Earn-Out Consideration. Following the Closing, as additional consideration for the transactions contemplated by this Agreement and the Related Agreements, Purchaser shall pay or cause to be paid to the Sellers, in cash, the amounts, if any, as determined in accordance with this Section 1.07: (a) Within ninety (90) days following the completion of each of Parent’s fiscal years 2023 and 2024 (each, an “Annual Earn-Out Period”), Purchaser shall deliver to the Sellers’ Representative its good faith calculation of (i) the Company Revenue and the Company Margin for such Annual Earn-Out Period and the resulting calculation of the Earn-Out Payment, if any, for such Annual Earn-Out Period, as determined in accordance with this Section 1.07, together with reasonably detailed supporting documentation describing how the Company Revenue, the Company Margin and Earn-Out Payment, if applicable, was calculated or otherwise determined (each, the “Earn-Out Statement”). Notwithstanding the foregoing, if the Closing occurs after December 31, 2022, then the first Annual Earn-Out Period shall be the twelve-month period commencing on (i) the Closing Date, if the Closing Date is the first day of a month, or otherwise (ii) the first day of the month following the Closing, and the subsequent Annual Earn-Out Period shall be the twelve-month period immediately following the end of such first Annual Earn-Out Period. (b) As promptly as practicable, but in no event later than sixty (60) calendar days after its receipt of the Earn-Out Statement (the “Earn-Out Review Period”), the Sellers’ Representative shall notify Purchaser in writing whether it accepts or disputes the accuracy of the items contained in the Earn-Out Statement. During the Earn-Out Review Period, the Sellers’ Representative and its Representatives shall be provided with reasonable access at reasonable times during normal business hours to files, records, relevant Personnel and accountants of the Purchaser and Company Group used in preparing the calculations in the Earn-Out Statement as they may reasonably request to respond to the Earn-Out Statement, provided that the Sellers’ Representative and its Representatives shall have entered into a customary confidentiality agreement and any customary access letters reasonably requested by Parent’s or the Company Group’s accounting advisors. If the Sellers’ Representative accepts the Earn-Out Statement or if the Sellers’ Representative fails within the Earn-Out Review Period to notify Purchaser of any dispute with respect thereto, the calculation of the Company Revenue, the Company Margin and Earn-Out Payment contained in the Earn-Out Statement shall be deemed final. If the Sellers’ Representative in good faith disputes the accuracy of any items contained in the Earn-Out Statement, the Sellers’ Representative shall give written notice to Purchaser during the Earn-Out Review Period (the “Earn-Out Dispute Notice”), which shall specify in reasonable detail the reasons for such disagreement and the specific proposed adjustments, including dollar amounts, if known. During the thirty (30) calendar day period following delivery of the Earn-Out Dispute Notice (the “Earn-Out Resolution Period”), the parties shall use commercially reasonable efforts to work together in good faith to resolve any such disagreements. During the Earn-Out Resolution Period, each of Purchaser and the Sellers’ Representative and their respective Representatives shall be provided with such reasonable access at reasonable times to the files, records, relevant Personnel and accountants of the other party (and the Company Group) as it may reasonably request to negotiate and resolve the items set forth in the Earn-Out Dispute Notice, provided that such party and its Representatives shall have entered into a customary confidentiality agreement and any customary access letters reasonably requested by the other party’s accounting advisors. All such discussions and communications related thereto shall (unless otherwise agreed by Purchaser and the Sellers’ Representative) be governed by Rule 408 of the Federal Rules of Evidence and any applicable similar state rule, and any resolution by them agreed to in writing as to any disputed amounts shall be final, binding and conclusive. If the parties resolve their differences over the disputed items in accordance with the foregoing procedure, the amounts agreed upon by them for the Company Revenue, the Company Margin and the Earn-Out Payment, in each case, for such Annual Earn-Out Period, shall be deemed final. If, at the conclusion of the Earn-Out Resolution Period, the Sellers’ Representative and Purchaser are unable to resolve any disputed matters, whether factual or legal, set forth in the Earn-Out Dispute Notice, all unresolved disputed matters raised by the Sellers’ Representative in the Earn-Out Dispute Notice shall be submitted to the Independent Accountant for final resolution. The Independent Accountant shall act in accordance with the standards set forth in Section 1.05(e), which shall apply mutatis mutandis, except that the Independent Accountant shall make its determination in a manner consistent with this Section 1.07 and the definition of “Company Revenue” and “Company Margin” and all other defined terms used in this Section 1.07, as applicable. The Sellers’ Representative and Purchaser shall use their respective commercially reasonable efforts to cause the Independent Accountant to make its determination as soon as possible, but in no event later than forty five (45) calendar days following the date on which the dispute is submitted. Such determination made by the Independent Accountant for such Annual Earn-Out Period shall be final, binding and conclusive upon the parties (absent fraud or manifest error) for purposes of this Section 1.07. All fees and expenses of the Independent Accountant shall be paid by the party with whose determination the Independent Accountant does not agree, based on the aggregate amounts awarded by the Independent Accountant in accordance with the Sellers’ Representative’s position on disputed amounts and the aggregate amounts awarded by the Independent Accountant in accordance with Purchaser’s position on disputed amounts. If a retainer is required by the Independent Accountant, the retainer shall be split equally between Purchaser and the Sellers’ Representative; provided, however, that the retainer shall be considered part of the fees and expenses of such Independent Accountant and if either party has paid a portion of such retainer, such party shall be entitled to be reimbursed by the other party to the extent required by this Section 1.07. (c) The earn-out amount, if any, payable with respect to each Annual Earn-Out Period shall be calculated as follows (each, an “Earn-Out Payment” and, collectively, the “Earn-Out Payments”): (i) for the Annual Earn-Out Period starting in 2023 (the “2023 Earn-Out Period”), (A) if the Company Revenue is less than the amount set forth on Section 1.07(c)(i)(A)(x) of the Disclosure Schedules (the “2023 Revenue Threshold”) or the Company Gross Margin is less than the amount set forth on Section 1.07(c)(i)(A)(y) of the Disclosure Schedules (the “Margin Threshold”), the Earn-Out Payment in respect of such Annual Earn-Out Period shall be $0; (B) if the Company Gross Margin is equal to or greater than the Margin Threshold and the Company Revenue is greater than or equal to the 2023 Revenue Threshold but less than the amount