be clearly and properly calculated after such merger, consolidation or other event resulting in the TNI Group not being operated as a value separate business unit of Buyer.
(3) After the Closing and until December 31, 2005, upon written request of Seller or Shareholder, Buyer shall permit Seller or Shareholder, or an agent of Seller or Shareholder reasonably acceptable to Buyer (the "Auditor"), to have access during normal business hours to such of the records of Buyer as may be reasonably necessary to verify Buyer's calculation of any item portion of the Earnout ("Buyer's Calculation"). Within 15 days after concluding its review of Buyer records, Seller, Shareholder or the Auditor, as applicable, shall provide a written report setting forth in dispute reasonable detail its calculation of the Earnout (the "Seller Calculation"). If the Seller Calculation shows that Buyer underpaid the applicable portion of the Earnout, Buyer shall have 15 days after its receipt of the Seller Calculation to review such calculation. If Buyer disagrees with the Seller Calculation, Buyer shall give Seller notice of its intent to retain an independent certified public accounting firm (the "Independent Auditor") to audit the Earnout calculation. If the Independent Auditor's calculation of the Earnout (the "Independent Auditor Calculation") results in an Earnout that is greater than the greatest value for such disputed item claimed by any Party same as the Buyer Calculation or less than the smallest value for such disputed item claimed by any Party. The Parties shall reasonably cooperate with the Valuation Firm during the term of its engagement, including by executing a customary engagement letter. Neither the PurchaserSeller Calculation, the Seller nor any of their respective Affiliates or Representatives Independent Auditor Calculation shall have any ex parte conversations or meetings with the Valuation Firm in connection with any dispute submitted by the Purchaser and/or the Seller to the Valuation Firm pursuant to this Section 2.5(c) without the prior consent of the other Party. The Valuation Firm’s determination of the Gross Profit, Gross Profit Margin Percentage and the resulting Earnout Amount with respect to an Earnout Year shall, in each case in the manner contemplated by this Section 2.5, become be final and binding on the Parties parties. If the Independent Auditor Calculation differs from the Buyer Calculation and the Seller Calculation, Buyer and Seller shall mutually select an independent certified public accounting firm (the "Final Auditor") to review the Buyer Calculation, the Seller Calculation and the Independent Auditor Calculation, to determine the Earnout, if any, due to Seller and to provide a report of its findings to Buyer and Seller (the "Final Audit"). The results of the Final Audit shall be final and binding on the date the Valuation Firm delivers its final resolution in writing to the Seller and the Purchaser, absent manifest error or fraudparties. The costs and expenses of the Valuation Firm Buyer shall be allocated between the Purchaser, on the one hand, and the Seller, on the other hand, in the same proportion that (x) the absolute value of the difference between the value of the Earnout Amount asserted by the Purchaser and the value of the Earnout Amount determined by the Valuation Firm bears to (y) the absolute value of the difference between the value of the Earnout Amount asserted by the Seller and the value of the Earnout Amount determined by the Valuation Firm. For example, if the Seller submits an Earnout Objections Statement to the Valuation Firm that states that the Earnout Amount should be $2,000 while the Purchaser asserts in the written presentation to the Valuation Firm that the Earnout Amount should be $1,000, and the Valuation Firm ultimately resolves that the Earnout Amount should be $1,200, then the costs and expenses of the Valuation Firm will be allocated 20% to the Purchaser and 80% to the Seller.
(d) Once the Earnout Amount for an Earnout Year has been finally determined in accordance with Section 2.5(c) and such Earnout Amount is not zero, the Purchaser shall no later than eight (8) Business Days following such determination, deliver or cause to be delivered to Seller the number of Purchaser Shares payable as the Earnout Stock Consideration for such Earnout Year, provided that if pay any portion of the Earnout Amount is subject to a pending claim for indemnification by the Purchaser under Section 9.1(a) and Section 9.4(d), such portion of the Earnout Amount shall only be paid eight (8) Business Days following the final resolution of such claim and only to the extent not used to offset the additional amount required to be paid by the Seller under Section 9.1(a) with respect to such claim. For the avoidance of doubt, no payment of Purchaser Shares shall be found due with respect to an Earnout Year if the Earnout Amount for such Earnout Year is zero.
(e) The Parties understand and agree that (i) the contingent rights to receive an Earnout Amount shall not be represented by any form of certificate or other instrument, are not transferable, and do not constitute an equity or ownership interest in the Purchaser or any of its Affiliates; (ii) the Seller shall not have any rights as a security-holder of the Purchaser as a result of the Seller’s contingent right Final Audit within 30 days after Buyer's receipt of the Final Audit report. If it is determined that Buyer underpaid the Earnout, any fees and expenses charged by the Auditor, the Independent Auditor and the Final Auditor shall be paid by Buyer. If it is determined that Buyer overpaid the Earnout, any fees and expenses charged by the Auditor, the Independent Auditor and the Final Auditor shall be paid by Seller and Shareholder. Seller may request to receive audit the calculation of the Earnout not more than once during any Earnout Amount; 12 month period. Seller and (iii) no interest is payable with respect to any Earnout Amount.
(f) Any amount paid Shareholder shall not, and shall cause third parties retained by Seller or Shareholder pursuant to this Section 2.5 shall be treated for all Tax purposes as additional consideration paid for the Company Shares not to, disclose any financial or other confidential information of Buyer received pursuant to this Agreement, except (i) for any portion treated as imputed interest and (ii) to the extent otherwise required pursuant to a “determination” within the meaning of Section 1313(a) of the Code (or any similar provisions of state, local or foreign Law)Section.
(g) Subsequent to the Closing and until the end of FY 2028, the Purchaser shall use its commercially reasonable efforts to maintain and preserve in all material respects the material third-party customer relationships and material Intellectual Property of the Business existing as of the Closing Date (other than expiration of registered Intellectual Property in accordance with their terms). Without limiting the foregoing, (x) during the period from the Closing Date through the final determination of the Earnout Amount for FY 2028, the Purchaser shall maintain the records of the Business in a manner permitting preparation of the Earnout Statements and the Quarterly Gross Profit Statements accurately in all material respects in order to allow for the good faith calculation of the Earnout Amount and its components, including by following the policies, principles and procedures set forth on Exhibit F; (y) during the period from the Closing Date through the end of FY 2028, the Purchaser shall (i) not take any action in bad faith, the primary intent or primary purpose of which is to avoid or reduce the amount of any Earnout Amount, including in bad faith accelerating or delaying the shipping of Specified Products or recognition of any revenues of the Business from one Earnout Year to another or following the end of the last Earnout Year; and (ii) use commercially reasonable efforts to provide reasonably adequate staffing and working capital for the conduct of the Business; and (z) during the period from the Closing Date through the earlier of (i) the payment of the Earnout Amount for FY 2028 or (ii) the final determination that no Earnout Amount is payable for FY 2028, the Purchaser shall not enter into (or permit any Subsidiary of the Purchaser to enter into) any agreement or arrangement that would prevent the Purchaser from paying the Earnout Amount in accordance with this Agreement.
(h) The Purchaser shall deliver or cause to be to be delivered to the Seller, within forty-five (45) days after the end of each fiscal quarter of an Earnout Year (other than the last fiscal quarter of such Earnout Year), a statement (the “Quarterly Gross Profit Statement”) setting forth the Purchaser’s calculation of Gross Profit for such fiscal quarter in reasonable detail, and, subject to the Disclosure Limitations, the Purchaser agrees to promptly provide such supporting documentation as the Seller may reasonably request to review the Purchaser’s calculation of the Gross Profit for such quarter.
(i) Any information provided to or obtained by the Seller pursuant to this Section 2.5 shall be deemed to be Confidential Information.
(j) The fiscal years of the Business for any Earnout Year and any fiscal quarter of the Business for any Earnout Year shall be based on the 4-4-5 accounting calendar that is used by the Purchaser, including as specified in the definitions of FY 2027 and FY 2028.
(k) Seller agrees to distribute the net proceeds of (i) 100% of any Earnout Amount in respect of FY 2027 (including the 2027 Catch-Up Amount, if any) to its members in accordance with the distribution provisions in the Seller’s Organizational Documents and (ii) 50% of any Earnout Amount in respect of FY 2028 (excluding, for avoidance of doubt, the 2027 Catch-Up Amount, if any) to The Resolute Fund IV, L.P. and the other 50% of any Earnout Amount in respect of FY 2028 (excluding, for avoidance of doubt, the 2027 Catch-Up Amount, if any) to Business Employee Equityholders, in each case of this clause (ii), in accordance with the distribution provisions in the Seller’s Organizational Documents. For purposes of the prior sentence, “Seller’s Organizational Documents” means Seller’s Organizational Documents as of the date of this Agreement, as they may be amended to implement the Earnout Arrangement in accordance with the terms of this Agreement and the terms set forth in Exhibit H.
Appears in 1 contract
Sources: Asset Purchase Agreement (Medical Staffing Network Holdings Inc)
Earnout. (a) Purchaser shall pay to Seller an aggregate amount not to exceed the Maximum Aggregate Earnout Payments on the following terms and conditions:
(i) for each of (A) the period constituting the first twelve full months following the Closing Date (the “First Earnout Period”), and (B) the period beginning the day after the end of the First Earnout Period and ending on the twelve month anniversary thereof (the “Second Earnout Period” and together with the First Earnout Period, each, an “Earnout Period”), Purchaser shall make a cash payment (each, an “Earnout Payment”) to Seller based on the Business EBITDA for that Earnout Period;
(ii) for each Earnout Period, (A) if the Business EBITDA for that Earnout Period is equal to or exceeds the Target Business EBITDA for such Earnout Period, the Earnout Payment shall be an amount equal to the Maximum Annual Earnout Payment for such Earnout Period, (B) if the Business EBITDA for that Earnout Period is greater than the Minimum Target Business EBITDA for that Earnout Period but less than the Target Business EBITDA for that Earnout Period, the Earnout Payment shall be an amount equal to (I) the Maximum Annual Earnout Payment for that Earnout Period multiplied by (II) a fraction, the numerator of which is the Business EBITDA for that Earnout Period in excess of the Minimum Target Business EBITDA for that Earnout Period and the denominator of which is the aggregate difference between the Target Business EBITDA for that Earnout Period and the Minimum Target Business EBITDA for that Earnout Period or (C) if the Business EBITDA for that Earnout Period is equal to or less than the Minimum Target Business EBITDA for that Earnout Period, the Earnout Payment shall equal zero (in the event that the Business EBITDA for an Earnout Period is less than the Target Business EBITDA for that Earnout Period, it is referred to herein as a “Business EBITDA Shortfall”);
(iii) if in either Earnout Period, the Business EBITDA for such Earnout Period exceeds the Target Business EBITDA for the Earnout Period, such excess (“Excess Business EBITDA”) may be applied to the previous or subsequent Earnout Period in which there was a Business EBITDA Shortfall in the following manner:
(A) if the Excess Business EBITDA is applied to the previous Earnout Period and if the sum of the Business EBITDA for that previous Earnout Period plus the Excess Business EBITDA would have resulted in an Earnout Payment greater than the Earnout Payment actually earned in the previous Earnout Period as calculated under Section 2.5(a)(ii), Purchaser shall make a “catch-up” payment (a “Catch-Up Payment”) to Seller in an amount equal to (x) the Earnout Payment that Seller would have earned in the previous Earnout Period if the Excess Business EBITDA had applied to such Earnout Period less (y) the Earnout Payment actually earned in the previous Earnout Period; and
(B) if the Excess Business EBITDA is applied to the future Earnout Period in which a Business EBITDA Shortfall exists, such excess shall be added to the Business EBITDA for the later Earnout Period to determine the amount of the Earnout Payment, if any, payable under Section 2.5(a)(ii);
(iv) notwithstanding anything in this Agreement to the contrary, in no event shall Purchaser be obligated to pay to Seller aggregate Earnout Payments (including any Catch-Up Payment) in excess of the Maximum Aggregate Earnout Payments; and
(v) the Earnout Payments and Catch-Up Payment, if any, are subject to set-off in accordance with Sections 2.5(f) and 12.6.
(b) Within forty-five ninety (4590) days after the end of an each Earnout YearPeriod, the Purchaser shall deliver provide to the Seller a statement, including work papers and schedules supporting such statement certified by Purchaser’s Chief Financial Officer (the each an “Earnout Statement”), together with reasonable supporting detail, showing the setting forth Purchaser’s good faith calculation for such Earnout Year of the (i) Gross Profit, the Business EBITDA for that Earnout Period; and (ii) Gross Profit Margin Percentage and the Earnout Payment (iii) resulting Earnout Amount. The Gross Profit and Gross Profit Margin Percentage shall be calculated in accordance with the policies, principles and procedures set forth on Exhibit F.
(b) Subject to the Disclosure Limitations, the Seller and its Representatives shall be permitted reasonable access to review and obtain copies of the books and records of the Business and any work papers (subject to customary access letters and confidentiality undertakingsCatch-Up Payment) related to the preparation of the for that Earnout Statement. The Seller and its Representatives may make reasonable inquiries of the Purchaser and its accountants regarding questions or disagreements, and the Purchaser shall, and shall use its reasonable best efforts to cause any such accountants to, cooperate with and respond to such inquiries. At the request of the Seller, and subject to the Disclosure Limitations, the Purchaser shall make available its personnel who are knowledgeable about the information contained in, and the preparation of, the Earnout Statement, to the Seller to advise and assist the Seller in its review of the Earnout Statement and any objections or disputes with respect theretoPeriod based thereon.
(c) Within thirty (30) days after delivery of the an Earnout Statement is delivered to the SellerSeller pursuant to Section 2.5(b), if the Seller has any objections to the Earnout Statement, the Seller shall complete its examination thereof and shall deliver to the Purchaser either (i) a statement written acknowledgement accepting such Earnout Statement; or (ii) a written report setting forth its objections thereto in reasonable detail any proposed adjustments to the such Earnout Statement (each an “Earnout Objections StatementAdjustment Report”). Any Earnout Objections Statement shall specify in reasonable detail the nature of any disagreement so asserted, the proposed correct amount for each such item and the resulting Earnout Amount. If an Earnout Objections Statement is not delivered Seller fails to the respond to Purchaser within thirty (30) days after delivery of the Earnout Statement to the Seller, the Earnout Statement shall be final, binding and non-appealable by the Parties. If an Earnout Objections Statement is properly and timely delivered, the portion of the Earnout Statement not subject to dispute pursuant to the Earnout Objections Statement shall be final, binding and non-appealable by the Parties. At any time during such thirty (30) day period, Seller shall be deemed to have accepted and agreed to such Earnout Statement (and the calculations thereon) as delivered pursuant to Section 2.5(b). During such thirty (30) day period, Purchaser shall provide to Seller may deliver a written notice reasonable access to the appropriate personnel, accountants, financial books and records of Purchaser stating that it agrees with the Earnout Statement and the Company, as well as any additional relevant information and work papers as it may reasonably request, to enable it to properly evaluate each Earnout Statement shall thereafter become final, binding and non-appealable by Statement.
(d) In the Parties. The event Seller and Purchaser fail to agree on any of Seller’s proposed adjustments contained in an Earnout Adjustment Report within thirty (30) days after Purchaser receives such Earnout Adjustment Report, then Seller and Purchaser agree that the Independent Auditors shall make the final determination with respect to the correctness of the proposed adjustments in such Earnout Adjustment Report in light of the terms and provisions of this Agreement. Purchaser and Seller shall negotiate in good faith use their commercially reasonable efforts to cause the Independent Auditors to resolve any objections in the Earnout Objections Statementall disagreements as soon as practicable, but if and to the extent they do not reach a final resolution in any event within sixty (60) days after the delivery submission of the Earnout Objections Statement, the Seller and the Purchaser shall submit, within seventy five (75) days after the delivery of the Earnout Objections Statement, such dispute to the Valuation Firm for resolutionIndependent Auditors. The Valuation Firm decision of the Independent Auditors shall be instructed by the Seller and the Purchaser to render a determination of the applicable dispute (solely to the extent of such dispute) within thirty (30) days after submission of the matter to the Valuation Firm (or such longer period as mutually agreed in writing by the Purchaser and the Seller), which determination must be in writing and must set forth, in reasonable detail, the basis therefor, and include a certification that it reached such determination in accordance with the definitions as provided in this Agreement and Exhibit F. Any further submissions to the Valuation Firm must be written and delivered to each Party to the dispute. The Valuation Firm shall make a final determination of the Gross Profit, Gross Profit Margin Percentage and resulting Earnout Amount (solely to the extent such amounts or their components are in dispute) in accordance with the guidelines and procedures set forth in this Agreement and Exhibit F. The Valuation Firm shall determine, based solely on presentations by the Purchaser and the Seller and their respective Representatives, and not by independent review, only those issues in dispute specifically set forth on the Earnout Objections Statement, and shall act as an expert and not as an arbitrator. In resolving any disputed item, the Valuation Firm shall (i) be bound by the principles set forth in this Section 2.5 and (ii) not assign a value to any item in dispute that is greater than the greatest value for such disputed item claimed by any Party or less than the smallest value for such disputed item claimed by any Party. The Parties shall reasonably cooperate with the Valuation Firm during the term of its engagement, including by executing a customary engagement letter. Neither the Purchaser, the Seller nor any of their respective Affiliates or Representatives shall have any ex parte conversations or meetings with the Valuation Firm in connection with any dispute submitted by the Purchaser and/or the Seller to the Valuation Firm pursuant to this Section 2.5(c) without the prior consent of the other Party. The Valuation Firm’s determination of the Gross Profit, Gross Profit Margin Percentage and the resulting Earnout Amount with respect to an Earnout Year shall, in each case in the manner contemplated by this Section 2.5, become final and binding on the Parties on the date the Valuation Firm delivers its final resolution in writing to the Seller and the Purchaser, absent manifest error or fraud. The costs fees and expenses of the Valuation Firm Independent Auditors incurred in connection with the determination of the disputed items by the Independent Auditors shall be allocated between the borne by Purchaser, on the one hand, and the Seller, on the other hand, in based upon the same proportion percentage that (x) the absolute value portion of the difference between contested amount not awarded to each party bears to the value of the Earnout Amount asserted amount actually contested by the Purchaser and the value of the Earnout Amount such party, as determined by the Valuation Firm bears to (y) the absolute value of the difference between the value of the Earnout Amount asserted by the Seller and the value of the Earnout Amount determined by the Valuation Firm. For example, if the Seller submits an Earnout Objections Statement to the Valuation Firm that states that the Earnout Amount should be $2,000 while the Purchaser asserts in the written presentation to the Valuation Firm that the Earnout Amount should be $1,000, and the Valuation Firm ultimately resolves that the Earnout Amount should be $1,200, then the costs and expenses of the Valuation Firm will be allocated 20% to the Purchaser and 80% to the Seller.
(d) Once the Earnout Amount for an Earnout Year has been finally determined in accordance with Section 2.5(c) and such Earnout Amount is not zero, the Purchaser shall no later than eight (8) Business Days following such determination, deliver or cause to be delivered to Seller the number of Purchaser Shares payable as the Earnout Stock Consideration for such Earnout Year, provided that if any portion of the Earnout Amount is subject to a pending claim for indemnification by the Purchaser under Section 9.1(a) and Section 9.4(d), such portion of the Earnout Amount shall only be paid eight (8) Business Days following the final resolution of such claim and only to the extent not used to offset the amount required to be paid by the Seller under Section 9.1(a) with respect to such claim. For the avoidance of doubt, no payment of Purchaser Shares shall be due with respect to an Earnout Year if the Earnout Amount for such Earnout Year is zeroIndependent Auditors.
(e) The Parties understand and agree that (i) the contingent rights All payments to receive an Earnout Amount shall not be represented by any form of certificate or other instrument, are not transferable, and do not constitute an equity or ownership interest in the Purchaser or any of its Affiliates; (ii) the Seller shall not have any rights as a security-holder of the Purchaser as a result of the Seller’s contingent right made pursuant to receive any Earnout Amount; and (iii) no interest is payable this Section 2.5 with respect to any Earnout Amount.
(f) Any amount paid pursuant to this Section 2.5 Period shall be treated for all Tax purposes as additional consideration paid for by the Company Shares pursuant to this Agreement, except wire transfer of immediately available funds within fifteen (i15) for any portion treated as imputed interest and (ii) to the extent otherwise required pursuant to a “determination” within the meaning of Section 1313(a) of the Code (or any similar provisions of state, local or foreign Law).
(g) Subsequent to the Closing and until the end of FY 2028, the Purchaser shall use its commercially reasonable efforts to maintain and preserve in all material respects the material third-party customer relationships and material Intellectual Property of the Business existing as of the Closing Date (other than expiration of registered Intellectual Property in accordance with their terms). Without limiting the foregoing, (x) during the period from the Closing Date through Days following the final determination of the Earnout Amount Payment (and any Catch-Up Payment) for FY 2028, the such Earnout Period to an account designated by Seller to Purchaser shall maintain the records in writing in advance of the Business in a manner permitting preparation of the Earnout Statements and the Quarterly Gross Profit Statements accurately in all material respects in order to allow for the good faith calculation of the Earnout Amount and its components, including by following the policies, principles and procedures set forth on Exhibit Fpayment thereof; (y) during the period from the Closing Date through the end of FY 2028, the Purchaser shall provided that (i) with respect to the Earnout Payment, if any, for the First Earnout Period, said Earnout Payment shall not take any action in bad faith, the primary intent or primary purpose of which is to avoid or reduce the amount of any Earnout Amount, including in bad faith accelerating or delaying the shipping of Specified Products or recognition of any revenues be paid until determination of the Business from one Earnout Year Insurance Deficiency, if any, pursuant to another or following Section 2.5(f) for the end of the last Earnout Year; Seller policy years 2015/2016 and 2016/2017, and (ii) use commercially reasonable efforts respect to provide reasonably adequate staffing and working capital the Earnout Payment, if any, for the conduct Second Earnout Period, said Earnout Payment (including any Catch-Up Payment) shall be subject to set off by the amount, if any, by which the Deficiency Offset Amount, if any, exceeds the amount determined to be the Earnout Payment for the First Earnout Period
(f) Seller and Purchaser agree that Purchaser shall have the right to set off against any Earnout Payment (including the Catch-Up Payment) the Deficiency Offset Amount. Seller shall prepare and deliver to Purchaser on or about August 1, 2018 a written report (together with all supporting documentation) setting forth a calculation for the 2015/2016 policy year of the Business; Business (but excluding claims prior to January 1, 2016) and the 2016/2017 policy year of the Business (zbut excluding claims after December 31, 2016) during the period from the Closing Date through the earlier of any Deficiency Offset Amount. The “Deficiency Offset Amount” shall be (i) zero if the payment of the Earnout Amount for FY 2028 Insurance Deficiency is less than zero, or (ii) if the final determination that no Earnout Amount Insurance Deficiency is payable for FY 2028greater than zero, the Purchaser product of 6.75 multiplied by the Insurance Deficiency, but (iii) in no event greater than $5,400,000. Truline losses shall not enter into (or permit any Subsidiary be excluded from the determination. Any dispute as to the determination of an Insurance Deficiency shall be submitted to the Purchaser to enter into) any agreement or arrangement that would prevent the Purchaser from paying the Earnout Amount in accordance with this Agreement.
(h) The Purchaser shall deliver or cause Independent Auditor to be to be delivered to the Seller, within forty-five (45) days after the end of each fiscal quarter of an Earnout Year (other than the last fiscal quarter of such Earnout Yearresolved as provided in Section 2.5(d), a statement (the “Quarterly Gross Profit Statement”) setting forth the Purchaser’s calculation of Gross Profit for such fiscal quarter in reasonable detail, and, subject to the Disclosure Limitations, the Purchaser agrees to promptly provide such supporting documentation as the Seller may reasonably request to review the Purchaser’s calculation of the Gross Profit for such quarter.
(i) Any information provided to or obtained by the Seller pursuant to this Section 2.5 shall be deemed to be Confidential Information.
(j) The fiscal years of the Business for any Earnout Year and any fiscal quarter of the Business for any Earnout Year shall be based on the 4-4-5 accounting calendar that is used by the Purchaser, including as specified in the definitions of FY 2027 and FY 2028.
(k) Seller agrees to distribute the net proceeds of (i) 100% of any Earnout Amount in respect of FY 2027 (including the 2027 Catch-Up Amount, if any) to its members in accordance with the distribution provisions in the Seller’s Organizational Documents and (ii) 50% of any Earnout Amount in respect of FY 2028 (excluding, for avoidance of doubt, the 2027 Catch-Up Amount, if any) to The Resolute Fund IV, L.P. and the other 50% of any Earnout Amount in respect of FY 2028 (excluding, for avoidance of doubt, the 2027 Catch-Up Amount, if any) to Business Employee Equityholders, in each case of this clause (ii), in accordance with the distribution provisions in the Seller’s Organizational Documents. For purposes of the prior sentence, “Seller’s Organizational Documents” means Seller’s Organizational Documents as of the date of this Agreement, as they may be amended to implement the Earnout Arrangement in accordance with the terms of this Agreement and the terms set forth in Exhibit H.
Appears in 1 contract
Sources: Purchase Agreement (Hub Group, Inc.)
Earnout. (a) Within fortyAs additional consideration for the purchase of the Shares, Buyer shall make payments to Sellers based on the Pro Forma Gross Profit, calculated in accordance with Schedule 2.6 (each such payment, an “Earnout Payment” and collectively, the “Earnout Payments”), in the amount, if any, and in the manner as may be determined to be payable pursuant to this Section 2.6 during the following periods (each such period, an “Earnout Period”): (i) the 12-five months ending December 31, 2020 and (45ii) the 12-months ending December 31, 2021.
(b) As promptly as practicable, but in any event within 60 days after the end of an each Earnout YearPeriod, the Purchaser Buyer shall prepare and deliver to the Seller Sellers’ Representative a statement (the “Preliminary Earnout Statement”)) setting forth in reasonable detail Buyer’s good faith calculation of the Pro Forma Gross Profit and the applicable Earnout Payment owed to Sellers for such Earnout Period, together with reasonable supporting detail, showing the Purchaser’s detail and documentation. The Preliminary Earnout Statement will be prepared in good faith calculation for such Earnout Year of by Buyer based on the (icalculations set forth on Schedule 1.1(d) Gross Profitand Schedule 2.6, (ii) Gross Profit Margin Percentage and (iii) resulting Earnout Amount. The Gross Profit and Gross Profit Margin Percentage shall be calculated in accordance with the policies, principles and procedures set forth on Exhibit F.
(b) Subject to the Disclosure Limitations, the Seller and its Representatives shall be permitted reasonable access to review and obtain copies of the books and records of the Business and any work papers (subject to customary access letters and confidentiality undertakings) related to the preparation of the Earnout Statement. The Seller and its Representatives may make reasonable inquiries of the Purchaser and its accountants regarding questions or disagreements, and the Purchaser shall, and shall use its reasonable best efforts to cause any such accountants to, cooperate with and respond to such inquiries. At the request of the Seller, and subject to the Disclosure Limitations, the Purchaser shall make available its personnel who are knowledgeable about the information contained in, and the preparation of, the Earnout Statement, to the Seller to advise and assist the Seller in its review of the Earnout Statement and any objections or disputes with respect theretothis Agreement.
(c) Within thirty five Business Days after Buyer and the Sellers’ Representative determine that the Earnout Payment amount is final pursuant to Section 2.6(d), Buyer shall pay such Earnout Payment to Sellers’ Representative by wire transfer of immediately available funds to a bank designated by him. Each Seller will receive from the Sellers’ Representative such Seller’s Percentage Interest of such Earnout Payment.
(30d) The Sellers’ Representative may, within 30 days after delivery the date of the Earnout Statement to the Seller, if the Seller has any objections to the receipt each Preliminary Earnout Statement, the Seller shall deliver to Buyer a notice setting forth in reasonable detail with supporting documentation any objections that Sellers, in good faith, may have thereto (such notice, a “Earnout Objection Notice”). If the Purchaser a statement Sellers’ Representative does not so object within such time period, the calculation of the Pro Forma Gross Profit and the Earnout Payment set forth in such Preliminary Earnout Statement will be final and binding on the parties for purposes of this Agreement. If the Sellers’ Representative so objects in good faith and delivers an Earnout Objection Notice within such time period, then he and Buyer will use good faith efforts to resolve by written agreement any differences as to the calculation of Pro Forma Gross Profit and, if he and Buyer so resolve any such differences, the Pro Forma Gross Profit, as adjusted by the agreed adjustments, will be final and binding on the parties for purposes of this Agreement. If any objections raised by the Sellers’ Representative are not resolved by written agreement of the parties within 15 Business Days after he advises Buyer of Sellers’ objections, then he, on behalf of Sellers, and Buyer, will submit the objections that are then unresolved to the Independent Accountants, which shall be directed to resolve the unresolved objections as promptly as reasonably practicable and to deliver written notice to each of Buyer and the Sellers’ Representative setting forth its objections thereto (an “Earnout Objections Statement”). Any Earnout Objections Statement shall specify in reasonable detail the nature of any disagreement so asserted, the proposed correct amount for each such item and the resulting Earnout Amount. If an Earnout Objections Statement is not delivered to the Purchaser within thirty (30) days after delivery resolution of the Earnout Statement to the Seller, the Earnout Statement shall be final, binding and non-appealable disputed matters. All determinations by the Parties. If an Earnout Objections Statement is properly and timely delivered, the portion of the Earnout Statement not subject to dispute pursuant to the Earnout Objections Statement shall Independent Accountants will be final, binding and non-appealable by the Parties. At any time during such thirty (30) day period, the Seller may deliver a written notice to the Purchaser stating that it agrees with the Earnout Statement and the Earnout Statement shall thereafter become final, binding and non-appealable by the Parties. The Seller and the Purchaser shall negotiate in good faith to resolve any objections in the Earnout Objections Statement, but if and to the extent they do not reach a final resolution within sixty (60) days after the delivery of the Earnout Objections Statement, the Seller and the Purchaser shall submit, within seventy five (75) days after the delivery of the Earnout Objections Statement, such dispute to the Valuation Firm for resolution. The Valuation Firm shall be instructed by the Seller and the Purchaser to render a determination of the applicable dispute (solely to the extent of such dispute) within thirty (30) days after submission of the matter to the Valuation Firm (or such longer period as mutually agreed in writing by the Purchaser and the Seller), which determination must be in writing and must set forth, in reasonable detail, the basis therefor, and include a certification that it reached such determination in accordance with the definitions as provided in this Agreement and Exhibit F. Any further submissions to the Valuation Firm must be written and delivered to each Party to the dispute. The Valuation Firm shall make a final determination of the Gross Profit, Gross Profit Margin Percentage and resulting Earnout Amount (solely to the extent such amounts or their components are in dispute) in accordance with the guidelines and procedures set forth in this Agreement and Exhibit F. The Valuation Firm shall determine, based solely on presentations the information presented to it by Buyer or the Purchaser and the Seller Sellers’ Representative and their respective Representativesrepresentatives, and not by independent review, only those issues in dispute specifically set forth on the Earnout Objections Statement, and shall act as an expert and not as an arbitrator. In resolving any disputed item, the Valuation Firm shall (i) Independent Accountants will be bound by the principles set forth in terms of this Section 2.5 Agreement, including the definition of Pro Forma Gross Profit, and (ii) will not assign a value to any item in dispute that is greater than the greatest value for such disputed item claimed by any Party either party or less than the smallest value for such disputed item claimed by any Partyeither party. The Parties shall reasonably cooperate with calculation of Pro Forma Gross Profit and the Valuation Firm during Earnout Payment, after giving effect to any agreed adjustments and the term resolution of its engagement, including by executing a customary engagement letter. Neither the Purchaser, the Seller nor any of their respective Affiliates or Representatives shall have any ex parte conversations or meetings with the Valuation Firm in connection with any dispute submitted disputed matters by the Purchaser and/or the Seller to the Valuation Firm pursuant to this Section 2.5(c) without the prior consent of the other Party. The Valuation Firm’s determination of the Gross ProfitIndependent Accountants, Gross Profit Margin Percentage and the resulting Earnout Amount with respect to an Earnout Year shall, in each case in the manner contemplated by this Section 2.5, become will be final and binding on the Parties on the date the Valuation Firm delivers its final resolution in writing parties for purposes of this Agreement. If any unresolved objections are submitted to the Seller and the PurchaserIndependent Accountants for resolution as provided above, absent manifest error or fraud. The costs and expenses of the Valuation Firm shall be allocated between the PurchaserBuyer, on the one hand, and the SellerSellers, on the other hand, will share the fees and expenses of such accounting firm in proportion to the same proportion that (x) degree to which the absolute value of the difference between the value of the applicable final Earnout Amount asserted by the Purchaser and the value of the Earnout Amount Payment, as determined by the Valuation Firm bears to (y) Independent Accountants, differs from the absolute value applicable proposed final Earnout Payment set forth in the Preliminary Earnout Statement submitted by Buyer and the Earnout Objection Notice submitted by the Sellers’ Representative, respectively, such that the Party whose calculation of the difference between applicable Earnout Payment differs more from the value of the Earnout Amount asserted calculation submitted by the Seller and the value Independent Accountants shall pay proportionately more of the Earnout Amount determined by the Valuation Firm. For example, if the Seller submits an Earnout Objections Statement to the Valuation Firm that states that the Earnout Amount should be $2,000 while the Purchaser asserts in the written presentation to the Valuation Firm that the Earnout Amount should be $1,000, and the Valuation Firm ultimately resolves that the Earnout Amount should be $1,200, then the costs and expenses of the Valuation Firm will be allocated 20% to the Purchaser and 80% to the Seller.