set forth on Section 1.07(c)(i)(B) of the Disclosure Schedules (the “2023 Revenue Target”), the Earn-Out Payment in respect of such Annual Earn-Out Period shall be (x) $30,000,000, plus (y) an additional amount equal to the product of (I) $20,000,000 multiplied by (II) a fraction (which shall not be greater than one (1) nor less than zero (0)), (a) the numerator of which is the amount by which the Company Revenue for such Annual Earn-Out Period exceeds the 2023 Revenue Threshold and (b) the denominator of which is $21,500,000; (C) if the Company Gross Margin is equal to or greater than the Margin Threshold and the Company Revenue is greater than or equal to the 2023 Revenue Target, the Earn-Out Payment in respect of such Annual Earn-Out Period shall be $50,000,000; and (D) the amount, if any, by which the Earn-Out Payment for the 2023 Earn-Out Period is less than $50,000,000 shall be the “2023 Remainder Amount”. (ii) for the Annual Earn-Out Period starting in 2024 (the “2024 Earn-Out Period”), (A) if the Company Revenue is less than the amount set forth on Section 1.07(c)(ii)(A)(x) of the Disclosure Schedules (the “2024 Revenue Threshold”) or the Company Gross Margin is less than the Margin Threshold, the Earn-Out Payment in respect of such Annual Earn-Out Period shall be $0; (B) if the Company Gross Margin is equal to or greater than the Margin Threshold and the Company Revenue is greater than or equal to the 2024 Revenue Threshold but less than the amount set forth on Section 1.07(c)(ii)(B) of the Disclosure Schedules (the “2024 Revenue Target”), the Earn-Out Payment in respect of such Annual Earn-Out Period shall be (x) $30,000,000, plus (y) an additional amount equal to the product of (I) $20,000,000 multiplied by (II) a fraction (which shall not be greater than one (1) nor less than zero (0)), (a) the numerator of which is the amount by which the Company Revenue for such Annual Earn-Out Period exceeds the 2024 Revenue Threshold and (b) the denominator of which is $20,000,000; and (C) if the Company Gross Margin is equal to or greater than the Margin Threshold and the Company Revenue is greater than or equal to the 2024 Revenue Target, the Earn-Out Payment in respect of such Annual Earn-Out Period shall be (x) $50,000,000, plus (y) an amount, if any, equal to the lesser of (I) the product of (A) 0.25 multiplied by (B) the amount, if any, by which the Company Revenue exceeds the 2024 Revenue Target and (II) the 2023 Remainder Amount, if any. (d) Within sixty (60) calendar days after the Earn-Out Payment for each Annual Earn-Out Period is final and binding upon parties pursuant to Section 1.07(b), Purchaser shall pay, or cause to be paid, to the Sellers, by wire transfer of immediately available funds in accordance with the wire transfer instructions designated in writing by the Sellers’ Representative to Purchaser, the Earn-Out Payment payable with respect such Annual Earn-Out Period in accordance with Section 1.07(c) and Section 11.10. For the avoidance of doubt, the maximum amount Purchaser may pay pursuant to this Section 1.07 shall be $100,000,000 in the aggregate. Notwithstanding anything to the contrary in this Agreement, but subject to the Tax Indemnification Cap, in the event that Purchaser (on behalf of Purchaser or any Purchaser Indemnified Parties) has asserted any claim for indemnification under Section 11.04 of this Agreement which is not fully resolved, Purchaser shall be entitled to withhold the lesser of (i) the amount of any such claim and (ii) the aggregate amount remaining under the Tax Indemnification Cap from the payment of any and all Earn-Out Payments otherwise payable (and which thereafter become payable) pursuant to this Section 1.07 until full resolution of such indemnification claim. The provisions of Section 1.08 of Schedule 11.11 are incorporated herein by reference. (e) Any payments made pursuant to this Section 1.07 shall be (i) treated as an adjustment to the Purchase Price for Tax purposes and (ii) composed of an interest element and a principal element, the interest element to be computed and reported consistent with Section 483 of the Code and the Treasury Regulations promulgated thereunder, in each case, except as otherwise required by applicable Law. (f) During each Annual Earn-Out Period, Purchaser shall use reasonable best efforts to cause the books and records of the Company Group to be kept in a manner intended to facilitate the separate recording, compiling and analysis of all information relevant to the determination and calculation of Company Revenue and Company Margin pursuant to this Section 1.07. During each Annual Earn-Out Period, Purchaser shall deliver within forty-five (45) days of the end of each fiscal quarter of Parent an estimated calculation of the Company Revenue and the Company Margin for the previous fiscal quarter of Parent during such Annual Earn-Out Period, provided that such estimates shall solely be illustrative and non-binding and shall have no bearing on the Earn-Out Statement, which shall control in the event of any discrepancy or conflict between any such estimate and the Earn-Out Statement. The parties hereto expressly agree and acknowledge that such quarterly estimates may not be submitted to, or referenced in any information provided to, the Independent Accountant in connection with any dispute relating to the Earn-Out Statement. (g) Notwithstanding anything in this Agreement to the contrary, each Seller acknowledges and agrees that (i) Parent shall have the right to operate its business and the businesses of its Affiliates (including the Company Group) including the Business, in the absolute and sole discretion of Parent and may make all decisions with respect to the Company Group and the Business at the sole discretion of Parent, provided, that Parent shall not take any action or fail to take any action, in bad faith, the primary purpose of which is to reduce, defer, mischaracterize, divert or eliminate Company Revenue or Company Gross Margin for any Annual Earn-Out Period in order to avoid or reduce an Earn-Out Payment, (ii) Parent, Purchaser, the Company Group and their Affiliates have no obligation to operate the Company Group or the Business in order to achieve any Earn-Out Payment or to maximize the amount of any Company Revenue, Company Gross Margin or Earn-Out Payment, (iii) the Earn-Out Payments contemplated herein are speculative and are subject to numerous factors, including numerous factors outside the control of Parent, Purchaser, the Company Group and their Affiliates, (iv) there is no assurance that Sellers will receive any Earn-Out Payment and neither Parent, Purchaser, the Company Group, the Business nor any of their Affiliates has promised or projected payment of any Earn-Out Payment to any Seller or provided, whether written or oral, any assurances or commitments regarding the achievability of an Earn-Out Payment or the likelihood thereof, (v) the contingent right of the Sellers to receive any Earn-Out Payment will not be represented by any certificate or other instrument, is not transferable and is not an investment in Parent, Purchaser, the Company Group or their Affiliates, and such contingent right shall not entitle any Seller to any rights as a shareholder or equityholder of Parent, Purchaser, the Company Group or their Affiliates and (vi) no Person shall be liable to any Seller for any incidental, consequential or punitive damages arising out of any breach of this Section 1.07.