(d) Once the Earnout Amount for an Earnout Year has been finally determined in accordance with Section 2.5(c) and such Earnout Amount is not zero, the Purchaser shall no later than eight (8) Business Days following such determination, deliver or cause to be delivered to Seller the number of Purchaser Shares payable as the Earnout Stock Consideration for such Earnout Year, provided that if any portion of the Earnout Amount is subject to a pending claim for indemnification by the Purchaser under Section 9.1(a) and Section 9.4(d), such portion of the Earnout Amount shall only be paid eight (8) Business Days following the final resolution of such claim and only to the extent not used to offset the amount required to be paid by the Seller under Section 9.1(a) with respect to such claim. For the avoidance of doubt, no payment of Purchaser Shares shall be due with respect to an Earnout Year if the Earnout Amount for such Earnout Year is zeroIndependent Accountants.
(e) The Parties During the period set forth in Section 2.6(d), the Sellers’ Representative and his representatives (i) will be permitted to review, during normal business hours and upon reasonable notice and with Buyer’s cooperation, the Company’s Books and Records to the extent related to the preparation of the Preliminary Earnout Statement, including any work papers and memoranda which have been provided to Buyer or the Company, and (ii) will be given access, during normal business hours and upon reasonable notice, to knowledgeable Employees and accounting professionals of the Company and Buyer to the extent reasonably necessary to facilitate the Sellers’ Representative’s review of the Preliminary Earnout Statement, to the extent reasonably requested by the Sellers’ Representative; provided, notwithstanding anything to the contrary in this Agreement, Buyer shall not be required to disclose any information to the Sellers’ Representative or his representatives if such disclosure would be reasonably likely to (x) jeopardize any attorney-client or other legal privilege or (y) contravene any Applicable Law or any confidentiality agreement.
(f) Except as otherwise provided in this Section 2.6, Sellers acknowledge, understand and agree that (i) Buyer shall have the contingent rights right to receive an Earnout Amount shall not be represented by any form of certificate or other instrument, are not transferable, operate the Company and do not constitute an equity or ownership interest the Business in the Purchaser or any sole discretion of Buyer and make all decisions with respect to the Company and the Business in its Affiliatessole discretion; (ii) the Seller amount of the Earnout Payments contemplated herein is speculative and is subject to numerous factors outside the control of Buyer and the Company; (iii) neither Buyer nor the Company has promised or projected payment of the Earnout Payments; (iv) neither Buyer nor the Company owe a fiduciary duty or express or implied duty to Sellers; (v) the contingent right of Sellers to receive Earnout Payments is not an investment in Buyer or the Company, and the contingent right shall not have entitle Sellers to any rights as a security-holder shareholders of Buyer or the Purchaser as a result Company; (vi) the parties solely intend the express provisions of the Seller’s contingent right this Agreement to receive any Earnout Amount; govern all of their rights and (iii) no interest is payable obligations, if any, with respect to any the Earnout Amount.
(f) Any amount paid Payments contemplated pursuant to this Section 2.5 shall be treated for all Tax purposes as additional consideration paid for 2.6; and (vii) nothing herein will prohibit Buyer or the Company Shares pursuant from engaging in any business or opportunity or acquiring, entering into joint ventures, investing in or otherwise cooperating with other Persons, including Persons that may have interests adverse to this Agreementor otherwise compete, except (i) for any portion treated as imputed interest and (ii) to directly or indirectly, with the extent otherwise required pursuant to a “determination” within the meaning of Section 1313(a) of the Code (or any similar provisions of state, local or foreign Law)Business.
(g) Subsequent to the Closing and until the end of FY 2028, the Purchaser shall use its commercially reasonable efforts to maintain and preserve in all material respects the material third-party customer relationships and material Intellectual Property of the Business existing as of the Closing Date (other than expiration of registered Intellectual Property in accordance with their terms). Without limiting the foregoing, (x) during the period from the Closing Date through the final determination of the Earnout Amount for FY 2028, the Purchaser shall maintain the records of the Business in a manner permitting preparation of the Earnout Statements and the Quarterly Gross Profit Statements accurately in all material respects in order to allow for the good faith calculation of the Earnout Amount and its components, including by following the policies, principles and procedures set forth on Exhibit F; (y) during the period from the Closing Date through the end of FY 2028, the Purchaser shall Except (i) as expressly required by the terms of this Agreement, (ii) as may be reasonably required to comply with Applicable Law, or (iii) as otherwise consented to in writing by the Sellers’ Representative, from the Closing, through the Earnout Period, and, solely with respect to subpart (A) and (C), until the Earnout Payment (if earned) is paid in full, Buyer shall (A) not contractually restrict the Company’s ability to pay the Earnout Payment when due, (B) maintain the Company (or its successor) or its Business (as it may be expanded after Closing) as a separate entity or business unit and maintain separate financial records solely for purposes of calculating the Earnout Payments for the Business (as it may be expanded after Closing), and (C) not (1) take or omit to take, or cause the Company to take or omit to take, any action in bad faithsolely intended to impede or impair the payment of any Earnout Payment under Section 2.6, or (2) take, or cause the Company to take, any other actions, the primary intent or primary sole purpose of which is to avoid reduce or reduce the amount of any Earnout Amount, including in bad faith accelerating or delaying the shipping of Specified Products or recognition of any revenues of the Business from one Earnout Year to another or following the end of the last Earnout Year; and (ii) use commercially reasonable efforts to provide reasonably adequate staffing and working capital for the conduct of the Business; and (z) during the period from the Closing Date through the earlier of (i) the prevent payment of the Earnout Amount for FY 2028 Payments. This Section 2.6 will survive the Closing and will bind any successors or (ii) assigns of Buyer or the final determination that no Earnout Amount is payable for FY 2028, the Purchaser shall not enter into (or permit any Subsidiary of the Purchaser to enter into) any agreement or arrangement that would prevent the Purchaser from paying the Earnout Amount in accordance with this AgreementCompany.
(h) The Purchaser shall deliver or cause to be to be delivered to the Seller, within forty-five (45) days after the end of each fiscal quarter of an Earnout Year (other than the last fiscal quarter of such Earnout Year), a statement (the “Quarterly Gross Profit Statement”) setting forth the Purchaser’s calculation of Gross Profit for such fiscal quarter in reasonable detail, and, subject to the Disclosure Limitations, the Purchaser agrees to promptly provide such supporting documentation as the Seller may reasonably request to review the Purchaser’s calculation of the Gross Profit for such quarter.
(i) Any information provided to or obtained by the Seller pursuant to this Section 2.5 shall be deemed to be Confidential Information.
(j) The fiscal years of the Business for any Earnout Year and any fiscal quarter of the Business for any Earnout Year shall be based on the 4-4-5 accounting calendar that is used by the Purchaser, including as specified in the definitions of FY 2027 and FY 2028.
(k) Seller agrees to distribute the net proceeds of (i) 100% of any Earnout Amount in respect of FY 2027 (including the 2027 Catch-Up Amount, if any) to its members in accordance with the distribution provisions in the Seller’s Organizational Documents and (ii) 50% of any Earnout Amount in respect of FY 2028 (excluding, for avoidance of doubt, the 2027 Catch-Up Amount, if any) to The Resolute Fund IV, L.P. and the other 50% of any Earnout Amount in respect of FY 2028 (excluding, for avoidance of doubt, the 2027 Catch-Up Amount, if any) to Business Employee Equityholders, in each case of this clause (ii), in accordance with the distribution provisions in the Seller’s Organizational Documents. For purposes of the prior sentence, “Seller’s Organizational Documents” means Seller’s Organizational Documents as of the date of this Agreement, as they may be amended to implement the Earnout Arrangement in accordance with the terms of this Agreement and the terms set forth in Exhibit H.
Appears in 1 contract
Earnout. (a) Within forty-five (45) days after the end of an Earnout Year, the Purchaser shall deliver Solely to the Seller a statement extent earned, at the times and upon fulfillment of the conditions provided in this Section 3.6, Parent shall pay to Company Preferred Stockholders in accordance with their respective Pro Rata Percentage an amount equal to each earned portion of the Earnout Stock Consideration as determined in the Earnout Milestones and Payment Schedule (the an “Earnout StatementPayment”), together with reasonable supporting detail, showing and subject to any set off rights of Parent pursuant to Section 10.
(b) A schedule setting forth specific milestones and the Purchaser’s good faith calculation for Earnout Payment due upon completion of such Earnout Year of the (i) Gross Profit, (ii) Gross Profit Margin Percentage and (iii) resulting Earnout Amount. The Gross Profit and Gross Profit Margin Percentage shall be calculated in accordance with the policies, principles and procedures milestones is set forth on Exhibit F.
G (b) Subject to the Disclosure Limitations, the Seller and its Representatives shall be permitted reasonable access to review and obtain copies of the books and records of the Business and any work papers (subject to customary access letters and confidentiality undertakings) related to the preparation of the Earnout Statement. The Seller and its Representatives may make reasonable inquiries of the Purchaser and its accountants regarding questions or disagreements, and the Purchaser shall, and shall use its reasonable best efforts to cause any such accountants to, cooperate with and respond to such inquiries. At the request of the Seller, and subject to the Disclosure Limitations, the Purchaser shall make available its personnel who are knowledgeable about the information contained in, and the preparation of, the Earnout Statement, to the Seller to advise and assist the Seller in its review of the Earnout Statement and any objections or disputes with respect thereto.
(c) Within thirty (30) days after delivery of the Earnout Statement to the Seller, if the Seller has any objections to the Earnout Statement, the Seller shall deliver to the Purchaser a statement setting forth its objections thereto (an “Earnout Objections StatementMilestones and Payment Schedule”). Any Earnout Objections Statement Parent shall specify in reasonable detail the nature of any disagreement so asserted, the proposed correct amount for each such item and the resulting Earnout Amount. If an Earnout Objections Statement is not delivered to the Purchaser within thirty (30) days after delivery the Milestone Date, or if prior to the Milestone Date Parent has made a reasonable, good faith determination that an Earnout Milestone has been achieved and earned, Parent shall deliver to the Securityholders’ Representative a statement setting forth its calculation of the Earnout Statement to the Seller, Payment determined in accordance with the Earnout Milestones and Payment Schedule (an “Earnout Consideration Statement”); provided, however, such Earnout Consideration Statement shall be final, binding not include any prior Earnout Payments earned and non-appealable by distributed in accordance with this Section 3.6. The Securityholders’ Representative may deliver a written request to Parent certifying that the Parties. If Securityholders’ Representative in good faith believes that an Earnout Objections Statement is properly Milestone has been achieved and timely deliveredearned and upon receipt of such notice, the portion of the Earnout Statement not subject to dispute pursuant to the Earnout Objections Statement shall be finalParent shall, binding and non-appealable by the Parties. At any time during such within thirty (30) day perioddays, deliver to the Securityholders’ Representative an Earnout Consideration Statement.
(c) Parent shall provide the Securityholders’ Representative with (i) backup documentation and (ii) access to such books and records, as is reasonably necessary to enable the Securityholders’ Representative to verify the accuracy of an Earnout Consideration Statement as reasonably requested, including access to Parent’s internal accounting and finance personnel. In the event the Securityholders’ Representative disputes any of the calculations set forth in an Earnout Consideration Statement (an “Earnout Consideration Dispute”), the Seller may deliver a written Securityholders’ Representative shall give notice to the Purchaser stating that it agrees with the Earnout Statement Parent in writing of such disagreement in reasonable detail and the Earnout Statement shall thereafter become finalbasis for such disagreement on a line-by-line basis, binding and non-appealable by including the Parties. The Seller and the Purchaser shall negotiate in good faith to resolve any objections in the Earnout Objections Statement, but if and to the extent they do not reach a final resolution within sixty (60) days after the delivery of the Earnout Objections Statement, the Seller and the Purchaser shall submit, within seventy five (75) days after the delivery of the Earnout Objections Statement, such dispute to the Valuation Firm for resolution. The Valuation Firm shall be instructed by the Seller and the Purchaser to render a Securityholders’ Representative’s determination of the applicable dispute (solely to the extent of such dispute) any amount therein that is disputed, within thirty (30) days after submission following receipt of the matter to the Valuation Firm an Earnout Consideration Statement (or such longer period as mutually agreed in writing by the Purchaser and the Selleran “Earnout Dispute Notice”), which determination must be in writing and must set forth, in reasonable detail, the basis therefor, and include a certification that it reached such determination in accordance with the definitions as provided in this Agreement and Exhibit F. Any further submissions to the Valuation Firm must be written and delivered to each Party to the dispute. The Valuation Firm shall make a final determination of the Gross Profit, Gross Profit Margin Percentage and resulting Earnout Amount (solely to the extent such amounts or their components are in dispute) in accordance with the guidelines and procedures set forth in this Agreement and Exhibit F. The Valuation Firm shall determine, based solely on presentations by the Purchaser and the Seller and their respective Representatives, and not by independent review, only those issues in dispute specifically set forth on the Earnout Objections Statement, and shall act as an expert and not as an arbitrator. In resolving the event the Securityholders’ Representative fails for any disputed item, the Valuation Firm shall (i) be bound by the principles set forth in this Section 2.5 and (ii) not assign a value reason to any item in dispute that is greater than the greatest value for such disputed item claimed by any Party or less than the smallest value for such disputed item claimed by any Party. The Parties shall reasonably cooperate with the Valuation Firm during the term of its engagement, including by executing a customary engagement letter. Neither the Purchaser, the Seller nor any of their respective Affiliates or Representatives shall have any ex parte conversations or meetings with the Valuation Firm in connection with any dispute submitted by the Purchaser and/or the Seller to the Valuation Firm pursuant to this Section 2.5(c) without the prior consent of the other Party. The Valuation Firm’s determination of the Gross Profit, Gross Profit Margin Percentage and the resulting Earnout Amount with respect to deliver an Earnout Year shallDispute Notice to Parent within such thirty (30) day-period, in each case in the manner contemplated by this Section 2.5, become such Earnout Consideration Statement shall be final and binding on the Parties on the date the Valuation Firm delivers its final resolution in writing to the Seller parties hereto and the Purchaser, absent manifest error or fraud. The costs and expenses of the Valuation Firm shall be allocated between the Purchaser, on the one hand, and the Seller, on the other hand, in the same proportion that (x) the absolute value of the difference between the value determination of the Earnout Amount asserted by Payment as set forth therein shall be deemed final for all purposes under this Agreement. In the Purchaser event of such an Earnout Consideration Dispute, Parent and the value Securityholders’ Representative shall first use their diligent good faith efforts to resolve such Earnout Consideration Dispute among themselves. If Parent and the Securityholders’ Representative are unable to resolve the Earnout Consideration Dispute within thirty (30) calendar days after delivery of the Earnout Amount determined by the Valuation Firm bears Dispute Notice (“Earnout Consideration Resolution Period”), then any remaining items in dispute shall be submitted to (y) the absolute value of the difference between the value of the Earnout Amount asserted by the Seller a nationally recognized, independent accounting firm reasonably acceptable to Parent and the value of Securityholders’ Representative (such firm, or any successor thereto, being referred to herein as the Earnout Amount determined by the Valuation “Designated Accounting Firm. For example, if the Seller submits an Earnout Objections Statement to the Valuation Firm that states that the Earnout Amount should be $2,000 while the Purchaser asserts in the written presentation to the Valuation Firm that the Earnout Amount should be $1,000, and the Valuation Firm ultimately resolves that the Earnout Amount should be $1,200, then the costs and expenses of the Valuation Firm will be allocated 20% to the Purchaser and 80% to the Seller”).
(d) Once If any Earnout Consideration Dispute is submitted to the Designated Accounting Firm, Parent and the Securityholders’ Representative will each prepare a separate written report of such unresolved item or items specified in the Earnout Amount for an Earnout Year has been finally determined in accordance Dispute Notice and deliver such reports, along with Section 2.5(c) and such Earnout Amount is not zero, the Purchaser shall no later than eight (8) Business Days following such determination, deliver or cause to be delivered to Seller the number of Purchaser Shares payable as the Earnout Stock Consideration for such Earnout Year, provided that if any portion copies of the Earnout Amount is subject Dispute Notice and the Earnout Consideration Statement marked to a pending claim for indemnification by indicate those items that remain in dispute, to the Purchaser under Section 9.1(aDesignated Accounting Firm within twenty (20) and Section 9.4(d), such portion calendar days after the end of the Earnout Amount shall only be paid eight (8) Business Days following Consideration Resolution Period. Thereafter, each of Parent and the final resolution of such claim Securityholders’ Representative will, and only will use reasonable best efforts to cause its independent registered public accounting firm, if any, to, furnish to the extent Designated Accounting Firm such work papers and other documents and information relating to the disputed issues (including information of the Surviving Corporation) as the Designated Accounting Firm may reasonably request and are available to Parent or the Securityholders’ Representative, or their respective independent registered public accounting firms, as the case may be; provided, however, such independent registered public accounting firms shall not used be obligated to offset make any work papers available to the amount required to be paid by Designated Accounting Firm until the Seller under Section 9.1(a) with respect Designated Accounting Firm has signed a customary agreement relating to such claimaccess to working papers in form and substance reasonably acceptable to such independent registered public accounting firms. For Parent and the avoidance Securityholders’ Representative will each be afforded the opportunity to present to the Designated Accounting Firm material relating to the determination of doubt, no payment of Purchaser Shares shall be due with respect to an Earnout Year if the Earnout Amount for Payment and to discuss such Earnout Year is zero.
(e) determination with the Designated Accounting Firm at a meeting with Parent and the Securityholders’ Representative present. The Parties understand parties hereto acknowledge and agree that (i) the contingent rights to receive an Earnout Amount Designated Accounting Firm shall not be represented attribute a value to any disputed amount greater than the greatest amount proposed by any form of certificate either Parent or other instrumentthe Securityholders’ Representative, are not transferableor an amount less than the least amount proposed by either Parent or the Securityholders’ Representative, and do not constitute an equity or ownership interest in the Purchaser or any of its Affiliates; (ii) the Seller shall not have any rights as a security-holder review by and determinations of the Purchaser as a result of Designated Accounting Firm shall be limited to, and only to, the Seller’s contingent right unresolved item or items specified in the Earnout Dispute Notice and contained in the reports prepared and submitted to receive any Earnout Amount; the Designated Accounting Firm by ▇▇▇▇▇▇ and the Securityholders’ Representative, and (iii) the determinations by the Designated Accounting Firm shall be based solely on such reports submitted by Parent and the Securityholders’ Representative, and the work papers and other documents and information provided to the Designated Accounting Firm that form the basis for Parent’s and the Securityholders’ Representative’s respective positions.
(e) The written decision of the Designated Accounting Firm shall (i) be rendered within no interest more than sixty (60) days from the date that the matter is payable referred to such firm, (ii) be final and binding on the parties hereto and, in the absence of Fraud or manifest error, shall not be subject to dispute or review, (iii) have the same effect for all purposes as if such determinations had been embodied in a final judgment entered by a court of competent jurisdiction, and either Parent or the Securityholders’ Representative may petition the Delaware courts to reduce such decision to judgment and (iv) be an expert determination under Delaware law governing expert determinations. Following any such dispute resolution (whether by mutual agreement of Parent and the Securityholders’ Representative or by written decision of the Designated Accounting Firm), all calculations in an Earnout Consideration Statement and the determination of the Earnout Payment (in each case as determined in such dispute resolution), shall be deemed final. The fees, costs and expenses of the Designated Accounting Firm shall be allocated to and borne by Parent and the Securityholders’ Representative, on behalf of the Indemnifying Securityholders, based on the inverse of the percentage that the Designated Accounting Firm’s determination (before such allocation) bears to the total amount of the total items in dispute as originally submitted to the Designated Accounting Firm; provided, however, if the engagement agreement, if any, entered into with respect the Designated Accounting Firm requires Parent and the Securityholders’ Representative to be jointly and severally liable to the Designated Accounting Firm for its fees and disbursements and either Parent or the Indemnifying Securityholders, acting through the Securityholders’ Representative in its capacity as such pays more than its portion of such fees and disbursements as determined according to this sentence, the party paying less than its portion of such fees and disbursements hereby agrees to reimburse the first party for any Earnout Amountexcess portion paid by such first party to the Designated Accounting Firm. For example, should the items in dispute total an amount equal to $1,000 and the Designated Accounting Firm awards $600 in favor of the Securityholders’ Representative’s position, 60% of the costs of its review would be borne by ▇▇▇▇▇▇ and 40% of the costs would be borne by the Securityholders’ Representative, on behalf of the Indemnifying Securityholders.
(f) Any amount paid pursuant to Parent shall issue no later than five (5) Business Days following the date upon which an Earnout Payment becomes final in accordance with this Section 2.5 shall be treated 3.6 distribute to the Paying Agent such Earnout Payment (for all Tax purposes as additional consideration paid for distribution to the Company Shares pursuant to this Agreement, except (i) for any portion treated as imputed interest and (ii) to the extent otherwise required pursuant to a “determination” within the meaning of Section 1313(a) of the Code (or any similar provisions of state, local or foreign LawPreferred Stockholders).
(g) Subsequent to Until the Closing Milestone Date, Parent shall operate the Surviving Corporation in good faith and until the end of FY 2028, the Purchaser shall use its using commercially reasonable efforts to maintain and preserve in all material respects support the material third-party customer relationships and material Intellectual Property of the Business existing as of the Closing Date (other than expiration of registered Intellectual Property in accordance with their terms). Without limiting the foregoing, (x) during the period from the Closing Date through the final determination achievement of the Earnout Amount for FY 2028, the Purchaser shall maintain the records of the Business in a manner permitting preparation of the Earnout Statements and the Quarterly Gross Profit Statements accurately in all material respects in order to allow for the good faith calculation of the Earnout Amount and its components, including by following the policies, principles and procedures set forth on Exhibit F; (y) during the period from the Closing Date through the end of FY 2028, the Purchaser shall (i) not take any action in bad faith, the primary intent or primary purpose of which is to avoid or reduce the amount of any Earnout Amount, including in bad faith accelerating or delaying the shipping of Specified Products or recognition of any revenues of the Business from one Earnout Year to another or following the end of the last Earnout Year; and (ii) use commercially reasonable efforts to provide reasonably adequate staffing and working capital for the conduct of the Business; and (z) during the period from the Closing Date through the earlier of (i) the payment of the Earnout Amount for FY 2028 or (ii) the final determination that no Earnout Amount is payable for FY 2028, the Purchaser shall not enter into (or permit any Subsidiary of the Purchaser to enter into) any agreement or arrangement that would prevent the Purchaser from paying the Earnout Amount in accordance with this Agreement.
(h) The Purchaser shall deliver or cause to be to be delivered to the Seller, within forty-five (45) days after the end of each fiscal quarter of an Earnout Year (other than the last fiscal quarter of such Earnout Year), a statement (the “Quarterly Gross Profit Statement”) setting forth the Purchaser’s calculation of Gross Profit for such fiscal quarter in reasonable detail, and, subject to the Disclosure Limitations, the Purchaser agrees to promptly provide such supporting documentation as the Seller may reasonably request to review the Purchaser’s calculation of the Gross Profit for such quarter.
(i) Any information provided to or obtained by the Seller pursuant to this Section 2.5 shall be deemed to be Confidential Information.
(j) The fiscal years of the Business for any Earnout Year and any fiscal quarter of the Business for any Earnout Year shall be based on the 4-4-5 accounting calendar that is used by the Purchaser, including as specified in the definitions of FY 2027 and FY 2028.
(k) Seller agrees to distribute the net proceeds of (i) 100% of any Earnout Amount in respect of FY 2027 (including the 2027 Catch-Up Amount, if any) to its members in accordance with the distribution provisions in the Seller’s Organizational Documents and (ii) 50% of any Earnout Amount in respect of FY 2028 (excluding, for avoidance of doubt, the 2027 Catch-Up Amount, if any) to The Resolute Fund IV, L.P. and the other 50% of any Earnout Amount in respect of FY 2028 (excluding, for avoidance of doubt, the 2027 Catch-Up Amount, if any) to Business Employee Equityholders, in each case of this clause (ii), in accordance with the distribution provisions in the Seller’s Organizational Documents. For purposes of the prior sentence, “Seller’s Organizational Documents” means Seller’s Organizational Documents as of the date of this Agreement, as they may be amended to implement the Earnout Arrangement in accordance with the terms of this Agreement and the terms Milestones set forth in Exhibit H.Earnout Milestones and Payment Schedule. Parent shall not take, or omit to take, any action with the intent to avoid, diminish or delay any Earnout Stock Consideration. Further, in the event of any change of control transaction of Parent, this Section 3.6 shall remain in effect and the surviving or successor entity of Parent shall assume all of Parent’s obligations in this Section 3.6.
Appears in 1 contract
Sources: Agreement and Plan of Merger (Serve Robotics Inc. /DE/)
Earnout. The Earnout Amounts payable in the aggregate for all Earnout Periods to the Sellers shall be determined as follows:
(a) Within forty-five For each Earnout Period and for each Target Level listed on Exhibit 1.4
(45a) days after attached hereto, the end of Earnout Amounts listed on Exhibit 1.4
(a) shall be determined separately. If a Target Level is achieved for an Earnout YearPeriod, then the Purchaser corresponding Earnout Amount for such Target Level shall deliver be due and payable to the Seller a statement (the “Earnout Statement”), together with reasonable supporting detail, showing the Purchaser’s good faith calculation Sellers for such Earnout Year Period pursuant to the terms of the (i) Gross Profit, (ii) Gross Profit Margin Percentage and (iii) resulting Earnout Amount. The Gross Profit and Gross Profit Margin Percentage shall be calculated in accordance with the policies, principles and procedures set forth on Exhibit F.this Agreement.
(b) Subject Notwithstanding anything to the Disclosure Limitationscontrary herein, if a Target Level is not achieved for the Seller and its Representatives shall be permitted reasonable access to review and obtain copies of the books and records of the Business and any work papers (subject to customary access letters and confidentiality undertakings) related to the preparation of the 2005 Earnout Statement. The Seller and its Representatives may make reasonable inquiries of the Purchaser and its accountants regarding questions or disagreements, and the Purchaser shall, and shall use its reasonable best efforts to cause any such accountants to, cooperate with and respond to such inquiries. At the request of the Seller, and subject to the Disclosure Limitations, the Purchaser shall make available its personnel who are knowledgeable about the information contained in, and the preparation ofPeriod, the Earnout StatementAmount for the 2005 Earnout Period can subsequently be earned by achieving the combined Target Levels for the 2005 Earnout Period and the 2006 Earnout Period. By achieving such combined Target Levels, the Sellers would be entitled to the Seller to advise Earnout Amounts for the 2005 and assist 2006 Earnout Periods. In addition, if the Seller in its review of Target Level is not achieved for the 2006 Earnout Period, the Earnout Statement Amount for the 2006 Earnout Period can subsequently be earned by achieving the combined Target Levels for the 2006 Earnout Period and any objections or disputes with respect theretothe 2007 Earnout Period. By achieving such combined Target Levels, the Sellers would be entitled to the Earnout Amounts for the 2006 and 2007 Earnout Periods. See Exhibit 1.4(b) for examples of such calculations.
(c) Within thirty (30) days after delivery of Notwithstanding anything to the contrary herein, if a Target Level is exceeded for the 2004 Earnout Period, 2005 Earnout Period or 2006 Earnout Period, the amount by which the applicable Target Level was exceeded in such Earnout Period can be applied to and aggregated with the Target Level for the Earnout Statement to the Seller, Period immediately following for purposes of determining if the Seller has any objections to the such Target Level is achieved for such immediately following Earnout Statement, the Seller shall deliver to the Purchaser a statement setting forth its objections thereto (an “Earnout Objections Statement”)Period. Any Earnout Objections Statement shall specify in reasonable detail the nature of any disagreement so asserted, the proposed correct amount See Exhibit 1.4(c) for each such item and the resulting Earnout Amount. If an Earnout Objections Statement is not delivered to the Purchaser within thirty (30) days after delivery of the Earnout Statement to the Seller, the Earnout Statement shall be final, binding and non-appealable by the Parties. If an Earnout Objections Statement is properly and timely delivered, the portion of the Earnout Statement not subject to dispute pursuant to the Earnout Objections Statement shall be final, binding and non-appealable by the Parties. At any time during such thirty (30) day period, the Seller may deliver a written notice to the Purchaser stating that it agrees with the Earnout Statement and the Earnout Statement shall thereafter become final, binding and non-appealable by the Parties. The Seller and the Purchaser shall negotiate in good faith to resolve any objections in the Earnout Objections Statement, but if and to the extent they do not reach a final resolution within sixty (60) days after the delivery of the Earnout Objections Statement, the Seller and the Purchaser shall submit, within seventy five (75) days after the delivery of the Earnout Objections Statement, such dispute to the Valuation Firm for resolution. The Valuation Firm shall be instructed by the Seller and the Purchaser to render a determination of the applicable dispute (solely to the extent examples of such dispute) within thirty (30) days after submission of the matter to the Valuation Firm (or such longer period as mutually agreed in writing by the Purchaser and the Seller), which determination must be in writing and must set forth, in reasonable detail, the basis therefor, and include a certification that it reached such determination in accordance with the definitions as provided in this Agreement and Exhibit F. Any further submissions to the Valuation Firm must be written and delivered to each Party to the dispute. The Valuation Firm shall make a final determination of the Gross Profit, Gross Profit Margin Percentage and resulting Earnout Amount (solely to the extent such amounts or their components are in dispute) in accordance with the guidelines and procedures set forth in this Agreement and Exhibit F. The Valuation Firm shall determine, based solely on presentations by the Purchaser and the Seller and their respective Representatives, and not by independent review, only those issues in dispute specifically set forth on the Earnout Objections Statement, and shall act as an expert and not as an arbitrator. In resolving any disputed item, the Valuation Firm shall (i) be bound by the principles set forth in this Section 2.5 and (ii) not assign a value to any item in dispute that is greater than the greatest value for such disputed item claimed by any Party or less than the smallest value for such disputed item claimed by any Party. The Parties shall reasonably cooperate with the Valuation Firm during the term of its engagement, including by executing a customary engagement letter. Neither the Purchaser, the Seller nor any of their respective Affiliates or Representatives shall have any ex parte conversations or meetings with the Valuation Firm in connection with any dispute submitted by the Purchaser and/or the Seller to the Valuation Firm pursuant to this Section 2.5(c) without the prior consent of the other Party. The Valuation Firm’s determination of the Gross Profit, Gross Profit Margin Percentage and the resulting Earnout Amount with respect to an Earnout Year shall, in each case in the manner contemplated by this Section 2.5, become final and binding on the Parties on the date the Valuation Firm delivers its final resolution in writing to the Seller and the Purchaser, absent manifest error or fraud. The costs and expenses of the Valuation Firm shall be allocated between the Purchaser, on the one hand, and the Seller, on the other hand, in the same proportion that (x) the absolute value of the difference between the value of the Earnout Amount asserted by the Purchaser and the value of the Earnout Amount determined by the Valuation Firm bears to (y) the absolute value of the difference between the value of the Earnout Amount asserted by the Seller and the value of the Earnout Amount determined by the Valuation Firm. For example, if the Seller submits an Earnout Objections Statement to the Valuation Firm that states that the Earnout Amount should be $2,000 while the Purchaser asserts in the written presentation to the Valuation Firm that the Earnout Amount should be $1,000, and the Valuation Firm ultimately resolves that the Earnout Amount should be $1,200, then the costs and expenses of the Valuation Firm will be allocated 20% to the Purchaser and 80% to the Sellercalculations.
(d) Once Notwithstanding anything to the contrary herein, if the Target Level is not achieved for the 2005 Earnout Period, the Earnout Amount for an the 2005 Earnout Year has been finally determined in accordance with Section 2.5(c) Period can subsequently be earned by achieving the combined Target Levels for the 2005 Earnout Period, 2006 Earnout Period and the 2007 Earnout Period. If such Earnout Amount is not zerocombined Target Levels are achieved, the Purchaser shall no later than eight (8) Business Days following such determinationEarnout Amounts for the 2005 Earnout Period, deliver or cause to 2006 Earnout Period and the 2007 Earnout Period would be delivered to Seller the number of Purchaser Shares payable as the Earnout Stock Consideration for such Earnout Year, provided that if any portion of the Earnout Amount is subject to a pending claim for indemnification by the Purchaser under Section 9.1(a) been attained and Section 9.4(d), such portion of the Earnout Amount shall only be paid eight (8) Business Days following the final resolution of such claim and only to the extent not used to offset the amount required to be paid by the Seller under Section 9.1(a) with respect to such claim. For the avoidance of doubt, no payment of Purchaser Shares shall would be due with respect to an Earnout Year if the Earnout Amount for such Earnout Year is zero.
(e) The Parties understand and agree that (i) the contingent rights to receive an Earnout Amount shall not be represented by any form of certificate or other instrument, are not transferable, and do not constitute an equity or ownership interest in the Purchaser or any of its Affiliates; (ii) the Seller shall not have any rights as a security-holder of the Purchaser as a result of the Seller’s contingent right to receive any Earnout Amount; and (iii) no interest is payable with respect to any Earnout Amount.
(f) Any amount paid pursuant to this Section 2.5 shall be treated for all Tax purposes as additional consideration paid for the Company Shares pursuant to this Agreement, except (i) for any portion treated as imputed interest and (ii) to the extent otherwise required pursuant to a “determination” within the meaning of Section 1313(a) of the Code (or any similar provisions of state, local or foreign Law).
(g) Subsequent to the Closing and until the end of FY 2028, the Purchaser shall use its commercially reasonable efforts to maintain and preserve in all material respects the material third-party customer relationships and material Intellectual Property of the Business existing as of the Closing Date (other than expiration of registered Intellectual Property in accordance with their terms)payable. Without limiting the foregoing, (x) during the period from the Closing Date through the final determination of the Earnout Amount for FY 2028, the Purchaser shall maintain the records of the Business in a manner permitting preparation of the Earnout Statements and the Quarterly Gross Profit Statements accurately in all material respects in order to allow for the good faith calculation of the Earnout Amount and its components, including by following the policies, principles and procedures set forth on See Exhibit F; (y) during the period from the Closing Date through the end of FY 2028, the Purchaser shall (i) not take any action in bad faith, the primary intent or primary purpose of which is to avoid or reduce the amount of any Earnout Amount, including in bad faith accelerating or delaying the shipping of Specified Products or recognition of any revenues of the Business from one Earnout Year to another or following the end of the last Earnout Year; and (ii) use commercially reasonable efforts to provide reasonably adequate staffing and working capital for the conduct of the Business; and (z) during the period from the Closing Date through the earlier of (i) the payment of the Earnout Amount for FY 2028 or (ii) the final determination that no Earnout Amount is payable for FY 2028, the Purchaser shall not enter into (or permit any Subsidiary of the Purchaser to enter into) any agreement or arrangement that would prevent the Purchaser from paying the Earnout Amount in accordance with this Agreement.
(h) The Purchaser shall deliver or cause to be to be delivered to the Seller, within forty-five (45) days after the end of each fiscal quarter of an Earnout Year (other than the last fiscal quarter of such Earnout Year), a statement (the “Quarterly Gross Profit Statement”) setting forth the Purchaser’s calculation of Gross Profit for such fiscal quarter in reasonable detail, and, subject to the Disclosure Limitations, the Purchaser agrees to promptly provide such supporting documentation as the Seller may reasonably request to review the Purchaser’s calculation of the Gross Profit for such quarter.
(i) Any information provided to or obtained by the Seller pursuant to this Section 2.5 shall be deemed to be Confidential Information.
(j) The fiscal years of the Business for any Earnout Year and any fiscal quarter of the Business for any Earnout Year shall be based on the 4-4-5 accounting calendar that is used by the Purchaser, including as specified in the definitions of FY 2027 and FY 2028.
(k) Seller agrees to distribute the net proceeds of (i) 100% of any Earnout Amount in respect of FY 2027 (including the 2027 Catch-Up Amount, if any) to its members in accordance with the distribution provisions in the Seller’s Organizational Documents and (ii) 50% of any Earnout Amount in respect of FY 2028 (excluding, for avoidance of doubt, the 2027 Catch-Up Amount, if any) to The Resolute Fund IV, L.P. and the other 50% of any Earnout Amount in respect of FY 2028 (excluding, for avoidance of doubt, the 2027 Catch-Up Amount, if any) to Business Employee Equityholders, in each case of this clause (ii), in accordance with the distribution provisions in the Seller’s Organizational Documents. For purposes of the prior sentence, “Seller’s Organizational Documents” means Seller’s Organizational Documents as of the date of this Agreement, as they may be amended to implement the Earnout Arrangement in accordance with the terms of this Agreement and the terms set forth in Exhibit H.1.4
Appears in 1 contract
Earnout. (a) Within forty-five (45) days after At the end of an Closing, and as additional consideration for the Merger and the other Transactions, Parent shall issue or cause to be issued to each Participating Securityholder such Participating Securityholder’s Earnout Year, the Purchaser shall deliver to the Seller a statement (the “Earnout Statement”), together with reasonable supporting detail, showing the Purchaser’s good faith calculation for such Earnout Year Pro Rata Share of the (i) Gross ProfitAggregate Earnout Shares, (ii) Gross Profit Margin Percentage and (iii) resulting Earnout Amount. The Gross Profit and Gross Profit Margin Percentage which shares shall be calculated subject to forfeiture in accordance with the policiesfollowing schedule (such shares, principles the “Earnout Shares”):
(i) upon the occurrence of Milestone Event I, one-half (1/2) of the Aggregate Earnout Shares shall be fully vested and procedures set forth on Exhibit F.no longer subject to forfeiture; and
(ii) upon the occurrence of Milestone Event II, the remaining one-half (1/2) of the Aggregate Earnout Shares shall be fully vested and no longer subject to forfeiture; or
(iii) upon the occurrence of a Subsequent Transaction at any time during the Milestone Event Period, all of the Aggregate Earnout Shares shall be fully vested and no longer subject to forfeiture.
(b) Subject to the Disclosure Limitations, the Seller and its Representatives shall be permitted reasonable access to review and obtain copies of the books and records of the Business and any work papers (subject to customary access letters and confidentiality undertakings) related to the preparation of the Earnout Statement. The Seller and its Representatives may make reasonable inquiries of the Purchaser and its accountants regarding questions or disagreements, and the Purchaser shall, and shall use its reasonable best efforts to cause any such accountants to, cooperate with and respond to such inquiries. At the request of the Seller, and subject to the Disclosure Limitations, the Purchaser shall make available its personnel who are knowledgeable about the information contained in, and the preparation of, the Earnout Statement, to the Seller to advise and assist the Seller in its review of the Earnout Statement and any objections or disputes with respect thereto.
(c) Within thirty (30) days after delivery of the Earnout Statement to the Seller, if the Seller has any objections to the Earnout Statement, the Seller shall deliver to the Purchaser a statement setting forth its objections thereto (an “Earnout Objections Statement”). Any Earnout Objections Statement shall specify in reasonable detail the nature of any disagreement so asserted, the proposed correct amount for each such item and the resulting Earnout Amount. If an Earnout Objections Statement is not delivered to the Purchaser within thirty (30) days after delivery of the Earnout Statement to the Seller, the Earnout Statement shall be final, binding and non-appealable by the Parties. If an Earnout Objections Statement is properly and timely delivered, the portion of the Earnout Statement not subject to dispute pursuant to the Earnout Objections Statement shall be final, binding and non-appealable by the Parties. At any time during such thirty (30) day period, the Seller may deliver a written notice to the Purchaser stating that it agrees with the Earnout Statement and the Earnout Statement shall thereafter become final, binding and non-appealable by the Parties. The Seller and the Purchaser shall negotiate in good faith to resolve any objections in the Earnout Objections Statement, but if and to the extent they do not reach a final resolution within sixty (60) days after the delivery of the Earnout Objections Statement, the Seller and the Purchaser shall submit, within seventy five (75) days after the delivery of the Earnout Objections Statement, such dispute to the Valuation Firm for resolution. The Valuation Firm shall be instructed by the Seller and the Purchaser to render a determination of the applicable dispute (solely to the extent of such dispute) within thirty (30) days after submission of the matter to the Valuation Firm (or such longer period as mutually agreed in writing by the Purchaser and the Seller), which determination must be in writing and must set forth, in reasonable detail, the basis therefor, and include a certification that it reached such determination in accordance with the definitions as provided in this Agreement and Exhibit F. Any further submissions to the Valuation Firm must be written and delivered to each Party to the dispute. The Valuation Firm shall make a final determination of the Gross Profit, Gross Profit Margin Percentage and resulting Earnout Amount (solely to the extent such amounts or their components are in dispute) in accordance with the guidelines and procedures set forth in this Agreement and Exhibit F. The Valuation Firm shall determine, based solely on presentations by the Purchaser and the Seller and their respective Representatives, and not by independent review, only those issues in dispute specifically set forth on the Earnout Objections Statement, and shall act as an expert and not as an arbitrator. In resolving any disputed item, the Valuation Firm shall (i) be bound by the principles set forth in this Section 2.5 and (ii) not assign a value to any item in dispute that is greater than the greatest value for such disputed item claimed by any Party or less than the smallest value for such disputed item claimed by any Party. The Parties shall reasonably cooperate with the Valuation Firm during the term of its engagement, including by executing a customary engagement letter. Neither the Purchaser, the Seller nor any of their respective Affiliates or Representatives shall have any ex parte conversations or meetings with the Valuation Firm in connection with any dispute submitted by the Purchaser and/or the Seller to the Valuation Firm pursuant to this Section 2.5(c) without the prior consent of the other Party. The Valuation Firm’s determination of the Gross Profit, Gross Profit Margin Percentage and the resulting Earnout Amount with respect to an Earnout Year shall, in each case in the manner contemplated by this Section 2.5, become final and binding on the Parties on the date the Valuation Firm delivers its final resolution in writing to the Seller and the Purchaser, absent manifest error or fraud. The costs and expenses of the Valuation Firm shall be allocated between the Purchaser, on the one hand, and the Seller, on the other hand, in the same proportion that (x) the absolute value of the difference between the value of the Earnout Amount asserted by the Purchaser and the value of the Earnout Amount determined by the Valuation Firm bears to (y) the absolute value of the difference between the value of the Earnout Amount asserted by the Seller and the value of the Earnout Amount determined by the Valuation Firm. For example, if the Seller submits an Earnout Objections Statement to the Valuation Firm that states that the Earnout Amount should be $2,000 while the Purchaser asserts in the written presentation to the Valuation Firm that the Earnout Amount should be $1,000, and the Valuation Firm ultimately resolves that the Earnout Amount should be $1,200, then the costs and expenses of the Valuation Firm will be allocated 20% to the Purchaser and 80% to the Seller.
(d) Once the Earnout Amount for an Earnout Year has been finally determined in accordance with Section 2.5(c) and such Earnout Amount is not zero, the Purchaser shall no later than eight (8) Business Days following such determination, deliver or cause to be delivered to Seller the number of Purchaser Shares payable as the Earnout Stock Consideration for such Earnout Year, provided that if any portion of the Earnout Amount is subject to a pending claim for indemnification by the Purchaser under Section 9.1(a) and Section 9.4(d), such portion of the Earnout Amount shall only be paid eight (8) Business Days following the final resolution of such claim and only to the extent not used to offset the amount required to be paid by the Seller under Section 9.1(a) with respect to such claim. For the avoidance of doubt, no payment of Purchaser Shares shall be due with respect to an Earnout Year if the Earnout Amount for such Earnout Year is zero.
(e) The Parties understand and agree that (i) the contingent rights Participating Securityholders shall be entitled to be fully vested in the applicable Earnout Shares upon the occurrence of each Milestone Event or a Subsequent Transaction; provided that each Milestone Event or a Subsequent Transaction shall only occur once, if at all, and in no event shall the Participating Securityholders be entitled to receive an more than the Aggregate Earnout Amount shall not be represented by any form of certificate or other instrument, are not transferable, and do not constitute an equity or ownership interest in the Purchaser or any of its AffiliatesShares; (ii) the Seller shall not have any rights as a security-holder of the Purchaser as a result of the Seller’s contingent right to receive any Earnout Amount; and (iii) no interest is payable with respect to any Earnout Amount.
(f) Any amount paid pursuant to this Section 2.5 shall be treated for all Tax purposes as additional consideration paid for the Company Shares pursuant to this Agreement, except (i) for any portion treated as imputed interest and (ii) to the extent otherwise required pursuant to that any Milestone Event or a “determination” within the meaning of Section 1313(a) of the Code (or any similar provisions of state, local or foreign Law).
(g) Subsequent to the Closing and until the end of FY 2028, the Purchaser shall use its commercially reasonable efforts to maintain and preserve in all material respects the material third-party customer relationships and material Intellectual Property of the Business existing as of the Closing Date (other than expiration of registered Intellectual Property in accordance with their terms). Without limiting the foregoing, (x) during the period from the Closing Date through the final determination of the Earnout Amount for FY 2028, the Purchaser shall maintain the records of the Business in a manner permitting preparation of the Earnout Statements and the Quarterly Gross Profit Statements accurately in all material respects in order to allow for the good faith calculation of the Earnout Amount and its components, including by following the policies, principles and procedures set forth on Exhibit F; (y) during the period from the Closing Date through the end of FY 2028, the Purchaser shall (i) Transaction does not take any action in bad faith, the primary intent or primary purpose of which is to avoid or reduce the amount of any Earnout Amount, including in bad faith accelerating or delaying the shipping of Specified Products or recognition of any revenues of the Business from one Earnout Year to another or following the end of the last Earnout Year; and (ii) use commercially reasonable efforts to provide reasonably adequate staffing and working capital for the conduct of the Business; and (z) during the period from the Closing Date through the earlier of (i) the payment of the Earnout Amount for FY 2028 or (ii) the final determination that no Earnout Amount is payable for FY 2028, the Purchaser shall not enter into (or permit any Subsidiary of the Purchaser to enter into) any agreement or arrangement that would prevent the Purchaser from paying the Earnout Amount in accordance with this Agreement.
(h) The Purchaser shall deliver or cause to be to be delivered to the Seller, within forty-five (45) days after the end of each fiscal quarter of an Earnout Year (other than the last fiscal quarter of such Earnout Year), a statement (the “Quarterly Gross Profit Statement”) setting forth the Purchaser’s calculation of Gross Profit for such fiscal quarter in reasonable detail, and, subject to the Disclosure Limitations, the Purchaser agrees to promptly provide such supporting documentation as the Seller may reasonably request to review the Purchaser’s calculation of the Gross Profit for such quarter.
(i) Any information provided to or obtained by the Seller pursuant to this Section 2.5 shall be deemed to be Confidential Information.
(j) The fiscal years of the Business for any Earnout Year and any fiscal quarter of the Business for any Earnout Year shall be based on the 4-4-5 accounting calendar that is used by the Purchaser, including as specified in the definitions of FY 2027 and FY 2028.
(k) Seller agrees to distribute the net proceeds of (i) 100% of any Earnout Amount in respect of FY 2027 (including the 2027 Catch-Up Amount, if any) to its members in accordance with the distribution provisions in the Seller’s Organizational Documents and (ii) 50% of any Earnout Amount in respect of FY 2028 (excluding, for avoidance of doubt, the 2027 Catch-Up Amount, if any) to The Resolute Fund IV, L.P. and the other 50% of any Earnout Amount in respect of FY 2028 (excluding, for avoidance of doubt, the 2027 Catch-Up Amount, if any) to Business Employee Equityholders, in each case of this clause (ii), in accordance with the distribution provisions in the Seller’s Organizational Documents. For purposes of the prior sentence, “Seller’s Organizational Documents” means Seller’s Organizational Documents as of the date of this Agreement, as they may be amended to implement the Earnout Arrangement occur in accordance with the terms of this Agreement during the Milestone Event Period, any Earnout Shares that would otherwise be fully vested under this Agreement as a result of the occurrence of such Milestone Event shall instead be forfeited and cancelled without the terms payment of any consideration in respect thereof.
(c) The Parent Common Stock price targets set forth in Exhibit H.the definitions of Milestone Event I, Milestone Event II shall be equitably adjusted to reflect the effect of any stock split, reverse stock split, stock dividend (including any dividend or distribution of securities convertible into shares of Parent Common Stock), reorganization, recapitalization, reclassification, combination, merger, sale or exchange of shares or other like change with respect to shares of Parent Common Stock occurring after the Closing.
Appears in 1 contract
Sources: Merger Agreement (Breeze Holdings Acquisition Corp.)
Earnout. (a) Within forty-five (45) days after Following the end Closing, and as additional consideration for the Transactions and as an incentive to generate future growth of an Earnout Yearthe Company, the Purchaser Earnout Consideration shall deliver become subject to potential forfeiture if the Triggering Events do not occur within their respective Earnout Periods with the applicable portion of such Earnout Consideration no longer being subject to forfeiture upon the occurrence of the applicable Triggering Event. Certificates or book entries representing the Earnout Consideration shall bear a legend referencing that they are subject to forfeiture pursuant to the Seller a statement (the “Earnout Statement”)provisions of this Agreement, together with reasonable supporting detail, showing the Purchaser’s good faith calculation and any transfer agent for such Earnout Year Consideration will be given appropriate stop transfer orders with respect to the Earnout Consideration until the occurrence of the (i) Gross Profitapplicable Triggering Event; provided, (ii) Gross Profit Margin Percentage and (iii) resulting Earnout Amount. The Gross Profit and Gross Profit Margin Percentage shall be calculated however, that upon the Triggering Event in accordance with the policiesterms herein, principles the parties shall promptly cause the removal of such legend, as applicable, with respect to the applicable Earnout Consideration and procedures set forth on Exhibit F.direct such transfer agent that such stop transfer orders are no longer applicable.
(b) Subject to the Disclosure Limitations, the Seller and its Representatives The Earnout Consideration shall no longer be permitted reasonable access to review and obtain copies of the books and records of the Business and any work papers (subject to customary access letters and confidentiality undertakings) related to forfeiture upon the preparation occurrence of the Earnout Statement. The Seller and its Representatives may make reasonable inquiries of the Purchaser and its accountants regarding questions or disagreementseach Triggering Event, and the Purchaser shall, and shall use its reasonable best efforts to cause any such accountants to, cooperate with and respond to such inquiries. At the request of the Seller, and subject to the Disclosure Limitations, the Purchaser shall make available its personnel who are knowledgeable about the information contained in, and the preparation of, the Earnout Statement, to the Seller to advise and assist the Seller in its review of the Earnout Statement and any objections or disputes with respect thereto.
(c) Within thirty (30) days after delivery of the Earnout Statement to the Seller, if the Seller has any objections to the Earnout Statement, the Seller shall deliver to the Purchaser a statement setting forth its objections thereto (an “Earnout Objections Statement”). Any Earnout Objections Statement shall specify in reasonable detail the nature of any disagreement so asserted, the proposed correct amount for each such item and the resulting Earnout Amount. If an Earnout Objections Statement is not delivered to the Purchaser within thirty (30) days after delivery of the Earnout Statement to the Seller, the Earnout Statement shall be final, binding and non-appealable by the Parties. If an Earnout Objections Statement is properly and timely delivered, the portion of the Earnout Statement not subject to dispute pursuant to the Earnout Objections Statement shall be final, binding and non-appealable by the Parties. At any time during such thirty (30) day period, the Seller may deliver a written notice to the Purchaser stating that it agrees with the Earnout Statement and the Earnout Statement shall thereafter become final, binding and non-appealable by the Parties. The Seller and the Purchaser shall negotiate in good faith to resolve any objections in the Earnout Objections Statement, but if and to the extent they do not reach a final resolution within sixty (60) days after the delivery of the Earnout Objections Statement, the Seller and the Purchaser shall submit, within seventy five (75) days after the delivery of the Earnout Objections Statement, such dispute to the Valuation Firm for resolution. The Valuation Firm shall be instructed by the Seller and the Purchaser to render a determination of the applicable dispute (solely to the extent of such dispute) within thirty (30) days after submission of the matter to the Valuation Firm (or such longer period as mutually agreed in writing by the Purchaser and the Seller), which determination must be in writing and must set forth, in reasonable detail, the basis therefor, and include a certification that it reached such determination in accordance with the definitions as provided in this Agreement and Exhibit F. Any further submissions to the Valuation Firm must be written and delivered to each Party to the dispute. The Valuation Firm shall make a final determination of the Gross Profit, Gross Profit Margin Percentage and resulting Earnout Amount (solely to the extent such amounts or their components are in dispute) in accordance with the guidelines and procedures set forth in this Agreement and Exhibit F. The Valuation Firm shall determine, based solely on presentations by the Purchaser and the Seller and their respective Representatives, and not by independent review, only those issues in dispute specifically set forth on the Earnout Objections Statement, and shall act as an expert and not as an arbitrator. In resolving any disputed item, the Valuation Firm shall (i) be bound by the principles set forth in this Section 2.5 and (ii) not assign a value to any item in dispute that is greater than the greatest value for such disputed item claimed by any Party or less than the smallest value for such disputed item claimed by any Party. The Parties shall reasonably cooperate with the Valuation Firm during the term of its engagement, including by executing a customary engagement letter. Neither the Purchaser, the Seller nor any of their respective Affiliates or Representatives shall have any ex parte conversations or meetings with the Valuation Firm in connection with any dispute submitted by the Purchaser and/or the Seller to the Valuation Firm pursuant to this Section 2.5(c) without the prior consent of the other Party. The Valuation Firm’s determination of the Gross Profit, Gross Profit Margin Percentage and the resulting Earnout Amount with respect to an Earnout Year shall, in each case in the manner contemplated by this Section 2.5, become final and binding on the Parties on the date the Valuation Firm delivers its final resolution in writing to the Seller and the Purchaser, absent manifest error or fraud. The costs and expenses of the Valuation Firm shall be allocated between the Purchaser, on the one hand, and the Seller, on the other hand, in the same proportion that (x) the absolute value of the difference between the value of the Earnout Amount asserted by the Purchaser and the value of the Earnout Amount determined by the Valuation Firm bears to (y) the absolute value of the difference between the value of the Earnout Amount asserted by the Seller and the value of the Earnout Amount determined by the Valuation Firm. For example, if the Seller submits an Earnout Objections Statement to the Valuation Firm that states that the Earnout Amount should be $2,000 while the Purchaser asserts in the written presentation to the Valuation Firm that the Earnout Amount should be $1,000, and the Valuation Firm ultimately resolves that the Earnout Amount should be $1,200, then the costs and expenses of the Valuation Firm will be allocated 20% to the Purchaser and 80% to the Seller.
(d) Once the Earnout Amount for an Earnout Year has been finally determined in accordance with Section 2.5(c) and such Earnout Amount is not zero, the Purchaser shall no later than eight (8) Business Days following such determination, deliver or cause to be delivered to Seller the number of Purchaser Shares payable as the Earnout Stock Consideration for such Earnout Year, provided that if any portion of the Earnout Amount is subject to a pending claim for indemnification by the Purchaser under Section 9.1(a) and Section 9.4(d), such portion of the Earnout Amount shall only be paid eight (8) Business Days following the final resolution of such claim and only to the extent not used to offset the amount required to be paid by the Seller under Section 9.1(a) with respect to such claimapplicable. For the avoidance of doubt, no payment of Purchaser Shares shall be due with respect to an Earnout Year if the shares comprising the Earnout Amount for such Earnout Year is zeroConsideration and subject to forfeiture pursuant to Section 3.03(a) shall equal 40,000,000 shares of Company Topco in the aggregate, as set forth in the Allocation Schedule.
(ec) The Parties understand If the Company or its affiliates achieves Triggering Event within the Earnout Period applicable to Triggering Event I, and agree that Triggering Event I has not been achieved previously, then Triggering Event I shall be deemed to be achieved at the same time and the corresponding Earnout Consideration for Triggering Event I shall no longer be subject to forfeiture at the same time as the Earnout Consideration for Triggering Event II is no longer subject to forfeiture.
(d) If, during the Earnout Period, there is a Change of Control, both Triggering Events shall be deemed to have occurred and all of the Earnout Consideration shall no longer be subject to forfeiture. For purposes of this Agreement, “Change of Control” means any transaction or series of transactions (i) the contingent rights to receive an Earnout Amount shall not be represented by any form of certificate following which a person or other instrument, are not transferable, and do not constitute an equity or ownership interest in the Purchaser or any of its Affiliates; “group” (ii) the Seller shall not have any rights as a security-holder of the Purchaser as a result of the Seller’s contingent right to receive any Earnout Amount; and (iii) no interest is payable with respect to any Earnout Amount.
(f) Any amount paid pursuant to this Section 2.5 shall be treated for all Tax purposes as additional consideration paid for the Company Shares pursuant to this Agreement, except (i) for any portion treated as imputed interest and (ii) to the extent otherwise required pursuant to a “determination” within the meaning of Section 1313(a13(d) of the Code Exchange Act) of persons, has direct or indirect beneficial ownership of securities (or rights convertible or exchangeable into securities) representing fifty percent (50%) or more of the voting power of or economic rights or interests in Company Topco or any similar provisions of stateits subsidiaries, local (ii) constituting a merger, consolidation, reorganization or foreign Law).
(g) Subsequent to the Closing and until the end of FY 2028other business combination, however effected, following which, the Purchaser shall use voting securities of Company Topco or any of its commercially reasonable efforts subsidiaries immediately prior to maintain and preserve in all material respects the material third-party customer relationships and material Intellectual Property such merger, consolidation, reorganization or other business combination do not continue to represent or are not converted into fifty percent (50%) or more of the Business existing as combined voting power of the Closing Date (other than expiration of registered Intellectual Property in accordance with their terms). Without limiting the foregoing, (x) during the period from the Closing Date through the final determination then outstanding voting securities of the Earnout Amount for FY 2028person resulting from such combination or, if the surviving company is a subsidiary, the Purchaser shall maintain ultimate parent thereof, or (iii) the records of the Business in a manner permitting preparation of the Earnout Statements and the Quarterly Gross Profit Statements accurately in all material respects in order to allow for the good faith calculation of the Earnout Amount and its components, including by following the policies, principles and procedures set forth on Exhibit F; (y) during the period from the Closing Date through the end of FY 2028, the Purchaser shall (i) not take any action in bad faith, the primary intent or primary purpose result of which is to avoid a sale of all or reduce the amount of any Earnout Amount, including in bad faith accelerating or delaying the shipping of Specified Products or recognition of any revenues substantially all of the Business from one Earnout Year assets of Company Topco to another or following the end of the last Earnout Year; and (ii) use commercially reasonable efforts to provide reasonably adequate staffing and working capital for the conduct of the Business; and (z) during the period from the Closing Date through the earlier of (i) the payment of the Earnout Amount for FY 2028 or (ii) the final determination that no Earnout Amount is payable for FY 2028, the Purchaser shall not enter into (or permit any Subsidiary of the Purchaser to enter into) any agreement or arrangement that would prevent the Purchaser from paying the Earnout Amount in accordance with this Agreementperson.
(h) The Purchaser shall deliver or cause to be to be delivered to the Seller, within forty-five (45) days after the end of each fiscal quarter of an Earnout Year (other than the last fiscal quarter of such Earnout Year), a statement (the “Quarterly Gross Profit Statement”) setting forth the Purchaser’s calculation of Gross Profit for such fiscal quarter in reasonable detail, and, subject to the Disclosure Limitations, the Purchaser agrees to promptly provide such supporting documentation as the Seller may reasonably request to review the Purchaser’s calculation of the Gross Profit for such quarter.
(i) Any information provided to or obtained by the Seller pursuant to this Section 2.5 shall be deemed to be Confidential Information.
(j) The fiscal years of the Business for any Earnout Year and any fiscal quarter of the Business for any Earnout Year shall be based on the 4-4-5 accounting calendar that is used by the Purchaser, including as specified in the definitions of FY 2027 and FY 2028.