Appears in 1 contract
Earn-Out Consideration. Following the Closing, as As additional consideration for the transactions contemplated Merger, upon the achievement of certain milestones as further described below, Parent shall, subject to the terms of this Section 3.08, pay the Earn-Out Consideration to the applicable Equityholders as set forth on Schedule C under the heading “Earn-Out Consideration”; provided, however, that any amounts payable by Parent pursuant to this Section 3.08 shall be offset and reduced by any amounts deductible from payments to Equityholders (or to the Payments Administrator on their behalf) pursuant to this Agreement (including pursuant to Article X, the Post-Closing Option Payroll Taxes Offset and the Related AgreementsPost-Closing Payments Administrator Fees).
(a) Within five (5) Business Days of receipt of a Regulatory Earn-Out Approval, Purchaser Parent or the Surviving Corporation shall pay deposit, or cause to be deposited, in immediately available funds, with the Payments Administrator the applicable Regulatory Earn-Out Consideration and, immediately thereafter, Parent and the Stockholder Representative shall provide a joint written instruction to the Payments Administrator to deliver such amounts promptly to the applicable Equityholders as a Post-Closing Payment in accordance with this Agreement (except that any amounts due to holders of Company Options shall be remitted to Parent and paid to such holders through payroll less any applicable required Tax withholding); provided that the Sellersapplicable Regulatory Earn-Out Approval has been duly obtained on or before the applicable Regulatory Approval Deadline. If a Regulatory Earn-Out Approval is not obtained on or before the applicable Regulatory Approval Deadline, no amount will be payable in cashrespect of such Regulatory Earn-Out Approval.
(b) Within five (5) Business Days of the amount of Net Sales for each of the years ending December 31, the amounts2020 and December 31, if any2021 becoming conclusive, as determined final and binding on all Parties, in accordance with this Section 1.07:3.07, Parent or the Surviving Corporation shall deposit, or cause to be deposited, in immediately available funds, with the Payments Administrator the applicable amount of the Net Sales Earn-Out Consideration, if any, and, immediately thereafter, Parent and the Stockholder Representative shall provide a joint written instruction to the Payments Administrator to deliver such amount promptly to the applicable Equityholders as a Post-Closing Payment in accordance with this Agreement (except that any amounts due to holders of Company Options shall be remitted to Parent and paid to such holders through payroll less any applicable required Tax withholding).
(ac) Within ninety Subject to the Stockholder Representative’s ongoing compliance with the Stockholder Representative NDA attached hereto as Annex G, until April 30, 2022, Parent shall, within thirty (9030) days following the completion filing of each of Parent’s fiscal years 2023 its Form 10-Q or Form 10-K with the Securities and 2024 Exchange Commission (each, an the “Annual Earn-Out PeriodSEC”) (as applicable), Purchaser shall prepare and deliver to the Sellers’ Stockholder Representative its a good faith calculation of the total Net Sales of each class of Company Products in the applicable calendar quarter in the form set forth on Schedule H (i) the Company Revenue and the Company Margin for such Annual a “Parent Earn-Out Period and Statement”), together with, for the resulting calculation of the Parent Earn-Out PaymentStatements delivered immediately following the filing of its Form 10-K for fiscal years 2020 and 2021 only, if any, for such Annual a statement as to whether any Net Sales Earn-Out Period, as determined Consideration is payable in accordance with this Section 1.07, together with reasonably detailed supporting documentation describing how the Company Revenueconnection therewith and if so, the Company Margin amount thereof; provided that the reports, schedules, forms, statements and other documents filed or furnished by Parent with or to the SEC shall be deemed to satisfy this reporting obligation if such information is disclosed therein. The Parties acknowledge and agree that the Parent Earn-Out PaymentStatement, and the component items and calculations therein, shall be prepared in a manner consistent with the terms (including the definitions) of this Agreement. Following the filing of its Form 10-K in respect of both calendar year 2020 and 2021, if applicablerequested by the Stockholder Representative, was calculated Parent agrees that at least one of the Parent Executives will meet with the Stockholder Representative to discuss the Parent Earn-Out Statement and provide additional information that Parent, in its sole discretion, deems appropriate.
(d) If the Stockholder Representative disputes the calculation of Net Sales set forth in the Parent Earn-Out Statement, then the Stockholder Representative shall deliver to Parent a written notice (an “Earn-Out Dispute Notice”) of any disputes or otherwise determined objections thereto (eachcollectively, the “Earn-Out StatementDisputed Items”). Notwithstanding the foregoing, if the Closing occurs after December 31, 2022, then the first Annual ) with reasonable supporting detail as to such Earn-Out Period shall be the twelve-month period commencing on Disputed Items within twenty (i20) the Closing Date, if the Closing Date is the first day Business Days of a month, or otherwise (ii) the first day of the month following the Closing, and the subsequent Annual Earn-Out Period shall be the twelve-month period immediately following the end of such first Annual Earn-Out Period.
(b) As promptly as practicable, but in no event later than sixty (60) calendar days after its receipt of the Parent Earn-Out Statement (such period, the “Earn-Out Review Period”), .