(k) Seller agrees to distribute the net proceeds of (i) 100% of any Earnout Amount in respect of FY 2027 (including the 2027 Catch-Up Amount, if any) to its members in accordance with the distribution provisions in the Seller’s Organizational Documents and (ii) 50% of any Earnout Amount in respect of FY 2028 (excluding, for avoidance of doubt, the 2027 Catch-Up Amount, if any) to The Resolute Fund IV, L.P. and the other 50% of any Earnout Amount in respect of FY 2028 (excluding, for avoidance of doubt, the 2027 Catch-Up Amount, if any) to Business Employee Equityholders, in each case of this clause (ii), in accordance with the distribution provisions in the Seller’s Organizational Documents. For purposes of the prior sentence, “Seller’s Organizational Documents” means Seller’s Organizational Documents as of the date of this Agreement, as they may be amended to implement the Earnout Arrangement in accordance with the terms of this Agreement and the terms set forth in Exhibit H.
Appears in 1 contract
Sources: Business Combination Agreement (Good Works II Acquisition Corp.)
Earnout. (a) Seller shall be eligible to receive deferred consideration in an aggregate cash amount not to exceed $5,000,000.00 (the “Earnout Amount”), as determined in accordance with this Section 2.7. If the EBITDA of the Acquired Companies with respect to the Earnout Period is equal to or greater than the EBITDA Target, then Buyer shall pay to Seller the applicable Earnout Amount in accordance with Section 2.7(c). If the EBITDA of the Acquired Companies as of the end of the Earnout Period is less than the EBITDA Target, then the Earnout Amount will not have been earned and will not be owed or payable (and will be forfeited). EBITDA of the Acquired Companies shall be calculated as defined in this Agreement and in accordance with the methodology set forth on Schedule A to this Agreement.
(b) Within forty-five (45) 60 days after the end expiration of an the Earnout YearPeriod, the Purchaser Buyer shall deliver to the provide Seller with a written statement (the “Earnout Statement”), together with ) setting forth in reasonable supporting detail, showing the Purchaser’s detail its good faith calculation for such Earnout Year determination of the (i) Gross ProfitEarnout Amount owed to Seller, (ii) Gross Profit Margin Percentage and (iii) resulting if any, along with the calculation of such Earnout Amount. The Gross Profit and Gross Profit Margin Percentage Seller shall be calculated in accordance with have the policies, principles and procedures set forth on Exhibit F.
(b) Subject to the Disclosure Limitations, the Seller and its Representatives shall be permitted reasonable access right to review the Earnout Statement and obtain copies of the books and records of the Business and any work papers (subject to customary access letters and confidentiality undertakings) related to the preparation shall notify Buyer in writing within 30 days after receipt of the Earnout Statement, which notice shall set forth in reasonable detail the basis for any objection and shall provide supporting information and calculations with respect thereto. The Parties shall cooperate in good faith to reach agreement on the disputed items or amounts, if any. Any items in the Earnout Statement not disputed by Seller and its Representatives may make reasonable inquiries in writing within 30 days after receipt of the Purchaser and its accountants regarding questions or disagreements, and Earnout Statement will be deemed agreed to by the Purchaser shall, and shall use its reasonable best efforts to cause any such accountants to, cooperate with and respond to such inquiriesParties. At the request of the Seller, and subject to the Disclosure Limitations, the Purchaser shall make available its personnel who are knowledgeable about the information contained in, and the preparation ofIf no timely written objection by Seller has been given, the Earnout Statement, as prepared by ▇▇▇▇▇, and as adjusted pursuant to any agreement between the Seller Parties (the “Final Earnout Statement”), will be final and binding on the Parties. If the Parties are unable to advise and assist the Seller in its review of reach an agreement regarding the Earnout Statement and any objections or disputes resulting Earnout Amount, then Seller will retain the right to dispute the Earnout Statement and any resulting Earnout Amount in the same manner as set forth in and otherwise in accordance with respect theretothe dispute resolution provisions of Section 2.4(c) and Section 2.4(d) as if such provisions were incorporated into and set out in this Section 2.7.
(c) Within thirty (30) days after delivery of the Earnout Statement to the Seller, if the Seller has any objections to the Earnout Statement, the Seller shall deliver to the Purchaser a statement setting forth its objections thereto (an “Earnout Objections Statement”). Any Earnout Objections Statement shall specify in reasonable detail the nature of any disagreement so asserted, the proposed correct amount for each such item and the resulting Earnout Amount. If an Earnout Objections Statement is not delivered to the Purchaser within thirty (30) days after delivery of the Earnout Statement to the Seller, the Earnout Statement shall be final, binding and non-appealable by the Parties. If an Earnout Objections Statement is properly and timely delivered, the portion of the Earnout Statement not subject to dispute pursuant to the Earnout Objections Statement shall be final, binding and non-appealable by the Parties. At any time during such thirty (30) day period, the Seller may deliver a written notice to the Purchaser stating that it agrees with the Earnout Statement and the Earnout Statement shall thereafter become final, binding and non-appealable by the Parties. The Seller and the Purchaser shall negotiate in good faith to resolve any objections in the Earnout Objections Statement, but if and to the extent they do not reach a final resolution within sixty (60) days 10 Business Days after the delivery of the Earnout Objections Statement, the Seller and the Purchaser shall submit, within seventy five (75) days after the delivery of the Earnout Objections Statement, such dispute to the Valuation Firm for resolution. The Valuation Firm shall be instructed by the Seller and the Purchaser to render a determination of the applicable dispute (solely to the extent of such dispute) within thirty (30) days after submission of the matter to the Valuation Firm (or such longer period as mutually agreed in writing by the Purchaser and the Seller), which determination must be in writing and must set forth, in reasonable detail, the basis therefor, and include a certification that it reached such determination Final Earnout Statement in accordance with Section 2.7(b), Buyer shall pay to Seller the definitions as provided in this Agreement and Exhibit F. Any further submissions to the Valuation Firm must be written and delivered to each Party to the dispute. The Valuation Firm shall make a final determination positive amount of the Gross Profit, Gross Profit Margin Percentage and resulting applicable Earnout Amount (solely to the extent such amounts or their components are in disputeif any) in accordance with the guidelines and procedures set forth in this Agreement and Exhibit F. The Valuation Firm shall determine, based solely on presentations by the Purchaser and the Seller and their respective Representatives, and not by independent review, only those issues in dispute specifically set forth on the Final Earnout Objections Statement, and shall act as an expert and not as an arbitrator. In resolving any disputed item, the Valuation Firm shall (i) be bound by the principles set forth in this Section 2.5 and (ii) not assign a value to any item in dispute that is greater than the greatest value for such disputed item claimed by any Party or less than the smallest value for such disputed item claimed by any Party. The Parties shall reasonably cooperate with the Valuation Firm during the term of its engagement, including by executing a customary engagement letter. Neither the Purchaser, the Seller nor any of their respective Affiliates or Representatives shall have any ex parte conversations or meetings with the Valuation Firm in connection with any dispute submitted by the Purchaser and/or the Seller to the Valuation Firm pursuant to this Section 2.5(c) without the prior consent of the other Party. The Valuation Firm’s determination of the Gross Profit, Gross Profit Margin Percentage and the resulting Earnout Amount with respect to an Earnout Year shall, in each case in the manner contemplated by this Section 2.5, become final and binding on the Parties on the date the Valuation Firm delivers its final resolution in writing to the Seller and the Purchaser, absent manifest error or fraud. The costs and expenses of the Valuation Firm shall be allocated between the Purchaser, on the one hand, and the Seller, on the other hand, in the same proportion that (x) the absolute value of the difference between the value of the Earnout Amount asserted by the Purchaser and the value of the Earnout Amount determined by the Valuation Firm bears to (y) the absolute value of the difference between the value of the Earnout Amount asserted by the Seller and the value of the Earnout Amount determined by the Valuation Firm. For example, if the Seller submits an Earnout Objections Statement to the Valuation Firm that states that the Earnout Amount should be $2,000 while the Purchaser asserts in the written presentation to the Valuation Firm that the Earnout Amount should be $1,000, and the Valuation Firm ultimately resolves that the Earnout Amount should be $1,200, then the costs and expenses of the Valuation Firm will be allocated 20% to the Purchaser and 80% to the Seller.
(d) Once Subject to the terms of this Agreement, including Section 2.7(h), and the Ancillary Agreements, the Parties acknowledge and agree that, from and after the Closing, the management and operations of the Acquired Companies and its business will be at Buyer’s (and its Affiliates, including the Acquired Companies) sole discretion.
(e) Buyer and its Affiliates (including the Acquired Companies) shall have no obligation to operate the Business in a manner solely because it is necessary or intended to achieve the Earnout Amount or to maximize the amount of the Earnout Amount. The Parties understand and acknowledge that, following the Closing, acting commercially reasonably and in good faith, Buyer shall have all necessary authority to alter or change the manner in which the Acquired Companies conduct or operate their business, manage day-to-day operations, approach the market, and incentivize employees or attract and retain customers or suppliers; provided, however, Buyer and its Affiliates shall not take any action with respect to the Acquired Companies or the operation of the Business that is for an the purpose of intentionally avoiding or reducing the Earnout Year has been finally determined in accordance Amount.
(f) The Parties acknowledge and agree that (i) the future performance of Buyer, the Acquired Companies and their respective Affiliates is subject to significant business, economic and competitive uncertainties, contingencies, and normal business disruption necessary to integrate each Acquired Company and its business with Section 2.5(cand into Buyer and its Affiliates and their respective businesses, (ii) actual results of Buyer, the Acquired Companies and such their respective Affiliates may vary from anticipated results, and (iii) there is no assurance, agreement or guarantee that the Earnout Amount is not zero, will be achieved.
(g) Any payment made pursuant to this Section 2.7 shall be treated as part of the Purchaser shall no later than eight (8) Business Days following such determination, deliver or cause to be delivered to Seller the number of Purchaser Shares payable as the Earnout Stock Total Consideration for such Earnout Yearall Tax purposes, provided to the maximum extent permitted by applicable Law (it being acknowledged that if any a portion of the Earnout Amount (if any) may be required to be treated as interest pursuant to Section 483 of the Code and other applicable Tax Law).
(h) Notwithstanding anything to the contrary in this Agreement or the Ancillary Agreements, if, after Closing, Buyer (i) takes any action or causes the Acquired Companies or the Business to be operated in a manner that prevents or materially interferes with the accurate determination, on a standalone basis, of the Acquired Companies’ EBITDA, or (ii) makes or directs any operational change that, by direct or indirect means, is subject intended to a pending claim for indemnification by reduce EBITDA or otherwise diminish Seller’s ability to earn the Purchaser under Section 9.1(a) and Section 9.4(d)Earnout Amount, such portion thereby rendering accurate calculation of the Earnout Amount under this Section 2.7 impossible or impracticable, then Seller shall only be paid eight (8) Business Days following deemed to have earned the final resolution full Earnout Amount, and the Final Earnout Statement shall reflect a payment from Buyer to Seller of such claim and only to the extent not used to offset the amount required to be paid by the Seller under Section 9.1(a) with respect to such claimmaximum Earnout Amount. For the avoidance of doubt, no payment of Purchaser Shares shall be due with respect to an Earnout Year if the Earnout Amount for such Earnout Year is zero.
(e) The Parties parties understand and agree that (i) if the contingent rights to receive an Earnout Amount shall Acquired Companies’ EBITDA cannot be represented determined by any form of certificate or other instrument, are not transferable, Buyer acting reasonably and do not constitute an equity or ownership interest in the Purchaser or any of its Affiliates; (ii) the Seller shall not have any rights as a security-holder of the Purchaser as a result of the Seller’s contingent right to receive any Earnout Amount; and (iii) no interest is payable with respect to any Earnout Amount.
(f) Any amount paid pursuant to this Section 2.5 shall be treated for all Tax purposes as additional consideration paid for the Company Shares pursuant to this Agreement, except (i) for any portion treated as imputed interest and (ii) to the extent otherwise required pursuant to a “determination” within the meaning of Section 1313(a) of the Code (or any similar provisions of state, local or foreign Law).
(g) Subsequent to the Closing and until the end of FY 2028, the Purchaser shall use its commercially reasonable efforts to maintain and preserve in all material respects the material third-party customer relationships and material Intellectual Property of the Business existing as of the Closing Date (other than expiration of registered Intellectual Property in accordance with their terms). Without limiting the foregoing, (x) during the period from the Closing Date through the final determination of the Earnout Amount for FY 2028, the Purchaser shall maintain the records of the Business in a manner permitting preparation of the Earnout Statements and the Quarterly Gross Profit Statements accurately in all material respects in order to allow for the good faith calculation of the Earnout Amount and its components, including by following the policies, principles and procedures set forth on Exhibit F; (y) during the period from the Closing Date through the end of FY 2028, the Purchaser shall (i) not take any action in bad faith, the primary intent or primary purpose of which is to avoid or reduce the amount of any Earnout Amount, including in bad faith accelerating or delaying the shipping of Specified Products or recognition of any revenues of the Business from one Earnout Year to another or following the end of the last Earnout Year; and (ii) use commercially reasonable efforts to provide reasonably adequate staffing and working capital for the conduct of the Business; and (z) during the period from the Closing Date through the earlier of (i) the payment of the Earnout Amount for FY 2028 or (ii) the final determination that no Earnout Amount is payable for FY 2028, the Purchaser shall not enter into (or permit any Subsidiary of the Purchaser to enter into) any agreement or arrangement that would prevent the Purchaser from paying the Earnout Amount in accordance with this Agreement.
(h) The Purchaser shall deliver or cause to be to be delivered to the Seller, within forty-five (45) days after the end of each fiscal quarter of an Earnout Year (other than the last fiscal quarter of such Earnout Year), a statement (the “Quarterly Gross Profit Statement”) setting forth the Purchaser’s calculation of Gross Profit for such fiscal quarter in reasonable detail, and, subject to the Disclosure Limitations, the Purchaser agrees to promptly provide such supporting documentation as the then Seller may reasonably request to review the Purchaser’s calculation of the Gross Profit for such quarter.
(i) Any information provided to or obtained by the Seller pursuant to this Section 2.5 shall be deemed to be Confidential Informationhave earned the full Earnout Amount.
(j) The fiscal years of the Business for any Earnout Year and any fiscal quarter of the Business for any Earnout Year shall be based on the 4-4-5 accounting calendar that is used by the Purchaser, including as specified in the definitions of FY 2027 and FY 2028.
(k) Seller agrees to distribute the net proceeds of (i) 100% of any Earnout Amount in respect of FY 2027 (including the 2027 Catch-Up Amount, if any) to its members in accordance with the distribution provisions in the Seller’s Organizational Documents and (ii) 50% of any Earnout Amount in respect of FY 2028 (excluding, for avoidance of doubt, the 2027 Catch-Up Amount, if any) to The Resolute Fund IV, L.P. and the other 50% of any Earnout Amount in respect of FY 2028 (excluding, for avoidance of doubt, the 2027 Catch-Up Amount, if any) to Business Employee Equityholders, in each case of this clause (ii), in accordance with the distribution provisions in the Seller’s Organizational Documents. For purposes of the prior sentence, “Seller’s Organizational Documents” means Seller’s Organizational Documents as of the date of this Agreement, as they may be amended to implement the Earnout Arrangement in accordance with the terms of this Agreement and the terms set forth in Exhibit H.
Appears in 1 contract
Sources: Membership Interest Purchase Agreement (Ranger Energy Services, Inc.)
Earnout. (a) Within forty-five (45) days after the end of an Earnout Year, the Purchaser shall deliver to the Seller a statement (the “Earnout Statement”), together with reasonable supporting detail, showing the Purchaser’s good faith calculation for such Earnout Year of the (i) Gross Profit, (ii) Gross Profit Margin Percentage and (iii) resulting Earnout Amount. The Gross Profit and Gross Profit Margin Percentage shall be calculated in accordance with the policies, principles and procedures set forth on Exhibit F.
(b) Subject to the Disclosure Limitations, the Seller and its Representatives shall be permitted reasonable access to review and obtain copies occurrence of the books and records of the Business and any work papers (subject to customary access letters and confidentiality undertakings) related to the preparation of the Earnout Statement. The Seller and its Representatives may make reasonable inquiries of the Purchaser and its accountants regarding questions or disagreements, and the Purchaser shall, and shall use its reasonable best efforts to cause any such accountants to, cooperate with and respond to such inquiries. At the request of the Seller, and subject to the Disclosure Limitations, the Purchaser shall make available its personnel who are knowledgeable about the information contained in, and the preparation of, the Earnout Statement, to the Seller to advise and assist the Seller in its review of the Earnout Statement and any objections or disputes with respect thereto.
(c) Within thirty (30) days after delivery of the Earnout Statement to the Seller, if the Seller has any objections to the Earnout Statement, the Seller shall deliver to the Purchaser a statement setting forth its objections thereto (an “Earnout Objections Statement”). Any Earnout Objections Statement shall specify in reasonable detail the nature of any disagreement so asserted, the proposed correct amount for each such item and the resulting Earnout Amount. If an Earnout Objections Statement is not delivered to the Purchaser within thirty (30) days after delivery of the Earnout Statement to the Seller, the Earnout Statement shall be final, binding and non-appealable by the Parties. If an Earnout Objections Statement is properly and timely delivered, the portion of the Earnout Statement not subject to dispute pursuant to the Earnout Objections Statement shall be final, binding and non-appealable by the Parties. At any time during such thirty (30) day period, the Seller may deliver a written notice to the Purchaser stating that it agrees with the Earnout Statement and the Earnout Statement shall thereafter become final, binding and non-appealable by the Parties. The Seller and the Purchaser shall negotiate in good faith to resolve any objections in the Earnout Objections Statement, but if and to the extent they do not reach a final resolution within sixty (60) days after the delivery of the Earnout Objections Statement, the Seller and the Purchaser shall submitClosing, within seventy five ninety (75) days after the delivery of the Earnout Objections Statement, such dispute to the Valuation Firm for resolution. The Valuation Firm shall be instructed by the Seller and the Purchaser to render a determination of the applicable dispute (solely to the extent of such dispute) within thirty (30) days after submission of the matter to the Valuation Firm (or such longer period as mutually agreed in writing by the Purchaser and the Seller), which determination must be in writing and must set forth, in reasonable detail, the basis therefor, and include a certification that it reached such determination in accordance with the definitions as provided in this Agreement and Exhibit F. Any further submissions to the Valuation Firm must be written and delivered to each Party to the dispute. The Valuation Firm shall make a final determination of the Gross Profit, Gross Profit Margin Percentage and resulting Earnout Amount (solely to the extent such amounts or their components are in dispute) in accordance with the guidelines and procedures set forth in this Agreement and Exhibit F. The Valuation Firm shall determine, based solely on presentations by the Purchaser and the Seller and their respective Representatives, and not by independent review, only those issues in dispute specifically set forth on the Earnout Objections Statement, and shall act as an expert and not as an arbitrator. In resolving any disputed item, the Valuation Firm shall (i) be bound by the principles set forth in this Section 2.5 and (ii) not assign a value to any item in dispute that is greater than the greatest value for such disputed item claimed by any Party or less than the smallest value for such disputed item claimed by any Party. The Parties shall reasonably cooperate with the Valuation Firm during the term of its engagement, including by executing a customary engagement letter. Neither the Purchaser, the Seller nor any of their respective Affiliates or Representatives shall have any ex parte conversations or meetings with the Valuation Firm in connection with any dispute submitted by the Purchaser and/or the Seller to the Valuation Firm pursuant to this Section 2.5(c) without the prior consent of the other Party. The Valuation Firm’s determination of the Gross Profit, Gross Profit Margin Percentage and the resulting Earnout Amount with respect to an Earnout Year shall, in each case in the manner contemplated by this Section 2.5, become final and binding on the Parties on the date the Valuation Firm delivers its final resolution in writing to the Seller and the Purchaser, absent manifest error or fraud. The costs and expenses of the Valuation Firm shall be allocated between the Purchaser, on the one hand, and the Seller, on the other hand, in the same proportion that (x) the absolute value of the difference between the value of the Earnout Amount asserted by the Purchaser and the value of the Earnout Amount determined by the Valuation Firm bears to (y) the absolute value of the difference between the value of the Earnout Amount asserted by the Seller and the value of the Earnout Amount determined by the Valuation Firm. For example, if the Seller submits an Earnout Objections Statement to the Valuation Firm that states that the Earnout Amount should be $2,000 while the Purchaser asserts in the written presentation to the Valuation Firm that the Earnout Amount should be $1,000, and the Valuation Firm ultimately resolves that the Earnout Amount should be $1,200, then the costs and expenses of the Valuation Firm will be allocated 20% to the Purchaser and 80% to the Seller.
(d) Once the Earnout Amount for an Earnout Year has been finally determined in accordance with Section 2.5(c) and such Earnout Amount is not zero, the Purchaser shall no later than eight (8) Business Days following such determination, deliver or cause to be delivered to Seller the number of Purchaser Shares payable as the Earnout Stock Consideration for such Earnout Year, provided that if any portion of the Earnout Amount is subject to a pending claim for indemnification by the Purchaser under Section 9.1(a) and Section 9.4(d), such portion of the Earnout Amount shall only be paid eight (8) Business Days following the final resolution of such claim and only to the extent not used to offset the amount required to be paid by the Seller under Section 9.1(a) with respect to such claim. For the avoidance of doubt, no payment of Purchaser Shares shall be due with respect to an Earnout Year if the Earnout Amount for such Earnout Year is zero.
(e) The Parties understand and agree that (i) the contingent rights to receive an Earnout Amount shall not be represented by any form of certificate or other instrument, are not transferable, and do not constitute an equity or ownership interest in the Purchaser or any of its Affiliates; (ii) the Seller shall not have any rights as a security-holder of the Purchaser as a result of the Seller’s contingent right to receive any Earnout Amount; and (iii) no interest is payable with respect to any Earnout Amount.
(f) Any amount paid pursuant to this Section 2.5 shall be treated for all Tax purposes as additional consideration paid for the Company Shares pursuant to this Agreement, except (i) for any portion treated as imputed interest and (ii) to the extent otherwise required pursuant to a “determination” within the meaning of Section 1313(a) of the Code (or any similar provisions of state, local or foreign Law).
(g) Subsequent to the Closing and until the end of FY 2028, the Purchaser shall use its commercially reasonable efforts to maintain and preserve in all material respects the material third-party customer relationships and material Intellectual Property of the Business existing as of the Closing Date (other than expiration of registered Intellectual Property in accordance with their terms). Without limiting the foregoing, (x) during the period from the Closing Date through the final determination of the Earnout Amount for FY 2028, the Purchaser shall maintain the records of the Business in a manner permitting preparation of the Earnout Statements and the Quarterly Gross Profit Statements accurately in all material respects in order to allow for the good faith calculation of the Earnout Amount and its components, including by following the policies, principles and procedures set forth on Exhibit F; (y) during the period from the Closing Date through the end of FY 2028, the Purchaser shall (i) not take any action in bad faith, the primary intent or primary purpose of which is to avoid or reduce the amount of any Earnout Amount, including in bad faith accelerating or delaying the shipping of Specified Products or recognition of any revenues of the Business from one Earnout Year to another or following the end of the last Earnout Year; and (ii) use commercially reasonable efforts to provide reasonably adequate staffing and working capital for the conduct of the Business; and (z) during the period from the Closing Date through the earlier of (i) the payment of the Earnout Amount for FY 2028 or (ii) the final determination that no Earnout Amount is payable for FY 2028, the Purchaser shall not enter into (or permit any Subsidiary of the Purchaser to enter into) any agreement or arrangement that would prevent the Purchaser from paying the Earnout Amount in accordance with this Agreement.
(h) The Purchaser shall deliver or cause to be to be delivered to the Seller, within forty-five (4590) days after the end of each fiscal quarter of Earnout Period (each, an “Earnout Year (other than the last fiscal quarter of such Earnout YearPayment Date”), a statement Buyer shall pay to each Seller or its designee, pursuant to the delivery instructions set forth in Section 2.2 of the Disclosure Schedules, the earnout amount (if any) for the applicable Earnout Period in accordance with Exhibit A (the “Quarterly Gross Profit StatementEarnout Amounts”) setting forth the Purchaser’s calculation of Gross Profit for such fiscal quarter in reasonable detail), and, subject to the Disclosure Limitations, the Purchaser agrees to promptly provide such supporting documentation as the Seller may reasonably request to review the Purchaser’s accompanied by a calculation of the Gross Profit for such quarter.
Earnout Amount with reasonable supporting detail (i) Any information provided to or obtained by the Seller pursuant to this Section 2.5 “Earnout Calculation”). Buyer, in its sole discretion, shall be deemed to be Confidential Information.
(j) The fiscal years have the option of paying any portion of the Business Earnout Amount payable for any Earnout Year and Period in shares of Common Stock (any fiscal quarter such shares, the “Earnout Shares”) with the number of shares of any Common Stock issued as Earnout Shares being calculated by dividing the dollar amount of the Business Earnout Amounts by the VWAP for the five (5) trading day period ending on the last trading day immediately preceding the relevant Earnout Payment Date; provided, however, that unless Stockholder Approval has been obtained, the Earnout Amounts must be paid in cash. In the event that any Seller disputes any Earnout Year Calculation, the Parties will negotiate in good faith for a period of up to thirty (30) days to resolve such dispute. If the Parties are unable to resolve such dispute within such thirty (30)-day period, then such dispute will be referred to the Independent Accountant for the resolution of such dispute, which resolution shall be based final and binding on the 4-4-5 accounting calendar that is used by Parties. The Buyer and the PurchaserSellers will bear equally the fees and expenses of the Independent Accountant. In the event of any deficiency in any Earnout Amount resulting from the resolution of any dispute, including as specified in Buyer shall pay to each Seller such Seller’s share of the definitions amount of FY 2027 and FY 2028.
such deficiency within ten (k10) Seller agrees to distribute Business Days of the net proceeds resolution of (i) 100% such dispute. In the event of any overpayment of any Earnout Amount in respect resulting from the resolution of FY 2027 (including the 2027 Catch-Up Amountany dispute, if any) each Seller shall repay to its members in accordance with the distribution provisions in the Buyer such Seller’s Organizational Documents and (ii) 50% of any Earnout Amount in respect of FY 2028 (excluding, for avoidance of doubt, the 2027 Catch-Up Amount, if any) to The Resolute Fund IV, L.P. and the other 50% of any Earnout Amount in respect of FY 2028 (excluding, for avoidance of doubt, the 2027 Catch-Up Amount, if any) to Business Employee Equityholders, in each case of this clause (ii), in accordance with the distribution provisions in the Seller’s Organizational Documents. For purposes share of the prior sentence, “Seller’s Organizational Documents” means Seller’s Organizational Documents as amount of such overpayment within ten (10) Business Days of the date resolution of such dispute. In the event a Seller fails to make any such required repayment, Buyer shall have the right to offset such repayment amount against its obligation to make any other payment to such Seller under this Agreement, as they may be amended to implement the Earnout Arrangement in accordance with the terms of this Agreement and the terms set forth in Exhibit H..
Appears in 1 contract
Earnout. (a) Within forty-five As additional consideration for the Company Stock, and subject to the terms and conditions set forth in this Agreement, Buyer will make an additional payment, as determined pursuant to Section 1.03(b) (45such payment, the “Earnout”) of up to $3,500,000 (the “Maximum Possible Earnout”) to Seller if the Companies achieve Combined Operating Income of at least $14,000,000 for the first four full fiscal quarters following the Closing Date (the “Earnout Period”); provided, however, the Maximum Possible Earnout shall be reduced by $750,000 if BNT’s current President does not remain employed by the Companies throughout the Earnout Period for a reason other than his death, disability or termination without cause, and shall be reduced by $750,000 if BNT’s current Chief Financial Officer does not remain employed by the Companies throughout the Earnout Period for a reason other than her death, disability or termination without cause, and shall be reduced by $100,000 if BNT’s current Director of Operations does not remain employed by the Companies throughout the Earnout Period for a reason other than his death, disability or termination without cause. The Maximum Possible Earnout, as adjusted by the applicable adjustments, if any, provided in the foregoing sentence shall be the “Adjusted Maximum Possible Earnout”. For clarity, if no adjustments are applicable, the Adjusted Maximum Possible Earnout shall be equal to the Maximum Possible Earnout. Combined Operating Income for purposes of determining whether the Maximum Possible Earnout or Adjusted Maximum Possible Earnout, as applicable, has been achieved will be determined in accordance with the Earnout Rules attached hereto as Exhibit B.
(b) The Earnout payable to Seller shall be determined as follows:
(i) If the Combined Operating Income of the Companies during the Earnout Period is less than $14,000,000, the amount of Earnout payable to Seller shall be $0;
(ii) If the Combined Operating Income of the Companies during the Earnout Period is between $14,000,000 and $15,400,000, the amount of Earnout payable to Seller shall be determined by the following formula: Adjusted Maximum Possible Earnout x [Actual Combined Operating Income of the Companies during the Earnout Period - $14,000,000] / $1,400,000. By way of example, if the actual Combined Operating Income of the Companies during the Earnout Period is $14,800,000, then the amount of Earnout payable to Seller would be $2,000,000. By way of further example, if the actual Combined Operating Income of the Companies during the Earnout Period is $14,700,000 and the President of BNT resigns before the expiration of the Earnout Period, then the Adjusted Maximum Possible Earnout would be $2,750,000, and the amount of Earnout payable to Seller would be $1,375,000.
(iii) If the Combined Operating Income of the Companies during the Earnout Period is greater than $15,400,000, the amount of Earnout payable to Seller shall be the Adjusted Maximum Possible Earnout. By way of example, if the Combined Operating Income of the Companies during the Earnout Period is $15,500,000 and if the existing President, Chief Financial Officer and Director of Operations of BNT all remain employees of the Companies through expiration of the Earnout Period, then the Adjusted Maximum Possible Earnout and the Earnout payable to Seller is $3,500,000. Further, if the Combined Operating Income of the Companies during the Earnout Period is $15,500,000 and if the existing President of BNT died prior to expiration of the Earnout Period, but the existing Chief Financial Officer and Director of Operations of BNT remained employed by the Companies upon expiration of the Earnout Period, then the Adjusted Maximum Possible Earnout and the Earnout payable to Seller is $3,500,000. However, if the Combined Operating Income of the Companies during the Earnout Period is $15,500,000 and the existing Chief Financial Officer and Director of Operations of BNT remained employed by the Companies upon expiration of the Earnout Period, but the existing President of BNT resigned prior to the expiration of the Earnout Period, then the Adjusted Maximum Possible Earnout and the Earnout payable to Seller is $2,750,000.
(c) From Closing until sixty (60) days after the end of an the Earnout YearPeriod, the Purchaser Companies shall deliver make available to the Seller a statement (the “Earnout Statement”), together with reasonable supporting detail, showing the PurchaserSeller’s good faith calculation for such Earnout Year of the (i) Gross Profit, (ii) Gross Profit Margin Percentage and (iii) resulting Earnout Amount. The Gross Profit and Gross Profit Margin Percentage shall be calculated in accordance with the policies, principles and procedures set forth on Exhibit F.