(e) If the Sellers’ Stockholder Representative shall notify Purchaser in writing whether it accepts or disputes the accuracy of the items contained in the fails to deliver to Parent an Earn-Out Statement. During the Earn-Out Review Period, the Sellers’ Representative and its Representatives shall be provided with reasonable access at reasonable times during normal business hours to files, records, relevant Personnel and accountants of the Purchaser and Company Group used in preparing the calculations in the Earn-Out Statement as they may reasonably request to respond Dispute Notice prior to the Earn-Out Statement, provided that the Sellers’ Representative and its Representatives shall have entered into a customary confidentiality agreement and any customary access letters reasonably requested by Parent’s or the Company Group’s accounting advisors. If the Sellers’ Representative accepts the Earn-Out Statement or if the Sellers’ Representative fails within expiration of the Earn-Out Review Period or otherwise earlier notifies Parent in writing that the Stockholder Representative has no disputes or objections to notify Purchaser of any dispute with respect thereto, the calculation of the Company Revenue, the Company Margin and Parent Earn-Out Payment contained Statement, the amount of Net Sales set forth in the Parent Earn-Out Statement shall be deemed final. If the Sellers’ Representative in good faith disputes the accuracy of any items contained in the Earn-Out Statementconclusive, the Sellers’ Representative shall give written notice to Purchaser during the Earn-Out Review Period final and binding on all Parties absent manifest error.
(the “Earn-Out Dispute Notice”), which shall specify in reasonable detail the reasons for such disagreement f) Parent and the specific proposed adjustmentsStockholder Representative shall, including dollar amounts, if known. During for a period of ten (10) Business Days (or such longer period as Parent and the thirty (30Stockholder Representative may agree in writing) calendar day period following delivery of the an Earn-Out Dispute Notice to Parent (the “Earn-Out Resolution Period”), the parties shall use commercially reasonable efforts to work together attempt in good faith to resolve their differences, and any such disagreements. During the resolution by them as to any Earn-Out Resolution PeriodDisputed Items shall be conclusive, each of Purchaser final and binding on all Parties absent manifest error. Any Earn-Out Disputed Items agreed to by Parent and the Sellers’ Stockholder Representative and their respective Representatives shall be provided in writing, together with such reasonable access at reasonable times to the files, records, relevant Personnel and accountants of the other party (and the Company Group) as it may reasonably request to negotiate and resolve the any items or calculations set forth in the Parent Earn-Out Statement not disputed or objected to by the Stockholder Representative in the Earn-Out Dispute Notice, provided that such party and its Representatives shall have entered into a customary confidentiality agreement and any customary access letters reasonably requested by are collectively referred to herein as the other party’s accounting advisors. All such discussions and communications related thereto shall (unless otherwise agreed by Purchaser and the Sellers’ Representative) be governed by Rule 408 of the Federal Rules of Evidence and any applicable similar state rule, and any resolution by them agreed to in writing as to any disputed amounts shall be final, binding and conclusive. If the parties resolve their differences over the disputed items in accordance with the foregoing procedure, the amounts agreed upon by them for the Company Revenue, the Company Margin and the “Earn-Out Payment, in each case, for such Annual Resolved Matters”. Any Earn-Out Period, Resolved Matters shall be deemed finalconclusive, final and binding on all Parties absent manifest error, except to the extent such component could be affected by other components of the calculations set forth in the Parent Earn-Out Statement that are the subject of an Earn-Out Dispute Notice. If, If at the conclusion end of the Earn-Out Resolution Period, Parent and the Sellers’ Stockholder Representative and Purchaser are have been unable to resolve any disputed matters, whether factual or legal, set forth differences that they may have with respect to the matters specified in the Earn-Out Dispute Notice, all unresolved disputed matters raised by either of Parent or the Sellers’ Stockholder Representative in the Earn-Out Dispute Notice shall be submitted may, upon written notice to the Independent Accountant for final resolution. The Independent Accountant shall act other, refer all matters that remain in accordance with the standards set forth in Section 1.05(e), which shall apply mutatis mutandis, except that the Independent Accountant shall make its determination in a manner consistent with this Section 1.07 and the definition of “Company Revenue” and “Company Margin” and all other defined terms used in this Section 1.07, as applicable. The Sellers’ Representative and Purchaser shall use their respective commercially reasonable efforts to cause the Independent Accountant to make its determination as soon as possible, but in no event later than forty five (45) calendar days following the date on which the dispute is submitted. Such determination made by the Independent Accountant for such Annual Earn-Out Period shall be final, binding and conclusive upon the parties (absent fraud or manifest error) for purposes of this Section 1.07. All fees and expenses of the Independent Accountant shall be paid by the party with whose determination the Independent Accountant does not agree, based on the aggregate amounts awarded by the Independent Accountant in accordance with the Sellers’ Representative’s position on disputed amounts and the aggregate amounts awarded by the Independent Accountant in accordance with Purchaser’s position on disputed amounts. If a retainer is required by the Independent Accountant, the retainer shall be split equally between Purchaser and the Sellers’ Representative; provided, however, that the retainer shall be considered part of the fees and expenses of such Independent Accountant and if either party has paid a portion of such retainer, such party shall be entitled to be reimbursed by the other party to the extent required by this Section 1.07.
(c) The earn-out amount, if any, payable with respect to each Annual Earn-Out Period shall the Dispute Notice to be calculated as follows (eachexclusively and definitively resolved, an “Earn-Out Payment” and, collectively, the “Earn-Out Payments”):
(i) for the Annual Earn-Out Period starting in 2023 (the “2023 Earn-Out Period”),
(A) if the Company Revenue is less than the amount set forth on Section 1.07(c)(i)(A)(x) of the Disclosure Schedules (the “2023 Revenue Threshold”) or the Company Gross Margin is less than the amount set forth on Section 1.07(c)(i)(A)(y) of the Disclosure Schedules (the “Margin Threshold”), the Earn-Out Payment in respect of such Annual Earn-Out Period shall be $0;
(B) if the Company Gross Margin is equal without any recourse to or greater than the Margin Threshold and the Company Revenue is greater than or equal to the 2023 Revenue Threshold but less than the amount set forth on Section 1.07(c)(i)(B) of the Disclosure Schedules (the “2023 Revenue Target”), the Earn-Out Payment in respect of such Annual Earn-Out Period shall be (x) $30,000,000, plus (y) an additional amount equal to the product of (I) $20,000,000 multiplied by (II) a fraction (which shall not be greater than one (1) nor less than zero (0)), (a) the numerator of which is the amount by which the Company Revenue for such Annual Earn-Out Period exceeds the 2023 Revenue Threshold and (b) the denominator of which is $21,500,000;
(C) if the Company Gross Margin is equal to or greater than the Margin Threshold and the Company Revenue is greater than or equal to the 2023 Revenue Target, the Earn-Out Payment in respect of such Annual Earn-Out Period shall be $50,000,000; and
(D) the amount, if anyappeal, by which the Earn-Out Payment for the 2023 Earn-Out Period is less than $50,000,000 shall be the “2023 Remainder Amount”.