(b) Subject to the Disclosure Limitations, the Seller and its Representatives shall be permitted Representative reasonable access to review the personnel, workpapers, and obtain copies other information (in paper and electronic format) of the books Companies as is reasonably necessary to determine progress toward the Earnout, and records Seller’s Representative may provide such information to Seller’s advisors. In addition, Buyer shall provide or shall cause the Companies to provide to Seller’s Representative an Earnout statement on a quarterly basis during the Earnout Period.
(d) Any proper indemnification claim by any Buyer Indemnitee under Section 4.03, to the extent not otherwise satisfied, at the option of the Business Buyer Indemnitee may be satisfied by deducting and otherwise offsetting such claims against any work papers (subject amounts that are otherwise payable by Buyer pursuant to customary access letters and confidentiality undertakings) related to the preparation of the Earnout Statement. The Seller and its Representatives may make reasonable inquiries of the Purchaser and its accountants regarding questions or disagreementsthis Section 1.03, and the Purchaser shall, and shall use its reasonable best efforts to cause any such accountants to, cooperate with and respond to such inquiries. At the request of the Seller, and subject to the Disclosure Limitations, the Purchaser shall make available its personnel who are knowledgeable about the information contained in, and the preparation of, the Earnout Statement, to the Seller to advise and assist the Seller limitations set forth in its review of the Earnout Statement and any objections or disputes with respect theretoArticle 4.
(ce) Within thirty (30) days after delivery Buyer’s receipt of Buyer’s consolidated financial statements (including the Companies’ consolidated financial statements) for the four full fiscal quarters corresponding to the Earnout Period, Buyer will prepare, or cause to be prepared, a statement of the Earnout for the Earnout Period (the “Earnout Statement”) and will deliver the Earnout Statement to Seller’s Representative.
(f) Following receipt by Seller’s Representative of Buyer’s proposed Earnout Statement and until the Earnout is finally determined pursuant to this Section 1.03, Seller’s Representative will be permitted (upon reasonable advance written notice and during normal business hours) to review the Companies’ books and records and working papers related to Buyer’s draft of the proposed Earnout Statement and determination of the Earnout, if the Seller has any objections and Buyer will provide Seller’s Representative with reasonable access to the Companies’ personnel, books and records, and facilities in connection with such review. The proposed Earnout Statement, Statement delivered by Buyer will become final and binding on the Seller shall deliver to the Purchaser a statement setting forth its objections thereto (an “Earnout Objections Statement”). Any Earnout Objections Statement shall specify in reasonable detail the nature of any disagreement so asserted, the proposed correct amount for each such item and the resulting Earnout Amount. If an Earnout Objections Statement is not delivered to the Purchaser within parties thirty (30) days after following Buyer’s delivery of the Earnout Statement thereof to the Seller’s Representative, the Earnout Statement shall be final, binding and non-appealable by the Parties. If an Earnout Objections Statement is properly and timely delivered, the portion of the Earnout Statement not subject to dispute pursuant to the Earnout Objections Statement shall be final, binding and non-appealable by the Parties. At any time during such thirty (30) day period, the Seller may deliver a written notice to the Purchaser stating that it agrees with the Earnout Statement and the Earnout Statement shall thereafter become final, binding and non-appealable by the Parties. The Seller and the Purchaser shall negotiate in good faith to resolve any objections in the Earnout Objections Statement, but if and to the extent they do not reach a final resolution within or sixty (60) days after the end of Earnout Period, whichever is later, except to the extent (and only to the extent) Seller’s Representative delivers written notice of its disagreement (the “Earnout Notice of Disagreement”) to Buyer on or prior to such date. All matters not subject to dispute as specifically identified in the Earnout Notice of Disagreement will be final and binding. The Earnout Notice of Disagreement must identify with specificity each item in the Earnout Statement that Seller’s Representative disagrees with and, for each disputed item, contain a statement describing in reasonable detail the basis of such objection and the amount in dispute. If Seller’s Representative timely delivers an Earnout Notice of Disagreement, then the Earnout Statement will become final and binding on the parties to this Agreement on the earlier of (i) the date Buyer and Seller’s Representative resolve in writing any differences they have with respect to the matters specified in the Earnout Notice of Disagreement, and (ii) the date all matters in dispute are finally resolved in writing by the Independent Accountants.
(g) During the sixty (60) days following delivery of an Earnout Notice of Disagreement, Buyer and Seller’s Representative will seek in good faith to resolve in writing any differences that they may have with respect to the matters specified in the Earnout Notice of Disagreement. At the end of such sixty (60) day period, Buyer and Seller’s Representative will submit to the Independent Accountants for resolution all matters that remain in dispute, which were included in the Earnout Notice of Disagreement (and will take all actions reasonably requested by the Independent Accountants in connection with such resolution, including submitting written information to the Independent Accountants if so requested), and the Independent Accountants will make a final determination of the Earnout Objections Statement, in accordance with the Seller terms of this Agreement (with it being understood that Buyer and Seller’s Representative will request that the Purchaser shall submit, within seventy five (75) days after the delivery of the Earnout Objections Statement, such dispute Independent Accountants deliver to the Valuation Firm for resolution. The Valuation Firm shall be instructed by the Seller Buyer and the Purchaser to render a determination of the applicable dispute (solely to the extent of such dispute) within Seller’s Representative its resolution in writing not more than thirty (30) days after submission its engagement). The Independent Accountants will make a determination only with respect to the matters still in dispute and, with respect to each such matter, their determination will be within the range of the matter to dispute between Buyer and Seller’s Representative. The Independent Accountants’ determination will be based upon the Valuation Firm (Independent Accountants’ independent review of written materials submitted by Buyer and Seller’s Representative; the Earnout Targets and related definitions included herein and the provisions of this Agreement; and any other information or such longer period as mutually agreed in writing analysis deemed appropriate by the Purchaser and the Seller), which determination must be in writing and must set forth, in reasonable detail, the basis thereforIndependent Accountants. The Independent Accountants may request, and include a certification that it reached each party shall furnish thereto, such determination in accordance with the definitions other documents and information as provided in this Agreement and Exhibit F. Any further submissions to the Valuation Firm must may be written and delivered to each Party to the dispute. The Valuation Firm shall make a final determination of the Gross Profit, Gross Profit Margin Percentage and resulting Earnout Amount (solely to the extent such amounts or their components are in dispute) in accordance with the guidelines and procedures set forth in this Agreement and Exhibit F. The Valuation Firm shall determine, based solely on presentations reasonably requested by the Purchaser and the Seller and their respective Representatives, and not by independent review, only those issues in dispute specifically set forth on the Earnout Objections Statement, and shall act as an expert and not as an arbitrator. In resolving any disputed item, the Valuation Firm shall (i) be bound by the principles set forth in this Section 2.5 and (ii) not assign a value to any item in dispute that is greater than the greatest value for such disputed item claimed by any Party or less than the smallest value for such disputed item claimed by any Party. The Parties shall reasonably cooperate with the Valuation Firm during the term of its engagement, including by executing a customary engagement letter. Neither the Purchaser, the Seller nor any of their respective Affiliates or Representatives shall have any ex parte conversations or meetings with the Valuation Firm Independent Accountants in connection with any dispute submitted by the Purchaser and/or the Seller to the Valuation Firm pursuant to this Section 2.5(csuch review.
(h) without the prior consent of the other Party. The Valuation Firm’s determination of the Gross Profit, Gross Profit Margin Percentage and the resulting Earnout Amount with respect to an Earnout Year shall, in each case in the manner contemplated by this Section 2.5, become final and binding on the Parties on the date the Valuation Firm delivers its final resolution in writing to the Seller and the Purchaser, absent manifest error or fraud. The costs and expenses of the Valuation Firm shall Independent Accountants will be allocated between Buyer and Seller’s Representative based upon the Purchaser, on the one hand, and the Seller, on the other hand, in the same proportion that (x) the absolute value percentage of the difference between the value portion of the Earnout Amount asserted by the Purchaser and the value of the Earnout Amount determined by the Valuation Firm contested amount not awarded to Buyer or Seller bears to (y) the absolute value of the difference between the value of the Earnout Amount asserted amount actually contested by the Seller and the value of the Earnout Amount determined by the Valuation Firmsuch party. For example, if the Seller submits an Earnout Objections Statement to the Valuation Firm that states that Seller’s Representative claims the Earnout Amount should be is $2,000 while 1,000 greater than the Purchaser asserts in the written presentation to the Valuation Firm that the Earnout Amount should be $1,000amount claimed by Buyer, and Buyer contests only $500 of the Valuation Firm amount claimed by Seller’s Representative, and if the Independent Accountants ultimately resolves that the Earnout Amount should be dispute by awarding Seller $1,200300 of the $500 contested, then the costs and expenses of the Valuation Firm Independent Accountants will be allocated 2060% (i.e., 300 ÷ 500) to the Purchaser Buyer and 8040% (i.e., 200 ÷ 500) to the Seller’s Representative.
(di) Once the Earnout Amount for an Earnout Year has been If it is finally determined in accordance with this Section 2.5(c1.03 that Seller is entitled to the Earnout, within three (3) and such Earnout Amount is not zero, the Purchaser shall no later than eight (8) Business Days following such determinationafter the date on which the Earnout Statement will become binding on the parties, deliver Buyer will pay to Seller, or cause the Companies to be delivered pay to Seller the number Seller, by wire transfer of Purchaser Shares payable as the Earnout Stock Consideration for such Earnout Year, provided that if any portion of the Earnout Amount is subject to a pending claim for indemnification by the Purchaser under Section 9.1(a) and Section 9.4(d), such portion of the Earnout Amount shall only be paid eight (8) Business Days following the final resolution of such claim and only immediately available funds to the extent not used to offset the account designated by Seller, an amount required to be paid by the Seller under Section 9.1(a) with respect to such claim. For the avoidance of doubt, no payment of Purchaser Shares shall be due with respect to an Earnout Year if the Earnout Amount for such Earnout Year is zero.
(e) The Parties understand and agree that (i) the contingent rights to receive an Earnout Amount shall not be represented by any form of certificate or other instrument, are not transferable, and do not constitute an equity or ownership interest in the Purchaser or any of its Affiliates; (ii) the Seller shall not have any rights as a security-holder of the Purchaser as a result of the Seller’s contingent right to receive any Earnout Amount; and (iii) no interest is payable with respect to any Earnout Amount.
(f) Any amount paid pursuant to this Section 2.5 shall be treated for all Tax purposes as additional consideration paid for the Company Shares pursuant to this Agreement, except (i) for any portion treated as imputed interest and (ii) equal to the extent otherwise required pursuant to a “determination” within the meaning of Section 1313(a) of the Code (or any similar provisions of state, local or foreign Law).
(g) Subsequent to the Closing and until the end of FY 2028, the Purchaser shall use its commercially reasonable efforts to maintain and preserve in all material respects the material third-party customer relationships and material Intellectual Property of the Business existing as of the Closing Date (other than expiration of registered Intellectual Property in accordance with their terms). Without limiting the foregoing, (x) during the period from the Closing Date through the final determination of the Earnout Amount for FY 2028, the Purchaser shall maintain the records of the Business in a manner permitting preparation of the Earnout Statements and the Quarterly Gross Profit Statements accurately in all material respects in order to allow for the good faith calculation of the Earnout Amount and its components, including by following the policies, principles and procedures set forth on Exhibit F; (y) during the period from the Closing Date through the end of FY 2028, the Purchaser shall (i) not take any action in bad faith, the primary intent or primary purpose of which is to avoid or reduce the amount of any Earnout Amount, including in bad faith accelerating or delaying the shipping of Specified Products or recognition of any revenues of the Business from one Earnout Year to another or following the end of the last Earnout Year; and (ii) use commercially reasonable efforts to provide reasonably adequate staffing and working capital for the conduct of the Business; and (z) during the period from the Closing Date through the earlier of (i) the payment of the Earnout Amount for FY 2028 or (ii) the final determination that no Earnout Amount is payable for FY 2028, the Purchaser shall not enter into (or permit any Subsidiary of the Purchaser to enter into) any agreement or arrangement that would prevent the Purchaser from paying the Earnout Amount in accordance with this Agreement.
(h) The Purchaser shall deliver or cause to be to be delivered to the Seller, within forty-five (45) days after the end of each fiscal quarter of an Earnout Year (other than the last fiscal quarter of such Earnout Year), a statement (the “Quarterly Gross Profit Statement”) setting forth the Purchaser’s calculation of Gross Profit for such fiscal quarter in reasonable detail, and, subject to the Disclosure Limitations, the Purchaser agrees to promptly provide such supporting documentation as the Seller may reasonably request to review the Purchaser’s calculation of the Gross Profit for such quarter.
(i) Any information provided to or obtained by the Seller pursuant to this Section 2.5 shall be deemed to be Confidential InformationEarnout.
(j) The fiscal years of All payments made pursuant to this Section 1.03 will be deemed to be adjustments for Tax purposes to the Business aggregate purchase price paid by Buyer for any Earnout Year and any fiscal quarter of the Business for any Earnout Year shall be based on the 4-4-5 accounting calendar that is used by the Purchaser, including as specified in the definitions of FY 2027 and FY 2028Company Stock.
(k) Seller agrees to distribute the net proceeds of (i) 100% of any Earnout Amount in respect of FY 2027 (including the 2027 Catch-Up Amount, if any) to its members in accordance with the distribution provisions in the Seller’s Organizational Documents and (ii) 50% of any Earnout Amount in respect of FY 2028 (excluding, for avoidance of doubt, the 2027 Catch-Up Amount, if any) to The Resolute Fund IV, L.P. and the other 50% of any Earnout Amount in respect of FY 2028 (excluding, for avoidance of doubt, the 2027 Catch-Up Amount, if any) to Business Employee Equityholders, in each case of this clause (ii), in accordance with the distribution provisions in the Seller’s Organizational Documents. For purposes of the prior sentence, “Seller’s Organizational Documents” means Seller’s Organizational Documents as of the date of this Agreement, as they may be amended to implement the Earnout Arrangement in accordance with the terms of this Agreement and the terms set forth in Exhibit H.
Appears in 1 contract
Sources: Stock Purchase Agreement (Knight Transportation Inc)
Earnout. As additional consideration for the transactions set forth herein:
(a) Within forty-five (45) days after If, on the end later of an Earnout Year, the Purchaser shall deliver to the Seller a statement (the “Earnout Statement”), together with reasonable supporting detail, showing the Purchaser’s good faith calculation for such Earnout Year of the (i) Gross ProfitJuly 30, 2007 or (ii) Gross Profit Margin Percentage and the date on which Purchaser exercises the option granted to it by Seller pursuant to the Option Agreement, the Minimum Revenue Trigger has been achieved, Purchaser shall issue shares of Common Stock to Seller no later than ten (iii10) resulting Business Days after Purchaser's receipt of confirmation that Seller accepts the Revenue Trigger Report, subject to the resolution of any dispute pursuant to Section 2.7(c) (the "Earnout Payment Date"), the Earnout Amount. The Gross Profit and Gross Profit Margin Percentage Notwithstanding the foregoing, no fractional shares of Common Stock shall be calculated issued in accordance conjunction with any payment by Purchaser to Seller of the policiesEarnout Amount. In lieu of any fractional share to which Seller would otherwise be entitled, principles and procedures set forth Purchaser shall pay cash equal to the product of such fraction multiplied by the price per share of Common Stock based on Exhibit F.the ninety- (90) day prior average price of the Common Stock as of April 1, 2007.
(b) Subject to Whether the Disclosure Limitations, the Seller and its Representatives shall be permitted reasonable access to review and obtain copies of the books and records of the Business and any work papers (subject to customary access letters and confidentiality undertakings) related to the preparation of the Earnout Statement. The Seller and its Representatives may make reasonable inquiries of the Purchaser and its accountants regarding questions or disagreementsMinimum Revenue Trigger has been achieved, and the Annualized First Quarter Revenue, shall be determined by Purchaser shall, and shall use its reasonable best efforts to cause any such accountants to, cooperate with and respond to such inquiries. At the request of the Seller, and subject to the Disclosure Limitations, the Purchaser shall make available its personnel who are knowledgeable about the information contained in, and the preparation of, the Earnout Statement, to the Seller to advise and assist the Seller in its review of the Earnout Statement and any objections or disputes with respect thereto.
within (ci) Within thirty (30) days after delivery the close of the Earnout Statement second quarter of 2007 or (ii) the date on which Purchaser exercises the option granted to it by Seller pursuant to the SellerOption Agreement, if whichever is later. Copies of Purchaser's report (the "Revenue Trigger Report") setting forth Purchaser's determination of whether the Minimum Revenue Trigger has been achieved, and the Annualized First Quarter Revenue, shall be submitted by Purchaser in writing to Seller has any objections and, unless Seller notifies Purchaser within thirty (30) Business Days after receipt of such Revenue Trigger Report that it objects to the Earnout Statementcomputations set forth therein, such Revenue Trigger Report shall be binding and conclusive for the purposes of this Agreement. Following delivery to Seller of the Revenue Trigger Report, Purchaser shall deliver give Seller and its accountants reasonable access to Purchaser's personnel as well as any books, records, work-papers, documents, and reports created or prepared by Purchaser in connection with the Purchaser a statement setting forth its objections thereto (an “Earnout Objections Statement”). Any Earnout Objections Statement shall specify in reasonable detail determination of the nature of any disagreement so asserted, the proposed correct amount for each such item Minimum Revenue Trigger and the resulting Earnout Amount. Annualized First Quarter Revenue and the preparation of the corresponding Revenue Trigger Report on reasonable prior notice during regular business hours in order to verify the computations set forth therein.
(c) If an Earnout Objections Statement is not delivered to Seller disagrees with the Purchaser computations set forth in the Revenue Trigger Report, Seller may, within thirty (30) days after delivery of the Earnout Statement Revenue Trigger Report, deliver a notice to Purchaser disagreeing with such computation and the basis for its disagreement, and thereafter the parties shall in good faith attempt to resolve any dispute, in which event the Revenue Trigger Report and the computations set forth therein, as amended to the extent necessary to reflect the resolution of the dispute, shall be conclusive and binding on the parties. If the parties do not reach agreement resolving the dispute within ten (10) days after notice is given by Seller, the Earnout Statement parties shall submit the dispute to the Accountant to review this Agreement and the disputed items or amounts for the purpose of making the appropriate calculations (it being understood that the Accountant shall be finalfunctioning as an expert and not as an arbitrator). Promptly, binding and non-appealable by the Parties. If an Earnout Objections Statement is properly and timely delivered, the portion of the Earnout Statement not subject to dispute pursuant to the Earnout Objections Statement shall be final, binding and non-appealable by the Parties. At any time during such but no later than thirty (30) day perioddays, the Seller may deliver a written notice to the Purchaser stating that it agrees with the Earnout Statement and the Earnout Statement shall thereafter become final, binding and non-appealable by the Parties. The Seller and the Purchaser shall negotiate in good faith to resolve any objections in the Earnout Objections Statement, but if and to the extent they do not reach a final resolution within sixty (60) days after the delivery of the Earnout Objections Statement, the Seller and the Purchaser shall submit, within seventy five (75) days after the delivery of the Earnout Objections Statement, such dispute to the Valuation Firm for resolution. The Valuation Firm shall be instructed by the Seller and the Purchaser to render a determination of the applicable dispute (solely to the extent of such dispute) within thirty (30) days after submission of the matter to the Valuation Firm (or such longer period as mutually agreed in writing by the Purchaser and the Seller), which determination must be in writing and must set forth, in reasonable detail, the basis therefor, and include a certification that it reached such determination in accordance with the definitions as provided in this Agreement and Exhibit F. Any further submissions to the Valuation Firm must be written and delivered to each Party to the dispute. The Valuation Firm shall make a final determination of the Gross Profit, Gross Profit Margin Percentage and resulting Earnout Amount (solely to the extent such amounts or their components are in dispute) in accordance with the guidelines and procedures set forth in this Agreement and Exhibit F. The Valuation Firm Accountant shall determine, based solely on presentations written submissions by the Purchaser and the Seller and their respective RepresentativesSeller, and not by independent review, only those issues in dispute specifically set forth and shall render a written report as to the resolution of the dispute and the resulting computations which shall be conclusive and binding on the Earnout Objections Statementparties. The Accountant shall have access to such books, records, work-papers and personnel as it shall act as an expert and not as an arbitratorrequest. In resolving any disputed item, the Valuation Firm Accountant shall (i) be bound by the principles set forth in provisions of this Section 2.5 and (ii) not assign a value to any item in dispute that is greater than the greatest value for such disputed item claimed by any Party or less than the smallest value for such disputed item claimed by any Party2.7(c). The Parties shall reasonably cooperate with the Valuation Firm during the term of its engagementfees, including by executing a customary engagement letter. Neither the Purchaser, the Seller nor any of their respective Affiliates or Representatives shall have any ex parte conversations or meetings with the Valuation Firm in connection with any dispute submitted by the Purchaser and/or the Seller to the Valuation Firm pursuant to this Section 2.5(c) without the prior consent of the other Party. The Valuation Firm’s determination of the Gross Profit, Gross Profit Margin Percentage and the resulting Earnout Amount with respect to an Earnout Year shall, in each case in the manner contemplated by this Section 2.5, become final and binding on the Parties on the date the Valuation Firm delivers its final resolution in writing to the Seller and the Purchaser, absent manifest error or fraud. The costs and expenses of the Valuation Firm Accountant (i) shall be allocated between the Purchaser, on the one hand, and the Seller, on the other hand, in the same proportion that (x) the absolute value of the difference between the value of the Earnout Amount asserted borne by the Purchaser and the value of the Earnout Amount determined by the Valuation Firm bears to (y) the absolute value of the difference between the value of the Earnout Amount asserted by the Seller and the value of the Earnout Amount determined by the Valuation Firm. For example, if the Seller submits an Earnout Objections Statement to the Valuation Firm that states Accountant determines that the Earnout Amount should Revenue Trigger has been understated by ten percent (10%) percent or more, but only if the Minimum Revenue Trigger has been met or exceeded and (ii) shall be $2,000 while borne by Seller if the Purchaser asserts in the written presentation to the Valuation Firm Accountant determines that the Earnout Amount should be $1,000Revenue Trigger has not been understated or has been understated by less than ten percent (10 %) percent, and regardless of whether or not the Valuation Firm ultimately resolves that the Earnout Amount should be $1,200, then the costs and expenses of the Valuation Firm will be allocated 20% to the Purchaser and 80% to the SellerMinimum Revenue Trigger has been met or exceeded.
(d) Once the Earnout Amount for an Earnout Year has been finally determined in accordance with Any issuance pursuant to Section 2.5(c2.7(c) and such Earnout Amount is not zero, the Purchaser shall no later than eight be made within ten (8) 10) Business Days following such determination, deliver or cause to be delivered to Seller after the number of Purchaser Shares payable as the Earnout Stock Consideration for such Earnout Year, provided that if any portion of the Earnout Amount is subject to a pending claim for indemnification by the Purchaser under Section 9.1(a) and Section 9.4(d), such portion of the Earnout Amount shall only be paid eight (8) Business Days following the final resolution of such claim and only determination thereof to the extent not used to offset the amount required to be paid by the Seller under Section 9.1(a) with respect to such claim. For the avoidance of doubt, no payment of Purchaser Shares shall be due with respect to an Earnout Year if the Earnout Amount for such Earnout Year is zeroapplicable party.
(e) The Parties understand and agree that (i) the contingent rights to receive an Earnout Amount shall not be represented by any form of certificate or other instrument, are not transferable, and do not constitute an equity or ownership interest in the Purchaser or any of its Affiliates; (ii) the Seller shall not have any rights as a security-holder of the Purchaser as a result of the Seller’s contingent right to receive any Earnout Amount; and (iii) no interest is payable with respect to any Earnout Amount.
(f) Any amount paid pursuant to this Section 2.5 shall be treated for all Tax purposes as additional consideration paid for the Company Shares pursuant to this Agreement, except (i) for any portion treated as imputed interest and (ii) to the extent otherwise required pursuant to a “determination” within the meaning of Section 1313(a) of the Code (or any similar provisions of state, local or foreign Law).
(g) Subsequent to the Closing and until the end of FY 2028, the Purchaser shall use its commercially reasonable efforts to maintain and preserve in all material respects the material third-party customer relationships and material Intellectual Property of the Business existing as of the Closing Date (other than expiration of registered Intellectual Property in accordance with their terms). Without limiting the foregoing, (x) during the period from the Closing Date through the final determination of the Earnout Amount for FY 2028, the Purchaser shall maintain the records of the Business in a manner permitting preparation of the Earnout Statements and the Quarterly Gross Profit Statements accurately in all material respects in order to allow for the good faith calculation of the Earnout Amount and its components, including by following the policies, principles and procedures set forth on Exhibit F; (y) during the period from the Closing Date through the end of FY 2028, the Purchaser shall (i) not take any action in bad faith, the primary intent or primary purpose of which is to avoid or reduce the amount of any Earnout Amount, including in bad faith accelerating or delaying the shipping of Specified Products or recognition of any revenues of the Business from one Earnout Year to another or following the end of the last Earnout Year; and (ii) use commercially reasonable efforts to provide reasonably adequate staffing and working capital for the conduct of the Business; and (z) during the period from the Closing Date through the earlier of (i) the payment of the Earnout Amount for FY 2028 or (ii) the final determination that no Earnout Amount is payable for FY 2028, the Purchaser shall not enter into (or permit any Subsidiary of the Purchaser to enter into) any agreement or arrangement that would prevent the Purchaser from paying the Earnout Amount in accordance with this Agreement.
(h) The Purchaser shall deliver or cause to be to be delivered to the Seller, within forty-five (45) days after the end of each fiscal quarter of an Earnout Year (other than the last fiscal quarter of such Earnout Year), a statement (the “Quarterly Gross Profit Statement”) setting forth the Purchaser’s calculation of Gross Profit for such fiscal quarter in reasonable detail, and, subject to the Disclosure Limitations, the Purchaser agrees to promptly provide such supporting documentation as the Seller may reasonably request to review the Purchaser’s calculation of the Gross Profit for such quarter.
(i) Any information provided to or obtained by the Seller pursuant to this Section 2.5 shall be deemed to be Confidential Information.
(j) The fiscal years of the Business for any Earnout Year and any fiscal quarter of the Business for any Earnout Year shall be based on the 4-4-5 accounting calendar that is used by the Purchaser, including as specified in the definitions of FY 2027 and FY 2028.
(k) Seller agrees to distribute the net proceeds of (i) 100% of any Earnout Amount in respect of FY 2027 (including the 2027 Catch-Up Amount, if any) to its members in accordance with the distribution provisions in the Seller’s Organizational Documents and (ii) 50% of any Earnout Amount in respect of FY 2028 (excluding, for avoidance of doubt, the 2027 Catch-Up Amount, if any) to The Resolute Fund IV, L.P. and the other 50% of any Earnout Amount in respect of FY 2028 (excluding, for avoidance of doubt, the 2027 Catch-Up Amount, if any) to Business Employee Equityholders, in each case of this clause (ii), in accordance with the distribution provisions in the Seller’s Organizational Documents. For purposes of the prior sentence, “Seller’s Organizational Documents” means Seller’s Organizational Documents as of the date of this Agreement, as they may be amended to implement the Earnout Arrangement in accordance with the terms of this Agreement and the terms set forth in Exhibit H.
Appears in 1 contract
Sources: Asset Purchase Option Agreement (Protein Polymer Technologies Inc)
Earnout. (a) Within forty-five Buyer shall prepare and deliver, or cause to be prepared and delivered, to the Sellers’ Representative, no later than sixty (4560) days after the end of an each Earnout YearPeriod, the Purchaser shall deliver to the Seller a statement setting forth the Company’s AUM for the most recently completed Earnout Period along with a calculation of the applicable Earnout Payment for the most recently completed Earnout Period, together with supporting documents (the an “Earnout Statement”), together with reasonable supporting detail, showing the Purchaser’s good faith calculation for such Earnout Year of the (i) Gross Profit, (ii) Gross Profit Margin Percentage and (iii) resulting Earnout Amount. The Gross Profit and Gross Profit Margin Percentage shall be calculated in accordance with the policies, principles and procedures set forth on Exhibit F..
(b) Subject The calculations set forth in each Earnout Statement shall be final, conclusive and binding upon the parties unless the Sellers’ Representative delivers to Buyer, within the Disclosure Limitationsthirty (30) days following the date on which an Earnout Statement was delivered (a “Earnout Statement Review Period”), a written notice (a “Earnout Statement Notice of Objection”) that the Sellers’ Representative, on behalf of the Sellers, disagrees with any calculations set forth in an Earnout Statement and setting forth the Sellers’ Representative calculation of the disputed amount, a description in reasonable detail of the grounds for each such disagreement and the Sellers’ Representative calculation of Company’s AUM for the most recently completed Earnout Period based on such objections (each such item or amount as to which the Sellers’ Representative disagrees and set forth in the Earnout Statement Notice of Objection, an “Earnout Item of Disagreement”). During an Earnout Statement Review Period, the Seller Sellers’ Representative, on behalf of the Sellers, and its Representatives shall accountants (which may be the Company’s accountants as of the date of this Agreement) shall, at the Sellers’ Representative’s expense, on behalf of the Sellers, be permitted reasonable access to review and obtain copies the working papers of the books and records of the Business and any work papers (subject to customary access letters and confidentiality undertakings) related Buyer relating to the preparation of applicable Earnout Statement to verify the Earnout Statement. The Seller and its Representatives may make reasonable inquiries of accuracy thereof; provided, that in order to review such accountant’s working papers the Purchaser Sellers’ Representative and its accountants regarding questions shall execute any confidentiality agreements, releases or disagreementswaivers customarily required by such accountant in connection therewith. Except for those Earnout Items of Disagreement set forth in the applicable Earnout Statement Notice of Objection, Buyer and the Sellers’ Representative, on behalf of the Sellers, shall be deemed to have agreed with all other items and amounts set forth in the applicable Earnout Statement, which items and amounts shall be conclusive and binding upon all of the parties. All information disclosed to Sellers’ Representative or its representatives pursuant to this Section 2.5(b) shall be considered confidential information of Buyer, and the Purchaser Sellers’ Representative shall, and shall use cause its reasonable best efforts to cause any such accountants representatives to, cooperate with and respond to keep all such inquiries. At the request of the Seller, and subject to the Disclosure Limitations, the Purchaser shall make available its personnel who are knowledgeable about the information contained in, and the preparation of, the Earnout Statement, to the Seller to advise and assist the Seller in its review of the Earnout Statement and any objections or disputes with respect theretostrictly confidential.