(ii) for the Annual Earn-Out Period starting in 2024 (the “2024 Earn-Out Period”),
(A) if the Company Revenue is less than the amount set forth on Section 1.07(c)(ii)(A)(x) of the Disclosure Schedules (the “2024 Revenue Threshold”) or the Company Gross Margin is less than the Margin Threshold, the Earn-Out Payment in respect of such Annual Earn-Out Period shall be $0;
(B) if the Company Gross Margin is equal to or greater than the Margin Threshold and the Company Revenue is greater than or equal to the 2024 Revenue Threshold but less than the amount set forth on Section 1.07(c)(ii)(B) of the Disclosure Schedules (the “2024 Revenue Target”), the Earn-Out Payment in respect of such Annual Earn-Out Period shall be (x) $30,000,000, plus (y) an additional amount equal to the product of (I) $20,000,000 multiplied by (II) a fraction (which shall not be greater than one (1) nor less than zero (0)), (a) the numerator of which is the amount by which the Company Revenue for such Annual Earn-Out Period exceeds the 2024 Revenue Threshold and (b) the denominator of which is $20,000,000; and
(C) if the Company Gross Margin is equal to or greater than the Margin Threshold and the Company Revenue is greater than or equal to the 2024 Revenue Target, the Earn-Out Payment in respect of such Annual Earn-Out Period shall be (x) $50,000,000, plus (y) an amount, if any, equal to the lesser of (I) the product of (A) 0.25 multiplied by (B) the amount, if any, by which the Company Revenue exceeds the 2024 Revenue Target and (II) the 2023 Remainder Amount, if any.
(d) Within sixty (60) calendar days after the Earn-Out Payment for each Annual Earn-Out Period is final and binding upon parties arbitration pursuant to Section 1.07(b3.08(g), Purchaser shall pay, or cause to be paid, to the Sellers, by wire transfer of immediately available funds in accordance with the wire transfer instructions designated in writing by the Sellers’ Representative to Purchaser, the Earn-Out Payment payable with respect such Annual Earn-Out Period in accordance with Section 1.07(c) and Section 11.10. For the avoidance of doubt, the maximum amount Purchaser may pay pursuant to this Section 1.07 shall be $100,000,000 in the aggregate. Notwithstanding anything to the contrary in this Agreement, but subject to the Tax Indemnification Cap, in the event that Purchaser (on behalf of Purchaser or any Purchaser Indemnified Parties) has asserted any claim for indemnification under Section 11.04 of this Agreement which is not fully resolved, Purchaser shall be entitled to withhold the lesser of (i) the amount of any such claim and (ii) the aggregate amount remaining under the Tax Indemnification Cap from the payment of any and all Earn-Out Payments otherwise payable (and which thereafter become payable) pursuant to this Section 1.07 until full resolution of such indemnification claim. The provisions of Section 1.08 of Schedule 11.11 are incorporated herein by reference.
(e) Any payments made pursuant to this Section 1.07 shall be (i) treated as an adjustment to the Purchase Price for Tax purposes and (ii) composed of an interest element and a principal element, the interest element to be computed and reported consistent with Section 483 of the Code and the Treasury Regulations promulgated thereunder, in each case, except as otherwise required by applicable Law.
(f) During each Annual Earn-Out Period, Purchaser shall use reasonable best efforts to cause the books and records of the Company Group to be kept in a manner intended to facilitate the separate recording, compiling and analysis of all information relevant to the determination and calculation of Company Revenue and Company Margin pursuant to this Section 1.07. During each Annual Earn-Out Period, Purchaser shall deliver within forty-five (45) days of the end of each fiscal quarter of Parent an estimated calculation of the Company Revenue and the Company Margin for the previous fiscal quarter of Parent during such Annual Earn-Out Period, provided that such estimates shall solely be illustrative and non-binding and shall have no bearing on the Earn-Out Statement, which shall control in the event of any discrepancy or conflict between any such estimate and the Earn-Out Statement. The parties hereto expressly agree and acknowledge that such quarterly estimates may not be submitted to, or referenced in any information provided to, the Independent Accountant in connection with any dispute relating to the Earn-Out Statement.
(g) Notwithstanding anything in this Agreement to the contrary, each Seller acknowledges and agrees that (i) Parent shall have the right to operate its business and the businesses of its Affiliates (including the Company Group) including the Business, in the absolute and sole discretion of Parent and may make all decisions with respect to the Company Group and the Business at the sole discretion of Parent, provided, that Parent shall not take any action or fail to take any action, in bad faith, the primary purpose of which is to reduce, defer, mischaracterize, divert or eliminate Company Revenue or Company Gross Margin for any Annual Any Earn-Out Period in order to avoid or reduce an Earn-Out PaymentArbitration shall be instituted and conducted in, (ii) Parent, Purchaserand its seat shall be, the Company Group and their Affiliates have no obligation to operate city of New York, New York, where the Company Group or arbitration award shall be rendered. The arbitration shall be administered by the Business in order to achieve any Earn-Out Payment or to maximize the amount International Court of any Company Revenue, Company Gross Margin or Earn-Out Payment, (iii) the Earn-Out Payments contemplated herein are speculative and are subject to numerous factors, including numerous factors outside the control of Parent, Purchaser, the Company Group and their Affiliates, (iv) there is no assurance that Sellers will receive any Earn-Out Payment and neither Parent, Purchaser, the Company Group, the Business nor any of their Affiliates has promised or projected payment of any Earn-Out Payment to any Seller or provided, whether written or oral, any assurances or commitments regarding the achievability of an Earn-Out Payment or the likelihood thereof, (v) the contingent right Arbitration of the Sellers to receive any Earn-Out Payment will not be represented International Chamber of Commerce (“ICC”) in accordance with the Rules of Arbitration of the ICC (“Arbitration Rules”), as in effect as of the date of commencement of the arbitration, as modified by any certificate this Agreement or other instrument, is not transferable and is not an investment in Parent, Purchaser, mutual agreement of the Company Group or their Affiliates, and such contingent right shall not entitle any Seller to any rights as a shareholder or equityholder of Parent, Purchaser, the Company Group or their Affiliates and (vi) no Person Parties. The arbitration shall be liable to any Seller for any incidentalconducted in the English language, consequential though documents or punitive damages arising out testimony may be submitted in other languages if a translation is provided. The arbitration panel shall be composed of any breach of this Section 1.07.three (3) arbitrators. The first (1st) arbitrator shall be nominated by the claimant and the second (2nd) arbitrator shall be nominated by the respondent, each in accordance with Article 12
Appears in 1 contract
Sources: Agreement and Plan of Merger (Anika Therapeutics, Inc.)