(c) Within thirty (30) days after delivery In the event that the Sellers’ Representative delivers an Earnout Statement Notice of Objection to Buyer within the applicable Earnout Statement Review Period, Buyer and the Sellers’ Representative, on behalf of the Earnout Statement to the SellerSellers, if the Seller has any objections to the Earnout Statement, the Seller shall deliver to the Purchaser a statement setting forth its objections thereto (an “Earnout Objections Statement”). Any Earnout Objections Statement shall specify in reasonable detail the nature of any disagreement so asserted, the proposed correct amount for each such item and the resulting Earnout Amount. If an Earnout Objections Statement is not delivered to the Purchaser within thirty (30) days after delivery of the Earnout Statement to the Seller, the Earnout Statement shall be final, binding and non-appealable by the Parties. If an Earnout Objections Statement is properly and timely delivered, the portion of the Earnout Statement not subject to dispute pursuant to the Earnout Objections Statement shall be final, binding and non-appealable by the Parties. At any time during such thirty (30) day period, the Seller may deliver a written notice to the Purchaser stating that it agrees with the Earnout Statement and the Earnout Statement shall thereafter become final, binding and non-appealable by the Parties. The Seller and the Purchaser shall will negotiate in good faith to resolve any objections in the all applicable Earnout Objections StatementItems of Disagreement. If, but if and to the extent they do not reach after a final resolution within sixty (60) days after the delivery period of the Earnout Objections Statement, the Seller and the Purchaser shall submit, within seventy five (75) days after the delivery of the Earnout Objections Statement, such dispute to the Valuation Firm for resolution. The Valuation Firm shall be instructed by the Seller and the Purchaser to render a determination of the applicable dispute (solely to the extent of such dispute) within thirty (30) days after submission following the date on which an Earnout Statement Notice of Objection is delivered, Buyer and the Sellers’ Representative, on behalf of the matter Sellers, have not resolved each such Earnout Item of Disagreement, then either Buyer or the Sellers’ Representative shall be entitled to submit all such Earnout Items of Disagreement that remain unresolved to the Valuation Firm Independent Accountant, pursuant to the procedures set forth in Section 2.4(c).
(or such longer period as mutually agreed in writing by d) Within five (5) Business Days following the Purchaser date on which the Company’s AUM and the Seller), which determination must be in writing and must set forth, in reasonable detail, corresponding Earnout Payments for the basis therefor, and include a certification that it reached such determination applicable Earnout Period are finally determined in accordance with the definitions as provided in foregoing provisions of this Agreement and Exhibit F. Any further submissions Section 2.5, Buyer shall pay, or cause to be paid, to the Valuation Firm must be written and delivered to each Party Sellers’ Representative, on behalf of the Sellers, an amount equal to the dispute. The Valuation Firm shall make a final determination Earnout Payment.
(e) From and after the Effective Time, Buyer and its Affiliates (i) have complete control and sole and absolute discretion with respect to decisions concerning the operations of the Gross ProfitCompany, Gross Profit Margin Percentage and resulting Earnout Amount (solely to the extent such amounts or their components are in dispute) in accordance with the guidelines and procedures set forth in this Agreement and Exhibit F. The Valuation Firm shall determine, based solely on presentations by the Purchaser and the Seller Subsidiaries and their respective Representatives, and businesses (whether or not by independent review, only those issues in dispute specifically set forth on consistent with such operations prior to the Earnout Objections Statement, and shall act as an expert and not as an arbitrator. In resolving any disputed item, the Valuation Firm shall (iEffective Time) be bound by the principles set forth in this Section 2.5 and (ii) are only required to take actions in connection with the Company and its Subsidiaries that Buyer and its Affiliates believe to be in the best interests of Buyer and, as applicable, its Affiliates, and do not assign a value owe any duties, express or implied, to any item in dispute that is greater than the greatest value for such disputed item claimed by any Party Sellers or less than the smallest value for such disputed item claimed by any Party. The Parties shall reasonably cooperate with the Valuation Firm during the term of its engagement, including by executing a customary engagement letter. Neither the Purchaser, the Seller nor any of their respective Affiliates by virtue of this Section 2.5 (other than to make the payments, if any, due under Section 2.5). The Company’s AUM is speculative and subject to numerous risks and uncertainties, many of which may be outside the control of Buyer, and there is no assurance that Company’s AUM threshold will be achieved. Notwithstanding the foregoing, Buyer and its Affiliates shall act in good faith, and, except as required by applicable Law, shall not take any action(s) or Representatives shall have any ex parte conversations or meetings implement no strategy(ies) the primary purpose of which is to unreasonably and materially interfere with the Valuation Firm in connection with any dispute submitted by the Purchaser and/or the Seller Sellers’ ability to the Valuation Firm pursuant to this Section 2.5(c) without the prior consent of the other Party. The Valuation Firm’s determination of the Gross Profit, Gross Profit Margin Percentage and the resulting Earnout Amount with respect to an Earnout Year shall, in each case in the manner contemplated by this Section 2.5, become final and binding on the Parties on the date the Valuation Firm delivers its final resolution in writing to the Seller and the Purchaser, absent manifest error or fraud. The costs and expenses of the Valuation Firm shall be allocated between the Purchaser, on the one hand, and the Seller, on the other hand, in the same proportion that (x) the absolute value of the difference between the value of achieve the Earnout Amount asserted by the Purchaser and the value of the Earnout Amount determined by the Valuation Firm bears to (y) the absolute value of the difference between the value of the Earnout Amount asserted by the Seller and the value of the Earnout Amount determined by the Valuation Firm. For example, if the Seller submits an Earnout Objections Statement to the Valuation Firm that states that the Earnout Amount should be $2,000 while the Purchaser asserts in the written presentation to the Valuation Firm that the Earnout Amount should be $1,000, and the Valuation Firm ultimately resolves that the Earnout Amount should be $1,200, then the costs and expenses of the Valuation Firm will be allocated 20% to the Purchaser and 80% to the SellerPayments.
(df) Once the Earnout Amount for an Earnout Year has been finally determined in accordance with Section 2.5(c) and such Earnout Amount is not zero, the Purchaser shall no later than eight (8) Business Days following such determination, deliver or cause The right to be delivered to Seller the number of Purchaser Shares payable as the Earnout Stock Consideration for such Earnout Year, provided that if receive any portion of the Earnout Amount is subject to a pending claim for indemnification by the Purchaser under Section 9.1(a) and Section 9.4(d), such portion of the Earnout Amount shall only be paid eight (8) Business Days following the final resolution of such claim and only to the extent not used to offset the amount required to be paid by the Seller under Section 9.1(a) with respect to such claim. For the avoidance of doubt, no payment of Purchaser Shares shall be due with respect to an Earnout Year if the Earnout Amount for such Earnout Year is zero.
(e) The Parties understand and agree that Payments (i) is solely a contractual right and is not a security (and shall confer upon the contingent Sellers only the rights to receive an Earnout Amount shall of a general unsecured creditor); (ii) will not be represented by any form of certificate or other instrument, are not transferable, and do not constitute an equity or ownership interest in the Purchaser or any of its Affiliates; (ii) the Seller shall not have any rights as a security-holder of the Purchaser as a result of the Seller’s contingent right to receive any Earnout Amount; and (iii) no interest is payable with respect to does not give any Earnout Amount.
(f) Any amount paid pursuant to this Section 2.5 shall be treated for all Tax purposes as additional consideration paid for the Company Shares pursuant to this AgreementSeller any dividend rights, except (i) for any portion treated as imputed interest voting rights, liquidation rights, preemptive rights or other similar rights and (iiiv) is not redeemable. Notwithstanding anything herein to the extent otherwise required pursuant to a “determination” within the meaning of Section 1313(a) of the Code (or any similar provisions of state, local or foreign Law).
(g) Subsequent to the Closing and until the end of FY 2028contrary, the Purchaser shall use its commercially reasonable efforts Earnout Payments are subject to maintain and preserve in all material respects the material third-party customer relationships and material Intellectual Property of the Business existing as of the Closing Date (other than expiration of registered Intellectual Property in accordance with their terms). Without limiting the foregoing, (x) during the period from the Closing Date through the final determination of the Earnout Amount for FY 2028, the Purchaser shall maintain the records of the Business in a manner permitting preparation of the Earnout Statements and the Quarterly Gross Profit Statements accurately in all material respects in order to allow for the good faith calculation of the Earnout Amount and its components, including by following the policies, principles and procedures set forth on Exhibit F; (y) during the period from the Closing Date through the end of FY 2028, the Purchaser shall (i) not take any action in bad faith, the primary intent or primary purpose of which is to avoid or reduce the amount of any Earnout Amount, including in bad faith accelerating or delaying the shipping of Specified Products or recognition of any revenues of the Business from one Earnout Year to another or following the end of the last Earnout Year; and (ii) use commercially reasonable efforts to provide reasonably adequate staffing and working capital for the conduct of the Business; and (z) during the period from the Closing Date through the earlier of (i) the payment of the Earnout Amount for FY 2028 or (ii) the final determination that no Earnout Amount is payable for FY 2028, the Purchaser shall not enter into (or permit any Subsidiary of the Purchaser to enter into) any agreement or arrangement that would prevent the Purchaser from paying the Earnout Amount in accordance with this Agreement.
(h) The Purchaser shall deliver or cause to be to be delivered to the Seller, within forty-five (45) days after the end of each fiscal quarter of an Earnout Year (other than the last fiscal quarter of such Earnout Year), a statement (the “Quarterly Gross Profit Statement”) setting forth the Purchaser’s calculation right of Gross Profit for such fiscal quarter setoff in reasonable detail, and, subject to the Disclosure Limitations, the Purchaser agrees to promptly provide such supporting documentation as the Seller may reasonably request to review the Purchaser’s calculation of the Gross Profit for such quarterSection 8.9.
(i) Any information provided to or obtained by the Seller pursuant to this Section 2.5 shall be deemed to be Confidential Information.
(j) The fiscal years of the Business for any Earnout Year and any fiscal quarter of the Business for any Earnout Year shall be based on the 4-4-5 accounting calendar that is used by the Purchaser, including as specified in the definitions of FY 2027 and FY 2028.
(k) Seller agrees to distribute the net proceeds of (i) 100% of any Earnout Amount in respect of FY 2027 (including the 2027 Catch-Up Amount, if any) to its members in accordance with the distribution provisions in the Seller’s Organizational Documents and (ii) 50% of any Earnout Amount in respect of FY 2028 (excluding, for avoidance of doubt, the 2027 Catch-Up Amount, if any) to The Resolute Fund IV, L.P. and the other 50% of any Earnout Amount in respect of FY 2028 (excluding, for avoidance of doubt, the 2027 Catch-Up Amount, if any) to Business Employee Equityholders, in each case of this clause (ii), in accordance with the distribution provisions in the Seller’s Organizational Documents. For purposes of the prior sentence, “Seller’s Organizational Documents” means Seller’s Organizational Documents as of the date of this Agreement, as they may be amended to implement the Earnout Arrangement in accordance with the terms of this Agreement and the terms set forth in Exhibit H.
Appears in 1 contract
Earnout. (a) Within forty-five If and to the extent earned in accordance with this Section 2.06 and Annex B to this Agreement, Sellers shall be entitled to an earnout payment (45the “Earnout Payment”) from Buyer. The Earnout Payment for all purposes under this Agreement shall be calculated in accordance with Annex B.
(b) As promptly as practicable, but in no event later than ninety (90) days after the end of an the Earnout YearPeriod, the Purchaser Buyer shall prepare and deliver to the Seller Sellers’ Representative a statement (the “Earnout Statement”), together with reasonable supporting detail, showing the Purchaser) setting forth Buyer’s good faith calculation for such of EBITDA and the Earnout Year Payment, if any. After receipt of the (i) Gross Profit, (ii) Gross Profit Margin Percentage and (iii) resulting Earnout Amount. The Gross Profit and Gross Profit Margin Percentage shall be calculated in accordance with the policies, principles and procedures set forth on Exhibit F.
(b) Subject to the Disclosure LimitationsStatement, the Seller Sellers’ Representative shall have thirty (30) days (the “Earnout Review Period”) to review the Earnout Statement. During the Earnout Review Period, the Sellers’ Representative and its Representatives Sellers’ Accountants shall be permitted have reasonable access to review and obtain copies of the books and records of the Business Company, the personnel of, and any work papers (subject to customary access letters and confidentiality undertakings) related prepared by Buyer and/or Buyer’s Accountants, to the preparation of the Earnout Statement. The Seller and its Representatives may make reasonable inquiries of the Purchaser and its accountants regarding questions or disagreements, and the Purchaser shall, and shall use its reasonable best efforts extent that they relate to cause any such accountants to, cooperate with and respond to such inquiries. At the request of the Seller, and subject to the Disclosure Limitations, the Purchaser shall make available its personnel who are knowledgeable about the information contained in, and the preparation of, the Earnout Statement, to as the Seller to advise and assist Sellers’ Representative may reasonably request for the Seller in its review purpose of reviewing the Earnout Statement and any objections to prepare an Earnout Objection Notice (defined below), provided, that such access shall be in a manner that does not interfere with the business operations of Buyer or disputes with respect theretothe Company.
(c) Within thirty (30) days after delivery On or prior to the last day of the Earnout Statement Review Period, the Sellers’ Representative may object to the Seller, if Earnout Statement by delivering to Buyer a written notice setting forth the Seller has any Sellers’ Representative’s objections to the Earnout StatementStatement in reasonable detail, indicating each disputed item or amount and the Seller shall deliver to basis for the Purchaser a statement setting forth its objections thereto Sellers’ Representative’s disagreement therewith (an the “Earnout Objections StatementObjection Notice”). Any Earnout Objections Statement shall specify in reasonable detail the nature For avoidance of any disagreement so asserteddoubt, the proposed correct amount for each such item all other matters with respect to, and the resulting Earnout Amount. If an Earnout Objections Statement is not delivered to the Purchaser within thirty (30) days after delivery of the Earnout Statement to the Sellerall other components of, the Earnout Statement shall not identified in the Earnout Objection Notice as an item or amount in dispute will be final, binding and non-appealable by conclusive on the PartiesParties for all purposes under this Agreement and not subject to further dispute or challenge absent manifest error. If an the Sellers’ Representative fails to deliver the Earnout Objections Statement is properly and timely delivered, Objection Notice before the portion expiration of the Earnout Statement not subject to dispute pursuant to the Earnout Objections Statement shall be finalReview Period, binding and non-appealable by the Parties. At any time during such thirty (30) day period, the Seller may deliver a written notice to the Purchaser stating that it agrees with the Earnout Statement and the Earnout Statement shall thereafter become final, binding and non-appealable by the Parties. The Seller and the Purchaser shall negotiate in good faith to resolve any objections in the Earnout Objections Statement, but if and to the extent they do not reach a final resolution within sixty all components thereof (60) days after the delivery including Buyer’s calculation of the Earnout Objections Statement, the Seller and the Purchaser shall submit, within seventy five (75Payment) days after the delivery of the Earnout Objections Statement, such dispute to the Valuation Firm for resolution. The Valuation Firm shall will be instructed by the Seller and the Purchaser to render a determination of the applicable dispute (solely to the extent of such dispute) within thirty (30) days after submission of the matter to the Valuation Firm (or such longer period as mutually agreed in writing by the Purchaser and the Seller), which determination must be in writing and must set forth, in reasonable detail, the basis therefor, and include a certification that it reached such determination in accordance with the definitions as provided in this Agreement and Exhibit F. Any further submissions to the Valuation Firm must be written and delivered to each Party to the dispute. The Valuation Firm shall make a final determination of the Gross Profit, Gross Profit Margin Percentage and resulting Earnout Amount (solely to the extent such amounts or their components are in dispute) in accordance with the guidelines and procedures set forth in this Agreement and Exhibit F. The Valuation Firm shall determine, based solely on presentations by the Purchaser and the Seller and their respective Representatives, and not by independent review, only those issues in dispute specifically set forth on the Earnout Objections Statement, and shall act as an expert and not as an arbitrator. In resolving any disputed item, the Valuation Firm shall (i) be bound by the principles set forth in this Section 2.5 and (ii) not assign a value to any item in dispute that is greater than the greatest value for such disputed item claimed by any Party or less than the smallest value for such disputed item claimed by any Party. The Parties shall reasonably cooperate with the Valuation Firm during the term of its engagement, including by executing a customary engagement letter. Neither the Purchaser, the Seller nor any of their respective Affiliates or Representatives shall have any ex parte conversations or meetings with the Valuation Firm in connection with any dispute submitted by the Purchaser and/or the Seller to the Valuation Firm pursuant to this Section 2.5(c) without the prior consent of the other Party. The Valuation Firm’s determination of the Gross Profit, Gross Profit Margin Percentage and the resulting Earnout Amount with respect to an Earnout Year shall, in each case in the manner contemplated by this Section 2.5, become deemed final and binding on the Parties on for all purposes under this Agreement and not subject to further dispute or challenge. If the date Sellers’ Representative delivers the Valuation Firm delivers its final resolution in writing to Earnout Objection Notice before the Seller and the Purchaser, absent manifest error or fraud. The costs and expenses of the Valuation Firm shall be allocated between the Purchaser, on the one hand, and the Seller, on the other hand, in the same proportion that (x) the absolute value of the difference between the value expiration of the Earnout Amount asserted by the Purchaser and the value of the Earnout Amount determined by the Valuation Firm bears to (y) the absolute value of the difference between the value of the Earnout Amount asserted by the Seller and the value of the Earnout Amount determined by the Valuation Firm. For example, if the Seller submits an Earnout Objections Statement to the Valuation Firm that states that the Earnout Amount should be $2,000 while the Purchaser asserts in the written presentation to the Valuation Firm that the Earnout Amount should be $1,000, and the Valuation Firm ultimately resolves that the Earnout Amount should be $1,200Review Period, then the costs Parties shall resolve the matters in dispute in a manner consistent, mutatis mutandis, with the review and expenses of the Valuation Firm will be allocated 20% to the Purchaser and 80% to the Sellerdispute procedures set forth in Section 2.04(c).
(d) Once Except as set forth in Section 2.06(e) below, nothing contained in this Agreement shall restrict in any way management of Buyer from operating the Company and the Company’s businesses and operations in any respect and making all customer and other business decisions in the manner that Buyer’s management or board of directors deems appropriate in their sole discretion and without taking into consideration the impact of such actions on the Earnout Amount for an Earnout Year has been finally determined in accordance with Section 2.5(c) and such Earnout Amount is not zeroPayment, the Purchaser shall no later than eight (8) Business Days following such determination, deliver or cause to be delivered to Seller the number of Purchaser Shares payable as the Earnout Stock Consideration for such Earnout Year, provided that if any portion of the Earnout Amount is subject to a pending claim for indemnification by the Purchaser under Section 9.1(a) and Section 9.4(d), such portion of the Earnout Amount shall only be paid eight (8) Business Days following the final resolution of such claim and only to the extent not used to offset the amount required to be paid by the Seller under Section 9.1(a) with respect to such claimany. For the avoidance of doubt, no payment neither Buyer nor any of Purchaser Shares shall be due Buyer’s Affiliates (i) owes Sellers any fiduciary or other duty in respect of this Section 2.06, (ii) is making any representations or warranties to Sellers with respect to an Earnout Year if the operations of the Company or the Company’s businesses after the Closing or with respect to any estimates or projections relating to EBITDA for the Earnout Amount for Period, or (iii) has any obligation in respect of this Section 2.06 other than an obligation to comply with the covenants and agreements expressly set forth in this Section 2.06 and in Annex B, it being the Parties’ intention that all other representations, warranties, covenants, obligations, and agreements, express or implied, in respect of this Section 2.06 and Annex B, and the earning or payment of the Earnout Payment, if any, are expressly waived and disclaimed by Sellers. Nothing in this Agreement will be interpreted as a restriction or limitation on Buyer’s or any of Buyer’s Affiliates’ rights and abilities (A) to acquire by purchase, exchange, or otherwise any other Person, whether or not engaged in a business similar or related to any of the businesses of the Company (an “Acquired Business”), or (B) to sell the Company or sell or assign all or any of the membership interests of the Company to another Person or to merge the Company with another Person (such Earnout Year is zeroother Person, a “Consolidating Business”). Sellers will have no rights or interests in, or relating to, any Acquired Business or any Consolidating Business.
(e) The Parties understand Buyer shall not take any action with the knowing and primary purpose and intent of artificially preventing or decreasing in any material respect the earning of the Earnout Payment, if any. Buyer covenants and agrees that, during the Earnout Period and subject to Annex B, Buyer will:
(i) operate the Company’s business as a separate business unit;
(ii) maintain separate financial statements for such business unit;
(iii) maintain the Company’s sales and marketing expenditures at a level consistent with the average monthly expenditures for the twelve (12) months immediately preceding the Closing Date (except to the extent reasonably necessary to conduct the business of the Company in the Ordinary Course or except as is otherwise commercially reasonable);
(iv) refrain from a material increase in any expenses attributed to the business unit above the Company’s pre-Closing expenses for the twelve (12) months immediately preceding the Closing Date (except to the extent reasonably necessary to conduct the business of the Company in the Ordinary Course or except as is otherwise commercially reasonable);
(v) refrain from intentionally diverting any revenues away from such business unit to any of Buyer’s other business units or any of its Affiliates; and
(vi) credit all revenue generated from the sale of the Company Products to such business unit.
(f) Sellers acknowledge and agree that there may be no Earnout Payment payable pursuant to the provisions of this Section 2.06 and that the right to receive the Earnout Payment, if any, pursuant to this Agreement: (i) the contingent rights to receive does not represent an Earnout Amount shall equity or other ownership interest in Buyer or any of Buyer’s Affiliates; (ii) does not be carry voting, dividend, or liquidation rights; (iii) is not represented by any form of certificate or other instrument, are not transferable, and do not constitute an equity or ownership interest in the Purchaser or any of its Affiliates; (iiiv) the Seller shall does not have bear any rights as a security-holder of the Purchaser as a result of the Seller’s contingent right to receive any Earnout Amountinterest; and (iiiv) no interest is payable with respect to any Earnout Amount.
not assignable or transferable (f) Any amount paid pursuant to this Section 2.5 shall be treated for all Tax purposes as additional consideration paid for other than by testamentary disposition or the Company Shares pursuant to this Agreement, except (i) for any portion treated as imputed interest and (ii) to the extent otherwise required pursuant to a “determination” within the meaning laws of Section 1313(a) of the Code (or any similar provisions of state, local or foreign Lawintestacy).
(g) Subsequent to the Closing and until the end of FY 2028, the Purchaser shall use its commercially reasonable efforts to maintain and preserve in all material respects the material third-party customer relationships and material Intellectual Property of the Within two (2) Business existing as of the Closing Date (other than expiration of registered Intellectual Property in accordance with their terms). Without limiting the foregoing, (x) during the period from the Closing Date through Days after the final determination of the Earnout Amount for FY 2028, the Purchaser shall maintain the records of the Business in a manner permitting preparation amount of the Earnout Statements and the Quarterly Gross Profit Statements accurately in all material respects in order to allow for the good faith calculation of the Earnout Amount and its componentsPayment, including by following the policiesif any, principles and procedures set forth on Exhibit F; (y) during the period from the Closing Date through the end of FY 2028, the Purchaser shall (i) not take any action in bad faith, the primary intent or primary purpose of which is to avoid or reduce the amount of any Earnout Amount, including in bad faith accelerating or delaying the shipping of Specified Products or recognition of any revenues of the Business from one Earnout Year to another or following the end of the last Earnout Year; and (ii) use commercially reasonable efforts to provide reasonably adequate staffing and working capital for the conduct of the Business; and (z) during the period from the Closing Date through the earlier of (i) the payment of the Earnout Amount for FY 2028 or (ii) the final determination that no Earnout Amount is payable for FY 2028, the Purchaser shall not enter into (or permit any Subsidiary of the Purchaser to enter into) any agreement or arrangement that would prevent the Purchaser from paying the Earnout Amount in accordance with this AgreementSection 2.06, Buyer shall pay (i) to each Seller such Seller’s Pro Rata Share of the Earnout Payment by wire transfer of immediately available funds to such Seller’s Purchase Price Bank Account.
(h) The Purchaser Parties shall deliver or cause to be to be delivered to treat the Seller, within forty-five (45) days after the end of each fiscal quarter of an Earnout Year (other than the last fiscal quarter of such Earnout Year), a statement (the “Quarterly Gross Profit Statement”) setting forth the Purchaser’s calculation of Gross Profit for such fiscal quarter in reasonable detail, and, subject to the Disclosure Limitations, the Purchaser agrees to promptly provide such supporting documentation as the Seller may reasonably request to review the Purchaser’s calculation payment of the Gross Profit for such quarter.
(i) Any information provided to or obtained by the Seller pursuant to Earnout Payment Amount made under this Section 2.5 shall be deemed to be Confidential Information.
(j) The fiscal years of the Business for any Earnout Year and any fiscal quarter of the Business for any Earnout Year shall be based on the 4-4-5 accounting calendar that is used by the Purchaser, including as specified in the definitions of FY 2027 and FY 2028.
(k) Seller agrees to distribute the net proceeds of (i) 100% of any Earnout Amount in respect of FY 2027 (including the 2027 Catch-Up Amount2.06, if any, as an adjustment to the Purchase Price by the parties for Tax purposes, unless (a) to its members in accordance with the distribution provisions in the Seller’s Organizational Documents and a final “determination” (ii) 50% of any Earnout Amount in respect of FY 2028 (excluding, as that term is defined for avoidance of doubt, the 2027 Catch-Up Amount, if any) to The Resolute Fund IV, L.P. and the other 50% of any Earnout Amount in respect of FY 2028 (excluding, for avoidance of doubt, the 2027 Catch-Up Amount, if any) to Business Employee Equityholders, in each case of this clause (ii), in accordance with the distribution provisions in the Seller’s Organizational Documents. For purposes of Code Section 1313 or corresponding state Laws) with respect to any such payment causes such payment not to be treated as an adjustment to the prior sentence, “Seller’s Organizational Documents” means Seller’s Organizational Documents as of the date of this Agreement, as they may be amended to implement the Earnout Arrangement in accordance with the terms of this Agreement and the terms set forth in Exhibit H.Purchase Price for Tax purposes or (b) otherwise required by applicable Law.
Appears in 1 contract
Sources: Membership Interest Purchase Agreement (Computer Programs & Systems Inc)
Earnout. (a) Within forty-five In addition to the Closing Consideration, Seller shall be entitled to receive the amounts set forth in this Section (45each, an “Earnout Payment” and together, the “Earnout Payments”), if any that become payable pursuant to the terms hereof. A sample calculation of the Earnout Payments is included on Schedule 1.9.
(b) If Buyer’s Adjusted EBITDA for the 2025 calendar year (the “First Earnout Period”) is greater than Four Million Dollars ($4,000,000), Buyer shall pay Seller an amount equal to Five Hundred Thousand Dollars ($500,000).
(c) If Buyer’s Adjusted EBITDA for the 2026 calendar year (the “Second Earnout Period” and together with the First Earnout Period, the “Earnout Periods” and each, an “Earnout Period”) is greater than Five Million Dollars ($5,000,000), Buyer shall pay Seller an amount equal to One Million Dollars ($1,000,000).
(d) The applicable Earnout Payment shall be made within ten (10) business days of the final determination of the Buyer’s Adjusted EBITDA for the applicable Earnout Period.
(e) No later than ninety (90) days after the end of an each Earnout YearPeriod, the Purchaser Buyer shall deliver to the Seller a statement (the “Earnout Statement”), together with reasonable supporting detail, showing the PurchaserBuyer’s good faith calculation for such Earnout Year calculations of the (i) Gross Profit, (ii) Gross Profit Margin Percentage and (iii) resulting Buyer’s Adjusted EBITDA for the applicable Earnout AmountPeriod. The Gross Profit and Gross Profit Margin Percentage ▇▇▇▇▇’s undisputed calculations of the Buyer’s Adjusted EBITDA for the appliable Earnout Period shall be calculated in accordance with the policiesfinal, principles conclusive and procedures set forth binding on Exhibit F.
(b) Subject Seller unless Seller provides a Dispute Notice to the Disclosure Limitations, the Seller and its Representatives shall be permitted reasonable access to review and obtain copies of the books and records of the Business and any work papers (subject to customary access letters and confidentiality undertakings) related to the preparation of the Earnout Statement. The Seller and its Representatives may make reasonable inquiries of the Purchaser and its accountants regarding questions or disagreements, and the Purchaser shall, and shall use its reasonable best efforts to cause any such accountants to, cooperate with and respond to such inquiries. At the request of the Seller, and subject to the Disclosure Limitations, the Purchaser shall make available its personnel who are knowledgeable about the information contained in, and the preparation of, the Earnout Statement, to the Seller to advise and assist the Seller in its review of the Earnout Statement and any objections or disputes with respect thereto.
(c) Within Buyer no later than thirty (30) calendar days after Buyer’s delivery of the Earnout Statement its calculations to the Seller, if the Seller has any objections to the Earnout Statement, the Seller . The Dispute Notice shall deliver to the Purchaser a statement setting set forth its objections thereto (an “Earnout Objections Statement”). Any Earnout Objections Statement shall specify in reasonable detail the nature of any disagreement so asserted, the proposed correct amount for each such item asserted and the resulting Earnout Amountestimated dollar amount of the disputed sums. ▇▇▇▇▇ and Seller shall attempt to resolve the matters raised in a Dispute Notice in good faith. If an Earnout Objections Statement any such matters remain unresolved by the date that is not delivered to the Purchaser within thirty (30) days after delivery of the Earnout Statement to the Seller, the Earnout Statement shall be final, binding and non-appealable by the Parties. If an Earnout Objections Statement is properly and timely delivered, the portion of the Earnout Statement not subject to dispute pursuant to the Earnout Objections Statement shall be final, binding and non-appealable by the Parties. At any time during such thirty (30) day period, the Seller may deliver a written notice to the Purchaser stating that it agrees with the Earnout Statement and the Earnout Statement shall thereafter become final, binding and non-appealable by the Parties. The Seller and the Purchaser shall negotiate in good faith to resolve any objections in the Earnout Objections Statement, but if and to the extent they do not reach a final resolution within sixty (60) calendar days after the delivery of date on which the Earnout Objections StatementDispute Notice was delivered to Buyer, Buyer and Seller shall jointly submit the Seller and the Purchaser shall submit, within seventy five (75) days after the delivery of the Earnout Objections Statement, such dispute disputed items to the Valuation Firm for resolution. The Valuation Firm shall be instructed by the Seller and the Purchaser to render a determination of the applicable dispute (solely to the extent of such dispute) within thirty (30) days after submission of the matter to the Valuation Accounting Firm (or such longer period as mutually agreed in writing by the Purchaser and the Seller), which determination must be in writing and must set forth, in reasonable detail, the basis therefor, and include a certification that it reached such determination appointed in accordance with the definitions as provided in this Agreement and Exhibit F. Any further submissions to the Valuation Firm must be written and delivered to each Party to the dispute. The Valuation Firm shall make a final determination of the Gross Profit, Gross Profit Margin Percentage and resulting Earnout Amount Section 1.6(c) mutatis mutandis).
(solely to the extent such amounts or their components are in disputef) in accordance with the guidelines and procedures set forth in this Agreement and Exhibit F. The Valuation Firm shall determine, based solely on presentations by the Purchaser and the Seller and their respective Representatives, and not by independent review, only those issues in dispute specifically set forth on During the Earnout Objections StatementPeriod, and shall act as an expert and not as an arbitrator. In resolving any disputed item, the Valuation Firm Buyer shall (i) be bound by use good faith efforts to operate the principles set forth Business in this Section 2.5 a profitable manner and (ii) not assign a value to take any item in dispute that is greater than the greatest value for such disputed item claimed by any Party or less than the smallest value for such disputed item claimed by any Party. The Parties shall reasonably cooperate with the Valuation Firm during the term of its engagement, including by executing a customary engagement letter. Neither the Purchaseractions, the Seller nor any of their respective Affiliates intent or Representatives shall have any ex parte conversations or meetings with the Valuation Firm in connection with any dispute submitted by the Purchaser and/or the Seller to the Valuation Firm pursuant to this Section 2.5(c) without the prior consent of the other Party. The Valuation Firm’s determination of the Gross Profit, Gross Profit Margin Percentage and the resulting Earnout Amount with respect to an Earnout Year shall, in each case in the manner contemplated by this Section 2.5, become final and binding on the Parties on the date the Valuation Firm delivers its final resolution in writing to the Seller and the Purchaser, absent manifest error or fraud. The costs and expenses of the Valuation Firm shall be allocated between the Purchaser, on the one hand, and the Seller, on the other hand, in the same proportion that (x) the absolute value of the difference between the value of the Earnout Amount asserted by the Purchaser and the value of the Earnout Amount determined by the Valuation Firm bears to (y) the absolute value of the difference between the value of the Earnout Amount asserted by the Seller and the value of the Earnout Amount determined by the Valuation Firm. For example, if the Seller submits an Earnout Objections Statement to the Valuation Firm that states that the Earnout Amount should be $2,000 while the Purchaser asserts in the written presentation to the Valuation Firm that the Earnout Amount should be $1,000, and the Valuation Firm ultimately resolves that the Earnout Amount should be $1,200, then the costs and expenses of the Valuation Firm will be allocated 20% to the Purchaser and 80% to the Seller.
(d) Once the Earnout Amount for an Earnout Year has been finally determined in accordance with Section 2.5(c) and such Earnout Amount is not zero, the Purchaser shall no later than eight (8) Business Days following such determination, deliver or cause to be delivered to Seller the number of Purchaser Shares payable as the Earnout Stock Consideration for such Earnout Year, provided that if any portion of the Earnout Amount is subject to a pending claim for indemnification by the Purchaser under Section 9.1(a) and Section 9.4(d), such portion of the Earnout Amount shall only be paid eight (8) Business Days following the final resolution of such claim and only to the extent not used to offset the amount required to be paid by the Seller under Section 9.1(a) with respect to such claim. For the avoidance of doubt, no payment of Purchaser Shares shall be due with respect to an Earnout Year if the Earnout Amount for such Earnout Year is zero.
(e) The Parties understand and agree that (i) the contingent rights to receive an Earnout Amount shall not be represented by any form of certificate or other instrument, are not transferable, and do not constitute an equity or ownership interest in the Purchaser or any of its Affiliates; (ii) the Seller shall not have any rights as a security-holder of the Purchaser as a result of the Seller’s contingent right to receive any Earnout Amount; and (iii) no interest is payable with respect to any Earnout Amount.
(f) Any amount paid pursuant to this Section 2.5 shall be treated for all Tax purposes as additional consideration paid for the Company Shares pursuant to this Agreement, except (i) for any portion treated as imputed interest and (ii) to the extent otherwise required pursuant to a “determination” within the meaning of Section 1313(a) of the Code (or any similar provisions of state, local or foreign Law).
(g) Subsequent to the Closing and until the end of FY 2028, the Purchaser shall use its commercially reasonable efforts to maintain and preserve in all material respects the material third-party customer relationships and material Intellectual Property of the Business existing as of the Closing Date (other than expiration of registered Intellectual Property in accordance with their terms). Without limiting the foregoing, (x) during the period from the Closing Date through the final determination of the Earnout Amount for FY 2028, the Purchaser shall maintain the records of the Business in a manner permitting preparation of the Earnout Statements and the Quarterly Gross Profit Statements accurately in all material respects in order to allow for the good faith calculation of the Earnout Amount and its components, including by following the policies, principles and procedures set forth on Exhibit F; (y) during the period from the Closing Date through the end of FY 2028, the Purchaser shall (i) not take any action in bad faith, the primary intent or primary purpose effect of which is to avoid or reduce the amount maximum Earnout Payment payable hereunder.
(g) Notwithstanding anything to the contrary in this Agreement, the Earnout Payments shall become immediately and automatically due and payable to Seller upon the occurrence of any Earnout Amount, including in bad faith accelerating or delaying the shipping of Specified Products or recognition of any revenues of the Business from one Earnout Year to another following events: (i) any bankruptcy, reorganization, assignment for the benefit of creditors, or following the end of the last Earnout Yearother proceeding under any bankruptcy or insolvency law, or any dissolution or liquidation proceeding initiated by or against Buyer; and (ii) use commercially reasonable efforts to provide reasonably adequate staffing and working capital for the conduct any sale of all or substantially all of the Businessassets of Buyer; and (z) during the period from the Closing Date through the earlier of (i) the payment of the Earnout Amount for FY 2028 or (ii) the final determination that no Earnout Amount is payable for FY 2028, the Purchaser shall not enter into (or permit any Subsidiary of the Purchaser to enter intoiii) any agreement person or arrangement that would prevent the Purchaser from paying the Earnout Amount in accordance with this Agreement.
group of persons (h) The Purchaser shall deliver or cause to be to be delivered to the Seller, within forty-five (45) days after the end of each fiscal quarter of an Earnout Year (other than the last fiscal quarter of such Earnout Year), a statement (the “Quarterly Gross Profit Statement”) setting forth the Purchaser’s calculation of Gross Profit for such fiscal quarter in reasonable detail, and, subject to the Disclosure Limitations, the Purchaser agrees to promptly provide such supporting documentation as the Seller may reasonably request to review the Purchaser’s calculation of the Gross Profit for such quarter.
(i) Any information provided to or obtained by the Seller pursuant to this Section 2.5 shall be deemed to be Confidential Information.
(j) The fiscal years of the Business for any Earnout Year excluding ▇▇▇▇▇▇▇ Entities and any fiscal quarter other Affiliates of the Business for any Earnout Year shall be based on the 4-4-5 accounting calendar that is used by the Purchaser, including as specified in the definitions of FY 2027 and FY 2028.
(kBuyer) Seller agrees to distribute the net proceeds of (i) 100% of any Earnout Amount in respect of FY 2027 (including the 2027 Catch-Up Amount, if any) to its members in accordance with the distribution provisions in the Seller’s Organizational Documents and (ii) directly or indirectly acquires more than 50% of any Earnout Amount the equity interests of Buyer, including by way of merger, consolidation or otherwise (but, in respect of FY 2028 (excludingeach case, for the avoidance of doubt, the 2027 Catch-Up Amount, if any) to The Resolute Fund IV, L.P. and the other 50% of any Earnout Amount in respect of FY 2028 (excluding, for avoidance of doubt, the 2027 Catch-Up Amount, if any) to Business Employee Equityholders, in each case of this clause (iiexcluding internal reorganization transactions), in accordance with the distribution provisions in the Seller’s Organizational Documents. For purposes of the prior sentence, “Seller’s Organizational Documents” means Seller’s Organizational Documents as of the date of this Agreement, as they may be amended to implement the Earnout Arrangement in accordance with the terms of this Agreement and the terms set forth in Exhibit H..
Appears in 1 contract
Sources: Asset Purchase Agreement (Commercial Vehicle Group, Inc.)
Earnout. (a) Within forty-Axsys shall or shall cause Buyer to, as promptly as possible, but not later than five (45) days after the end earlier of an Earnout Year, the Purchaser shall deliver to the Seller a statement (the “Earnout Statement”), together with reasonable supporting detail, showing the Purchaser’s good faith calculation for such Earnout Year of the (i) Gross Profit, the filing by Axsys of its Annual Report on Form 10-K for the preceding fiscal year ended December 31 or (ii) Gross Profit Margin Percentage and the date an earnings press release, which contains revenue numbers, is issued by Axsys for the preceding fiscal year ended December 31, deliver to Seller an income statement in respect of the Business (iiieach such income statement, an “Earnout Income Statement”) resulting for the most recently completed Earnout AmountPeriod showing all Business Revenue thereon. The Gross Profit and Gross Profit Margin Percentage Together with the Earnout Income Statement, Buyer shall deliver a schedule (each such schedule, an “Earnout Schedule”) setting forth Business Revenue for the relevant Earnout Period, which shall include a calculation of any Earnout Payment proposed to be paid for the relevant Earnout Period, in each case derived from the information contained in the applicable Earnout Income Statement but calculated in accordance with the policiesterms of this Agreement. Concurrently with the delivery of the Earnout Income Statement and the Earnout Schedule for the applicable Earnout Period, principles and procedures set forth on Exhibit F.Buyer shall pay the amount of any Earnout Payment shown as due thereon to Seller by wire transfer of immediately available funds to an account designated in writing by Seller.
(b) Subject to the Disclosure Limitations, the Seller and its Representatives shall be permitted reasonable access to review and obtain copies Within 30 days following Seller’s receipt of the books Earnout Income Statement and records Earnout Schedule for the relevant Earnout Period, Seller shall deliver written notice to Buyer of the Business and any work papers (subject to customary access letters and confidentiality undertakings) related dispute it has with respect to the preparation or content of such Earnout Income Statement or Earnout Schedule, which notice must specify the disputed item or items and Seller’s proposed revision(s) to such Earnout Statement. The Seller and its Representatives may make reasonable inquiries of the Purchaser and its accountants regarding questions or disagreements, Income Statement and/or Earnout Schedule and the Purchaser shall, and shall use its reasonable best efforts to cause any such accountants to, cooperate reason(s) therefor. If Seller does not notify Buyer of a dispute with and respond respect to such inquiries. At the request of the Seller, and subject to the Disclosure Limitations, the Purchaser shall make available its personnel who are knowledgeable about the information contained in, and the preparation of, the Earnout Statement, to the Seller to advise and assist the Seller in its review of the Income Statement or Earnout Statement and any objections or disputes with respect thereto.
(c) Within thirty (Schedule within such 30) days after delivery of the Earnout Statement to the Seller, if the Seller has any objections to the Earnout Statement, the Seller shall deliver to the Purchaser a statement setting forth its objections thereto (an “Earnout Objections Statement”). Any Earnout Objections Statement shall specify in reasonable detail the nature of any disagreement so asserted, the proposed correct amount for each such item and the resulting Earnout Amount. If an Earnout Objections Statement is not delivered to the Purchaser within thirty (30) days after delivery of the Earnout Statement to the Seller, the Earnout Statement shall be final, binding and non-appealable by the Parties. If an Earnout Objections Statement is properly and timely delivered, the portion of the Earnout Statement not subject to dispute pursuant to the Earnout Objections Statement shall be final, binding and non-appealable by the Parties. At any time during such thirty (30) day period, the Seller may deliver a written notice to the Purchaser stating that it agrees with the such Earnout Income Statement and the Earnout Statement shall thereafter become Schedule will be deemed final, conclusive and binding on the parties. If Seller delivers a notice of dispute within such 30-day period, Buyer and non-appealable by the Parties. The Seller and the Purchaser shall negotiate in good faith to resolve any objections in such dispute. If Buyer and Seller, notwithstanding such good faith effort, fail to resolve such dispute within 30 days after Seller advises Buyer of its objections, then Buyer and Seller shall jointly engage a mutually acceptable nationally recognized independent accounting firm, other than Buyer accountant or Seller’s accountant (the Earnout Objections Statement“Arbitration Firm”), but if to resolve such dispute. As promptly as practicable thereafter, Buyer and Seller shall each prepare and submit a presentation detailing each party’s complete statement of proposed resolution of all disputed matters to the extent they do not reach a final resolution within sixty (60) days after Arbitration Firm, and the delivery Arbitration Firm can only consider those items in dispute based solely upon the presentations by Buyer and Seller. The parties shall share the expenses of the Earnout Objections StatementArbitration Firm equally. All determinations made by the Arbitration Firm will be final, conclusive and binding on the Seller and the Purchaser shall submit, within seventy five (75) days after the delivery of the Earnout Objections Statement, such dispute to the Valuation Firm for resolutionparties. The Valuation Arbitration Firm shall be instructed by have the Seller power to compel compliance with this Section 2.6, including compliance with provisions requiring access and the Purchaser to render a determination disclosure.
(c) For purposes of the applicable dispute (solely to the extent of such dispute) within thirty (30) days after submission of the matter to the Valuation Firm (or such longer period as mutually agreed in writing by the Purchaser and the Seller), which determination must be in writing and must set forth, in reasonable detail, the basis therefor, and include a certification that it reached such determination in accordance complying with the definitions as provided in this Agreement and Exhibit F. Any further submissions to the Valuation Firm must be written and delivered to each Party to the dispute. The Valuation Firm shall make a final determination of the Gross Profit, Gross Profit Margin Percentage and resulting Earnout Amount (solely to the extent such amounts or their components are in dispute) in accordance with the guidelines and procedures set forth in this Agreement and Exhibit F. The Valuation Firm shall determine, based solely on presentations by the Purchaser and the Seller and their respective Representatives, and not by independent review, only those issues in dispute specifically set forth on the Earnout Objections Statement, and shall act as an expert and not as an arbitrator. In resolving any disputed item, the Valuation Firm shall (i) be bound by the principles terms set forth in this Section 2.5 2.6, Buyer and (ii) not assign a value to any item in dispute that is greater than the greatest value for such disputed item claimed by any Party or less than the smallest value for such disputed item claimed by any Party. The Parties Seller shall reasonably cooperate with and make available to the Valuation other party and its representatives and the Arbitration Firm during (if applicable) all information, records, data and working papers, books and records reasonably required to confirm the term of its engagementBusiness Revenue, including by executing a customary engagement letter. Neither the PurchaserBuyer’s financial statements, the Seller nor any of their respective Affiliates or Representatives shall have any ex parte conversations or meetings with the Valuation Firm in connection with any dispute submitted by the Purchaser and/or the Seller to the Valuation Firm pursuant to this Section 2.5(c) without the prior consent of the other Party. The Valuation Firm’s determination of the Gross Profit, Gross Profit Margin Percentage its general ledger and the resulting Earnout Amount with respect to an Earnout Year shallinvoices, in each case as related to the Business, and will permit access to its facilities and personnel, including meeting with the appropriate senior officers of Buyer and Axsys for the purpose of understanding the computation of Business Revenue, in each case, as may be reasonably required in connection with the manner contemplated by preparation and analysis of the applicable Earnout Income Statement and Earnout Schedule and the resolution of any disputes under this Section 2.5, become final and binding on the Parties on the date the Valuation Firm delivers its final resolution in writing to the Seller and the Purchaser, absent manifest error or fraud. The costs and expenses of the Valuation Firm shall be allocated between the Purchaser, on the one hand, and the Seller, on the other hand, in the same proportion that (x) the absolute value of the difference between the value of the Earnout Amount asserted by the Purchaser and the value of the Earnout Amount determined by the Valuation Firm bears to (y) the absolute value of the difference between the value of the Earnout Amount asserted by the Seller and the value of the Earnout Amount determined by the Valuation Firm. For example, if the Seller submits an Earnout Objections Statement to the Valuation Firm that states that the Earnout Amount should be $2,000 while the Purchaser asserts in the written presentation to the Valuation Firm that the Earnout Amount should be $1,000, and the Valuation Firm ultimately resolves that the Earnout Amount should be $1,200, then the costs and expenses of the Valuation Firm will be allocated 20% to the Purchaser and 80% to the Seller2.6.
(d) Once Subject to Sections 2.6(h) and 2.6(k), if, for the First Earnout Amount for an Earnout Year has been Period, Business Revenue (as finally determined in accordance with pursuant to Section 2.5(c2.6(b)) and such Earnout Amount is not zeroexceeds $11,844,000 (the “First Period Tier One Threshold”), the Purchaser then Axsys shall no later than eight (8) Business Days following such determination, deliver pay or cause to be delivered paid to Seller the number sum of:
(i) 45% of Purchaser Shares payable as all Business Revenue for the First Earnout Period in excess of the First Period Tier One Threshold; plus
(ii) 30% of all Business Revenue for the First Earnout Period in excess of $15,777,000 (the “First Period Tier Two Threshold”); provided, however, that the Earnout Stock Consideration Payment for such the First Earnout Year, provided that if any portion Period otherwise payable hereunder shall be reduced by an amount equal to the aggregate of all sales commissions and employee bonuses on the revenue of the Earnout Amount is subject Business prior to a pending claim the Closing earned under the sales commission and non-sales employee bonus plans of the Business (the “Sales Commission Plans”) based on sales by Seller between January 1, 2007 through the Closing Date and not paid to any Transferred Employee on or prior to the Closing Date or accrued for indemnification by on the Purchaser under Section 9.1(aFinal Working Capital Statement, calculated as set forth on Schedule 2.6(d) and Section 9.4(d(“Sales Commissions”), such portion which Sales Commissions shall be paid in full, irrespective of the Earnout Amount shall only be paid eight (8) Business Days following the final resolution of such claim and only period relative to the extent Closing to which such Sales Commissions relate, by Axsys or Buyer to the applicable Transferred Employee(s) entitled thereto under the terms of the Sales Commission Plans. Buyer will not used amend or nullify in any material respect (including as to offset thresholds or amounts due) the amount required to be paid by the Seller under Section 9.1(a) with respect to such claim. For the avoidance of doubt, no payment of Purchaser Shares shall be due with respect to an Earnout Year if the Earnout Amount for such Earnout Year is zeroSales Commission Plans as set forth on Schedule 2.6(d).
(e) The Parties understand Subject to Sections 2.6(h) and agree that 2.6(k), if, for the Second Earnout Period, Business Revenue (as finally determined pursuant to Section 2.6(b)) exceeds $17,218,000 (the “Second Period Tier One Threshold”), then Axsys shall pay or cause to be paid to Seller the sum of:
(i) the contingent rights to receive an lesser of (A) 45% of all Business Revenue for the Second Earnout Amount shall not be represented by any form Period in excess of certificate or other instrument, are not transferablethe Second Period Tier One Threshold, and do not constitute an equity or ownership interest (B) 45% of the aggregate Business Revenue for the First and Second Earnout Periods in excess of the Purchaser or any sum of its Affiliatesthe First Period Tier One Threshold and the Second Period Tier One Threshold; plus
(ii) the Seller shall not have any rights as a security-holder lesser of (A) 30% of all Business Revenue for the Second Earnout Period in excess of $26,488,000 (the “Second Period Tier Two Threshold”), and (B) 30% of the Purchaser as a result aggregate Business Revenue for the First and Second Earnout Periods in excess of the Seller’s contingent right to receive any Earnout Amount; sum of the First Period Tier Two Threshold and (iii) no interest is payable with respect to any Earnout Amountthe Second Period Tier Two Threshold.
(f) Any amount paid Subject to Sections 2.6(h) and 2.6(k), if, for the Third Earnout Period, Business Revenue (as finally determined pursuant to this Section 2.5 2.6(b)) exceeds $16,208,000 (the “Third Period Tier One Threshold”), then Axsys shall pay or cause to be treated for all Tax purposes as additional consideration paid for to Seller the Company Shares pursuant to this Agreement, except sum of:
(i) the lesser of (A) 45% of all Business Revenue for any portion treated as imputed interest the Third Earnout Period in excess of the Third Period Tier One Threshold and (B) 45% of the aggregate Business Revenue for the First, Second and Third Earnout Periods in excess of the sum of the First Period Tier One Threshold, the Second Period Tier One Threshold and the Third Period Tier One Threshold; plus
(ii) to the extent otherwise required pursuant to a lesser of (A) 30% of all Business Revenue for the Third Earnout Period in excess of $33,816,000 (the “determination” within the meaning of Section 1313(aThird Period Tier Two Threshold”) and (B) 30% of the Code (or any similar provisions aggregate Business Revenue for the First, Second and Third Earnout Periods in excess of statethe sum of the First Period Tier Two Threshold, local or foreign Law)the Second Period Tier Two Threshold and the Third Period Tier Two Threshold.
(g) Subsequent Subject to the Closing Sections 2.6(h) and until the end of FY 20282.6(k), the Purchaser shall use its commercially reasonable efforts to maintain and preserve in all material respects the material third-party customer relationships and material Intellectual Property of the Business existing as of the Closing Date (other than expiration of registered Intellectual Property in accordance with their terms). Without limiting the foregoingif, (x) during the period from the Closing Date through the final determination of the Earnout Amount for FY 2028, the Purchaser shall maintain the records of the Business in a manner permitting preparation of the Earnout Statements and the Quarterly Gross Profit Statements accurately in all material respects in order to allow for the good faith calculation of Fourth Earnout Period, Business Revenue (as finally determined pursuant to Section 2.6(b)) exceeds $4,430,000 (the Earnout Amount and its components“Fourth Period Tier One Threshold”), including by following then Axsys shall pay or cause to be paid to Seller the policies, principles and procedures set forth on Exhibit F; (y) during the period from the Closing Date through the end of FY 2028, the Purchaser shall (i) not take any action in bad faith, the primary intent or primary purpose of which is to avoid or reduce the amount of any Earnout Amount, including in bad faith accelerating or delaying the shipping of Specified Products or recognition of any revenues of the Business from one Earnout Year to another or following the end of the last Earnout Year; and (ii) use commercially reasonable efforts to provide reasonably adequate staffing and working capital for the conduct of the Business; and (z) during the period from the Closing Date through the earlier of sum of:
(i) the payment lesser of (A) 45% of all Business Revenue for the Fourth Earnout Period in excess of the Fourth Period Tier One Threshold and (B) 45% of the aggregate Business Revenue for the Total Earnout Amount for FY 2028 or Period in excess of the sum of the First Period Tier One Threshold, the Second Period One Threshold, the Third Period Tier One Threshold and the Fourth Period Tier One Threshold; plus
(ii) the final determination that no lesser of (A) 30% of all Business Revenue for the Fourth Earnout Amount is payable Period in excess of $10,159,000 (the “Fourth Period Tier Two Threshold”) and (B) 30% of the aggregate Business Revenue for FY 2028the Total Earnout Period in excess of the sum of the First Period Tier Two Threshold, the Purchaser shall not enter into (or permit any Subsidiary of Second Period Tier Two Threshold, the Purchaser to enter into) any agreement or arrangement that would prevent Third Period Tier Two Threshold and the Purchaser from paying the Earnout Amount in accordance with this AgreementFourth Period Tier Two Threshold.
(h) The Purchaser Notwithstanding anything herein to the contrary, in no event shall deliver the aggregate Earnout Payments paid, or cause caused to be paid, by Axsys to be delivered Seller pursuant to this Section 2.6 exceed a maximum amount equal to $42,500,000 minus the Seller, within forty-five (45) days after the end aggregate amount of each fiscal quarter of an Earnout Year (other than the last fiscal quarter of such Earnout Yearany Sales Commissions actually paid pursuant to Section 2.6(d), a statement (the “Quarterly Gross Profit Statement”) setting forth the Purchaser’s calculation of Gross Profit for such fiscal quarter in reasonable detail, and, subject to the Disclosure Limitations, the Purchaser agrees to promptly provide such supporting documentation as the Seller may reasonably request to review the Purchaser’s calculation of the Gross Profit for such quarter.
(i) Any information provided payments due to or obtained by Seller under the Seller pursuant to foregoing provisions of this Section 2.5 shall be deemed 2.6 not paid upon delivery of the applicable Earnout Income Statement and Earnout Schedule under Section 2.6(a) are to be Confidential Informationmade within five Business Days of the final determination of Business Revenue in accordance with Section 2.6(b) by wire transfer of immediately available funds to an account designated in writing by Seller to Buyer at least two Business Days prior to the date payment is required to be made to Seller hereunder.
(j) The fiscal years Each member of Seller Group acknowledges that, effective as of the Closing, Buyer owns and controls the Business for any Earnout Year and any fiscal quarter the Acquired Assets, and that Buyer may operate the Business and the Acquired Assets in such manner as it determines in its sole discretion to be in its best interests. Without limiting the generality of the foregoing, from and after the Closing, Seller Group agrees and acknowledges that, for each Earnout Period, Buyer shall not be obligated to expend more than 5% of Business for any Earnout Year shall be based Revenue on sales and marketing expenses relating to the 4-4-5 accounting calendar that is used by the Purchaser, including as specified in the definitions of FY 2027 and FY 2028Business.
(k) In the event that, prior to the end of the Third Earnout Period, Buyer or its Affiliate acquires another company or business and combines such other company or business with the Business, then each of the First Period Tier One Threshold, the First Period Tier Two Threshold, the Second Period Tier One Threshold, the Second Period Tier Two Threshold, the Third Period Tier One Threshold, the Third Period Tier Two Threshold, the Fourth Period Tier One Threshold and the Fourth Period Tier Two Threshold shall, as of the effective date of such acquisition, be increased by an amount equal to the actual Business Revenue of such acquired company or business for the trailing twelve-month period immediately preceding the effective date of such acquisition (prorated as necessary and appropriate for a partial Earnout Period), and, for purposes of this Section 2.6, Seller agrees shall be credited with all revenue generated by such acquired company or business that constitutes Business Revenue.
(l) If, prior to distribute the net proceeds end of the Fourth Earnout Period, Buyer sells the Business or any material portion thereof to a Person that is not an Affiliate of Axsys (i) 100% other than in ordinary course transactions involving sales of any Earnout Amount inventory or the replacement of equipment and other tangible personal property used in respect of FY 2027 (including the 2027 Catch-Up AmountBusiness), then Axsys shall pay or cause to be paid to Seller a liquidated amount, if any) , in complete discharge of Axsys’ obligations under this Section 2.6 and under Section 2.7, equal to its members in accordance with the distribution provisions in the Seller’s Organizational Documents and sum of: (iii) 50% of the net proceeds realized by Buyer upon such sale in excess of (A) any Earnout Amount amounts paid by or caused to be paid by Axsys to Seller in respect connection with the acquisition of FY 2028 the Business and after the Closing pursuant to this Article 2, (excludingB) any amounts paid by or caused to be paid by Axsys or any of its Affiliates in connection with the consummation of any acquisition contemplated by Section 2.6(k), (C) any amounts paid by Buyer or any of its Affiliates for avoidance capital expenditures for the benefit of doubt, the 2027 Catch-Up Amount, if any) to The Resolute Fund IV, L.P. Business between the Closing and the other 50consummation of such sale, and (D) any Sales Commissions, subject to a maximum payment under this clause (i) of $42,500,000; plus (ii) 5% of any Earnout Amount in respect of FY 2028 net proceeds (excluding, for avoidance of doubt, the 2027 Catch-Up Amount, if any) to Business Employee Equityholders, in each case of this as calculated under clause (iii)) in excess of $85,000,000. Notwithstanding anything to the contrary contained herein, except to the extent provided in this Section 2.6(l), Buyer shall have no further obligation under this Section 2.6 or under Section 2.7 from and after the consummation of any such sale of the Business or material portion thereof other than earnout obligations accrued prior to such sale but unpaid.
(m) Upon written notice to Buyer, Seller may designate Helinet and ▇▇▇▇ ▇▇▇▇▇ to be the direct recipients of any payments otherwise owed by Buyer or Axsys to Seller under this Section 2.6 or Section 2.7, with Helinet being entitled to 75% of the aggregate amount of any such payments and ▇▇▇▇ ▇▇▇▇▇ being entitled to 25% of the aggregate amount of any such payments. If Buyer or Axsys makes payment to Helinet and/or ▇▇▇▇ ▇▇▇▇▇ in accordance with the distribution provisions in the such written notice from Seller, such payment shall fully discharge Buyer’s Organizational Documents. For purposes and Axsys’s obligations under this Section 2.6 and/or Section 2.7 to make such payment to Seller, and neither Buyer nor Axsys shall have any further liability to any member of the prior sentence, “Seller’s Organizational Documents” means Seller’s Organizational Documents as of the date of this Agreement, as they may be amended to implement the Earnout Arrangement in accordance Seller Group with the terms of this Agreement and the terms set forth in Exhibit H.respect thereto.
Appears in 1 contract
Earnout. (a) Within forty-five (45) days after As additional consideration for the end of an Earnout Year, the Purchaser shall deliver to the Seller a statement (the “Earnout Statement”), together with reasonable supporting detail, showing the Purchaser’s good faith calculation for such Earnout Year of the (i) Gross Profit, (ii) Gross Profit Margin Percentage and (iii) resulting Earnout Amount. The Gross Profit and Gross Profit Margin Percentage shall be calculated in accordance with the policies, principles and procedures set forth on Exhibit F.
(b) Subject to the Disclosure Limitations, the Seller and its Representatives shall be permitted reasonable access to review and obtain copies of the books and records of the Business and any work papers (subject to customary access letters and confidentiality undertakings) related to the preparation of the Earnout Statement. The Seller and its Representatives may make reasonable inquiries of the Purchaser and its accountants regarding questions or disagreements, and the Purchaser shall, and shall use its reasonable best efforts to cause any such accountants to, cooperate with and respond to such inquiries. At the request of the SellerCompany Stock, and subject to the Disclosure Limitationsterms and conditions set forth in this Agreement, Buyer will make additional payments not to exceed $20,000,000 in the aggregate to the Sellers in accordance with Exhibit B if, and to the extent, the Purchaser shall make available its personnel who are knowledgeable about Company achieves certain operational and financial performance targets set forth in Exhibit E (the information contained in"Earnout Targets") during one or more of the fiscal years commencing January 1, 2014, January 1, 2015, January 1, 2016 and January 1, 2017 (each, an "Earnout Period") (each such payment, an "Earnout Payment" and, in the preparation ofaggregate, the "Earnout"). Sellers will be entitled to pro-rated Earnout Statement, to the Seller to advise and assist the Seller in its review Payments for partial achievements of the Earnout Statement Targets, as described in Exhibit ▇. ▇▇▇▇▇▇▇ will be eligible to receive up to $6,000,000 for the 2014 Earnout Period, up to $6,000,000 for the 2015 Earnout Period, and up to $8,000,000 in the aggregate for the 2016 Earnout Period and the 2017 Earnout Period. Sellers will be entitled to Earnout Payments, or the portions thereof, not earned during a prior applicable Earnout Period if the maximum Earnout Target is achieved in the 2016 or 2017 Earnout Period. For the avoidance of doubt, in no event will the Earnout payable under this Section 1.03 exceed $20,000,000 in the aggregate.
(b) Any proper indemnification claim by any Buyer Indemnitee for breach of any of the Special Representations or Fundamental Representations and any objections breach by a Restricted Party of his or disputes with respect theretoher obligations under Section 6.04 may be satisfied by deducting and otherwise offsetting such claims against any amounts that are otherwise payable by Buyer pursuant to this Section 1.03, subject to the limitations set forth in Article 5.