Earn-Out Consideration. Following the Closing, as additional consideration for the transactions contemplated by this Agreement and the Related Agreements, Purchaser shall pay or cause to be paid to the Sellers, in cash, the amounts, if any, as determined in accordance with this Section 1.07:
(ai) Within ninety sixty (9060) days following of the completion end of each of Parent’s the fiscal years 2023 and 2024 ending December 31, 2015 (each, an the “Annual Earn-Out Period2015 Fiscal Year”), Purchaser shall deliver to the Sellers’ Representative its good faith calculation of (i) the Company Revenue and the Company Margin for such Annual Earn-Out Period 2016 Fiscal Year (the 2015 Fiscal Year and the resulting calculation of the Earn-Out Payment, if any, for such Annual Earn-Out Period, as determined in accordance with this Section 1.07, together with reasonably detailed supporting documentation describing how the Company Revenue, the Company Margin and Earn-Out Payment, if applicable, was calculated or otherwise determined (each2016 Fiscal Year, the “Earn-Out Fiscal Years”), Parent shall deliver to the Stockholder Representative a statement (the “Preliminary Revenue Statement”) showing the amount of Company Revenue for such Earn-Out Fiscal Year, and the excess, if any, over the Revenue Target. For the purposes of this Agreement, the “Revenue Target” shall be: (a) with respect to the 2015 Fiscal Year, an amount equal to Company Revenues as set forth in the Company’s 2014 Audited Financial Statements; and (b) with respect to the 2016 Fiscal Year, the greater of (x) the Revenue Target for the 2015 Fiscal Year and (y) Company Revenues for the 2015 Fiscal Year. The Preliminary Revenue Statement shall be certified by the chief financial officer of Parent or another senior executive officer of Parent, in such officer’s capacity as an officer and not is his capacity as an individual, to have been calculated in a manner consistent with GAAP and the Company’s practices for determining revenue prior to the Closing.
(ii) Following the delivery of the Preliminary Revenue Statement to the Stockholder Representative, Parent and the Surviving Corporation shall afford the Stockholder Representative the opportunity to examine the Preliminary Revenue Statement, and such supporting schedules, analyses, work papers and other underlying records or documentation as are reasonably necessary and appropriate.
(iii) If within ten (10) days following delivery of the Preliminary Revenue Statement or the MIST Payments to the Stockholder Representative, the Stockholder Representative has not delivered to Parent written notice (the “Earn Out Objection Notice”) of its objections to the Preliminary Revenue Statement or MIST Payments specifying (i) those items as to which there is disagreement and (ii) a reasonably detailed description of the basis, nature, dollar amount and extent of the dispute or disagreement, then the Preliminary Revenue Statement and MIST Payments shall be deemed final and conclusive (the “Final Revenue Statement”). Notwithstanding If the foregoing, if Stockholder Representative delivers the Closing occurs after December 31, 2022Earn Out Objection Notice within such 10-day period, then the first Annual Earn-Out Period shall be the twelve-month period commencing on (i) the Closing Date, if the Closing Date is the first day of a month, or otherwise (ii) the first day of the month following the Closing, Parent and the subsequent Annual Earn-Out Period shall be the twelve-month period immediately following the end of such first Annual Earn-Out Period.
(b) As promptly as practicable, but in no event later than sixty (60) calendar days after its receipt of the Earn-Out Statement (the “Earn-Out Review Period”), the Sellers’ Stockholder Representative shall notify Purchaser in writing whether it accepts or disputes the accuracy of the items contained in the Earn-Out Statement. During the Earn-Out Review Period, the Sellers’ Representative and its Representatives shall be provided with reasonable access at reasonable times during normal business hours to files, records, relevant Personnel and accountants of the Purchaser and Company Group used in preparing the calculations in the Earn-Out Statement as they may reasonably request to respond to the Earn-Out Statement, provided that the Sellers’ Representative and its Representatives shall have entered into a customary confidentiality agreement and any customary access letters reasonably requested by Parent’s or the Company Group’s accounting advisors. If the Sellers’ Representative accepts the Earn-Out Statement or if the Sellers’ Representative fails within the Earn-Out Review Period to notify Purchaser of any dispute with respect thereto, the calculation of the Company Revenue, the Company Margin and Earn-Out Payment contained in the Earn-Out Statement shall be deemed final. If the Sellers’ Representative in good faith disputes the accuracy of any items contained in the Earn-Out Statement, the Sellers’ Representative shall give written notice to Purchaser during the Earn-Out Review Period (the “Earn-Out Dispute Notice”), which shall specify in reasonable detail the reasons for such disagreement and the specific proposed adjustments, including dollar amounts, if known. During the thirty (30) calendar day period following delivery of the Earn-Out Dispute Notice (the “Earn-Out Resolution Period”), the parties shall use commercially reasonable efforts to work together endeavor in good faith to resolve the objections, for a period not to exceed fifteen (15) days from the date of delivery of the Earn Out Objection Notice. If at the end of the fifteen (15) day period there are any objections that remain in dispute, then the remaining objections in dispute shall be submitted for resolution to the Independent Accountant. The Independent Accountant, acting as experts and not as arbitrators, shall determine any unresolved items of Company Revenue or MIST Payments within thirty (30) days after the objections that remain in dispute are submitted to it. If any such disagreements. During the Earn-Out Resolution Period, each of Purchaser and the Sellers’ Representative and their respective Representatives shall be provided with such reasonable access at reasonable times to the files, records, relevant Personnel and accountants of the other party (and the Company Group) as it may reasonably request to negotiate and resolve the items set forth in the Earn-Out Dispute Notice, provided that such party and its Representatives shall have entered into a customary confidentiality agreement and any customary access letters reasonably requested by the other party’s accounting advisors. All such discussions and communications related thereto shall (unless