(c) The continued employment by Buyer or any of its Affiliates of either ▇▇▇▇▇ ▇▇▇▇▇▇ or ▇▇▇▇▇ ▇▇▇▇▇▇ will not be a condition precedent to payment of the Earnout or any Earnout Payment. Notwithstanding anything to the contrary in this Agreement, a Seller's right to receive his, her or its respective portion of the Earnout or any Earnout Payment, if achieved, will terminate with respect to any portion of the Earnout or any Earnout Payment that has not yet been earned at such time upon (i) the breach by such Seller of any of his covenants or agreements contained in Section 6.04, or (ii) the termination of such Seller's employment with Buyer or any of its Affiliates following (A) such Seller’s conviction of, or a plea of guilty or no contest by such Seller in relation to, one or more felony criminal charges under the laws of the United States or any state thereof involving punishment of at least sixty (60) days of imprisonment or other confinement; or (B) material breach by such Seller of any fiduciary duty owed to the Buyer or any Affiliate. It is understood that Buyer may withhold any Earnout Payment that would otherwise be due under this Section 1.03 only after notification of the applicable Seller of its good faith belief that such Seller has violated clause (i) or clause (ii)(B) above, and Buyer may continue to withhold payment for more than ninety (90) days only if an action in a court of competent jurisdiction (or, with the consent of the applicable Seller, an arbitration or mediation proceeding) has been initiated to determine whether such Seller has in fact breached such clause(s) (it being irrelevant for this purpose whether the terms of Section 6.04 are actually enforceable under applicable law). The termination of a Seller's right to receive Earnout Payments based on a breach of clause (i) or (ii)(B) above will become effective only upon a finally determined, non-appealable decision by a court of competent jurisdiction (or, with the consent of the applicable Seller, an arbitration or mediation proceeding).
(d) Within thirty (30) days after delivery Buyer's receipt of Buyer's audited consolidated financial statements for the fiscal year corresponding to each Earnout Period, Buyer will prepare, or cause to be prepared, a statement of the Earnout Payment for the applicable Earnout Period (the "Earnout Statement") and will deliver the Earnout Statement to Sellers' Representative.
(e) For each Earnout Period, following receipt by Sellers' Representative of Buyer's proposed Earnout Statement and until the SellerEarnout Payment is finally determined pursuant to this Section 1.03, if Sellers' Representative will be permitted (upon reasonable advance written notice and during normal business hours) to review the Seller has any objections Company's books and records and working papers related to Buyer's draft of the proposed Earnout Statement and determination of the Earnout Payment, and Buyer will provide Sellers' Representative with reasonable access to the Company's personnel, books and records, and facilities in connection with such review. The proposed Earnout Statement, Statement delivered by Buyer will become final and binding on the Seller shall deliver to the Purchaser a statement setting forth its objections thereto (an “Earnout Objections Statement”). Any Earnout Objections Statement shall specify in reasonable detail the nature of any disagreement so asserted, the proposed correct amount for each such item and the resulting Earnout Amount. If an Earnout Objections Statement is not delivered to the Purchaser within parties thirty (30) days after following Buyer's delivery of the Earnout Statement thereof to Sellers' Representative except to the Seller, extent (and only to the extent) Sellers' Representative delivers written notice of its disagreement (the "Earnout Statement shall be final, binding and non-appealable by the PartiesPayment Notice of Disagreement") to Buyer on or prior to such date. If an Earnout Objections Statement is properly and timely delivered, the portion of the Earnout Statement All matters not subject to dispute pursuant as specifically identified in the Earnout Payment Notice of Disagreement will be final and binding. The Earnout Payment Notice of Disagreement must identify with specificity each item in the Earnout Statement that the Sellers' Representative disagrees with and, for each disputed item, contain a statement describing in reasonable detail the basis of such objection and the amount in dispute. If Sellers' Representative timely delivers an Earnout Payment Notice of Disagreement, then the Earnout Statement will become final and binding on the parties to this Agreement on the earlier of (i) the date Buyer and Sellers' Representative resolve in writing any differences they have with respect to the matters specified in the Earnout Objections Statement shall be finalPayment Notice of Disagreement, binding and non-appealable (ii) the date all matters in dispute are finally resolved in writing by the PartiesIndependent Accountants.
(f) During the thirty (30) days following delivery of an Earnout Payment Notice of Disagreement, Buyer and Sellers' Representative will seek in good faith to resolve in writing any differences that they may have with respect to the matters specified in the Earnout Payment Notice of Disagreement. At any time during the end of such thirty (30) day period, the Seller may deliver a written notice Buyer and Sellers' Representative will submit to the Purchaser stating Independent Accountants for resolution all matters that it agrees with the Earnout Statement and the Earnout Statement shall thereafter become finalremain in dispute, binding and non-appealable by the Parties. The Seller and the Purchaser shall negotiate in good faith to resolve any objections which were included in the Earnout Objections StatementPayment Notice of Disagreement (and will take all actions reasonably requested by the Independent Accountants in connection with such resolution, but if and including submitting written claims to the extent they do not reach Independent Accountants if so requested), and the Independent Accountants will make a final resolution within sixty (60) days after the delivery determination of the Earnout Objections Statement, Payment in accordance with the Seller terms of this Agreement (with it being understood that Buyer and the Purchaser shall submit, within seventy five (75) days after Sellers' Representative will request that the delivery of the Earnout Objections Statement, such dispute Independent Accountants deliver to the Valuation Firm for resolution. The Valuation Firm shall be instructed by the Seller Buyer and the Purchaser to render a determination of the applicable dispute (solely to the extent of such dispute) within Sellers' Representative its resolution in writing not more than thirty (30) days after submission its engagement). The Independent Accountants will make a determination only with respect to the matters still in dispute and, with respect to each such matter, their determination will be within the range of the matter to the Valuation Firm (or such longer period as mutually agreed in writing by the Purchaser dispute between Buyer and the Seller), which determination must be in writing and must set forth, in reasonable detail, the basis therefor, and include a certification that it reached such determination in accordance with the definitions as provided in this Agreement and Exhibit F. Any further submissions to the Valuation Firm must be written and delivered to each Party to the disputeSellers' Representative. The Valuation Firm shall make a final Independent Accountants' determination of will be based solely on written materials submitted by Buyer and Sellers' Representative (i.e., not on independent review) and on the Gross Profit, Gross Profit Margin Percentage and resulting Earnout Amount (solely to the extent such amounts or their components are in dispute) in accordance with the guidelines and procedures Targets set forth in this Agreement Exhibit E and Exhibit F. The Valuation Firm shall determine, based solely on presentations by the Purchaser related definitions included herein and the Seller and their respective Representatives, and not by independent review, only those issues in dispute specifically set forth on the Earnout Objections Statement, and shall act as an expert and not as an arbitrator. In resolving any disputed item, the Valuation Firm shall provisions of this Agreement.
(ig) be bound by the principles set forth in this Section 2.5 and (ii) not assign a value to any item in dispute that is greater than the greatest value for such disputed item claimed by any Party or less than the smallest value for such disputed item claimed by any Party. The Parties shall reasonably cooperate with the Valuation Firm during the term of its engagement, including by executing a customary engagement letter. Neither the Purchaser, the Seller nor any of their respective Affiliates or Representatives shall have any ex parte conversations or meetings with the Valuation Firm in connection with any dispute submitted by the Purchaser and/or the Seller to the Valuation Firm pursuant to this Section 2.5(c) without the prior consent of the other Party. The Valuation Firm’s determination of the Gross Profit, Gross Profit Margin Percentage and the resulting Earnout Amount with respect to an Earnout Year shall, in each case in the manner contemplated by this Section 2.5, become final and binding on the Parties on the date the Valuation Firm delivers its final resolution in writing to the Seller and the Purchaser, absent manifest error or fraud. The costs and expenses of the Valuation Firm shall Independent Accountants will be allocated between Buyer and Sellers’ Representative based upon the Purchaser, on the one hand, and the Seller, on the other hand, in the same proportion that (x) the absolute value percentage of the difference between the value portion of the Earnout Amount asserted by the Purchaser and the value of the Earnout Amount determined by the Valuation Firm contested amount not awarded to Buyer or Sellers bears to (y) the absolute value of the difference between the value of the Earnout Amount asserted amount actually contested by the Seller and the value of the Earnout Amount determined by the Valuation Firmsuch party. For example, if the Seller submits an Earnout Objections Statement to the Valuation Firm that states that Sellers' Representative claims the Earnout Amount should be Payment is $2,000 while 1,000 greater than the Purchaser asserts in the written presentation to the Valuation Firm that the Earnout Amount should be $1,000amount claimed by Buyer, and Buyer contests only $500 of the Valuation Firm amount claimed by Sellers' Representative, and if the Independent Accountants ultimately resolves that the Earnout Amount should be dispute by awarding Sellers $1,200300 of the $500 contested, then the costs and expenses of the Valuation Firm Independent Accountants will be allocated 2060% to the Purchaser and 80% to the Seller.
(d) Once the Earnout Amount for an Earnout Year has been finally determined in accordance with Section 2.5(c) and such Earnout Amount is not zeroi.e., the Purchaser shall no later than eight (8) Business Days following such determination, deliver or cause to be delivered to Seller the number of Purchaser Shares payable as the Earnout Stock Consideration for such Earnout Year, provided that if any portion of the Earnout Amount is subject to a pending claim for indemnification by the Purchaser under Section 9.1(a) and Section 9.4(d), such portion of the Earnout Amount shall only be paid eight (8) Business Days following the final resolution of such claim and only to the extent not used to offset the amount required to be paid by the Seller under Section 9.1(a) with respect to such claim. For the avoidance of doubt, no payment of Purchaser Shares shall be due with respect to an Earnout Year if the Earnout Amount for such Earnout Year is zero.
(e) The Parties understand and agree that (i) the contingent rights to receive an Earnout Amount shall not be represented by any form of certificate or other instrument, are not transferable, and do not constitute an equity or ownership interest in the Purchaser or any of its Affiliates; (ii) the Seller shall not have any rights as a security-holder of the Purchaser as a result of the Seller’s contingent right to receive any Earnout Amount; and (iii) no interest is payable with respect to any Earnout Amount.
(f) Any amount paid pursuant to this Section 2.5 shall be treated for all Tax purposes as additional consideration paid for the Company Shares pursuant to this Agreement, except (i) for any portion treated as imputed interest and (ii300 ÷ 500) to the extent otherwise required pursuant Buyer and 40% (i.e., 200 ÷ 500) to a “determination” within the meaning of Section 1313(a) of the Code (or any similar provisions of state, local or foreign Law).
(g) Subsequent to the Closing and until the end of FY 2028, the Purchaser shall use its commercially reasonable efforts to maintain and preserve in all material respects the material third-party customer relationships and material Intellectual Property of the Business existing as of the Closing Date (other than expiration of registered Intellectual Property in accordance with their terms). Without limiting the foregoing, (x) during the period from the Closing Date through the final determination of the Earnout Amount for FY 2028, the Purchaser shall maintain the records of the Business in a manner permitting preparation of the Earnout Statements and the Quarterly Gross Profit Statements accurately in all material respects in order to allow for the good faith calculation of the Earnout Amount and its components, including by following the policies, principles and procedures set forth on Exhibit F; (y) during the period from the Closing Date through the end of FY 2028, the Purchaser shall (i) not take any action in bad faith, the primary intent or primary purpose of which is to avoid or reduce the amount of any Earnout Amount, including in bad faith accelerating or delaying the shipping of Specified Products or recognition of any revenues of the Business from one Earnout Year to another or following the end of the last Earnout Year; and (ii) use commercially reasonable efforts to provide reasonably adequate staffing and working capital for the conduct of the Business; and (z) during the period from the Closing Date through the earlier of (i) the payment of the Earnout Amount for FY 2028 or (ii) the final determination that no Earnout Amount is payable for FY 2028, the Purchaser shall not enter into (or permit any Subsidiary of the Purchaser to enter into) any agreement or arrangement that would prevent the Purchaser from paying the Earnout Amount in accordance with this AgreementSellers’ Representative.
(h) The Purchaser shall deliver Within three (3) Business Days after the date on which the Earnout Statement will become binding on the parties, Buyer will pay to Sellers, or cause the Company to be pay to be delivered Sellers, by wire transfer of immediately available funds to the Selleraccounts designated by Sellers in Exhibit B in accordance with the allocation among the Sellers set forth in Exhibit B, within forty-five (45) days after the end of each fiscal quarter of an Earnout Year (other than the last fiscal quarter of such Earnout Year), a statement (the “Quarterly Gross Profit Statement”) setting forth the Purchaser’s calculation of Gross Profit for such fiscal quarter in reasonable detail, and, subject amount equal to the Disclosure Limitations, the Purchaser agrees to promptly provide such supporting documentation as the Seller may reasonably request to review the Purchaser’s calculation of the Gross Profit for such quarterapplicable Earnout Payment.
(i) Any information provided In the event of a Change in Control prior to December 31, 2017, within five (5) Business Days following the effectiveness of the event constituting such Change in Control, Buyer will pay or obtained by the Seller pursuant to this Section 2.5 shall be deemed cause to be Confidential Informationpaid by wire transfer of immediately available funds to the accounts designated by Sellers in Exhibit B, in accordance with the allocation among the Sellers set forth in Exhibit B, an amount equal to $20,000,000 less all previous amounts paid under the Earnout.
(j) The fiscal years In furtherance of the Business for covenants and agreements set forth in this Section 1.03, unless otherwise mutually agreed in writing by Buyer and Sellers’ Representative, Buyer will not, and will cause the Company not to, take any action intended to prevent or inhibit the achievement of any Earnout Year and any fiscal quarter of the Business for any Earnout Year shall be based on the 4-4-5 accounting calendar that is used by the Purchaser, including as specified in the definitions of FY 2027 and FY 2028Payment.
(k) Seller agrees All payments made pursuant to distribute this Section 1.03 will be deemed to be adjustments for Tax purposes to the net proceeds of (i) 100% of any Earnout Amount in respect of FY 2027 (including aggregate purchase price paid by Buyer for the 2027 Catch-Up Amount, if any) to its members in accordance with the distribution provisions in the Seller’s Organizational Documents and (ii) 50% of any Earnout Amount in respect of FY 2028 (excluding, for avoidance of doubt, the 2027 Catch-Up Amount, if any) to The Resolute Fund IV, L.P. and the other 50% of any Earnout Amount in respect of FY 2028 (excluding, for avoidance of doubt, the 2027 Catch-Up Amount, if any) to Business Employee Equityholders, in each case of this clause (ii), in accordance with the distribution provisions in the Seller’s Organizational Documents. For purposes of the prior sentence, “Seller’s Organizational Documents” means Seller’s Organizational Documents as of the date of this Agreement, as they may be amended to implement the Earnout Arrangement in accordance with the terms of this Agreement and the terms set forth in Exhibit H.Company Stock.
Appears in 1 contract
Earnout. (a) Within forty-five (45) days after the end of an Earnout Year, the Purchaser The Buyer shall prepare and deliver to the Seller a statement (the “Earnout Statement”), together with reasonable supporting detail, showing the Purchaser’s good faith calculation for such Earnout Year of the (i) Gross Profit, (ii) Gross Profit Margin Percentage and (iii) resulting Earnout Amount. The Gross Profit and Gross Profit Margin Percentage shall be calculated in accordance with the policies, principles and procedures set forth on Exhibit F.
(b) Subject to the Disclosure Limitations, the Seller and its Representatives shall be permitted reasonable access to review and obtain copies of the books and records of the Business and any work papers (subject to customary access letters and confidentiality undertakings) related to the preparation of the Earnout Statement. The Seller and its Representatives may make reasonable inquiries of the Purchaser and its accountants regarding questions or disagreements, and the Purchaser shall, and shall use its reasonable best efforts to cause any such accountants to, cooperate with and respond to such inquiries. At the request of the Seller, and subject to the Disclosure Limitations, the Purchaser shall make available its personnel who are knowledgeable about the information contained in, and the preparation of, the Earnout Statement, to the Seller to advise and assist the Seller in its review of the Earnout Statement and any objections or disputes with respect thereto.
(c) Within thirty (30) days after delivery of the Earnout Statement to the Seller, if Representative no later than the Seller has any objections Earnout Statement Date.
(b) On or prior to the thirtieth (30th) day following the Buyer’s delivery of the Earnout Statement, the Seller shall deliver to Representative may give the Purchaser a statement setting forth its objections thereto (Buyer an “Earnout Objections Statement”)Objection Notice. Any Earnout Objections Statement Objection Notice shall specify in reasonable detail the nature dollar amount of any disagreement so asserted, the proposed correct amount for each such item objection and the resulting basis therefor. Any determination set forth on the Earnout Amount. If an Earnout Objections Statement which is not delivered specifically objected to in the Purchaser within thirty (30) days after Objection Notice shall be deemed acceptable and shall be final and binding upon the parties upon delivery of the Earnout Statement to Objection Notice. If the SellerRepresentative does not give the Buyer an Objection Notice within such 30-day period, then the Earnout Statement shall will be final, conclusive and binding upon the parties and non-appealable by the Parties. If an Earnout Objections Statement is properly and timely delivered, the portion calculation of the Earnout Statement not subject to dispute pursuant to Payment, if any, set forth in the Earnout Objections Statement shall will be final, final and binding and nonupon the parties for purposes of calculating the Earnout Payment under this Agreement. During such 30-appealable by the Parties. At any time during such thirty (30) day period, the Seller may deliver a written notice Buyer shall provide the Representative with reasonable access to the Purchaser stating that it agrees with the Earnout Statement relevant Books and Records and the Earnout Statement shall thereafter become finalGroup’s accounting personnel during normal business hours and upon reasonable notice.
(c) Following the Buyer’s receipt of any Objection Notice, binding and non-appealable by the Parties. The Seller Buyer and the Purchaser Representative shall negotiate in good faith to resolve such dispute. In the event that the Representative and the Buyer fail to agree on any of the Representative’s objections set forth in the Earnout Objections Statement, but if and to the extent they do not reach a final resolution Objection Notice within sixty (60) 30 days after the delivery Buyer receives the Objection Notice, the Representative and the Buyer shall engage the Independent Auditor to resolve any items remaining in dispute (the “EO Disputed Items”). The Independent Auditor shall within the 30-day period immediately following referral of the Earnout Objections Statement, the Seller and the Purchaser shall submit, within seventy five (75) days after the delivery of the Earnout Objections Statement, such dispute to the Valuation Firm for resolution. The Valuation Firm shall be instructed by the Seller and the Purchaser to render a determination of the applicable dispute (solely to the extent of such dispute) within thirty (30) days after submission of the matter to the Valuation Firm (or such longer period as mutually agreed in writing by the Purchaser and the Seller), which determination must be in writing and must set forth, in reasonable detail, the basis therefor, and include a certification that it reached such determination in accordance with the definitions as provided in this Agreement and Exhibit F. Any further submissions to the Valuation Firm must be written and delivered to each Party to the dispute. The Valuation Firm shall make a final determination of the Gross Profit, Gross Profit Margin Percentage and resulting Earnout Amount (solely to the extent such amounts or their components are in dispute) in accordance with the guidelines and procedures set forth in this Agreement and Exhibit F. The Valuation Firm shall determine, based solely on presentations by the Purchaser and the Seller and their respective Representatives, and not by independent review, only those issues in dispute specifically set forth on the Earnout Objections Statement, and shall act as an expert and not as an arbitrator. In resolving any disputed item, the Valuation Firm shall (i) be bound by the principles set forth in this Section 2.5 and (ii) not assign a value to any item in dispute that is greater than the greatest value for such disputed item claimed by any Party or less than the smallest value for such disputed item claimed by any Party. The Parties shall reasonably cooperate with the Valuation Firm during the term of its engagement, including by executing a customary engagement letter. Neither the Purchaser, the Seller nor any of their respective Affiliates or Representatives shall have any ex parte conversations or meetings with the Valuation Firm in connection with any dispute submitted by the Purchaser and/or the Seller to the Valuation Firm pursuant to this Section 2.5(c) without the prior consent of the other Party. The Valuation Firm’s determination of the Gross Profit, Gross Profit Margin Percentage and the resulting Earnout Amount with respect to an Earnout Year shall, in each case in the manner contemplated by this Section 2.5, become final and binding on the Parties on the date the Valuation Firm delivers its final resolution in writing to the Seller and the Purchaser, absent manifest error or fraud. The costs and expenses of the Valuation Firm shall be allocated between the Purchaser, on the one hand, and the Seller, on the other hand, in the same proportion that (x) the absolute value of the difference between the value of the Earnout Amount asserted by the Purchaser and the value of the Earnout Amount determined by the Valuation Firm bears to (y) the absolute value of the difference between the value of the Earnout Amount asserted by the Seller and the value of the Earnout Amount determined by the Valuation Firm. For example, if the Seller submits an Earnout Objections Statement to the Valuation Firm that states that the Earnout Amount should be $2,000 while the Purchaser asserts in the written presentation to the Valuation Firm that the Earnout Amount should be $1,000Independent Auditor, and the Valuation Firm ultimately resolves that the Earnout Amount should be $1,200, then the costs and expenses of the Valuation Firm will be allocated 20% to the Purchaser and 80% to the Seller.
(d) Once the Earnout Amount for an Earnout Year has been finally determined in accordance with Section 2.5(c) and such Earnout Amount is not zero, the Purchaser shall no later than eight (8) Business Days following such determination, deliver or cause to be delivered to Seller the number of Purchaser Shares payable as the Earnout Stock Consideration for such Earnout Year, provided that if any portion of the Earnout Amount is subject to a pending claim for indemnification by the Purchaser under Section 9.1(a) and Section 9.4(d), such portion of the Earnout Amount shall only be paid eight (8) Business Days following the final resolution of such claim and only to the extent not used to offset the amount required to be paid by the Seller under Section 9.1(a) with respect to such claim. For the avoidance of doubt, no payment of Purchaser Shares shall be due with respect to an Earnout Year if the Earnout Amount for such Earnout Year is zero.
(e) The Parties understand and agree that (i) the contingent rights to receive an Earnout Amount shall not be represented by any form of certificate or other instrument, are not transferable, and do not constitute an equity or ownership interest in the Purchaser or any of its Affiliates; (ii) the Seller shall not have any rights as a security-holder of the Purchaser as a result of the Seller’s contingent right to receive any Earnout Amount; and (iii) no interest is payable with respect to any Earnout Amount.
(f) Any amount paid pursuant to this Section 2.5 shall be treated for all Tax purposes as additional consideration paid for the Company Shares pursuant to this Agreement, except (i) for any portion treated as imputed interest and (ii) to the extent otherwise required pursuant to a “determination” within the meaning of Section 1313(a) of the Code (or any similar provisions of state, local or foreign Law).
(g) Subsequent to the Closing and until the end of FY 2028, the Purchaser shall use its commercially reasonable efforts to maintain and preserve in all material respects the material third-party customer relationships and material Intellectual Property of the Business existing as of the Closing Date (other than expiration of registered Intellectual Property in accordance with their terms). Without limiting the foregoing, (x) during the period from the Closing Date through make the final determination of the Earnout Amount for FY 2028, the Purchaser shall maintain the records of the Business in a manner permitting preparation of the Earnout Statements EO Disputed Items and the Quarterly Gross Profit Statements accurately in all material respects in order to allow for the good faith calculation of the resulting Earnout Amount and its components, including by following the policies, principles and procedures set forth on Exhibit F; (y) during the period from the Closing Date through the end of FY 2028, the Purchaser shall (i) not take any action in bad faith, the primary intent or primary purpose of which is to avoid or reduce the amount of any Earnout Amount, including in bad faith accelerating or delaying the shipping of Specified Products or recognition of any revenues of the Business from one Earnout Year to another or following the end of the last Earnout Year; and (ii) use commercially reasonable efforts to provide reasonably adequate staffing and working capital for the conduct of the Business; and (z) during the period from the Closing Date through the earlier of (i) the payment of the Earnout Amount for FY 2028 or (ii) the final determination that no Earnout Amount is payable for FY 2028, the Purchaser shall not enter into (or permit any Subsidiary of the Purchaser to enter into) any agreement or arrangement that would prevent the Purchaser from paying the Earnout Amount in accordance with this Agreement.
(h) The Purchaser shall deliver or cause to be to be delivered to the Seller, within forty-five (45) days after the end of each fiscal quarter of an Earnout Year (other than the last fiscal quarter of such Earnout Year), a statement (the “Quarterly Gross Profit Statement”) setting forth the Purchaser’s calculation of Gross Profit for such fiscal quarter in reasonable detail, and, subject to the Disclosure Limitations, the Purchaser agrees to promptly provide such supporting documentation as the Seller may reasonably request to review the Purchaser’s calculation of the Gross Profit for such quarter.
(i) Any information provided to or obtained by the Seller pursuant to this Section 2.5 shall be deemed to be Confidential Information.
(j) The fiscal years of the Business for any Earnout Year and any fiscal quarter of the Business for any Earnout Year shall be based on the 4-4-5 accounting calendar that is used by the Purchaser, including as specified in the definitions of FY 2027 and FY 2028.
(k) Seller agrees to distribute the net proceeds of (i) 100% of any Earnout Amount in respect of FY 2027 (including the 2027 Catch-Up Amount, if any) to its members in accordance with the distribution provisions in the Seller’s Organizational Documents and (ii) 50% of any Earnout Amount in respect of FY 2028 (excluding, for avoidance of doubt, the 2027 Catch-Up Amount, if any) to The Resolute Fund IV, L.P. and the other 50% of any Earnout Amount in respect of FY 2028 (excluding, for avoidance of doubt, the 2027 Catch-Up Amount, if any) to Business Employee Equityholders, in each case of this clause (ii), in accordance with the distribution provisions in the Seller’s Organizational Documents. For purposes of the prior sentence, “Seller’s Organizational Documents” means Seller’s Organizational Documents as of the date of this Agreement, as they may be amended to implement the Earnout Arrangement Payment in accordance with the terms of this Agreement. The Buyer and the Representative each shall provide the Independent Auditor with their respective determinations of the EO Disputed Items and the resulting Earnout Payment; provided, that such determinations may not differ to the detriment of the other party from the Earnout Statement delivered pursuant to Section 2.4(a) or the Objection Notice, as applicable. The Independent Auditor shall make an independent determination of the EO Disputed Items and resulting Earnout Payment that, assuming compliance with the previous clause, shall be within the range proposed by the Buyer and the Representative, respectively, and shall be final and binding on the Sellers, the Representative and the Buyer if such independent determination is within the range proposed by the Buyer; provided that the Independent Auditor shall in no event modify any components or calculations of the Earnout Statement that are not EO Disputed Items. The fees, costs and expenses of the Independent Auditor shall be paid by the party whose Earnout Payment was different by the greater amount from that of the Independent Auditor.
(d) Promptly after the Earnout Payment is determined and becomes final and binding on the parties under this Section 2.4, the Purchase Price shall be recalculated by giving effect to such final and binding determinations. If an Earnout Payment is due to be paid to the Sellers then the Buyer and the Representative shall cause the Earnout Escrow Agent to pay by wire transfer of immediately available funds to the Representative from the Earnout Escrow Amount within two (2) Business Days following the Settlement Date, an amount equal to the Earnout Payment up to the Earnout Escrow Amount. If the Earnout Escrow Amount is less than the Earnout Payment then the Buyer shall pay by wire transfer of immediately available funds to the Representative the amount of such excess within two (2) Business Days following the Settlement Date. If the Earnout Escrow Amount is greater than the Earnout Payment then any remaining balance of the Earnout Escrow Amount shall be released to the Buyer pursuant to the Earnout Escrow Agreement and the terms Representative shall join Buyer in instructing the Earnout Escrow Agent to pay any such remaining balance to Buyer from the Earnout Escrow Amount within two (2) Business Days following the Settlement Date.
(e) The Buyer shall make reasonably available to the Independent Auditor all relevant Books and Records relating to the Group, as reasonably requested by the Independent Auditor and shall use commercially reasonable efforts to cooperate with the Independent Auditor in resolving any disputed matters.
(f) The parties agree that, from and after the Closing, the provisions of this Section 2.4 and the arbitration and the arbitration provisions contemplated in this Section 2.4 shall be the exclusive remedy and exclusive forum of the parties with respect to the Earnout Payment contemplated in this Section 2.4, provided, however, that if a party fails to timely pay any sums required to be paid by it pursuant to this Section 2.4 the dispute resolution provisions of Article 9 of this Agreement shall apply.
(g) After the Closing and through December 31, 2015, the Buyer shall cause the Group to be operated as a stand-alone business with unaudited consolidated financial statements of the Group being prepared in accordance with GAAP and consistent with Schedule IV on a stand-alone basis and on a basis consistent with the prior practices of the Group and shall not take any action with respect to the Group that would be reasonably likely to result in EBITDA to be calculated on a basis other that as is consistent with prior practices. Specifically, the following items will not be taken into account in the calculation of EBITDA:
(i) all general administrative overhead costs, expenses or charges incurred by the Buyer that are not in connection with the operations or business of the Group, including all (1) fees of the Buyer arising in connection with the transactions contemplated by this Agreement, management fees or similar fees or other corporate charges and (2) costs, expenses and charges related to (x) employees providing joint or shared services to the Group and the Buyer or any of the Buyer’s Affiliates, (y) space or facilities shared or jointly used by the Group and the Buyer or any of the Buyer’s Affiliates and (z) the cost to the Buyer to fund its portion of the cost of the “tail” insurance policy referenced in Section 8.2(b)(ii) hereof; provided, that, (A) specific administrative, operating and other costs, expenses and charges that are for the benefit of the Group that are directly incurred by the Group or otherwise paid by the Buyer (or an Affiliate of the Buyer) and allocated to the Group shall be taken into account on a pro rata basis between the Group and the Buyer and (B) costs for billable technicians of the Buyer may be charged to the Group at cost only for such time that is actually billable by the Group to the Group’s customer and shall be taken into account in the calculation of EBITDA subject to any other applicable exclusions or adjustments set forth herein;
(ii) all non-cash expenses, charges, losses or other liabilities related to (1) the write-down or write-off of any intangible asset of the Group as a result of the impairment thereof; (2) non-cash compensation expenses that arise solely as a result of the Buyer’s or its Affiliates’ compensation policies implemented with respect to the Group after the Closing, and (3) purchase accounting adjustments;
(iii) all non-cash income related to the release or reversal of any reserves that existed on the Balance Sheet as at December 31, 2014;
(iv) expenses, charges or other losses (i) incurred in Exhibit H.connection with the preparation and completion of the Working Capital Adjustment and the Earnout Statement or arbitration, litigation, other dispute resolution or other costs arising out of disputes relating to this Agreement or (ii) for which the Buyer or any of its Subsidiaries (including the Group) have received insurance recovery;
(v) all income and expenses related to the Settled Matter;
(vi) all transaction or exit bonuses, option expenses and other costs and fees paid at the Closing by the Group;
(vii) all incremental costs and expenses of the Group or the Buyer incurred by reason of the Buyer’s being a subsidiary of a publicly traded company, including any fees paid to accountants, auditors and lawyers, necessary for the Buyer to cause the Group to comply with the rules and standards of the Public Company Accounting Oversight Board and other Laws and exchange requirements relating to being publicly traded company;
(viii) any extraordinary gain or loss, including (without limitation) any gain or loss from any sale, exchange, or other disposition of assets (tangible or intangible) outside of the ordinary course of the business of the Group; or
(ix) any decrease in profitability of the Group resulting from such actions as increases in employee compensation or benefits, increases in personnel, purchases or rental of assets, in each case not in the Ordinary Course of Business, write-offs and customer discounts not in the Ordinary Course of Business, delays in collections from customers not in the Ordinary Course of Business or similar changes from the Ordinary Course of Business.
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