otherwise agreed by Purchaser and the Sellers’ Representative) be governed by Rule 408 of the Federal Rules of Evidence and any applicable similar state rule, and any resolution by them agreed to in writing as to any disputed amounts shall be final, binding and conclusive. If the parties resolve their differences over the disputed items in accordance with the foregoing procedure, the amounts agreed upon by them for the Company Revenue, the Company Margin and the Earn-Out Payment, in each case, for such Annual Earn-Out Period, shall be deemed final. If, at the conclusion of the Earn-Out Resolution Period, the Sellers’ Representative and Purchaser remaining objections are unable to resolve any disputed matters, whether factual or legal, set forth in the Earn-Out Dispute Notice, all unresolved disputed matters raised by the Sellers’ Representative in the Earn-Out Dispute Notice shall be submitted to the Independent Accountant for final resolution. The , (i) each party shall furnish to the Independent Accountant such work papers and other documents and information relating to such objections as the Independent Accountant may reasonably request and are available to that party, and shall act be afforded the opportunity to present to the Independent Accountant any material relating to the determination of the matters in accordance dispute and to discuss such determination with the standards set forth Independent Accountant, (ii) to the extent that a value has been assigned to any objection that remains in Section 1.05(e)dispute, which shall apply mutatis mutandis, except that the Independent Accountant shall make its not assign a value to such objection that is greater than the greatest value for such objection claimed by either party or less than the smallest value for such objection claimed by either party, (iii) the determination in a manner consistent with this Section 1.07 and the definition of “Company Revenue” and “Company Margin” and all other defined terms used in this Section 1.07, as applicable. The Sellers’ Representative and Purchaser shall use their respective commercially reasonable efforts to cause the Independent Accountant to make its determination as soon as possible, but in no event later than forty five (45) calendar days following the date on which the dispute is submitted. Such determination made by the Independent Accountant for of such Annual Earn-Out Period unresolved items of Company Revenue or MIST Payments, as set forth in a written notice delivered to Parent and the Stockholder Representative by the Independent Accountant, shall be final, made in accordance with this Agreement and shall be deemed the Final Revenue Statement or MIST Payment and binding and conclusive upon on the parties absent manifest error or fraud, and (absent fraud or manifest erroriv) for purposes of this Section 1.07. All the fees and expenses of the Independent Accountant shall be paid by the party with whose determination calculation of Company Revenue or MIST Payment deviated the Independent Accountant does not agreemost from the Company Revenue or MIST Payment, based on as the aggregate amounts awarded by the Independent Accountant in accordance with the Sellers’ Representative’s position on disputed amounts and the aggregate amounts awarded by the Independent Accountant in accordance with Purchaser’s position on disputed amounts. If a retainer is required case may be, as determined by the Independent Accountant.
(iv) Provided that the Company Revenue (as shown on the Final Revenue Statement) for an Earn-Out Fiscal Year exceeds the Revenue Target (the amount of such excess, the retainer “Excess Revenue”), then Parent shall, as soon as reasonably practicable, deliver to the Exchange Agent (i) a number of Parent Shares that is equal to the quotient of (A) a fraction the numerator of which is (x) the Excess Revenue multiplied by (y) three and one-half and the denominator of which is (z) two and (B) the Parent Volume Weighted Average Price, and such number of shares shall be split equally between Purchaser the “Earn-Out Shares”; and (ii) cash equal to the Sellers’ Representativeproduct of (A)(1) the Excess Revenue multiplied by (2) three and one-half divided by (B) two (the “Earn-Out Cash” and together with the Earn-Out Shares, the “Earn-Out Consideration”); provided, however, that in no event shall the retainer shall be considered part maximum number of the fees Parent Shares so delivered and expenses of such Independent Accountant and if either party has paid a portion of such retainer, such party shall be entitled to be reimbursed by the other party to the extent required by this Section 1.07.
(c) The earnconstituting Earn-out amount, if any, payable with respect to each Annual Earn-Out Period shall be calculated as follows Consideration and MIST Shares exceed 9,500,000 Parent Shares (each, an “Earn-Out Payment” and, collectively, the “Earn-Out PaymentsShares Cap”):
(i) for ); provided further, however, in the Annual event that the number of Earn-Out Period starting in 2023 (the “2023 Earn-Out Period”),
(A) if the Company Revenue is less than the amount set forth on Section 1.07(c)(i)(A)(x) of the Disclosure Schedules (the “2023 Revenue Threshold”) or the Company Gross Margin is less than the amount set forth on Section 1.07(c)(i)(A)(y) of the Disclosure Schedules (the “Margin Threshold”), Shares exceeds the Earn-Out Payment in respect of such Annual Earn-Out Period Shares Cap, then Parent shall be $0;
(B) if the Company Gross Margin is equal to or greater than the Margin Threshold and the Company Revenue is greater than or equal deliver to the 2023 Revenue Threshold but less than the Exchange Agent an amount set forth on Section 1.07(c)(i)(B) of the Disclosure Schedules (the “2023 Revenue Target”), the Earn-Out Payment in respect of such Annual Earn-Out Period shall be (x) $30,000,000, plus (y) an additional amount cash equal to the product of (I) $20,000,000 multiplied by (II) a fraction (which shall not be greater than one (1) nor less than zero (0)), (a) the numerator that portion of which is the amount by which the Company Revenue for such Annual Earn-Out Period exceeds the 2023 Revenue Threshold and (b) the denominator of which is $21,500,000;
(C) if the Company Gross Margin is equal to or greater than the Margin Threshold and the Company Revenue is greater than or equal to the 2023 Revenue Target, the Earn-Out Payment Shares in respect excess of such Annual Earn-Out Period shall be $50,000,000; and
(D) the amount, if any, by which the Earn-Out Payment for Shares Cap and (II) Parent Volume Weighted Average Price, but in no event shall any cash payments exceed the 2023 Earn-Out Period is less than $50,000,000 shall be the “2023 Remainder Amount”.
(ii) for the Annual Earn-Out Period starting in 2024 (the “2024 Earn-Out Period”),
(A) if the Company Revenue is less than the amount limitation set forth on in Section 1.07(c)(ii)(A)(x2.19. The Exchange Agent shall, no later than ten (10) Business Days after receipt of the Disclosure Schedules (the “2024 Revenue Threshold”) or the Company Gross Margin is less than the Margin Threshold, the Earn-Out Payment in respect of such Annual Earn-Out Period shall be $0;
(B) if the Company Gross Margin is equal to or greater than the Margin Threshold and the Company Revenue is greater than or equal Consideration, deliver to the 2024 Revenue Threshold but less than the amount set forth on Section 1.07(c)(ii)(B) of the Disclosure Schedules (the “2024 Revenue Target”)Stockholders, Optionholders and Warrantholders the Earn-Out Payment in respect of such Annual Earn-Out Period shall be (x) $30,000,000, plus (y) an additional amount equal to the product of (I) $20,000,000 multiplied by (II) Consideration on a fraction (which shall not be greater than one (1) nor less than zero (0)), (a) the numerator of which is the amount by which the Company Revenue for such Annual Earn-Out Period exceeds the 2024 Revenue Threshold and (b) the denominator of which is $20,000,000; and
(C) if the Company Gross Margin is equal to or greater than the Margin Threshold and the Company Revenue is greater than or equal to the 2024 Revenue Target, the Earn-Out Payment in respect of such Annual Earn-Out Period shall be (x) $50,000,000, plus (y) an amount, if any, equal to the lesser of (I) the product of (A) 0.25 multiplied by (B) the amount, if any, by which the Company Revenue exceeds the 2024 Revenue Target and (II) the 2023 Remainder Amount, if anyPro Rata Share basis.
(d) Within sixty (60) calendar days after the Earn-Out Payment for each Annual Earn-Out Period is final and binding upon parties pursuant to Section 1.07(b), Purchaser shall pay, or cause to be paid, to the Sellers, by wire transfer of immediately available funds in accordance with the wire transfer instructions designated in writing by the Sellers’ Representative to Purchaser, the Earn-Out Payment payable with respect such Annual Earn-Out Period in accordance with Section 1.07(c) and Section 11.10. For the avoidance of doubt, the maximum amount Purchaser may pay pursuant to this Section 1.07 shall be $100,000,000 in the aggregate. Notwithstanding anything to the contrary in this Agreement, but subject to the Tax Indemnification Cap, in the event that Purchaser (on behalf of Purchaser or any Purchaser Indemnified Parties) has asserted any claim for indemnification under Section 11.04 of this Agreement which is not fully resolved, Purchaser shall be entitled to withhold the lesser of (i) the amount of any such claim and (ii) the aggregate amount remaining under the Tax Indemnification Cap from the payment of any and all Earn-Out Payments otherwise payable (and which thereafter become payable) pursuant to this Section 1.07 until full resolution of such indemnification claim. The provisions of Section 1.08 of Schedule 11.11 are incorporated herein by reference.
(e) Any payments made pursuant to this Section 1.07 shall be (i) treated as an adjustment to the Purchase Price for Tax purposes and (ii) composed of an interest element and a principal element, the interest element to be computed and reported consistent with Section 483 of the Code and the Treasury Regulations promulgated thereunder, in each case, except as otherwise required by applicable Law.
(f) During each Annual Earn-Out Period, Purchaser shall use reasonable best efforts to cause the books and records of the Company Group to be kept in a manner intended to facilitate the separate recording, compiling and analysis of all information relevant to the determination and calculation of Company Revenue and Company Margin pursuant to this Section 1.07. During each Annual Earn-Out Period, Purchaser shall deliver within forty-five (45) days of the end of each fiscal quarter of Parent an estimated calculation of the Company Revenue and the Company Margin for the previous fiscal quarter of Parent during such Annual Earn-Out Period, provided that such estimates shall solely be illustrative and non-binding and shall have no bearing on the Earn-Out Statement, which shall control in the event of any discrepancy or conflict between any such estimate and the Earn-Out Statement. The parties hereto expressly agree and acknowledge that such quarterly estimates may not be submitted to, or referenced in any information provided to, the Independent Accountant in connection with any dispute relating to the Earn-Out Statement.
(g) Notwithstanding anything in this Agreement to the contrary, each Seller acknowledges and agrees that (i) Parent shall have the right to operate its business and the businesses of its Affiliates (including the Company Group) including the Business, in the absolute and sole discretion of Parent and may make all decisions with respect to the Company Group and the Business at the sole discretion of Parent, provided, that Parent shall not take any action or fail to take any action, in bad faith, the primary purpose of which is to reduce, defer, mischaracterize, divert or eliminate Company Revenue or Company Gross Margin for any Annual Earn-Out Period in order to avoid or reduce an Earn-Out Payment, (ii) Parent, Purchaser, the Company Group and their Affiliates have no obligation to operate the Company Group or the Business in order to achieve any Earn-Out Payment or to maximize the amount of any Company Revenue, Company Gross Margin or Earn-Out Payment, (iii) the Earn-Out Payments contemplated herein are speculative and are subject to numerous factors, including numerous factors outside the control of Parent, Purchaser, the Company Group and their Affiliates, (iv) there is no assurance that Sellers will receive any Earn-Out Payment and neither Parent, Purchaser, the Company Group, the Business nor any of their Affiliates has promised or projected payment of any Earn-Out Payment to any Seller or provided, whether written or oral, any assurances or commitments regarding the achievability of an Earn-Out Payment or the likelihood thereof, (v) the contingent right of the Sellers to receive any Earn-Out Payment will not be represented by any certificate or other instrument, is not transferable and is not an investment in Parent, Purchaser, the Company Group or their Affiliates, and such contingent right shall not entitle any Seller to any rights as a shareholder or equityholder of Parent, Purchaser, the Company Group or their Affiliates and (vi) no Person shall be liable to any Seller for any incidental, consequential or punitive damages arising out of any breach of this Section 1.07.
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